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8. To complete the chronology of events, we may state that in some of the cases herein the Department has levied penalty under Section 271C of the 1961 Act for failure to deduct tax under Section 192(1) from out of Home Salary paid outside India by the Head Office ("HO") to the expatriates deputed to the Branch Office(s) in India which penalty was set aside on the ground that the expatriates exercised dual employment and that there was no obligation on the Branch Office to deduct tax under Section 192(1) on the Home Salary paid by the HO outside India. It was further held that the said Home Salary paid by the HO was not on account of or on behalf of the Branch Office since no deduction was claimed for the salaries paid outside India in computing the income of the Employer and accordingly it was held that no penalty was leviable under Section 271C of the 1961 Act. Against deletion of penalty under Section 271C, the Department has come to this Court by way of these Civil Appeals.

16. Shri M.S. Syali, learned senior counsel appearing on behalf of M/s Mitsui & Company Ltd. (Civil Appeal No. 5152/05) submitted that the sole issue in his case was whether the Tribunal/High Court were correct in law in cancelling the penalty imposed under Section 271C of the 1961 Act. It was submitted that the retention/continuation payment(s) to expatriates in Japan by the HO was not taxable in India and/or the provisions of Chapter XVII-B requiring deduction of tax at source were not applicable to such payment. It was further submitted that the respondent is a foreign company having its HO in Tokyo. It had, in the relevant financial years in India, a Project Office and a Liaison Office. The Japanese expatriates were deputed to the said Establishments as employees. As per the terms of deputation, the said expatriates were to be paid "salaries" for the services rendered in India by the respective Establishment, in addition, a retention/continuation was paid in Japan by the HO to ensure continuity in service. Tax at source was deducted by the respective Establishment, however, on the retention/continuation paid in Japan by HO, it was not deducted under Chapter XVII-B of the 1961 Act. On facts, learned counsel pointed out that the tax-deductor-assessee presented its case before the Department. Its stand was not accepted by the Department. However, after consultation with the CBDT, the tax-deductor- assessee agreed and deposited the tax and interest on the understanding that there will not be any penalty proceedings. According to the learned counsel, contrary to its promise, Department commenced penalty proceedings under Section 271C against the Project Office and the Liaison Office in India for the alleged default of the HO in Japan. Therefore, according to the learned counsel, both, in law and on facts, the Department had erred in initiating penalty proceedings under Section 271C.

(iv) On the Scope of Section 271C read with Section 273B:

35. Section 271C inter alia states that if any person fails to deduct the whole or any part of the tax as required by the provisions of Chapter XVII-B then such person shall be liable to pay, by way of penalty, a sum equal to the amount of tax which such person failed to deduct. In these cases we are concerned with Section 271C(1)(a). Thus Section 271C(1)(a) makes it clear that the penalty leviable shall be equal to the amount of tax which such person failed to deduct. We cannot hold this provision to be mandatory or compensatory or automatic because under Section 273B Parliament has enacted that penalty shall not be imposed in cases falling thereunder. Section 271C falls in the category of such cases. Section 273B states that notwithstanding anything contained in Section 271C, no penalty shall be imposed on the person or the assessee for failure to deduct tax at source if such person or the assessee proves that there was a reasonable cause for the said failure. Therefore, the liability to levy of penalty can be fastened only on the person who do not have good and sufficient reason for not deducting tax at source. Only those persons will be liable to penalty who do not have good and sufficient reason for not deducting the tax. The burden, of course, is on the person to prove such good and sufficient reason. In each of the 104 cases before us, we find that non-deduction of tax at source took place on account of controversial addition. The concept of aggregation or consolidation of the entire income chargeable under the head "Salaries" being exigible to deduction of tax at source under Section 192 was a nascent issue. It has not be considered by this Court before. Further, in most of these cases, the tax- deductor-assessee has not claimed deduction under Section 40(a)(iii) in computation of its business income. This is one more reason for not imposing penalty under Section 271C because by not claiming deduction under Section 40(a)(iii), in some cases, higher corporate tax has been paid to the extent of Rs. 906.52 lacs (see Civil Appeal No. 1778/06 entitled CIT v. The Bank of Tokyo-Mitsubishi Ltd.). In some of the cases, it is undisputed that each of the expatriate employees have paid directly the taxes due on the foreign salary by way of advance tax/self-assessment tax. The tax-deductor-assessee was under

37. Similarly, in each of the 104 appeals, the AO shall examine and find out whether interest has been paid/recovered for the period between the date on which tax was deductible till the date on which the tax was actually paid. If, in any case, interest accrues for the aforestated period and if it is not paid then the Adjudicating Authority shall take steps to recover interest for the aforestated period under Section 201(1A).

38. For the reasons mentioned hereinabove, however, no penalty proceedings under Section 271C shall be taken in any of these cases as the issue involved was a nascent issue. Accordingly we quash the penalty proceedings under Section 271C.