TMI Blog2003 (9) TMI 294X X X X Extracts X X X X X X X X Extracts X X X X ..... 93 were: (a) Nissin Food Products Co. Ltd., Japan ("Nissin") 30% (b) Brooke Bond India Ltd. 26% (c) Itochu Corporation Ltd., Japan 10% (d) Accelerated Freeze Drying Co. Ltd. 34% 2.2 Subsequent to the collaboration, M/s Nissin, Japan has been deputing their personnel (having technical/other expertise) to assessee-company. Accordingly, in the previous years relevant to asst. yrs. 1992-93 to 1998-99, certain persons having technical and other expertise ("the expatriate employees") were deputed by M/s Nissin, Japan to the assessee-company. The expatriate employees had received salary and other allowances from the assessee-company. These were offered to tax and the assessee-company had also deducted TDS at the applicable rates. There is no issue either on the remuneration paid by the assessee-company to the expatriate employees or the tax deducted and remitted to the Government by the assessee-company. This position is also confirmed by the Revenue. 3. During the relevant assessment years, the expatriate employees, while rendering services to and receiving remuneration from the assessee-company in India, also receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 133(6) was only addressed to the assessee-company. In spite of this, the Department initiated proceedings under s. 271C by issuing notices dt. 28th Feb., 2000, relevant to the assessment years under appeal against the assessee-company alleging non-deduction of tax at source on the payments made in Japan to the expatriate employees by Nissin, Japan. All the notices are similar and, for the sake of convenience, only one notice for the asst. yr. 1992-93 is extracted herein: "Sub: Penalty notice under s. 271C of the IT Act, 1961. It has been observed from the survey conducted by Dy. CIT (TDS)-II that there is a short deduction of tax to the extent of Rs. 52,04,652 in respect of TDS made under s. 192 for the asst. yr. 1992-93. 2. You are hereby requested to appear before me on 21st March, 2000 at 11.30 a.m. and show-cause why an order imposing penalty on you should not be made under s. 271C of IT Act, 1961. If you do not wish to avail of this opportunity of being heard in person or through on authorised representative you may show-cause in writing on or before the said date, which will be considered before any such order is made under s. 271C. 3. If the opportunity to explain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the assessee is in appeal before us. 7. The learned authorised representative of the assessee Shri K.R. Pradeep vehemently contended that the authorities below did not consider the facts in proper perspective. He advanced the following arguments. 8. First it was canvassed that the notices issued under s. 271C extracted supra are invalid inasmuch as they are addressed to M/s Indo Nissin Foods, whereas the assessee-company is a limited company. The notices are silent about the status of the assessee-company. Further, the notices are not addressed to the principal officer of the company as required under s. 282(2)(b) of the Act. The defect in the notices is not curable under s. 292B and further has not been cured till date. In support, he relied on the decision of the Kerala High Court in P.N. Sasikumar Ors. vs. CIT (1988) 69 CTR (Ker) 78 : (1988) 170 ITR 80 (Ker) extracted herein: "We have already held that the issue and service of a notice under s. 148 is a condition precedent or a matter of jurisdiction. In that view, before assessing an 'AOP' as enjoined by s. 282(2)(c) of the IT Act the notice should be addressed to the principal officer or a member thereof. Admittedly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l) 47 : (2003) 262 ITR 605 (Cal), while dealing with the validity of a notice in the case of reassessment, has also held a period of 4 years should be considered reasonable time for issue of notice. Accordingly, in this case, the notice for asst. yrs. 1992-93 to 1995-96 should be beyond the reasonable period of 4 years and hence barred by limitation. 10. Sri K.R. Pradeep contended that the penalty under s. 271C is not automatic. First of all there must be a failure to deduct tax prescribed under the Act. Such a failure must be on account of a pre-existing responsibility for deduction of tax explicitly provided under the Act. It was pleaded that unless there is a liability to tax the question of deduction would not arise. In this case, the payments made in Japan by M/s Nissin to the expatriate employees was on account of retention/continuation pay arose on account of lien on the services of the expatriate employees by the parent Japanese company. Consequently, these payments made cannot be attributed to the services rendered by the expatriate employees in India nor can it be connected with their employment in India. The source for retention/continuation pay is for their lien on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applies only to foreign companies operating in India. In this case, Nissin was not operating in India inasmuch as it is only a shareholder in the assessee-company and had no independent operation. Hence, the circular was not applicable. Legally, the circular is contrary to the decision of the Supreme Court in (2003) 180 CTR (SC) 202 : (2003) 259 ITR 486 (SC). Consequently, the circular cannot be treated as valid. Further, the circular granted certain amnesty up to a particular period and such a period has lapsed long ago. As such, the circular is not in existence for period beyond the period specified in the circular. In the absence of any specific liability under the Act on either the assessee-company or Nissin, it cannot be said that there was any failure to deduct TDS under the Act. Hence, the levy of penalty, without establishing failure to deduct the tax or liability under the Indian IT Act, is bad in law. 12. Sri K.R. Pradeep contended that no order has been passed against the assessee-company or Nissin on the liability under the Act inasmuch as the assessee-company had never been held to be an "assessee in default" under s. 201 or under s. 221 of the Act. Sec. 201(1) presc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order cannot be relied on in deciding the present case. 15. It was contended that there was no application of mind as the delay for the asst. yr. 1992-93 which is about 6 to 7 years has been treated on par with the delay for the asst. yr. 1998-99 which is hardly few months. It was submitted that in the present case there was no absolute failure and, by the time of issue of notices, the tax along with the interest and already been remitted voluntarily. Hence, the plea for cancellation of levy of penalty. 16. Sri K.R. Pradeep further submitted that the assessee-company had already deducted tax from the salary paid to expatriate employees in India. It had also periodically filed Form 24, etc., and there was no failure on its part. The assessee-company had no responsibility to deduct tax on the payments made by Nissin in Japan. Invoking s. 192(2) to pin the responsibility on the assessee-company is incorrect. The said section uses the word "may" to furnish such particulars in prescribed form and only thereupon the assessee-company had any obligation. The scheme envisaged under s. 192(2) was such that first of all the expatriate employees had an option to furnish the details to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssin, Japan or the assessee-company is concerned, the same is beyond question as the TDS and interest on the payments made in Japan has already been remitted. The payment/remittance of tax and interest establishes the fact that there is no income of the assessee of doubt on the existence of liability in India. The argument of liability at this stage serves no purpose after effecting the payment. 20. The learned Departmental Representative contended that the decision of the Supreme Court in (2003) 180 CTR (SC) 202 : (2003) 259 ITR 486 (SC) was rendered on facts typical to the case under consideration and is not applicable to the present circumstances. In reply Sri K.R. Pradeep, the authorised representative of the assessee-company submitted that the defect in the notice is not curable and participation does not render proceeding valid which is in law invalid. In so far as the objection on limitation is concerned, the decision in (1997) 57 ITD 536 (Bom) and (2003) 262 ITR 605 (Cal) clinches the issue in favour of the assessee-company. He further submitted that mere payment of tax cannot lead to a presumption that there was a liability under the Act. In fact, the law itself does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is clear that the Revenue was prevented from gaining knowledge about the so-called salary paid in Japan. Therefore, in view of the factual position, we feel that the delay in initiating proceedings cannot be treated as an inordinate delay. This ground raised by the assessee fails. 23. In this issue relating to the liability for tax on the payment of remuneration by Nissin in Japan to its employees towards retention/continuation pay it has to be examined from the point of view of s. 9(1)(ii). The amendment by insertion of sub-s. (b) by the Finance Act, 1999 has been brought into statute from 1st April, 2000. Further, a perusal of the note relating to cl. 5 in Notes on Clauses of Finance Bill, 1999 extracted herein: "Clause 5 seeks to amend s. 9 relating to income deemed to accrue or arise in India. Under the existing provisions contained in cl. (ii) of sub-s. (1), the income, which falls under the head "salaries" if it is earned in India, is deemed to accrue or arise in India. The Explanation in this clause clarifies that salary payable for services rendered in India shall be regarded as income earned in India. It is proposed to amend the Explanation to clarify that any income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment cannot be brought to tax in India at least prior to the amendment made by Finance Act, 1999. We refrain from expressing any opinion on the applicability of amended provisions from asst. yr. 2000-2001 as such an issue is not before us. Further, the decision of the Supreme Court in (2003) 180 CTR (SC) 202 : (2003) 259 ITR 486 (SC) also clinches the issue in favour of the proposition that there was no liability to pay tax in India under the circumstances in this case. Consequently Circular No. 685, being contrary to the law explained by the Supreme Court, does not help the Department. Further, mere payment of tax cannot lead to any conclusion or presumption about the existence of liability under the Act. Tax liability under the Act should be with reference to the explicit provisions and should be arrived at on the basis of charge and computation provisions. There is no scope for presumption or surmise in this regard. Argument of the Department that voluntary deposit of advance tax, TDS or 140A, would necessarily mean existence of liability cannot be upheld as it would lead to disastrous consequences as conversely in every case of non-deposit of tax the assessee may argue that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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