1986 (3) TMI 66 - HC - Income Tax

Summary

Issues Involved:
1. Validity and jurisdiction of the order u/s 201 of the Income-tax Act.
2. Entitlement of the employee to exemption u/s 10(6)(i)(a) of the Income-tax Act.
3. Limitation on the order passed u/s 201 of the Income-tax Act.
4. Jurisdiction of the Tribunal in deciding questions of 'exemption' and 'limitation' contrary to the earlier Tribunal's view.

Summary:

Issue 1: Validity and Jurisdiction of the Order u/s 201 of the Income-tax Act
The court examined whether the order u/s 201 of the Income-tax Act was invalid and without jurisdiction. The Revenue argued that the employer's liability u/s 192(1) is independent of the employee's tax liability, and the Income-tax Officer (ITO) can proceed u/s 201 irrespective of the employee's completed assessment. The court, however, held that the employer's liability to deduct tax at source is interconnected with the employee's tax liability. Once the assessment on the employee is final and cannot be reopened, the employer cannot be deemed an assessee in default. Therefore, the ITO's action treating the employer as an assessee in default was invalid and without jurisdiction. The court answered this question in the affirmative, in favor of the company and against the Revenue.

Issue 2: Entitlement to Exemption u/s 10(6)(i)(a) of the Income-tax Act
Given the court's decision on the first issue, it was deemed unnecessary to address whether the employee was entitled to exemption u/s 10(6)(i)(a) of the Income-tax Act. The court declined to answer this question.

Issue 3: Limitation on the Order Passed u/s 201 of the Income-tax Act
Similarly, the court found it unnecessary to address whether the order passed u/s 201 was barred by limitation, as the primary issue regarding the validity and jurisdiction of the order u/s 201 had already been resolved. The court declined to answer this question.

Issue 4: Jurisdiction of the Tribunal in Deciding Questions Contrary to the Earlier Tribunal's View
The court also found it unnecessary to address whether the Tribunal had jurisdiction in deciding questions of 'exemption' and 'limitation' contrary to the earlier Tribunal's view, given the resolution of the primary issue. The court declined to answer this question.

Conclusion:
The court held that the employer cannot be deemed an assessee in default once the assessment on the employee is complete and cannot be reopened. Consequently, the ITO's action treating the employer as an assessee in default was invalid and without jurisdiction. The court answered the first question in the affirmative, in favor of the company, and declined to answer the remaining questions. The company was awarded costs from the Revenue, including counsel's fee.