1995 (12) TMI 93 - AT - Income Tax

Appeal To CIT(A) Assessing Officer Assessment Year Commission Payment Conveyance Allowance Foreign Currency Income Deemed To Accrue Or Arise In India Special Allowance Tax At Source

Issues Involved:
1. Short deduction of tax under the head salaries.
2. Non-deduction of tax on foreign commission.
3. Short deduction on payment to foreign employees.
4. Interest payable under section 201(1A).

Detailed Analysis:

1. Short Deduction of Tax Under the Head Salaries:

The assessee's appeal challenges the CIT(A)'s confirmation of the Assessing Officer's decision regarding the short deduction of tax on salaries. The contention revolves around three allowances: conveyance, medical reimbursement, and leave travel allowance (LTA).

- Conveyance Allowance: The assessee argued that conveyance allowance should be exempt under section 10(14) of the Income-tax Act. However, the Assessing Officer and CIT(A) held that the conveyance allowance paid for commuting between home and office does not qualify for exemption as it is not incurred "wholly, necessarily and exclusively" in the performance of duties. The Tribunal upheld this view, emphasizing that such expenses fall under Standard Deduction under section 16(i) and are taxable under the head 'salary'.

- Medical Reimbursement: The assessee did not require supporting evidence for medical reimbursements, claiming it was cumbersome. The Assessing Officer and CIT(A) disagreed, stating that under section 17(2)(v), only actual medical expenses up to Rs. 10,000 are exempt, provided there is proof of expenditure. The Tribunal confirmed that in the absence of evidence, such reimbursements are taxable.

- Leave Travel Allowance: The assessee relied on self-declarations from employees for LTA without verifying supporting documents. The Assessing Officer and CIT(A) held that under section 10(5), only actual travel expenses are exempt, and self-declarations are insufficient. The Tribunal agreed, stating that LTA paid without verifying actual expenses is taxable.

2. Non-Deduction of Tax on Foreign Commission:

The Assessing Officer noted that the assessee did not deduct tax on foreign commissions, which were paid via drafts sent from Hyderabad. The CIT(A) upheld the view that these payments were received in India, making them taxable.

- The Tribunal reviewed several judicial precedents, including Supreme Court cases (Ogale Glass Works Ltd., Jagdish Mills Ltd.) and High Court decisions. It concluded that unless there is an express or implied request from the foreign agents for payments to be sent via drafts, the post office or courier cannot be considered their agent. In this case, there was no such request, and the payments were made by drafts drawn on foreign banks, not through telegraphic transfer as requested by one agent (APC Pharmaceuticals). Therefore, the Tribunal held that the foreign commission payments were not received in India and were not taxable, setting aside the CIT(A)'s order on this aspect.

3. Short Deduction on Payment to Foreign Employees:

The issue concerned the assessee's Moscow office employees, for whom only basic salary was considered for TDS, excluding special allowances. The assessee argued these employees were non-residents, and their income did not accrue in India.

- The Tribunal noted that the employees rendered services in Moscow, making their income non-taxable in India under section 9(1)(ii). The CIT(A) had wrongly dismissed this plea citing Rule 46A. The Tribunal directed the Assessing Officer to reassess the taxability of these employees' income, considering their non-resident status and the location of service.

4. Interest Payable Under Section 201(1A):

This issue was consequential to the primary issues. The Tribunal directed the Assessing Officer to recompute the interest under section 201(1A) based on the revised findings.

Conclusion:

The Tribunal upheld the CIT(A)'s decision on the short deduction of tax under the head salaries but set aside the orders regarding non-deduction of tax on foreign commission and short deduction on payments to foreign employees, remanding the latter for reassessment. The interest payable under section 201(1A) was to be recalculated accordingly. The assessee's appeal was partly allowed for statistical purposes.

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