Income Tax Appellate Tribunal - Delhi
Kinetics Technology (India) Ltd. vs Jcit Tds on 22 December, 2004
Equivalent citations: [2005]94ITD63(DELHI), (2005)94TTJ(DELHI)1
ORDER
P.N. Parashar, Judicial Member
1. This appeal, preferred by the assessee, is directed against the CIT(A)'s order dated 4-12-2000 relating to F.Y. 1998-99.
2. Shri Shashi Bhushan Gupta, Advocate appeared for the assessee whereas Shri Prahlad Singh Sr. DR appeared for the Revenue.
3. The assessee has taken only one ground in this appeal to challenge the sustenance of levy of penalty at Rs. 14,78,864/- Under Section 271C of the Income-tax Act. The facts concerning this matter are that Mr. W.G. Holt was working as Managing Director of the assessee company, namely, M/s Kinetics Technology (India) Ltd., since 27th April, 1998. Vide resolution passed by the Board of Directors Shri Holt was sent to work with the company from Netherlands by the other company KTIB. V. (now Technip Benelux B.V.), which company held 50% shares in the assessee company.
4. A survey was conducted Under Section 133A of the Income-tax Act in the office premises of the company and during the survey statement of Mr. Hold, Managing Director, was recorded in which he denied about receipt of any salary, allowance, perquisites or benefits outside India for the services rendered in India. But, during the survey proceedings and in proceedings Under Section 201, Mr. Holt and the company accepted the fact that besides getting salary in India, he was also in receipt of overseas salary from KTIB V. The amount so received in F.Y. 1998-99 was at Rs. 40,10,037/-. The assessee agreed that the said overseas salary income be clubbed for TDS purposes. Accordingly, the ITO concerned passed order Under Section 201 & 211(1A), determining the short deduction of tax for F.Y. 1998-99 at Rs. 12,28,680/-. As the default committed Under Section 201, also attracted penalty Under Section 271C. A show cause notice was issued to the company to show cause as to why penalty Under Section 271C be not levied for the default committed by it in making short deduction of tax.
5. In reply it was submitted on behalf of the assessee that provisions of Section 192 were not applicable to the case of the assessee because it was not in the knowledge of the company that its own Managing Director was also getting salary from another company namely M/s KTIB v., who had sent him to India. The argument of the assessee was rejected by the AO on the ground that Mr. Holt happened to the Managing Director of the company and, therefore, was known about his total salary for the services being rendered in India. The AO, therefore, held the assessee liable for penalty Under Section 27C and imposed a penalty of Rs. 14 78,864/- for F.Y. 1998-99 and 1999-2000.
6. Before the CIT(A), in appeal, it was submitted on behalf of the assessee that Mr. Holt was not aware that the salary received outside India was taxable in India and when he became aware and the legal position, he disclosed the amount received outside India and paid tax along with the interest on the entire amount. It was pointed out that tax and interest was deposited suo motu in good faith by him. It was further pleaded that penalty Under Section 271C was not leviable as the assessee was not covered by the provisions of Section 192. The plea of reasonable cause for non-deduction of tax at source was also taken. The learned CIT(A) considered various pleas raised before him by the assessee and upheld the order of AO by observing as under:
"10. I had in course of appeal hearing requested Shri Gupta to submit the necessary documents with regard to terms or deployment of Mr. W.G. Holt as the Managing Director of the appellant company as this would throw light on the total remuneration drawn by Mr. W.G. Holt as also the manner in which the payment of salary was made. These papers have not been submitted on the ground that there was no written agreement contract or appointment. In the absence of these papers it is difficult to accept the contention of the appellant that she was completely unaware of the remuneration received by Mr. W.G. Holt outside India. As far as the quantum of tax determined Under Section 201 is concerned this was the amount computed on the basis of the payments mentioned by the appellant as herself. There can be no dispute at this stage about the tax being in excess. The same would hold for the claim that the employee Mr. W.G. Holt was not liable to pay income-tax in India being NOR. In any case the appellant has submitted no computation or details to support these contentions. As penalty Under Section 271C has been imposed at the minimum amount and not reasonable cause for non deduction of tax as required Under Section 192 is given. The penalty of Rs. 1478864/- is confirmed."
7. Before us Shri S.B. Gupta, Advocate, appearing for the assessee, made detailed submissions. His main objection against imposition of penalty was that provisions of Section 192(1) were not attracted in the case of the assessee because the assessee was not a person responsible for paying the salary earned by Mr. Holt outside India because that salary was paid to him by another company. Thus, at the time of making payment of that part of salary, which was received by Mr. Holt from another employer, question of deducting income-tax by the assessee did not arise. According to Shri Gupta, as per provisions contained Under Section 192(2), the liability was that of the employee who was earning salary from another employer and as Mr. Holt had not disclosed the fact regarding earning of income from another employer to the assessee, the assessee remained totally unaware about such receipt of salary by him. It was pointed out by the learned counsel that Under the Company Law, it is the liability of the employer to get the salary of the Managing Director employee approved and thus the assessee company was liable to pay the approved salary and also to deduct tax on such payment of salary. Thus, the emphatic submission of the learned counsel was that in absence of any other material, no knowledge can be imputed to the assessee company regarding receipt of other salary by Shri Holt. The learned counsel also made submissions on the plea of reasonable cause and placed reliance on the ratio of decisions reported in 253 ITR 745; and 121 Taxman 25. He also placed reliance on the following decisions:
41 ITR 446;
65 TTJ 1;
83 ITD 577;
233 ITR 678;
84 ITD 684.
8. The learned SR. DR, on the other hand, supported the order of learned CIT(A). According to him as Mr. Holt received salary outside India for services rendered in India and as he was the Managing Director of the assessee company, the assessee was under obligation to deduct tax. The learned Sr. DR also submitted that there was no reasonable cause on the part of the assessee for not deducting the tax at source on the total salary received by Mr. Holt. According to him, even if the salary was found to be taxable in India at a latter stage, then also the liability remained there. In support, the learned SR. DR placed reliance on the following decisions:
131 ITR 680(All);
132 ITR 125;
32 ITR 677.
9. We have carefully considered the entire material on record. The agreement between M/s Kinetics Technology (India ) Ltd. And Mr. W.G. Holt is available at pages 35 to 39 of the paper book and as per this agreement in the meeting dated 23-7-1998 of the Board of Directors Mr. Holt was appointed as Managing Director of the company for three years. As per Clause 2 of this agreement vide letter dated 10-9-1998 the Central Government approved the appointment of Mr. Holt as Managing Director on the terms and conditions contained I that letter. A copy of this letter dated 10-9-1998 on the subject - Approval of Central Government Under Sections 269, 198/309 and 637AA of the Companies Act, has been filed by the assessee and is available at pages 1 to 3 of the paper book. As per this letter, the salary of Rs. 1,00,000/- per month was approved, besides other perquisites as approved by the Board/Members of the Company. There is no dispute that on the payment of salary as approved by the Central Government, the assessee was deducting tax. So far as the other, salary earned by Mr. Holt outside India from another company is concerned, there was no legal responsibility on the assessee company, which was a separate juristic person to deduct tax at source on such salary. It is a different matter that in view of the discussion held in the meeting with the Addl. Commissioner of Income-tax as per letter dated 6-3-2000 on record, the assessee company agreed to bear the interest Under Section 201(1A), but so far as the question of penalty Under Section 271C is concerned, there was no default on the part of the assessee company, because it was not even aware of any salary being paid abroad by KTIB V. to Mr. Holt. Therefore, there was no short coming in the deduction of tax and deposit thereof in respect of salary and perquisite paid to Mr. Holt in India by the assessee company. It may be pointed out that as the assessee was not liable to deduct TDS on salary paid abroad to the expatriate employee, there was no liability on the assessee Under Section 192(1) & (2). It may also be pointed out that in the show cause notice issued Under Section 271C, the assessee was required to show as to why it failed to deduct tax at source. As there was no liability of the assessee to deduct tax, there was no violation as mentioned in the notice and on this ground the assessee challenged even the validity of the notice.
10. On going through the provisions contained in Section 192(1), it is found that liability for deducting tax Under Section 192(1) is, "on any person responsible for paying any income chargeable under the head 'salary'". Thus, the person paying or responsible for paying income is liable to deduct tax. Thus, the liability to deduct tax on the employee is on the amount of salary, which such employer pays to the employee. But if another employer pays such salary to that employee simultaneously or otherwise, then no liability can be fastened on the first mentioned employer to deduct tax on that amount at source. The Revenue has not challenged that the assessee company has not correctly deducted tax at source as per provisions of Section 192(1) on the amount of salary paid by it.
11. It may be pointed out that in view of Section 192(2) the responsibility was on the employee who was getting salary from another employer to furnish details. As in this case Mr. Holt had not disclosed the details of the salary received by him from the other company, there was no responsibility on the assessee company to make deductions in relations to such salary. In view of the above, the fault Under Section 271C cannot be laid on the assessee.
12. Besides above, in our considered view, the plea of reasonable cause being on the part of the assessee in failing to deduct the tax also deserves to be allowed on the facts and in the circumstances of this case and in particular on account of the fact that the assessee company was not informed by the Managing Director about the receipt of income outside India by him.
13. In the case of Fuji Bank Ltd. v. ACIT 121 Taxman- Magazine 25, the ITAT Delhi Bench "E", on similar facts, held that there was a reasonable cause for not deducting tax at source on account of emoluments paid to expatriate employees outside India and therefore no penalty exigible for alleged default. In that case tax was being deducted at source Under Section 192 on salary paid to Chief Representative of the bank in its liaison office at Delhi who was Senior expatriate employee and was entitled to received, apart from salary in India, salary from bank in Japan and overseas allowance for rendering service in India. In that case no tax was deducted at source from element of salary and allowance payable to him by bank in Japan. The AO imposed penalty on the assessee for failure to deduct tax at source on the amount, which was received by expatriate employee of assessee from bank in Japan. In view of these facts, after considering the relevant material, it was found that there was a reasonable cause for not depositing the tax in time on account of emoluments as tax was payable only on the amount was emoluments paid in India.
14. In the letter dated 6-3-2000 available at pages 4 to 10 of the paper book in para 6, it is mentioned that even the Department gave assurance that in view of voluntary compliance levy of penal provisions in case of Mr. Holt and Kinetics Technology (India) Ltd. Would be considered sympathetically. In view of this assurance, a liberal view in the case of the assessee is required to be taken.
15. In view of the above and after considering the entirety of the material, we hold that penalty Under Section 27C is not leviable in the case of the present assessee. We, therefore, set aside the findings of learned CIT(A) and cancel the penalty.
16. In the result, assessee's appeal stands allowed.
CORRIGENDUM The aforesaid appeal was filed by the assessee, challenging the confirmation of penalty Under Section 271C of the Income-tax Act. However, while going through the Tribunal's order dated 22-12-2004, rendered in the above captioned appeal, we find that instead of mentioning the section as "271C" it has been wrongly typed as "271(1)(c)". The mistake being typographical and apparent on the face of the record, we rectify the same by passing this corrigendum. Accordingly, we direct that in Tribunal's order dated 22-12-2004, rendered in ITA No. 957/Del/01 instead of Section "271(1)(c)", wherever it occurs in the order, be read as "271C".