Marubeni Corporation (Liaison Vs. Joint Commissioner of Income Tax - Court Judgment

Excerpt:
1. these are 11 appeals by appellant-company against the orders of cit(a), who upheld the penalties under section 271c relating to asst.yrs. 1990-91 to 1996-97. appeals in ita nos. 3581 to 3587/del/2000 are filed by liaison office of the appellant-company for asst, yrs. 1990-91 to 1996-97 and appeals in ita nos. 3588 to 3591/del/2000 are filed by the project office of the appellant-company for asst. yrs. 1993-94 to 1996-97. facts in all these appeals are similar. however, the appeals in case of liaison office involved the question of jurisdiction of the ao. accordingly this issue will be taken separately and the common issue in all the appeals will be discussed together in all appeals.2. the issues involved in these appeals are that no tax was deducted at source on certain amount of.....

Judgment:
1. These are 11 appeals by appellant-company against the orders of CIT(A), who upheld the penalties under Section 271C relating to asst.

yrs. 1990-91 to 1996-97. Appeals in ITA Nos. 3581 to 3587/Del/2000 are filed by liaison office of the appellant-company for asst, yrs. 1990-91 to 1996-97 and appeals in ITA Nos. 3588 to 3591/Del/2000 are filed by the project office of the appellant-company for asst. yrs. 1993-94 to 1996-97. Facts in all these appeals are similar. However, the appeals in case of liaison office involved the question of jurisdiction of the AO. Accordingly this issue will be taken separately and the common issue in all the appeals will be discussed together in all appeals.

2. The issues involved in these appeals are that no tax was deducted at source on certain amount of emoluments paid by the appellant-company to expatriate Japanese staff, who were on short-term assignment to India.

The emoluments were paid in Tokyo, Japan. The Japanese staff were also paid salary in India on which TDS was deducted. During August, 1996, TDS on the salaries paid in Japan for all the years along with interest under Section 201(1 A) was remitted from Tokyo by the appellant-company. The tax remitted by the liaison office was at Rs. 7,99,52,387 and interest at Rs. 2,08,49,930, whereas in the case of project office the tax and interest under Section 201flA) was remitted at Rs. 1,11,49,233 and Rs. 30,03,278, respectively. The case of the Department is that there was a delay in deduction of TDS and accordingly the penalty under Section 271C were imposed by the AO on account of liaison office and project office by separate orders. In the case of liaison office the penalty of Rs. 10,08,02,319, and in the case of project office the penalty of Rs. 1,41,52,511 were levied under Section 271C @ 100 per cent equivalent to TDS.3. For the purpose of better understanding, the brief background of the case is explained here as under : 3.1. The appellant-company is non-resident company, headquarter of the same is situated at Tokyo, Japan. During the early 1950s the assessee-company obtained permission under Section 229 of FERA from Reserve Bank of India to establish a liaison office at Mumbai, so as to pursue, its business activities consisting of trading, etc. In the later, year the branches of the liaison office were obtained in Calcutta, Chennai and New Delhi. The company also opened a separate project office in 1992 in New Delhi to execute certain project related work. These offices, employ large number of local Indians as well as large number of expatriate Japanese. The Japanese personnel are deputed to these offices from Japan on short-term assignment. The staff so deputed from Japan continue to be on the roll of their head office while on short-term assignment to India. The Japanese personnel are paid salary and allowances in India and they are also paid certain emoluments in Japan consisting of salary, rent-free accommodation, medical expenses/insurance, retention/continuity pay, annual bonus based on performance of the group companies for the year. The appellant-company had deducted TDS on the salaries paid, in India and had also submitted the necessary annual return in Form No. 24. However, no. TDS was deducted in India on the emoluments paid in Japan. The company has submitted necessary Form 24 for each of these years and in case of liaison office the company has submitted the return in Mumbai with Asstt. CIT, TDS Circle 31(1) with TAN-M-2906/B(S)/BBY and P.A. No.35-034-CN-8158/BMY/DC, Spl. Range-I and in case of project office, returns were submitted in New Delhi with Asstt. CIT, TDS Circle 22(1), with TAN-M-0121-C.4. The Asstt. GIT, TDS Circle 22(1), New Delhi, issued a notice under Section 133(6), dt. 27th March, 1996, addressed to the liaison office seeking details which are general in nature about the salary and allowances and other sums paid by the appellant-company and the details of tax deducted at source there from. These details were sought since the incorporation of the company. In reply, the counsel of the appellant-company filed a letter from Bombay, dt. 3rd April, 1996, wherein it was explained that appellant-company was assessed for TDS with Asstt. CIT, TDS Circle 31(1), Bombay, and TAN of the Bombay jurisdiction was also informed and consequently it was insisted that the jurisdiction of the case was already with the above authority and in view of the Circular No. 719, dt. 22nd Aug., 1995, it was submitted that compliance should not be insisted in New Delhi. The AO Circle 22(1), New Delhi, was not satisfied and accordingly he issued summons under Section 131 along with letter dt. 24th April, 1996, and insisted for compliance and submission of the details in New Delhi. The company was also informed in regard to penal consequence for any failure of compliance, 5. Again in reply the counsel of the assessee filed a letter dt. 13th May, 1996, and 20th May, 1996, wherein it was submitted that appellant had paid certain salaries' and emoluments to its expatriate employees in Japan. It was further submitted that since the data was spread over in various companies where the employees were located and since the data was required for number of years, accordingly the time was sought for two months to file the details, as required by the AO. Along with this reply the assessee had filed copies of Form 24 already filed with the AO of Bombay. It was also informed by the company that it had not deducted tax on the emoluments paid in Japan and the appellant is in process of verifying the legal position regarding the emoluments paid in Japan for the purpose of taxation in India. Thereafter during the end of August, 1996, the appellant paid the TDS and interest under Section 201(1A) on their own, details of which are as under : 6. The aforesaid payment of TDS was made in Tokyo through the banking channel, i.e., Bank of Tokyo and Mitsubishi remitted the above sum from Tokyo to Indian Overseas Bank at New Delhi, which in turn paid the said sum to Reserve Bank of India in favour of the IT Department. The Bank of India at New Delhi acted as intermediary to effect the payment from Japan. Thereafter for almost 19 months no further communications, nor any proceedings were initiated against the appellant-company. On 4th Feb., 1998, a notice under Section 271C r/w Section 274 was issued by the Dy. CIT, Range-23, New Delhi (now Jt. CIT, Range-23, New Delhi).

The notice was addressed to liaison office of the appellant-company. In penalty notice the Jt. CIT had made reference of certain Form No. 24 and sought explanation from the company that as to why penalty should not be levied on the short deduction of tax of Rs. 11,49,54,331. A similar notice with identical sum of short deduction was also issued against the project office of the appellant-company.

7. In reply to the said notices the company had filed a detailed letter on 26th Feb., 1998, which consisted of 10 pages, where the proposal of penalty was objected (this reply filed by assessee-company is placed in paper book at pp. 8 to 17). It was again informed that the jurisdiction in the case of liaison office rests with the Asstt. CIT, Mumbai, where the appellant was then assessed and consequently the authorities in Delhi have no jurisdiction to proceed with the penalty proceedings. It was also requested that the notice is defective on various grounds and there is lack of application on the part of the AO before issue of notice. Accordingly, it was urged that the penalty proceedings are invalid. It was also stated before the AO that there was a reasonable cause on various counts, such as there is no obligation to deduct TDS on emoluments paid in Japan, as the expatriate employees in India were on short-term assignments and being in liaison office, they had continued to work with head office at Tokyo. Thus, it was pleaded that the services rendered by these personnel could not be regarded as service in India and hence there is no tax liability in India. It was further stated that emoluments paid in Japan does not arise out of services rendered in India. It was further stated that the emoluments consisted o! continuity/retention pay, housing in Japan, children education, bonus paid on global performance of the company had no relationship with the services rendered in India. Accordingly, it was pleaded that the appellant had paid the tax without diluting its belief that no tax is payable in India on these sums. It was further stated that TDS paid, as stated above, are voluntary on their own volition and under no obligation or pressure from the Department. It was further contended that the appellant was under a bona fide belief that the wording of Section 9(1)(ii) of the IT Act gives enough scope that the above sums are not taxable in India. Thus, it was pleaded that the appellant has been held for a long and the Department had not questioned the same in earlier years. The Department only took the stand to remit the TDS and interest was on account of Circular No. 685 announcing the Amnesty Scheme by the CBDT during the year 1994. It was further stated in letter dt. 26th Feb., 1998, that though the Circular by CBDT is at variance with the decision of the High Court in the case of CIT v. S.G. Pgnatale (1980) 124 ITR 391 (Guj), yet the appellant-company in line with various other Japanese companies, decided to review the matter through their internal legal cell. It was further stated that though the time given to avail the amnesty was up to February, 1995, which these companies felt was not sufficient considering the number of years involved as well as its strong belief that these sums are not liable to tax. However, the process of review of legal position in India was initiated and decision to pay the tax voluntarily on its own could be arrived at only in August, 1996. Thus, the delay was on account of its own internal, long and time consuming procedure, which involved a lengthy exercise because of the data as well as collection of information of employees were to be collected by the company, which were spread over in 165 countries. It was further stated that obtaining of financial clearance from head office was also involved. In support of its claim through letter dt. 26th Feb., 1998, it was further submitted that the assessee-company had several informal discussions with high ranking officials in CBDT and Finance Ministry and assurance was given to the assessee-company that if the company went ahead and paid the taxes, the spirit of Amnesty Scheme would 'still be applied in a positive fashion in dealing with matters and no action would be taken against the company. It was also stated in that letter that in another Japanese company's case, i.e., M/s Mitsubishi Corporation had been granted waiver from the penalty proceedings, even though their declaration had been made after the close of Amnesty Scheme. It was thus pleaded that no penalty should be imposed on the appellant, as the entire amount of tax along with interest has already been paid and the intention of the assessee-company was bona fide one.

8. The AO after discussing the reply was not satisfied with the contention of the assessee. Accordingly he levied penalty under Section 271C on 31st Aug., 1998, at Rs. 10,08,02,319 on liaison office and Rs. 1,41,52,511 on project office. While imposing penalties the AO in paras 4 and 5 of his order has stated that the appellant-company had deliberately and with an intention to defraud the Revenue had not deducted the tax. It was further observed by the AO that the assessee had paid the tax and interest thereon after investigation and detection by the AO and there was no voluntary declaration of the payment of remuneration outside India, Accordingly, he imposed the above mentioned penalties on the appellant-company.

9. The appellant-company preferred appeals before the CIT(A), New Delhi, against the orders of the AO and filed detailed submissions explaining various aspects and issues involved in the case. Some information was sought by the CIT(A). Again detailed submissions were filed by the appellant-company. The remand report was also sought from the AO which was duly furnished by the AO. It was also submitted before the CIT(A) by the appellant-company that on similar facts the Tribunal has cancelled the penalty in case of Mitsui & Co. and accordingly it was stated that the matter is now covered by the decision of the Tribunal. Therefore, it was requested to cancel the penalties levied by the AO for all the years under consideration. The list of cases wherein, penalty proceedings under Section 271C were dropped by the same AO was also filed before the CIT(A) and accordingly it was stated that the facts and issues involved in those cases were identical to that of the appellant-company. Thus, it was pleaded that in case of appellant-company also the penalty should be cancelled.

10. Before the CIT(A) it was also submitted that penalty in case of liaison office, there was no jurisdiction with the present AO who levied the penalty because jurisdiction lies with Mumbai charge and no order has been passed under Section 127 by the CBDT before the date of imposing penalty. It was also informed that the jurisdiction was transferred only on 11th Feb., 1999, when the order under Section 127 was passed by the CBDT. Accordingly, it was pleaded that there was no valid jurisdiction with the officer who imposed penalty. Several other issues were also raised before the C1T(A) and after considering the submissions of the appellant-company and perusing the remand report and penalty order, the CIT(A) was of the view that AO was correct in imposing penalty. The contention of the appellant in regard to jurisdiction was not acceptable to the CIT(A). Accordingly, the same was also rejected. While rejecting the issue in regard to jurisdiction it was observed by the CIT(A) that the lack of jurisdiction would not vitiate the proceedings.

11. Regarding reasonable cause, the CIT(A) has observed that the issue of Circular No. 685 during June, 1994 the appellant cannot contend the lack of knowledge of TDS provisions in India and consequently the arguments of the bona fide belief contended by the appellant were rejected. Regarding the Tribunal decision in the case of Mitsui & Co.

it was observed by the CIT(A) that the decision was rendered by the Tribunal on the facts of that case, therefore, it was distinguishable and accordingly the contention of the appellant was rejected.

12. Similar contentions were made in regard to penalty imposed on project office. However, no arguments raised in regard to jurisdiction because in that case no jurisdiction issue was involved. The CIT(A) rejected the contention of the appellant-company in case of both offices i.e., liaison office and project office and dismissed the appeals of the assessee. Now against these orders of the CIT(A) the assessee is in appeals here before the Tribunal.

13. On behalf of assessee, the learned counsel Shri K.R. Pradeep and on behalf of the Department, learned Senior Departmental Representative Ms. Anita Kapoor appeared from time to time.

14. During the course of hearing of appeals, the learned counsel of the assessee elaborately discussed the grounds raised by the assessee on account of jurisdiction, on account of issuance of. valid notice and on account of reasonable cause for not deducting the tax on account of emoluments paid in Japan. Written submissions were also filed. The attention of the Bench was drawn on various statements indicating corporate income, corporate taxation, total quantum of salaries paid outside India, break-up of TDS paid, break-up of interest paid, copies of Form No. 24 and also on correspondence made with Asstt. CIT, TDS Circle 31, Mumbai, and on copies of orders passed by Asstt. CIT, TDS, Mumbai, etc. Firstly, the counsel of the assessee submitted that in case of liaison office the order of penalty suffers from lack of jurisdiction. It was submitted that the appellant, was under jurisdiction of Asstt. CIT, TDS Circle 31(1), Bombay, and has been allotted TAN No. vide TDS Circle 31(1), Bombay. It was further submitted that transfer of jurisdiction was effected by CBDT only on llth Feb., 1999. Prior to that the Jt. CIT, New Delhi, who issued notice under Section 271C on 4th Feb., 1998, did not have the jurisdiction and this position continued even on the date of passing of penalty order on 3lst Aug., 1998. Accordingly, it was vehemently argued that penalty order in case of liaison office suffers from total lack of jurisdiction. To establish the fact that the appellant liaison office was assessed in Mumbai, attention of the Bench was drawn on copies of Form No. 24 filed in Mumbai. Attention of the Bench was also drawn on copies of challans for payment of taxes, copies of several correspondence and order passed under Section 201 of the Act in respect of the very same year by the Asstt. CIT, Mumbai. It was further submitted that the notice and order of penalty even did not contain the TAN No. issued by AO at New Delhi, as no TAN No. was allotted by the TDS Circle, New Delhi, and therefore, it was rightly not mentioned. It was further submitted that when a notice under Section 133(6} was issued for the first time by the authorities in Delhi on 27th March, 1996, the appellant had immediately taken objection and. pointed out the lack of jurisdiction which was ignored by the AO. It was further submitted that even on subsequent dates i.e., during the penalty proceedings the issue in regard to lack of jurisdiction was raised by the assessee before the AO who, for the reasons known to him, ignored these contentions of the assessee. It was further submitted that copies of Form No. 24, etc. were also filed by the appellant during the course of penalty proceedings and that too on insistence and the direction of the AO. Therefore, in these compelling circumstances the assessee filed the above copies along with the written submissions in regard to penalty proceedings. It was further stated that notices were also issued from Mumbai office and those notices were also complied with by the 'assessee by filing replies. Accordingly, it was stated that the assessee is an existing assessee at Mumbai and in case of existing assessee authority can assume jurisdiction only if it is transferred under Section 127 of the IT Act. It was further pointed out by the counsel of the assessee that in remand report sent by the AO, it was mentioned that though the jurisdiction was transferred on 11th Feb., 1999, but the appellant had not taken objection at the time of penalty proceedings. Regarding this part of the remand report, the counsel of the assessee stated that the assessee from the day one is objecting the jurisdiction and the attention of the Bench was drawn on relevant copies of the letters filed by assessee to this regard at pp. 2, 5 and 10, of the paper book, A copy of the remand report is placed at p. 91 of the paper book filed by assessee. Accordingly, it was forcefully argued that the AO was incorrect in mentioning in his remand report that the assessee has not raised any objection on account of jurisdiction during penalty proceedings. The reliance on this point was placed on the decision in P.V. Doshi v. CIT (1978) 113 ITR 22 (Guj), wherein it is held that there could never be mandatory provision for the simple reason that in such cases jurisdiction could not be conferred on the authority by mere consent. Further reliance was placed on the decision of Hon'ble Supreme Court in Raza Textiles Ltd. v. ITO (1973) 87 FTR 539 (SC), wherein it is held that no authority, much less a guasi judicial authority, can confer jurisdiction on itself by deciding a jurisdiction factor wrongly. The reliance was further placed on the decision in 113 ITR 381 (sic), wherein it is held that order passed by an authority without jurisdiction is a nullity. It was further submitted that the decision in Hindustan Transport Co. v. IAC (1991) 189 ITR 326 (All) relied upon by the learned CIT(A) is not applicable on the facts of the present case, as the said decision was under Section 124(5) of the IT Act; whereas Section 127 is applicable on the facts of the present case, as the assessee is existing one. It was also submitted by the counsel of the assessee that jurisdiction is not procedural but substantive.

15. The counsel of the assessee stated that the findings given by the CIT(A) in paras 4 and 6 of his order are legally and factually incorrect. The learned CIT(A) has mentioned that the appellant had filed TDS returns in New Delhi charge for more than 10 years with TAN No. M 0121-C and further mentioned that Form No. 24 for asst. yr.

1996-97 was filed in New Delhi range on 12th June, 1997. It was also pointed out that the CIT(A) has mentioned that the revised returns were filed on 24th Dec., 1998, in New Delhi. Regarding these observations the counsel of the assessee submitted that in fact these facts were mentioned by the Jt. CIT in his remand report dt. 24th Feb., 1999. It was further added by the counsel of the assessee that first of all the AO has not dealt with the issue of jurisdiction in his penalty order.

Secondly, the appellant had filed Form No. 26 in the case of liaison office since early 1950 until the transfer of case through the order of CBDT on 11th Feb., 1999, with Asstt. CIT, TDS Circle 31(1), Mumbai, and had not filed any such returns in New Delhi as has been stated by the Jt. CIT in his report. The counsel of the assessee requested for direction from the Bench to the Department to produce such Form No. 24, which the Department is contending that they were filed in New Delhi.

At this point of time the Bench directed to the learned Departmental Representative, who readily agreed to produce the Form No. 24 and other files and records available with the Department, which would clinch the issue. In continuance of his arguments, the learned authorised representative further submitted that the learned CIT(A) before giving his findings on jurisdiction, should have sought for physical examination of the Form No. 24, which are said to have been filed in New Delhi, instead of simply relying on the report of the Jt. CIT, which is evidently incorrect.

16. Thirdly, the learned counsel of the assessee submitted that the so-called report of Jt. GIT dt. 24th Feb., 1999, was submitted after procuring copies of Form No. 24, filed at Mumbai. To produce the TDS returns filed by the appellant, the Jt. CIT issued summons dt. 16th Feb., 1999, copy of which is placed at p. 60 in the paper book.

Accordingly, it was submitted that in response to these summons the copies of these Forms No. 24 were filed. Thus, the Jt. CIT intentionally stated incorrectly in his report that Forms No. 24 were filed here at New Delhi. Regarding the TAN No. mentioned as M-0121-C, it was stated that it can be verified easily as this TAN No. pertains to project office and not the liaison office. The attention of the Bench was drawn on copies of Form No. 24 filed at Mumbai, challans for making the payment of tax in Mumbai and certain orders under Section 201 passed in Mumbai for the very same year. It was further submitted that payment of TDS in Reserve Bank of India cannot be treated as conferring jurisdiction, as factually the TDS was remitted through Bank of Tokyo and Mitsubishi to Indian Overseas Bank at New Delhi which deposited the tax with Reserve Bank of India, which acted as a conduit for payment of tax, and such an act cannot be regarded as conferring of jurisdiction. It was further submitted that the payment of salary is the place where the jurisdiction for TDS lies and in this case the Indian portion of salary was paid in Mumbai and overseas salary was paid in Japan and not at New Delhi. Accordingly, there is no question of jurisdiction at New Delhi. The reliance was placed on the Board Circular No. 719, dt. 22nd Aug., 1995, which indicates that in case where the assessee is already filing return under Section 206, no other office shall require the assessee to file such a return with him.

Accordingly, it was stated that it amply clarifies any doubt of jurisdiction. Therefore, it was submitted that direction of the Jt.

CIT, Range-23, New Delhi, in regard to jurisdiction was clearly contrary to the Circular issued by the CBDT. Therefore, it was vehemently argued that the penalty order in the case of liaison office are without jurisdiction.

17. It was further submitted that even the notice issued by the AO was without application of mind, as in both the notices issued in the name of liaison office and in the name of project officer, similar amount of short deduction of tax was mentioned which was at Rs. 11,49,54,831. It was further submitted that there was only information with the AO at New Delhi that the appellant had remitted certain TDS and that knowledge alone would not be sufficient for initiation of penalty proceedings. The AO should have ascertained that where the actual jurisdiction lies or where the regular returns on account of TDS on Form No. 24 were filed and then only he should have issued proper and valid notice to the assessee, which he failed to do so. The reliance was placed on the decisions in Asa John Devinathan and Anr. v. Addl.

CIT (1980) 126 ITR 270 (Mad), Chunnilal Surajmal v. CIT (1986) 160 ITR 141 (Pat), ITO v. Madnani Engg. Works Ltd. (1979) 118 ITR 1 (SC), ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC), Ganga Saran & Sons (P) Ltd. v. ITO (1981) 130 ITR 1 (SC). It was further submitted that the findings of the CIT(A) in para 15 are also not correct, as admittedly the copies of so-called revised returns were submitted only on 24th Dec., 1998, which is after the levy of penalty on 31st Aug., 1998, therefore, mentioning that the returns were filed here at New Delhi is factually incorrect. Accordingly, it was submitted that orders of the AO suffer from so many defects, which are not curable by any means.

Therefore, they should be guashed.

18. It was also submitted by the counsel of the assessee that even on limitation point the penalty for asst. yr. 1990-91 was passed after a lapse of 8 years. Similarly, for other years the orders have been passed after a long delay. It was further stated that though the Act does not specify any time-limit for initiation of proceedings, yet non-specification of time-limit cannot lead to conclusion that proceedings can be initiated after a very long time. In support of this contention, the learned authorised representative placed reliance on the order of the Tribunal in Raymond Woollen Mills Ltd. v. ITO (1996) 57 ITD 536 (Bom). Accordingly it was stated that at least the penalty order for asst. yrs. 1990-91 to 1994-95 should be treated as barred by limitation.

19. On merit, the learned authorised representative submitted that there is no case of levy of penalty under Section 271C, as has been done by the AO, without first establishing that there indeed was a failure on the part of the appellant to deduct tax. It was further added that even it was not ascertained that whether at all there was any obligation to deduct tax by the appellant and if presuming that there was some liability to deduct tax, then in that case the quantum of deduction has to be ascertained first, and then penalty proceedings can be started. In the present case even till the order of penalty, this exercise was not done by the AO. It was further submitted that there was a bona fide and, therefore, there was a reasonable cause in not deducting the tax by the appellant, as the appellant-company was taking legal advice from various authorities i.e., Department of Revenue, Ministry of Finance, as well as from its own legal cell. It was further submitted that the order of penalty is silent on the liability on part of the appellant. It was further submitted that the employees at liaison office of appellant-company has dual obligation of liaising with Mumbai office, Indian operation with their head office in Tokyo as well as the appellant's office and subsidiaries all over the world in more than 165 countries. The appellant-company is one of the largest trading companies in the world with an annual turnover of more than 110 billion US Dollar. Such a business involves continuous travelling to Tokyo and other parts of the world. The stay by expatriate personnel in India is partial. The services rendered by the expatriate personnel are partial in India and rest outside India. The contract of employment always remains in Japan and their stay in India is on deputation. Hence, it was submitted that the services rendered by these personnel cannot be totally regarded as services rendered in India. Large amount of services are rendered outside India which has no relationship whatsoever with the stay or service in India. The expatriate personnel have the obligation to look after the entire region consisting of Indian neighbourhood. Consequently the expatriates have the dual employment or dual responsibility and their primary responsibility and service is to their parent company at Tokyo and the stay in India is only facilitator in nature. It was also submitted that the liaison office, as the name would suggest, is to liaise which indicates existence of two persons or offices. As per the licence issued under FERA for establishing liaison office in India, the appellant cannot carry on any business in India. Consequently the services of all the expatriate employees are utilised in Tokyo and outside India. The counsel of the assessee further submitted that rendering of services involves delivery of services and utilisation of service. In this case the delivery and utilisation of service is outside India. Hence, the expatriate employees are paid primarily salary in Japan and Indian salary in Mumbai. It has been the practice of the appellant to deduct and pay tax in India on the emoluments paid in India. The emoluments paid in Japan was not brought to tax in India in all these years. The emoluments paid in Japan consisted of continuity/retention salary, medical, insurance, perquisite in nature of rent-free accommodation, children education expenses, performance bonus based on global performance of the corporate group. Accordingly, it was submitted that the very nature of the emoluments clearly establish that it has no nexus with the services in India and has clear nexus with the services outside India. The provisions of Section 9(1)(ii) were also referred at this stage by the counsel of the assessee.

20. Accordingly, it was added that since no tax was payable in India, one cannot presume that there existed a liability or obligation to deduct tax in India in terms of Section 192, so as to construe that there was a failure to deduct tax to come within the mischief of Section 271C. It was further contended that the AO has not established any liability on the appellant prior to passing of the order of penalty. The authorised representative also contended that these facts were brought to the knowledge of the authorities below even before passing the penalty order. However, the authorities have rejected these contentions. The attention of the Bench was drawn on the correspondence made by assessee; copies of which are placed at pp. 9,13,14,47,73,82 (Para 3), 111 and 121 of the paper book. It was further contended that only on establishing failure to deduct tax that prima facie case for liability can be made without which not even a notice can be issued.

The learned authorised representative pointed out that even no order under Section 201 or otherwise has been passed by the authorities in all these years, prior to passing of the penalty orders. Accordingly, it was submitted that unless an order under Section 201 is made, the liability of the appellant for payment of tax does not get crystallised. On these submissions the learned counsel of the assessee placed reliance on the decisions in Sequoia Construction Co, Ltd. v.P.P. Sun, ITO (1985) 158 ITR 496 (Del); Detecon Indian Project office v. ITO (1994) 210 ITR 260 (Del); in case of Mitsui & Co. (IT Appeal Nos. 1006 to 1016/Del/1998, dt. 27th May, 1999) [reported as Mitsui & Co. Ltd. v. Dy. CIT (1999) 65 TTJ (Del) 1--Ed.], Accordingly, it was submitted that no penalty can be imposed without first passing an order under Section 201 of the Act.

21. It was further submitted that mere deposit of tax with the Government cannot give rise to a presumption that there has been a failure to deduct tax. Therefore, the presumptions cannot attract penal action against the assessee. It was further submitted that normally the assessments have to be completed first and in the assessment penalty proceedings have to be initiated first and then a show-cause notice for levying the penalty is to be issued. Therefore, it was submitted that in the present case neither any order under Section 201 was passed, nor the amount on which the penalties were imposed, was ascertained as the penalty is levied which is equivalent to 100 per cent of tax in default. Accordingly, it was submitted that unless the quantum of tax default is known, penalty cannot be quantified. On this proposition, the reliance was placed on Nawn Estates (P) Ltd. v. CIT (1977) 106 ITR 384 (Cal).

22. The learned counsel of the assessee specifically pointed out that penalty notice mentioned the short deduction of Rs. 11,49,54,831. The penalty levied is Rs. 10,08,02,319, The consolidated tax paid by the appellant-company is Rs. 7,99,52,389; whereas the tax payment relatable to the years under consideration was only Rs. 4,79,71,436. Accordingly, it was stated that there are difference in figures and even till date the Department has not ascertained that on which amount the penalty was impossable. However, they have imposed the penalty of Rs. 10 crore and odd as stated above. Hence, it was submitted that in absence of an order under Section 201 no conclusive liability to deduct tax has been established. Accordingly, the orders of the AO are not correct.

23. It was further submitted that the appellant had a reasonable cause for delay in deduction and was under bona fide belief that tax was not payable in India on the emoluments paid in Japan to its expatriate employees who were on short-term assignment to India. In this regard the reliance was placed on the decisions in S.G. Pgnataie's case (supra), N. Beaman v. JTO (1995) 52 ITD 83 (Del) and Morgenstem Werner v. CIT (1998) 233 ITR 751 (All).

24. The reliance was also placed on the decisions in Sundetdas Thackersay & Bros. v. CIT (1982) 137 ITR 646 (Cal) and Azadi Bachao Andolan v. Union of India (2001) 116 Taxman 249 (Del). It was again submitted that appellant had prior discussion with the authorities in the Department as well as in the CBDT and Department of Revenue, Government of India, and the assessee remitted the tax and interest only when it was assured that on remittance of tax, no penalty would be levied. However, contrary to the assurance and expectation the penalty has been levied. In this regard the learned counsel of the assessee refers to the correspondence with Revenue Secretary, Government of India, and other authorities in the Department. The attention of the Bench was drawn on relevant papers placed in the paper book. It was further submitted that art. 25 of Double Taxation Agreement between India and Japan provides for a mechanism, wherein disputed issue could be solved by mutual agreement between the competent authorities of both the States and the competent authority in India is Revenue Secretary and this remedy is provided irrespective and in addition to the remedy provided in the domestic State. The consultation with the authorities in India was required as the Circular No. 685 issued by the CBDT was against the legal position interpreted by the Courts as well as by the appellant's own belief that the impugned salaries were not taxable in India. The confusion created by circular require to be redressed by discussion and it is in the course of such discussion an assurance for non-levy of penalty was held out and the appellant implicitly believed in the assurance given. However, the AO has acted contrary to the assurance given. It was further added that appellant-company had paid taxes voluntarily, first in August, 1996, and thereafter in December, 1998. It was further stated that penalty cannot be levied automatically just because it is legal to do so. Penalty should be levied only in the absence of the existence of reasonable cause and if reasonable cause is established, no penalty should be levied. In this regard the reliance was placed on the decision in Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26 (SC) and Cement Marketing Co. of India Ltd. v. Asstt.

CST (1980) 124 ITR 15 (SC). He further submitted that the AO has not established any lack of bona fide of the appellant and he levied penalty by merely rejecting the explanation offered by the appellant.

In this regard the reliance was placed on All India Sewing Machine Co.

v. CIT (1974) 96 ITR 206 (Mys). It was further added that jurisdictional High Court in the case of Azadi Bachao Andolan's case (supra) has laid down some principle on account of bona fide belief and reasonable cause and if the test laid down by the jurisdictional High Court is applied on the facts of the present case, then it will be found that there was a reasonable cause and accordingly no penalty could have been levied.

25. The learned counsel of the assessee stated that the learned Jt. CIT erred in giving the finding that the appellant had defrauded the Revenue by not deducting the tax. It was submitted that such a sweeping finding has been given without any evidence at all. The learned Jt. CIT has not adduced any evidence or reason to come to such a finding. It was submitted that non-deduction of tax would not lead to any loss of revenue to Government of India. In support of this contention, it was submitted that the appellant had submitted a statement of corporate income declared and corporate taxes paid in all these years and perusal of the statement indicates that corporate tax paid by the appellant was far in excess of TDS liability. The appellant-company had not debited the emoluments paid in Japan in the P&L a/c here in India and accordingly had not claimed any deduction for the salaries paid. To that extent the corporate tax paid in India without claiming deduction for the salaries paid, would establish that the Revenue has been fully recovered by the Government even without payment of tax deducted at source. Accordingly, it was submitted that looking to these facts it clearly establishes that there was no mala fide intention on the part of the appellant to defraud the Department or to save the tax.

Therefore, looking to these bona fide intention of the assessee it is clearly established that there was a reasonable cause for not deducting the tax on the amount of emoluments paid outside India.

26. It was seriously contended that the issues involved in these appeals are largely similar to the case decided by the Tribunal in the case of Mitsui & Co. (supra). The reasonable cause given by the appellant are similar to the reasons considered in the said case of Mitsui & Co. (supra) and the Tribunal had given finding in favour of the appellant and deleted the penalty in that case. It was further added that even the facts of the present case are on much better footing. Hence, the decision of the Tribunal should be applied in the case of assessee also. It was further stated that the decision of Delhi Bench in the case of Mitsui & Co. (supra) was brought to the knowledge of the CIT(A) and the CIT(A) did not consider the same by placing reliance on the remand report of the AO that Mitsui & Co.'s case (supra) has not been accepted by the Department as the second appeal has been filed before the Hon'ble Delhi High Court. The counsel of the assessee further stated that the decision of the Tribunal was binding on the CIT(A), as undisputedly the CIT(A) is a subordinate authority to the Tribunal. In this regard the reliance was placed on the decision in the case in State of Kerala and Anr.v. P.K. Syed Akbai Sahib (1988) 173 ITR 1 (SC) and CIT v. L.G. Ramamurthi and Ors, (1977) 110 ITR 453 (Mad). It was further submitted that even Bench cannot differ from another Bench of the Tribunal in case where the facts are similar.

Accordingly, it was submitted that where the reasonable cause has been accepted of a particular case, the same has to be accepted in another case when the facts are similar. Accordingly, it was submitted that CIT(A) erred in not following the decision of the Tribunal. Further reliance was placed on the decision of the Hon'ble Supreme Court in the case of Union of India and Ors. v. Kamalakshay Finance Corpn. Ltd. AIR 1992 SC 711 wherein it is held that the subordinate Courts are bound to follow the decision of the higher Courts.

27. It was further argued that the AO has treated the case of assessee with a highly discriminatory approach, as in many cases on identical issues and facts the AO has dropped the penalty. The attention of the Bench was drawn on the order of the AO placed in the paper book, where the penalties were dropped. Accordingly, it was submitted that a different treatment given to the appellant was not justified.

Accordingly, the penalty should be cancelled. It was further submitted that even in appellant's own group company's case i.e., Merubeni India (P) Ltd., the penalty was dropped by the Department on the identical circumstances. The attention of the Bench was drawn on pp. 99 to 107, where the copy of reply and the copy of order dropping penalty are placed. On this contention the reliance was placed on the decisions of the Supreme Court in Union of India and Ors. v. Kaumudini Narayan Dalai (2001) 249 ITR 219 (SC), Union of India v. Satish Pannalal Shah (2001) 249 ITR 221 (SC) and 245 ITR 422 (sic).

28. The learned counsel of the assessee stated that one of the reasons taken by the AO and again by CIT(A) is that there was delay in payment of TDS. In this connection, it was submitted that Section 271C does not envisage levy of penalty for merely delay in deduction of tax. Sec.

271C is applicable only where there is a total failure and not merely delay. In support of this contention the reliance was placed on the decisions in CIT v. Triveni Engineering Works Ltd. (1985) 154 ITR 561 (Del) and 49 ITD 669 (sic).

29. In reply, the learned Senior Departmental Representative, Ms. Anita Kapoor strongly supported the levy of penalty and accordingly placed reliance on the orders of the authorities below. It was further submitted that the orders have been passed after giving sufficient opportunity to the appellant and all the reasonings given by the appellant were duly considered and the appellant cannot have any grievance against the levy of penalty. She submitted that it is the tendency of many foreign companies to show ignorance of Indian laws, when actually all these companies are assisted by highly qualified professionals and are properly advised. Non-deduction of tax is deliberate and with an intention not to comply with the local laws.

This tendency is more pronounced among the Japanese companies and hence it is a case of enhancing the penalty and not deletion at all.

30. On the issue of jurisdiction, she submitted that the learned authorised representative (sic-AO) had valid jurisdiction. It was further submitted that impugned tax was paid at New Delhi and this incident itself established that the jurisdiction was with the AO who had imposed penalty. It was further stated that the AO had inherent jurisdiction in the territory of New Delhi. The territorial jurisdiction is as per the law and no fault can be found on the same.

She further submitted that the appellant has been submitting its returns in New Delhi under the TAN Number allotted in New Delhi and even as late as on 12th June, 1997, the appellant has submitted the return for the asst. yr. 1996-97 by filing Form No. 24. The learned Senior Departmental Representative further submitted that the returns have been filed in New Delhi for more than a decade and this establishes the jurisdiction. Further, the appellant had offices both in Mumbai and New Delhi and the appellant had an option to file the returns in either of the places and consequently the jurisdiction can be exercised in New Delhi, especially considering that the appellant itself has submitted the returns to the jurisdiction in New Delhi. It was further submitted that the issue of jurisdiction cannot be raised at appellate stage and in support of this contention the reliance was placed on the decisions in Hindustan Transport Co.'s case (supra) and IRC v. Oswald Ltd. v. CIT (1945) 13 ITR 39 (HL). It was further submitted that jurisdiction is not a vital issue to the survival of the order of penalty. It is only an administrative question and lack of jurisdiction does not go to the root of the matter. It was further submitted that the AO in case of short deduction of tax can initiate proceedings anywhere in India and the AO has rightly issued penalty notice in the present case here from Delhi. At this point of time the Bench has raised a query to the learned Departmental Representative that where the appellant was filing return in case of liaison office.

It was fairly admitted by the learned Departmental Representative that the returns were filed earlier at Bombay. However, it was further submitted that later on the appellant has accepted the jurisdiction of Delhi as all the replies were filed here at Delhi. It was further submitted by the learned Departmental Representative that Section 124(5) of the IT Act is very clear and since the salaries were paid in New Delhi, the territorial jurisdiction vests with Jt. CIT, here at Delhi. Accordingly, it was submitted that the learned CIT(A) has reached on correct conclusion in holding that jurisdiction was valid in New Delhi. Referring to Circular No. 719, she further submitted that it is limited to filing of annual return and does not refer to jurisdiction for deduction of TDS. Regarding the order passed by the CBDT on 11th Feb., 1999, it was submitted that this is not an order under Section 127, as it is only a classificatory in nature and has no bearing on the issue involved. Accordingly, it was submitted that jurisdiction having been validly assumed, should not be interfered with.

31 On the question of validity of notice, the learned Departmental Representative submitted that there is no need to be satisfied before issue of notice of penalty and for recording of such satisfaction prior to the issue of notice, as Section 271C does not envisage so. It was further submitted that the wording in Section 271(1)(c) is different from the wording in Section 271C. The former envisages recording of satisfaction in view of the peculiarity of wording in penalty section; whereas the wording of Section 271C does not envisage recording of any such application of mind or satisfaction. Accordingly, it was submitted that the fact that the appellant had paid taxes in New Delhi itself is sufficient to initiate penalty proceedings and no further satisfaction is required.

32. Regarding various defects pointed out in the notices it was submitted that those defects have not created any harm or grievance to the appellant. It was further submitted that these defects can be cured as per provisions of Section 292B of the IT Act, therefore, the notices issued by the AO were valid notices. In support of these contentions, the learned Departmental Representative placed reliance on the decisions in CIT v. Chandulal (1985) 152 ITR 238 (AP), CIT v. Mithila Motors (1984) 149 ITR 751 (Pat), Srinivasa Pitti & Sons v. CIT (1988) 173 ITR 306 (AP) and CIT v. Smt. Kaushalya and Ors.(1994) 75 Taxman 549 (Bom).

33. In regard to the contention of the learned authorised representative that first the Department has to establish the failure to deduct tax, it was submitted that there is no need to establish any failure to deduct the tax as there was no onus on the AO. The tax was not deducted and after realising its mistake the tax was paid in New Delhi, accordingly the AO was justified in imposing penalty. The reliance was placed on this issue on the decisions of the Supreme Court in Gujarat Travancore Agency v. CIT (1989) 177 ITR 455 (SC) and Addl.

CIT v. I.M. Patel & Co. (1992) 196 ITR 297 (SC).

34. On the question of limitation, the learned Departmental Representative submitted that the decision relied upon by the counsel of the assessee in Raymond Woollen Mills Ltd. 's case (supra) does not deal with the limitation of Section 271C. The said decision is on Section 201 and hence is not applicable on the facts of the present case. It was further submitted that there is no time-limit prescribed under the Act for initiating the penalty proceedings and in the absence of any time-limit, the penalty order is within the time-limit under the Act, 35. On the question of passing of order under Section 201 prior to levy of penalty, the learned Departmental Representative submitted that the IT Act does not provide any such passing of the order. It was further submitted that penalty proceedings and assessment proceedings are independent and penalty can be levied without passing any order under Section 201. In support of this contention the reliance was placed on the decision of Rajasthan High Court in Universal Supply Corpn. and Anr. v. State of Rajasthan (1994) 206 ITR 222 (Raj).

36. On the question of reasonable cause the learned Departmental Representative contended that existence of reasonable cause should be proved by the appellant and in this case such a responsibility has not been discharged. Further, no reasonable cause exists, as has been contended by the appellant. Mere payment of corporate tax by not claiming the salaries paid as expenses would not reduce the liability for deduction of tax. At best payment of corporate tax would act as mitigating circumstances and such a mitigating circumstance is not relevant for the purpose of levy of penalty under Section 271C. This fact would be relevant only on an application of waiver of penalty under Section 273A. Existence of reasonable cause should be judged from what an ordinary person of average intelligence would do in a given circumstance. Normally an average person would comply with law and not try to deviate from the explicit position of law. On this basis it has to be held that the appellant has not behaved in a fashion what an ordinary person would do. In regard to the decision in S.G. Pgnatale's case (supra), it was stated that there was no bona fide in the present case and stating that there was a bona fide belief is incorrect, as in the said decision the amended provisions of Section 9(1)(ii) were not considered. The reliance was placed in this regard on the decision in 146 ITR 18 (St). Regarding the decision in Morgenstern Werner's case (supra), it was stated that the facts in that case were also different and similar view was expressed in regard to the decision in N. Beaman's case (supra), as in that case the issue was in regard to payment of leave salary when the employees were outside the country. On the contrary it was stated that there are several decisions which supports the stand of the Revenue and these decisions are in Earlw Tallewt v.ITO (1987) 20 JTD 512 (Bom), JTO v. SA. Hareford (1985) 11 ITD 569 (Del), Grindlays Bank Ltd. v. CIT (1992) 193 ITR 457 (Cal), T.P.S.Scott and Ors. v. CIT (1998) 232 ITR 475 (SC) and Performing Right Society Ltd. & Am. v. CIT (1977) 106 ITR 11 (SC). It was further submitted that these decisions establish the liability of tax of the appellant in India. Hence it is incorrect to say that appellant was under a bona fide belief. Further, it was submitted that bona fide belief or a reasonable cause are findings of fact. Accordingly, facts of each of the cases are to be seen separately. It was also added that bona fide belief or reasonable cause cannot be found on the misconception of law, as held in R.M. Donde, JTO v. Mukundrai Kuberdas Katakia (1989) 176 ITR 381 (Bom).

37. It was further added that the Board has issued Circular No. 685 in June, 1994, which was extended up to February, 1995, and whereby it was clearly stated that those persons who have not deducted the TDS on account of emoluments paid outside India, they can pay the same up to February, 1995 and in that case no penalty would be levied.

Accordingly, it was submitted that appellant was very much aware of this circular but even then the due tax was not paid and was paid after the lapse of 16 months. Therefore, it cannot be stated that there was any bona fide on the part of the assessee. Accordingly, it was submitted that the orders of the authorities below should be confirmed.

38. In regard to the contention of the learned authorised representative that the payee was located in Japan, it was submitted that there cannot be any doubt on the applicability of Section 192 r/w Section 209(1)(d). Accordingly, it was submitted that IT Act applies even to overseas and validity of the Act cannot be questioned. On this proposition the learned Departmental Representative placed reliance on the decision in R.K. Garg v. Union of India and Ors. (1982) 133 ITR 239 (SC). Further reliance was placed on a decision of English case of Oceanic Contractor Ink, wherein the Court of Appeal by majority of 3:2 held that TDS provisions could be applied on extra territory.

39. In regard to the contention that reasonable cause is a question of fact and no case law can be relied in deciding the question of law, the learned Departmental Representative placed reliance on the decisions of Supreme Court in State of Punjab and Ors. v. Surinder Kumar and Ors.(1992) 194 ITR 434 (SC) and CIT v. Brijlal Lohia & Mahabir Prasad Khemka (1972) 84 ITR 273 (SC). It was also submitted by the learned Departmental' Representative that the appellant had complied with the provisions only after sustained investigations by the Department and this fact is evident from the questionnaire issued on 27th March, 1996, under Section 133(6) as well as the subsequent summons under Section 40. Regarding the decision in the case of Mitsui & Co., the learned Departmental Representative submitted that this case should not be considered as relief granted in that case was based on the facts of that case. It was also submitted that reasonable cause should be ascertained in each case and hence Mitsui & Co.'s case (supra) being a decision on facts cannot be applied to the appellant's case. The learned Departmental Representative further stated that even the facts of the case of Mitsui & Co.'s case (supra) are entirely different and in this regard the learned Departmental Representative filed written submissions. It was also stated by the learned Departmental Representative that Mitsui case was decided by the Tribunal on incorrect position of law and in such cases it is not required for other Benches of the Tribunal to follow the decision in case of Mitsui & Co. (supra). In support of this contention the learned Departmental Representative placed reliance on the decision in CIT v. Kalpetta Estates Ltd. (1995) 211 ITR 635 (Ker) and also on the decision of Madras Bench in Smt G. Krishnammal v. Dy. CIT (1998) 61 TTJ (Mad) 99.

41. On the question of the decision of Delhi High Court in the case of Azadi Bachao Andolan (supra), the learned Departmental Representative submitted that the case should not be applied in deciding the present appeal, as the High Court has not gone into the validity of levy of penalty and had confined itself to cases where penalties were dropped by the Department. It was further submitted that rate of tax in Japan on salaries was lower as compared to India and hence appellant had resorted to arranging its affairs so as to reduce its tax liability and in support, she submitted certain report downloaded from Internet titled "Income-tax information for foreign employees working in Japan" and another report titled as "International Comparison of unit of taxation and basic personal exemption". Based on these two reports, the learned Departmental Representative contended that appellant had positively engaged in not paying tax in India. Lastly, it was requested that the orders of the authorities below should be sustained on all the points.

42. In rejoinder, the learned counsel of the assessee submitted -that the Department has failed to produce the relevant records on which the AO as well as the CIT(A) have placed reliance, i.e., the returns were filed in Delhi and the tax was paid as shown in the returns in Delhi.

It was further submitted that even the records in the case of 14 assessees where the penalties were dropped, have not been produced by the Department. At this point of time the learned Departmental Representative intervened that all the records are available with her, those can be seen at any time. However, it was fairly admitted by her that before asst. yr. 1997-98 no record is available which established that returns were filed here at Delhi. All the records which were available with the learned Departmental Representative were for the period 1st April, 1996, to 31st May, 1996, which was relevant to asst.

yr. 1997-98 and this year is not before the Tribunal. From the records available with the learned Departmental Representative as well as in the paper book, it is noticed that the Form No. 16 were filed at Bombay and the TDS was paid at Bombay. It was also fairly admitted by the learned Departmental Representative that Department does not possess any Form No. 24 indicating short deduction of tax on which basis the penalty was levied. It was also confirmed by her that no returns on Form No. 24 were filed in New Delhi for earlier years i.e., prior to asst. yr. 1997-98.

43. After that the counsel of the assessee further submitted that there is no iota of evidence which established that assessee had filed any return here at Delhi as all the returns were filed in Mumbai and TDS were deducted there. Accordingly, it was submitted that there is no case of Department that assessee had paid any tax in Delhi, therefore, the jurisdiction was with Delhi. The counsel of the assessee also filed copies of Form No. 24 for all these years filed at Mumbai and also filed bank advices for establishing that the salaries paid to expatriates in India were paid in Mumbai. It was reiterated by the counsel of the assessee that jurisdiction being mandatory cannot be transferred either by consent or agreement; transfer of jurisdiction can be only through an order under Section 127 and in this case, it was again stated that the order under Section 127 of the Act was passed only on 11th Feb., 1999.

44. In reply on the question of issuing notice under Section 133(6) it was stated that the reply was filed under protest as the Department has issued summons threatening that if they are not complied with, the penalties will be imposed. It was accordingly submitted that by merely filing replies, cannot confer any jurisdiction. It was again stated that if an order lacks jurisdiction, the same can be challenged at any stage and in support of this contention the reliance was placed on 113 ITR 381 (sic) and further reference to the decision of Supreme Court in Raza Textile Ltd.'s case (supra), which holds an order without jurisdiction as a nullity from the beginning, was made.

45. In reply in regard to issue of notice it was submitted that the learned Departmental Representative has placed reliance on four decisions i.e. Chandulal's case (supra); Mithila Motors (P) Ltd.'s case (supra) 133 ITR 306 (sic) and Smt. Kaushalya's case (supra). All of them bring out principle that the defects in notice if it is fatal and does not cause any harm then such defects can be ignored. It was further submitted that defects in the present case are vital and cause harm to the assessee, therefore, the ratio of these decisions are distinguishable. Accordingly, it was submitted that in reality no proceedings were in existence, therefore, all the notices were without jurisdiction. Therefore, the order should be declared void ab initio.

It was further submitted by the counsel of the assessee that in this case tax was paid with an intention to avoid litigation and purchase peace and in line with suggestions made by authorities in the Department. The tax and interest was paid in good faith and the Department had specifically assured that no penalty would be levied. In such circumstances no penalty shall be visited, as held by the Supreme Court in the case in CIT v. Suresh Chandra Mittal (2001) 251 JTR 9 (SC). In this case the decision of the Madhya Pradesh High Court was upheld in CIT v. Suresh Chandra Mittal (2000) 241 ITR 124 (MP). It was further submitted by the learned authorised representative though amendment to Section 9(1)(ii) were brought in 1983, still the Department clarified the legal position only in June, 1994, by issuing Circular No. 685. Even the circular is not free from doubt, as the circular prescribed liability across the board by mentioning that all payments of salaries outside India is taxable, whereas uniformly the Tribunal and the Courts have held otherwise. It was further added that the decision in N. Beaman's case, (supra) was rendered on September, 1994, while the Circular No. 685 was still in operation. The decision of the Tribunal is different from the position of law explained in the circular. Accordingly, it was further submitted that all this confusion led the appellant to seek clarification from the Department as provided in Article 25 of DTA between India and Japan and considerable time was spent on the same. Even though no clarity in the position of law emerged, still the appellant decided to pay tax on its own and such a payment cannot be construed as defrauding the Revenue. It was further added by the counsel of the assessee that decision cited by the learned Departmental Representative in S.A. Hareford's case (supra) actually supports the appellant's belief of bona Me, as in this decision the Tribunal set aside the matter for want of material and did not decide the issue. It was further submitted that likewise, other decisions cited by the learned Departmental Representative does not help the Department, as the facts of those cases are distinguishable. It was further submitted that the circular was issued in June, 1994, which was extended up to February, 1995, therefore, up to asst. yr. 1995-96 there was a bona fide belief and this cannot be disputed even by the Department.

46. It was further submitted that the facts of Mitsui's case are similar to the facts of the assessee. It was also submitted that all the decisions cited by the learned Departmental Representative have already been considered by Tribunal in the case of Mitsui & Co., which is squarely applicable on the facts of the present case. Further reliance was placed on the decision in Cement Marketing Co. of India Ltd. '5 case (supra) and the decision of Delhi High Court in the case of Azadi Bachao Andolan (supra). It was also added by the counsel of the assessee that the Tribunal in the case of Mitsui & Co. has taken due note of the decision of Court of Appeal in English case, in para 8.33A at p. 81, on which the learned Departmental Representative has placed reliance. Accordingly, it was submitted that there is no case for making a departure from the decision given in case of Mitsui Accordingly, it was requested that the decision in the case of Mitsui should be followed. Again reliance was placed on the decision in L.G.Ramamurthi's case (supra), Kaumudini Narayan Dalal's case (supra) and also on the decision of Delhi High Court in CIT v. A.L. Ramanathan (2000) 245 ITR 494 (Mad), wherein it is held that for the sake of consistency, the same view as taken earlier should be taken unless there is material change in the facts.

47. In last, it was submitted that the Department has adopted a highly arbitrary and discriminatory approach against the appellant, inasmuch as in all 14 cases cited above, where the facts were identical, the penalties have been dropped by the Department itself. Accordingly, it was pleaded that penalties levied in these cases and confirmed by the CIT(A) should be cancelled.

48. We have heard the rival submissions and considered them carefully.

We have perused the material on record on which our attentions were drawn also with the case law, as relied upon by both the parties. We have also considered the decision of the Tribunal, Delhi Bench in the case of Mitsui & Co. (supra). Accordingly, we deal with each of the issue as under: 49. First and foremost issue of jurisdiction in case of liaison office of the appellant required to be settled. We have gone through the copies of Form No. 24 filed by the appellant in Mumbai as well as the other documents, such as payment of tax, credit of salary in bank account. Form No. 16 'issued, etc. All these documents clearly indicate that the appellant had paid salaries in Mumbai to their expatriate employees located in India. Further, the tax was deducted and paid in Mumbai. Necessary compliance of filing the returns and other TDS proceedings under Section 201, etc. has been carried out at Bombay before Asstt. CIT, TDS Circle 31(1), Mumbai, under TAN No. M-2906B(S) BBY. We have seen certain orders passed by the Asstt. CIT at Bombay under Section 201 of the Act, which positively concludes that jurisdiction was at Mumbai. There is no return filed at New Delhi in any of the year involved in these appeals, or in earlier year. We further noted that even after the levy of penalty the compliance of TDS related issues continued in Mumbai until 11th Feb., 1999, the date on which the jurisdiction was transferred by the CBDT with Jt. CIT, New Delhi. Thus, factually there is no scope to hold that jurisdiction was at New Delhi. The appellant is an existing assessee and in such a case transfer of jurisdiction, if any, can only be in a manner provided under Section 127 of the IT Act. In this case the order passed by the CBDT was on llth Feb., 1999, and it cannot be said that prior to that date, there was any jurisdiction in New Delhi.

50. The learned Departmental Representative has also fairly conceded that the Department does not have any Form No. 24 for the years under appeal. It is very strange for us to see that the Department assumed jurisdiction in this case though the appellant had taken objection against, as well as had furnished details of TAN No. with Mumbai office. When such an objection is taken at very initial stage, the Jt.

CIT, Delhi should have dealt with the same before levy of penalty. It is equally strange that Jt. CIT has not dealt with the issue of jurisdiction in his orders of penalty. Subsequently the Jt. CIT has submitted factually incorrect report to CIT(A) wherein he claimed that the appellant had been filing the returns in his charge for more than a decade. He also claimed before the CIT(A) that the appellant had paid tax in his jurisdiction and had revised returns filed before him. We have obtained the records from the learned Departmental Representative and find that the report of the AO is not correct, as from the records it is very clear that assessee was filing Form No. 24, etc. with the Asstt. CIT, Mumbai and copies thereof were filed before the AO on his requirement. We find that the report of the AO on point of jurisdiction that the issue was never raised before him, is also not correct, as from the correspondence it is very clear that assessee has raised this objection on initial stage. We further noted that the learned Departmental Representative also could not see these replies filed by the appellant before the Jt. CIT. However, all the copies of these correspondence are placed in the paper book. We noted that the appellant has categorically stated before the CIT(A) that no returns were filed in Delhi charge and had furnished full details with jurisdiction in Mumbai. We find that in spite of such submissions the CIT(A) ignored the plea of the appellant, which was well founded with evidence and chose to rely on the report of Jt. CIT. Nothing was prevented the Jt. CIT or the CIT(A) to have called the records from Mumbai office to reach a finding on the jurisdiction, but for the reasons known to the authorities below, this exercise was not done. As we have already stated that both the lower authorities could have examined the point of jurisdiction, especially knowing that the proceedings are penal in nature. We further found that even territorial jurisdiction lies at Mumbai as the salaries to expatriate employees were paid in Mumbai, which is clearly evidenced by the tax paid challans, Form No. 24, bank advice, Form No. 16, etc. Hence, the contention of the learned Departmental Representative that territorial jurisdiction as provided under Section 124(5) lies with Asstt. CIT, New Delhi, in our considered view, is not well founded. The salary paid overseas to the expatriate employees was at Tokyo and the tax was also deducted at Tokyo. Such tax was remitted to India through Bank of Tokyo and Mitsubishi, who in turn made arrangements with Indian Overseas Bank, New Delhi to remit it to the Reserve Bank of India. Thus, the bank acted as an intermediary for payment of tax and such a payment cannot be assumed as conferring jurisdiction at New Delhi. The appellant is right in contending that it has not conceded jurisdiction in New Delhi by participating under protest in the proceedings before the authorities. In the case in P.V. Doshi's case (supra), the Hon'ble High Court has held that "There could never be waiver of a mandatory provision for the simple reason that in such cases jurisdiction could not be conferred on the authority by mere consent, but only on conditions precedent for the exercise of jurisdiction being fulfilled.

If jurisdiction cannot be conferred by consent, there would be no question of waiver, acquiescence or estoppel or the bar of res judicata being attracted because the order in such cases would lack inherent jurisdiction and would be a void order or a nullity. If an original order is without jurisdiction it would be a nullity confirmed in further appeals. The appellate order of the Tribunal thereon would also be a nullity and the Tribunal cannot confer any jurisdiction on the ITO by making a remand report.." 50.1. Further an order without jurisdiction is a nullity from the beginning and can be challenged wherever and whenever it is sought to be enforced. Accordingly, we are not satisfied with the contention of the learned Departmental Representative in saying that' question of jurisdiction cannot be raised in appellate proceedings. Therefore, such a view does not find any merit. This view of ours further find support from the ratio of the decisions relied upon by the counsel of the assessee (supra).

50.2. The reliance placed by the learned Departmental Representative on the decision in Hindustan Transport Co. 's case (supra) is not applicable on the facts of the present case. In fact the decision of the Hon'ble Supreme Court in the case in Raza Taxtiles Ltd.'s case (supra) has categorically held that no authority, much less quasi judicial authority, can confer jurisdiction on itself by deciding a jurisdictional factor wrongly.

51.'We further noted that Circular No. 719, dt. 22nd Aug., 1995, issued by the CBDT has also clarified the issue in regard to jurisdiction.

Para 3 of Circular No. 719, dt. 22nd Aug., 1995, says as under : 3. It is clarified where the head office or the branch office is already filing the return under Section 206 no other AO shall require the assessee to file such return with him. Where, however the return is not being filed the AO having jurisdiction in term of r. 36A of the IT Rules may proceed so as to enforce compliance with the. provisions relating to deduction of tax at source from salary.

51.1. The language of circular is very clear in all terms which does not require any explanation. The assessee's head office was situated at Bombay, where the regular returns in regard to TDS on salary were filed on Form No. 24; they were accepted there; order under Section 201 was passed there. On receipt of notice under Section 133(6) and then under Section 131 in May, 1996, the assessee from the day one clarified this position that it is regularly assessed at Bombay with Asstt. CIT, Circle 31(1). Accordingly, its jurisdiction lies there. Having all these information even then the AO assumed jurisdiction which, in our considered view, was totally wrong, as the AO cannot assume jurisdiction by applying wrong application of facts. The circular issued by the CBDT is binding on the Department. Therefore, it cannot be said that any officer can assume jurisdiction without the order by the CBDT under Section 127.

51.2. Therefore, in view of these facts and circumstances, we hold that the orders passed by the AO in the case of liaison office are without jurisdiction. Therefore, these proceedings are null and void.

Accordingly we quash the penalty orders passed by the Jt. CIT on the point of jurisdiction. The orders of the CIT(A) automatically set aside as we have held that the penalty orders are without jurisdiction.

52. The next common issue which relates to all appeals, is related to bona fide belief and reasonable cause. Both the sides have submitted detailed arguments on this question. In support the appellant has taken us through various paragraphs in the decision of Mitsui & Co. case and after going through those paras, we find that lot of similarity is therewith the facts of the present appeals. In fact the Tribunal while dealing with Mitsui & Co.'s case (supra) had made a mention of the appellant-company's name in para 8.33(d), which is as under: "(d) On going through the copies of said circulars seized from the project office on survey by the Asstt. CIT, as extracted above, we find that when the Government of India came out with the scheme for foreign company to pay the short deduction amount from salary paid to its expatriate employees, including that paid in foreign country to avoid penalty and prosecution, various Japanese companies having their business interest in India, such as, Mitsubishi, Sumitomo, Itochen, Merubeni Missh'o Corporation, Mitsui, Bank of Tokyo and Sakura Bank held consultations among themselves and in the meeting held the Bank of Tokyo and Saukra Bank expressed their opinion that they wanted to revise their returns accordingly to the intention of the tax authorities in India but looking to several financial years involved it was found impossible to do so before the target date. It so appears that other Japanese companies including the assessee-company, fell in line with the Bank of Tokyo and Sakura Bank and ultimately paid the short deduction amount as well as interest thereon. This indicates that most of the Japanese companies having business interest in India including the assessee-company were not deducting tax on payment made to their expatriate employees in Japan. Thus, the bona fide belief entertained by the assessee that Chapter XVII-B has no extra territorial operation with regard to the payments made in Japan to its expatriate employees based on legal advice cannot be said to be an after thought but such view or opinion prevailed at the relevant time during the financial years involved among Japanese companies." 53. We further noted that the arguments submitted by both sides on this question has been largely the same and, in fact, the case law relied upon by the Department have been mentioned by the Tribunal in the case of Mitsui '& Co. In addition the appellant has relied on the decision of the Supreme Court in the case of Cement Marketing Co. of India Ltd. (supra), which has held that if a particular item is omitted under a bona fide belief, then it would not be right to condemn the same and impose penalty. Though the Department has contended that the appellant's case is not similar to the case of Mitsui & Co. (supra), yet no distinction of any significance on the facts was brought to the notice. It was strongly stated by the learned Departmental Representative that the findings in the case of Mitsui & Co. (supra) are findings of fact, therefore, these findings cannot be relied upon here. These submissions of the learned Departmental Representative are not well founded because of the facts of each case has to be seen separately. If facts are similar, then no second view should be adopted. The approach should be a consistent one. As we have already stated that we have gone through the decision of Tribunal in the case of Mitsui & Co. (supra) and found that the facts on reasonable cause are largely similar to the facts of the present cases. Accordingly when the facts are similar, then there should not be contrary decision and the order of the Tribunal should be followed for the sake of consistency. A departure from this principle is not ordinarily called for, unless it is shown that earlier decision was an error arising out of wrong application of law. The contention of the learned Departmental Representative that overrule of decision by majority by the Court of Appeal in English case Oceanic Container Incorporation was not known to the Tribunal in Mitsui & Co. 's case (supra) is not correct. In fact the Tribunal had taken specific note of the para 8.33-A. Further argument of the learned Departmental Representative that the petitioner had withdrawn the appeal before the Supreme Court in Electronics Corporation of India Ltd. v. CIT (1990) 183 ITR 43 (SC), which involved reference to Larger Bench, has no bearing on the issue, as even after the withdrawal of the appeal the question referred by the Supreme Court to the Larger Bench on the issue of extra territorial application of the provisions of the IT Act remained inconclusive and thereby strengthen the argument of the existence of bona fide belief.

54. The decision cited by the learned authorised representative on L.G.Ramamurthi's case (supra); Kaumudini Namyan Dalal's case (supra) and A.L. Ramanathan's case (supra), wherein the Delhi High Court has held that the earlier decision of the Tribunal on the same facts must be followed. In this case no misapplication of law or any other thing has been brought to our notice so as to warrant a departure. The written submissions filed by the learned Departmental Representative on 13th Nov., 2001, and the appellant's reply thereon have been considered. On going through the submissions we do not see any reason to disturb the finding given in the case of Mitsui & Co. (supra). The arguments of the learned Departmental Representative does not bring out any material difference and are not compelling enough to make a departure.

55. After going through the orders of the CIT(A), wherein it is mentioned that reasonable cause should be judged on the basis of facts of each case, accordingly the decision of Mitsui case was not followed, we noted that CIT(A) has not brought out any distinction between these two cases. The reasons given by the Jt. CIT in his remand report for not applying the decision in the case of Mitsui is that the same has not been accepted by the Department and the Department has filed further appeal before the High Court. In our considered view, this objection of the AO was incorrect because of any order passed by any authority is binding on the subordinate Court, unless that order is stayed by any higher Court. This view of ours find support from the decision of the Supreme Court in the case of Kamalakshi Finance Corpn.

Ltd. (supra). If this healthy rule is not followed, the result will only be undue harassment to the assessees and chaos in the administration of tax laws. In view of all these-facts, it was essential that the authorities below should have followed the decision of the Tribunal. In the said decision the Tribunal has held in favour of the appellant and had given a finding that the bona fide belief indeed existed constituting reasonable cause on the basis of which penalty was deleted. We are of the same view in regard to the facts of the present cases, as the appellant in these cases was under a bona fide belief and the same constitutes reasonable cause. The bona fide belief in this case was even more genuine, inasmuch as even the basic liability against the appellant-company was not established by the Department, In such circumstances no one can say that bona fide belief does not exist.

56. In the case of Supreme Court reported in Hindustan Steel Ltd.'s case (supra), it has been held that imposition of penalty is a matter of discretion and should be exercised judiciously and on a consideration of relevant circumstances. It has been held further that penalty will not ordinarily be imposed, unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumaciously or dishonest or acted in conscious disregard of its obligation.

57. In the present cases, we do not find any defiance of law or conduct contumacious or dishonest on the part of the appellant. In fact the appellant had voluntarily paid the taxes even though it was against its long held belief that the salaries paid outside India were not for the services in India and on these sums it was not liable to pay tax in India. The argument of the Department that the payment of tax was after sustained investigations is not borne out from the records. The Department had merely issued a general notice under Section 133(6) calling for details from the appellant from the date of incorporation of the appellant-company. It was gathered that the appellant-company is in existence for more than eight decades and one hopes, it was not the intention of the AO to seek details for such a long period. A perusal of the notice under Section 133(6) does not give rise to any idea that the issue of notice was as a result of sustained investigations.

Moreover, mere issue of general notice cannot be termed as sustained investigation, It is gathered that such notices were issued in general to large number of people.

58. We further noted that after Knowing the contents of the notice issued in May, 1996, the appellant immediately informed its head office at Japan and after collecting the datas from all branches, as they were spread over in 165 countries of the world, and then immediately made payment in August, 1996. Therefore, this fact of the appellant cannot be said that they were not interested in making the payments. On the other side the efforts were going on with the Ministry Of Finance and the CBDT and even before getting any suitable reply from the CBDT or Ministry of Finance, the assessee decided to make payment. This intention of the appellant-company again cannot be equated with any mala fide intention. Thus, the payment made by the appellant cannot be held that the same was not voluntary. Further contention of the learned Departmental Representative that the voluntary payment has no bearing on the levy of penalty, as it does not constitute a reasonable cause, in our view, is also not correct. In the recent decision of the Delhi High Court in the case of Azadi Bachao Andolan (supra) it is held that conditions mentioned in Section 273A are equally applicable in judging existence of reasonable cause under Section 273B of the Act, and has given directions to the Tribunal to do so.

59. We further noted that while directing the Tribunal the Hon'ble Delhi High Court in the case of Azadi Bachao Andolan has laid down some principles, which are as under : "So far as the non-levy was concerned, the following reasons in each case seemed to have weighed with the authorities for non-levy: (i) case where the deductor had voluntarily revised its TDS statements and paid taxes and interest thereon.

(ii) the deductor had co-operated with the Department in the proceedings.

(iii) The deductor was under a bona fide belief that it was not liable to deduct tax at source on the payments in question.

(iv) The deductor was guided by the Foreign Chamber of Commerce and Industry who held meeting with Chief CIT seeking waiver of penalty and prosecution if they come forward voluntarily and pay the taxes thereon." 60. After reading these tests carefully we find that the tests laid down by the High Court have already been satisfied, as assessee had made voluntary payment. There is no case of the Department that the assessee has not cooperated with the Department as each and every notice received by the assessee was fully complied with. Third condition that there should be bona fide belief, this condition is also satisfied because the assessee was trying to clarify whether it was liable to pay the tax on account of emoluments paid to its expatriate employees in Japan, and when the same was not clarified then immediately the taxes were paid in August, 1996. The fourth test laid down by the High Court is also fully satisfied because the appellant-company was in constant touch with the Ministry of Finance and higher officials of CBDT. Therefore, there is no case that assessee was not willing to pay the tax. If there was any delay that was due to bona fide belief that the company is not liable to pay tax on the amount of emoluments paid in Japan. Accordingly, in our considered view, there was a sufficient reasonable cause for not making the payment in time.

61. We have seen that the assessee was taking advice from its legal cell and also was in continuous touch with the Department of Revenue, Ministry of Finance from the very beginning. The appellant-company along with others, had made a representation to the Secretary of Revenue, Ministry of Finance and was seeking advice that in such circumstances, what should be done. The copies of the correspondence are lying in the paper book. We have also seen that in some of the cases the Department has dropped the penalty proceedings itself. No detail whatsoever has been furnished by the Department that why these penalties were dropped and what were the distinguishable facts in those cases. Nothing was brought on record and no details were furnished.

Therefore, in our considered view, the Department should not adopt a different approach in such cases. Even in the case of assessee's group the penalties were dropped at Bombay office by the Department, but on the same facts heavy penalties were imposed by the same Department in Delhi.

62. We further noted that the AO in his remand report, copy of the same is placed at p. 93 of the paper book, has mentioned that the delay after the issue of Circular No. 685, which expired on 28th Feb., 1995, cannot be accepted and similar view has also been held by the CIT(A) in para 17 of her order, wherein it had stated that repeated circulars issued by CBDT clarifying the position of law. We noted that number of years were involved in the present case and the salaries were paid in Japan. The company was collecting the datas in regard to payment of salary, medical, insurance, children education expenses, bonus, accommodation, etc. in regard to expatriate employees, therefore, there was a reasonable cause. As soon as these datas were collected the appellant-company paid due taxes along with interest immediately through its banking channel in Japan. It cannot be said that the intention of the assessee was mala fide. We further noted that the AO even has not ascertained the amount of liability. He just issued show-cause notices on the basis of payment made by the appellant-company and then imposed the penalties. Even it was not bothered by the AO that how much amount belonging to tax and how much interest, as the penalty is levied only on short deduction of tax. The circular issued by -the CBDT in the year 1994 extended up to February, 1995, itself establishes that now the tax on emoluments paid outside India is payable by company on behalf of their expatriate employees and if the assessee-company after collecting its datas, etc. paid the tax, in our considered view, this should not be treated as mala fide action for the purpose of levying penalty. All the factors such as representation of the company made with the officials of the Department of Revenue and all other factors should be taken into consideration, then any conclusion should be drawn that whether there was any bona fide or mala fide intention. As we have already stated that we have seen the correspondence made by the appellant-company and from those correspondence the only conclusion that can be drawn that there was a bona fide belief for not depositing the tax in time, as the appellant-company is a big company and the branches of the same are spread over 165 countries of the world and it was collecting datas. No contrary material has been brought on record by the Department that the intention of the appellant-company was not bona fide, especially when the same Department is dropping the penalty in another assessee's case, where the same set of facts were involved. We have seen that even after issuing the circular by the CBDT, the appellant was in touch with the Department to discuss its liability and such a consultation was provided under Double Taxation Avoidance Treaty between India and Japan. Such correspondences by assessee cannot be said that assessee was having any mala fide intention to avoid due tax. From the correspondences done by appellant-company the only inference can be drawn that the appellant-company was trying to clear itself on the issue of payment of taxes. Even before hearing from the Revenue Secretary or from CBDT, the appellant-company immediately made payment in August, 1996. The notices/summons were issued in May, 1996, only.

Therefore, it can be said that there was no mala fide intention of the company. The efforts of the company can be equated with bona fide or bona fide belief. Therefore keeping in view of these facts and circumstances, we hold that there was a reasonable cause for not depositing the tax on account of emoluments paid to expatriates, in time. Accordingly, we order to delete the entire penalties levied under Section 271C for all the years under appeal here before us.

63. As we have cancelled the penalty order on the issue of jurisdiction and on account of reasonable cause, therefore, we feel that the question of validity of notice or defective notice, etc. need not to be decided at this point of time. Therefore, they are disposed of accordingly.