Income Tax Appellate Tribunal - Mumbai
Tetsuo Etoh, Hitachi Cg Motor Engg. (P) ... vs Ito on 31 January, 2007
ORDER
Pramod Kumar, Accountant Member.
1. This is an appeal filed by the assessee and is directed against the order dated 16-9-2003 passed by the Commissioner (Appeals) in the matter of assessment under Section 144 read with Section 148 of the Income Tax Act, 1961 ('the Act' in short), for the assessment year 1998-99.
2. The only grievance pressed before us by the assessee is that since the employer had already paid all the tax dues of the employee, in deference to the demands raised by the assessing officer (TDS) under Section 201 read with Section 192 for the relevant period, the very foundation of reassessment proceedings in the case of the assessee was legally unsustainable. There was no income which escaped the assessment; the tax liability of the employee was duly taken care of by the employer. Under these circumstances, according to the assessee, the reassessment proceedings should have been dropped by the assessing officer. The grievance of the assessee is that the Commissioner (Appeals) erred in confirming the reassessment order so passed by the assessing officer.
3. The factual matrix in which this grievance arises is as follows. The assessee is a Japanese national and was, in the relevant period, employed as Managing Director of the Hitachi CG Motor Engineering Limited ('Hitachi', in short). The assessee filed an income-tax return disclosing an income of Rs. 12,44,286. The salary so disclosed was the salary that the assessee received in Indian Rupees and in India. However, in addition to this salary, the assessee also received part of his salary in US and Japanese currencies. As for salary received in US currency, the assessee disclosed the same in his income-tax return but claimed that the said component of salary is not taxable in India. The amount so claimed to be non-taxable was US $ 18,104 which was equivalent to Rs. 7,10,039 at the relevant point of time. In addition, admittedly the assessee also received a part of salary in Japanese Yens which was not disclosed to the revenue authorities at all. Based on this income-tax return, the assessee claimed and was allowed a tax refund of Rs. 2,16,039. Subsequently, however, the assessing officer noticed that salary received by the assessee in Japan, which was stated to be US $ 18,104 by the assessee, has escaped assessment. The assessment was accordingly re-opened under Section 148 of the Act.
4. In the meantime, however, the annual return of tax deduction from salaries, filed by the employer of the assessee, was scrutinized by the assessing officer (TDS) who had jurisdiction to examine whether or not the employer had properly discharged his tax withholding obligations. The discharge of tax withholding obligations by the employer was found to be wanting. The employer had not properly discharged its duties and taxes were short deducted. Under these circumstances, a demand under Section 201(1) read with Section 192 for short deduction of tax at source from salaries, and a consequential demand under Section 201 (IA) read with Section 192 for delay in depositing tax deductible at source from salaries, was raised on the employer by passing the appropriate orders. Admittedly, one of the findings that the assessing officer (TDS) was that Hitachi had paid a part of this assessee's salary in Japanese Yens and this fact, as also the quantum of salary so paid, was withheld by Hitachi from the revenue authorities by not stating the same in its annual return of tax deductions from salaries paid. Learned Counsel for the assessee does not dispute these facts.
5. The above information was available to the assessee's assessing officer at the time of framing the reassessment order. Armed with this information, and based on the data furnished by the employer of the assessee, the assessing officer completed the assessment of assessee's salary income at Rs. 81,08,156, as against salary income of Rs. 12,44,286 disclosed by the assessee in his return as salary received in India and salary income of Rs. 7,10,039 disclosed by the assessee as salary received in US Dollers. It was in this backdrop that an addition of Rs. 61,53,831 was thus made vis-a-vis- salary disclosed to have been received by the assessee, and an. addition of Rs. 68,63,870 vis-a-vis taxable salary income declared by the assessee.
6. The assessee's representative did not dispute the amount of taxable income so quantified by the assessing officer, but a prayer was made for dropping the reassessment proceedings on the following ground:
...During our appearance before you (the assessing officer), we have pointed out that the full taxes as required by the TDS Officer were paid by the employer on behalf of Mr. T. Etoh for the assessment year under ref erence, since Mr. T. Etoh had no other income except the salary income p>aid by the Indian company and the Japanese company. As such, income-tax has been fully discharged in the taxable income of Mr. T. Etoh in his assessment. Considering that there is no loss to the department once that tax has been fully paid by the employer on behalf of Mr. Etoh in the TDS assessment of the employer company and also the fact that Mr. Etoh is out of India, we submit that proceedings under Section 148 may be dropped....
Not impressed by this explanation and having noted the fact that though the notice under Section 148 is duly served on the assessee, the assessee has not filed the income-tax return in response to the said notice, the assessing officer completed the assessment under Section 148 read with Section 144 of the Act. Aggrieved, assessee carried the matter in appeal before the Commissioner (Appeals) but without any success. The assessee is not satisfied and is in second appeal before us.
7. We have heard Ms. Doshi, learned Counsel for the assessee, and Ms. Kamakshi, learned Senior departmental Representative. We have also perused the material on record and duly considered f actual matrix of the case as also the applicable legal position. The main thrust of learned Counsel's submissions is that since the tax liability of the assessee was anyway discharged by the employer, there was no need to re-open this assessment. It was pointed out that no revenue loss was caused to the assessing officer as tax due as the assessee's salary was fully paid by Hitachi, though in deference to the demands raised by the assessing officer (TDS) under Section 201(1) read with Section 192 and Section 201 (IA) read with Section 192. Learned Counsel submits, in view of the above facts, no income escaped assessment and, as such, the assessing officer could not have validly re-opened assessment. In any event, when during the course of assessment proceedings, the assessing officer had come to know that the tax liabilities of the assessee were duly discharged by Hitachi, i.e., assessee's employer, he should have dropped the reassessment proceedings. Under these circumstances, reassessment proceedings ceased to have any use or purpose. We are thus urged to cancel the assessment order. Learned departmental Representative, on the other hand, contends that the assessee did not correctly disclose his income. The income actually received by the assessee was admittedly far more than the income on which taxes were paid by the assessee and even the income disclosed by the assessee in his tax return. It was therefore beyond dispute that a part of assessee's salary income, therefore, escaped assessment in his hands. Learned departmental Representative, therefore, urges us to confirm the orders of the authorities below and hold that the reassessment proceedings were validly initiated by the assessing officer. It is also contended that during the assessment proceedings, the assessee did not dispute that a part of salary income earned by the assessee was not disclosed by the assessee in his income-tax return. It was thus a clear case of income escaping assessment. As for the TDS proceedings in the hands of the Hitachi, learned departmental Representative submits, the assessee will surely get due credit for any taxes paid by Hitachi on his behalf, as long as appropriate certificates for such tax deductions are issued by Hitachi. We are thus urged to reject the grievance of the assessee, and thereby confirm and approve the stand of the authorities below on this point.
8. Having given our careful consideration to the matter, we are unable to uphold the grievance raised by the assessee. The reasons of our decision are as follows.
9. The scheme of tax deduction at source by the employer is part of the mechanism for collection and recovery of taxes from the employees, so far as salary income of the employees is concerned. It is quite distinct from the assessment proceedings of an employee's income which seeks to determine the income actually taxable in the hands of the assessee. Whatever tax is deducted by the employer is given due credit, in accordance with the scheme of the Act, in the hands of the assessee. In the case before us, the actual taxable income of the assessee admittedly was Rs. 81,08,156, whereas his completed assessment only showed an income of is. 12,44,286. The balancing figure represents the income escapingassessment. This figure was neither disclosed in the original Form 16issued by the employer, nor in the income-tax return filed by the assessee. It is not in dispute that information about a part of salary income received by the assessee was all along withheld from the revenue authorities. The original certificate issued by the employer was thus obviously incorrect and incomplete. It was also on record that the assessee had received income abroad in respect of which he has not paid taxes in the original assessment. The reassessment was thus validly initiated by the Assessing Officer. As for the contention that the assessing officer should have dropped reassessment proceedings since Hitachi had already paid taxes due on the assessee, we see no substance in this plea either. The payment of taxes by the employer, on behalf of the employee, will have relevance only so far as collection or recovery of taxes from the employee is concerned, and not on determination of income in the hands of the employee. Once a reassessment proceedings is validly initiated, it cannot be dropped only for the reason that income which has admittedly escaped assessment has been subjected to withholding of taxes due thereon. Of course, the due credit for taxes so withheld is to be given in accordance with the scheme of the Act, pairticularly as set out in Sections 199 and 203of the Act. The grant of such credit, however, is a stage posterior to determination of correct taxable income. Therefore, merely be cause red it for tax deductions will fully cover, even if that be so, the tax liability for income escaping assessment, the determination of income escaping assessment itself cannot be dropped that will be putting cart before the horse. We, therefore, reject the contentions of the assessee. We uphold the impugned assessment and decline to interfere in the matter.
10. While on the subject, it will not be out of place of mention that Central Board of Direct Taxes ('CBDT', in short) had corae up an Amnesty Scheme way back in 1994, when the liberalization process, and the resultant entry of many foreign companies in India, was just in initial stages. Vide Circular No. 685, dated 20-6-1994, CBDT, inter alia, observed as follows:
It has come to the notice of the Board that some employers, includingforeign companies operating in India, have been defaulting in deductingtax at source as required under Section 192, on the salaries and allowancespaid abroad, or perquisites provided abroad, to their employees forservices rendered in India.... All payments and perquisites to theemployees for services rendered in India are taxable in India irrespectiveof place where the payment. occurs. The employers are, therefore,liable to deduct tax at source even on payment of salary, allowancesor perquisites abroad to the employees who have rendered services in India Employers (Indian and foreign), who have committed default in the pastare advised to make use of this opportunity to pay up the arrears of TDS(tax deductible at source) together with interest on or before 31-7-1994and avoid penalty and prosecution proceedings It was in the course of this Amnesty Scheme that the CBDT had granted further relaxation, vide CBDT Circular No. 686 dated 12-8-1994, that in order to fully implement the spirit of Amnesty Scheme set out in the aforesaid circular stated that "the assessment of the employees, in respect of whom payments f or short deduction and interest thereon are made by the employers in pursuance of the Circular No. 685, dated 20-6-1994, will not be re-opened or otherwise disturbed merely on account of excess salary payments now disclosed by the employers". In fact, the Circular itself stated that "the spirit behind issuance of Circular No. 685, dated 20-6-1994 was to encourage immediate voluntary compliance on the part of employers defaulting in tax deduction" and that "in order that this intention is fully achieved" the Board has taken the stand that assessments of the employees will not be disturbed or re-opened in the cases where employers are making true disclosures about salary payments from which tax deductions were not earlier made. The relaxation of not re-opening assessments of the employees upon true disclosure of actual salaries and allowances paid by the employer was, thus in the nature of a one time concession by the CBDT. This was a benevolent concession on the part of the CBDT extended to the employers who wanted to avail the Amnesty Scheme and come out clean so far as their tax withholding obligations from salary payments were concerned. Despite the wide publicity given to this Amnesty Scheme, and despite the fact that the question of taxability of salaries paid abroad in respect of expatriates working in India was, therefore, openly in public domain of discussions some employers persisted with the practice of making incorrect disclosures of actual salary payments to the expatriate employees, till the time revenue authorities swung into action. It was only when the employer had no choice except to share the actual facts that these disclosures were made by them. The declarations so made by the employers cannot be said to be voluntary declarations entitling their employees to any concessions available earlier under the TDS Amnesty Scheme set out in the Circular Nos. 685 and 686, such as in the matter of reopening of assessments, by the revenue authorities. The plea that assessing officer should have dropped the reassessment proceedings since assessee's employer had later paid all the taxes, including on the salary payments information about which was withheld by the assessee and nis employer earlier, does not, therefore, impress us. It is devoid of legally sustainable basis, and it fails for this reason. We, however, make it clear that the assessee will get due credit, in accordance with the scheme of the Act, in respect of the taxes paid by the employer on his behalf.
11. The appeal is, therefore, dismissed.