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2006 (6) TMI 143 - AT - Income TaxBusiness Expenditure - salaries and perquisites - payment of the incentive - commercial expediency - Whether there was a liability on the part of the assessee to pay the amount of taxes which the employees were liable to pay in respect of the salaries received by them outside India from Marubeni Corporation the Japanese company?- HELD THAT - The assessee merely agreed to pay the salary to the employees when their services were seconded by the Japanese company. If there is no contractual liability then the amounts cannot be claimed as a deduction for the years under appeal. It is also difficult to imagine that the assessee-company well advised in its income tax matters would not have claimed the liability as a deduction in the returns for the years filed originally since the amounts were quite substantial. What seems to have happened as pointed out by the CIT(A) in rather strong terms is that the assessee was compelled to pay the taxes in respect of the salaries of the employees received by them outside India from the Japanese company which the Japanese company ought to have deducted and paid to the Indian Government under section 192 of the Act. Since it failed to do so and since it was a non-resident company and since the assessee was its 100 per cent subsidiary there was pressure brought upon the assessee-company to settle the matter with the Income-tax Department by paying the tax component referable to the salaries paid to the employees by the Japanese company outside India. We are not merely referring to the difficulty in ascertaining the amount of the incentive. Even the very question whether the assessee was liable to pay the taxes as incentive was not clear according to the assessee. The statement that the employees were eligible for some bonus and incentive for working inIndia in the letter is quite ambiguous and non-committal. Nothing can be inferred therefrom in favour of the assessee. Thus we hold that the Income-tax authorities were right in saying that there was no ascertained liability for payment of the taxes as incentives. We have already seen that there was no contractual liability undertaken by the assessee at the time when the services of the employees were seconded to it by the Japanese company to pay the tax in question as incentive to them and as p part of their salary payable by the assessee-company. If such a liability had been undertaken it was not necessary for the assessee to put forth its claim on the principle of commercial expediency at all. It is only in that year that the amount was actually paid without any pre-existing liability and therefore this argument is open to the assessee to be raised only in that year. We therefore do not see how the amounts can be allowed as a deduction on the principle of commercial expediency for the years under consideration. Thus we are unable to allow the amount of taxes paid by the assessee as incentive as a deduction in the assessment years 1997-98 and 1998-99. In the result the appeal for assessment year 1997-98 is dismissed and the appeal for assessment year 1998-99 is partly allowed.
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