1996 (9) TMI 114 - HC - Income Tax

Summary

Issues involved:
The judgment involves a challenge to the legality and validity of a show-cause notice issued by the Income-tax Officer regarding alleged liability of deducting income-tax at source from payments made to foreign nationals employed by the appellants.

Details of the Judgment:

Challenge to Show-Cause Notice:
The appellants, Indo Asahi Glass Company Ltd., and its director, challenged the show-cause notice issued by the Income-tax Officer regarding the alleged liability of deducting income-tax at source from payments made to foreign nationals employed by the appellants. The collaboration agreement with a Japanese company for manufacturing operations in India was a key aspect of the case. The respondents alleged that payments made to foreign nationals in yen in Japan while they were in service in India should have had income tax deducted at the source by the appellants. The appellants contended that they were not liable to pay income tax or make deductions as they were not responsible for deducting tax on payments made in Japan. The High Court directed the appellants to file a reply to the show-cause notice and for the Income-tax Officer to pass a final reasoned order within four months after considering the reply.

Legal Arguments:
During the hearing, various provisions of the Income-tax Act, including sections 9, 129, 194, 201, and 204, were referred to. The appellants argued that they had no connection with the Japanese company in terms of payments made in Japan and that they were not responsible for deducting tax on such payments. The main contention was the liability of the appellants to deduct tax at source, with reference to permissions granted by the Government of India and the Reserve Bank of India for payments to foreign nationals in India. The High Court noted that the Income-tax Officer had not made any conclusive findings and emphasized the need for the appellants to explain their position before him.

Court's Decision:
The High Court found no illegality or irregularity in the judgment of the single judge and upheld the directions given to the Income-tax Officer. It was emphasized that the purpose of the show-cause notice was to allow the appellants to explain the factual aspects and provide necessary documents. The Court highlighted that the Income-tax Officer had not reached any final conclusions and that all issues were subject to further examination based on the appellants' explanations. The Court dismissed the appeal, stating that the jurisdiction of the Income-tax Officer to issue the notice was not in question, and the appellants had the opportunity to present their case before him. The appeal was dismissed without any order as to costs.

Separate Judgment by V. N. KHARE, C. J.:
Chief Justice V. N. KHARE agreed with the decision of the Court to dismiss the appeal and refused the prayer to stay the operation of the judgment.