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2010 DIGILAW 237 (KAR)

Commissioner of Income Tax v. Indo Nissin Foods

2010-02-24

B.V.NAGARATHNA, K.L.MANJUNATH

body2010
Judgment :- Manjunath, J. The revenue has come up in these appeals challenging the legality and the correctness of the order passed by the Income Tax Appellate Tribunal, Bangalore in regard to setting aside the order of penalty levied by the revenue against the respondent/assessee. 2. For the sake of convenience we have taken up these appeals together as the parties are concerned and that the appeals are in respect of different assessment orders. 3. ITA No.80/2004 pertains to the assessment year 1992-93. ITA No.75/2004 pertains to the assessment year 1993-94. ITA No.74/2004 pertains to the assessment year 1994-95, ITA.No.76/2004 pertains to the assessment year 1995-96, ITA.No.78/2004 pertains to the assessment year 1996-97, ITA.No.77/2004 pertains to the assessment year 1997-98 and ITA.No.79/2004 pertains to the assessment year 1998-99. 4. Though in these appeals no substantial questions of law are framed at the time of admission, after hearing the learned counsel on both sides, we framed the following substantial questions of law: “1. Whether the respondent/assessee was required to deduct the tax at source in respect of the payment by a Foreign company without the knowledge of the respondent/assessee? 2. If such deductions are not made, whether the assessee is liable to pay penalty as required under Section 27(1)(c) of the Act?” 5. The facts leading to the filing of these appeals are as under: The assessee is an Indian Company engaged in Food Processing business. The company was set up by Nissan Food products Limited. Pursuant to an agreement entered into in regard to a technical collaboration between the Indian Company and Japanese Company, the employees of the Japanese company were deputed to India considering their expertise in the business and they were working in Indian Company during the relevant assessment year. It is the case of the assessee that assessee has deducted the tax at source as required under Section 192 of the Income Tax Act based on the salary and perks disbursed by it to the employees of the Japanese company working with the Indian company. Contending that the assessee has failed to deduct the tax at source in regard to the payment made by the Japanese company to its employees who were working with the Indian Company, the proceedings under Section 271 of the Act was initiated. Contending that the assessee has failed to deduct the tax at source in regard to the payment made by the Japanese company to its employees who were working with the Indian Company, the proceedings under Section 271 of the Act was initiated. The assessee sent a reply stating that it has deducted the tax at source based on the salary disbursed by it and it was not required to deduct tax said to have been made by the Japanese company to its employees which fact was not known to the assessee and therefore, it was not liable to pay the penalty as called upon by the revenue. 6. The Assessing Officer rejected the contention on the ground that whenever an employee has been deputed from Japan to India under a technical collaboration agreement, the payment payable by the Foreign Company to its employees would be known to the assessee (Indian Company). Therefore, the assessee was required to deduct the tax at source in regard to the payment made by the Foreign Company to its employees. Accordingly, the Assessing Officer rejected the contention of the assessee and levied penalty invoking the powers under Section 271(1)(c) of the Act. Simultaneously, the proceedings are also initiated by the revenue against the Foreign Company in not deducting tax at source in respect of the payments made by the Foreign company to its employees. The said proceedings are also pending before this court in connected appeal and it may not be proper for us to consider the case pleaded by the Foreign Company in regard to penalty proceedings initiated under Section 27(1) (c) of the Act in these appeals as we are required to deal with the same separately. 7. Though proceedings were also initiated against the Foreign Company, the Assessing Officer has levied penalty against Indian Company and also the Japanese Company. The subject matter in these appeals is with regard to levy of penalty against the Indian Company. The assessee being aggrieved by the order of assessment passed under Section 271(1)(c) of Act, filed an appeal before the Commissioner of Income Tax (Appeals) contending that the Assessing Officer has failed to consider that no payment was made under Section 192 of the Act by the assessee company and that the proceedings initiated by the assessee was contrary to the provisions of the Income Tax Act. 8. 8. The appeal filed by the assessee before the Commissioner of Income Tax (Appeals) also came to be dismissed against which the assessee filed a second appeal before the Tribunal. The Tribunal having considered the provisions of Section 192 and having held that no payment has been made by the Indian Company to the employees of the Japanese company held that it was not liable to deduct the tax at source in respect of the payment made by the Foreign Company. 9. Accordingly, the appeal came to be allowed challenging the legality and correctness of the order in setting aside the concurrent finding of the Assessing Officer and the Commissioner of Income Tax Appeals, the present appeal is filed. 10. The main contention of the revenue before us is that the respondent company being an Indian company having a share with the Japanese company and having secured the employees of the Japanese Company to know the technical know-how of the Food Processing of the Japanese Company was required to enter into an agreement and in such agreement the salary payable by the assessee and also the payment payable by the Foreign Companies would be known to the assessee company and that the assessee was required to deduct the tax at source in respect of the payment made by the Foreign Company to its employees. Therefore, the learned counsel for the revenue contends that the Tribunal was not justified in setting aside the order passed by the Assessing Officer and the Commissioner of Income Tax (Appeals). He further contends that the Assessee Company during the relevant period was required to deduct the tax at source in regard to all the payments received by its employees. 11. Per contra, learned counsel appearing for the assessee contends that in view of Section 192(1) of the Act, the assessee was not required to deduct the tax at source in respect of any payments received by the officials who are working on deputation in Indian Company and in respect of the payments made by the Foreign Company at Japan. In other words she contends that when the company has not disbursed any amount, the Indian Company cannot be held responsible for not deducting the tax at source. In the circumstances she requests the court to dismiss the appeal. 12. In other words she contends that when the company has not disbursed any amount, the Indian Company cannot be held responsible for not deducting the tax at source. In the circumstances she requests the court to dismiss the appeal. 12. Having heard the counsel for the parties we are required to consider whether the Indian Company was required to deduct the tax in respect of a payment made by a Foreign Company to its employees outside India. 13. It is not in dispute that the respondent/assessee had paid salary to the employees who have been deputed from a Foreign company. Section 192 envisages the assessee to deduct the tax at source in respect of the payments made by it to the employees. 14. Sub-Sections 1 of Section 192 of the Income Tax Act reads as under: “Any person responsible for paying any income chargeable under the head “salaries” shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income tax computed on the basis of the (rates in force) for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year.” 15. From reading of Section 192 of the Income Tax Act, we are of the view that the assessee was required to deduct the income tax at source on the amount payable or paid by the assessee to its employees. 16. The respondent hasnot made available any records to show that the amount paid by Foreign Company to its employees was made known to the respondent/assessee or the said amount was also disbursed to the employees of the Foreign Company through the respondent/assessee. If the amount paid as salary by a Foreign Company to its employees who are deputed to work under the Indian Company and any such payment made by Foreign Company towards the salary disbursed through the respondent company, we could have appreciated the arguments advanced by the learned counsel for the revenue. When no material is placed before us that the amount was actually paid through the respondent by a Foreign Company, it is not possible for us to accept the arguments advanced by the revenue as Section 192 does not deal with such cases. When no material is placed before us that the amount was actually paid through the respondent by a Foreign Company, it is not possible for us to accept the arguments advanced by the revenue as Section 192 does not deal with such cases. In the circumstances we are of the opinion that when the payment is not made by the respondent/assessee or the amount is not paid by a Foreign Company through the assessee, the assessee was not required to deduct the tax at source under Section 192 (1) of the Act. Accordingly, we answer the question No.1 in favour of the assessee and against the revenue. 17. Then the next question to be answered by us is that if there is no violation of Section 192 by the respondent whether the department can initiate the proceedings under Section 27(1)(c) of the Act. So far as this point is concerned, we need not assign any reasons to hold against the revenue since there is no violation of Section 192(1) by the respondent/assessee. When there is no violation of Section 192(1), he question of initiating the proceedings under Section 271(1)(c) of the Act does not arise. Therefore, the second question is also required to be answered against the revenue. 18. In the result all these appeals are dismissed confirming the order passed by the Income Tax Appellate Tribunal, Bangalore.