Full Judgment
2. The appeal in ITA 385/Del/2002 has been filed by the assessee on 12^th February, 2002 against the order of the Ld. CIT(A)-XXX, New Delhi dated 20^th November, 2001 in the case of the assessee in relation to orders Under Section 201(1) and 201(1A) of the Act for assessment years 1998-99 and 1999-2000. Later on when the assessee realized that there were two assessment years involved the assessee filed one more appeal on 1^stOctober, 2004. In these appeals the assessee has disputed being treated the assessee in default Under Section 201(1) and being charged interest Under Section 201(1 A) of the Act in relation to salary received overseas by the assessee's Managing Director. The facts of the case, briefly are that the assessee is a company incorporated in India in which Kinetic Technology International B.V. Netherlands (now Technip Benelux B.V. of the Netherlands) had 50% share holding. One Mr. W.G.Holt joined the company as Vice President on 3^rdJanuary, 1988 and later on became the Managing Director of the assessee company on 27^th April, 1998. There was a survey operation Under Section 133 A(1) of the Act conducted at the business premises of the assessee company on 1^stDecember, 1999. During the course of survey operation statement of Shri W.G. Holt was recorded. In the course of the statement Mr. Holt denied having received any salaries overseas for the services rendered in India. However, subsequently, when Mr. Holt's statement was recorded Under Section 131 on 6th December, 1999 Mr. Holt admitted having received the following salary from Kinetic Technology International B.V. Netherlands:- 3. The AO noticed that the assessee company in India was not clubbing the salary received by Mr. Holt overseas for the purpose of deduction of tax at source. Consequently, no tax was deducted from the overseas salary. The AO therefore, proceeded to pass orders Under Section 201(1) and 201(1 A) in relation to unpaid tax and interest on such unpaid tax.
During the course of proceedings Under Section 201(1) and 201(1A) for the two assessment years 1998-99 and 1999-2000 the assessee agreed to be treated as assessee in default and paid the amount of tax as well as interest Under Section 201(1 A) which was worked out by the Ld. AO in the following manner: 4. However, the assessee filed appeal before the Ld CIT(A) against the orders Under Section 201(1)and 201(1 A) made by the AO on 7^th February, 2000. During the course of proceedings before the CIT(A), the assessee argued that it had no knowledge about the salaries paid overseas to Mr. Holt. Mr. Holt never disclosed this fact to the Principal Officer of the company in-charge of tax deduction at source and, therefore, the assessee company had no occasion or basis to deduct tax at source in relation to salaries received by Mr. Holt from Kinetic Technology International B.V. Netherlands outside India. The Ld. CIT(A) considered this contention of the assessee. He found the contention of the assessee company in India that it had no knowledge of salaries paid to Mr. Holt overseas to be not correct. Kinetic Technology International B.V., Netherlands had 50% share in the assessee company and there was commonality of funds, technology and other interests. In fact, it was Kinetic Technology International B.V., Netherlands who had deputed Mr. Holt as Vice President and subsequently as Managing Director of the assessee company. According to the Ld. CIT(A), the amount paid to Mr. Holt was as agreed upon between the companies. The modus operandi was that part of the salary of Mr. Holt would be transferred to Netherlands company as part of the profit with the sole objective of avoiding Indian tax on such salary payments. The Ld.
CIT(A) noted that the assessee was not alone in this kind of practice.
As a matter of fact, this practice was being adopted in India by several multinationals so much so that when such facts come to light CBDT issued three circulars in quick succession being circular No. 685 dated 20^th June, 1994,Circular No.636 dated 12^th August, 1994 and Circular No. 696 dated 16^th December, 1994. The survey Under Section 133 A was conducted at the business premises of the assessee company and similar surveys had been conducted also at the business premises of a large number of multinational companies operating in India. The CIT(A) held that legal position was quite clear. Under the provisions of Section 9(1)(ii) of IT Act, 1961 salaries paid overseas to Mr. Holt was chargeable to tax in India under the head "Salaries". That being so, there was liability to deduct tax at source not only from the salary paid to Mr. Holt in India, but also from the salary being paid to Mr. Holt overseas. The Ld. CIT(A), therefore, held that the assessee had rightly been treated to be an assessee in default in relation to salary paid to Mr. Hole overseas and he accordingly upheld the orders of the AO Under Section 201(1) and 201(1 A) for both financial years 1998-99 and 1999-2000. Still aggrieved, the assessee is in appeal before us.
5. During the course of hearing before us, the Ld. AR of the assessee strongly relied upon the decision of IT AT Delhi Bench 'B', New Delhi dated 22^ndDecember, 12004 in assessee's own case in relation to penalty Under Section 271(1)(c) (sic) for assessment year 1998-99 in ITA No. 957/Del/2001. It was argued that on the same facts, the Tribunal had already held that the assessee had a liability to deduct tax at source only in relation to the salary paid by it to Mr. Holt in India. In short, the assessee argued that it was responsible under the provisions of Section 192 for deduction of tax at source only in respect of the amount paid by it in India as salaries to Mr. Holt more so, when Mr. Holt had never brought the fact of salaries being paid to him overseas to the notice of the assessee company as he was required to do under the provisions of Section 192(2) of the Act. When the pointed attention of the assessee was drawn to the provisions of Explanation appended to Section 9(1)(ii) and Section 163 (1) of the Act, the Ld. Counsel for the assessee argued that the order made by the AO cannot be justified under those provisions because no notice had been served upon the assessee for being treated as "agent" of Kinetic Technology International B.V. Netherlands.
6. The ld. DR argued that the assessee had during the course of proceedings Under Section 201(1) and 201(1A) before the AO admitted its default within the meaning of these two provisions and the assessee also paid both the amount of short deduction of TDS as well as interest payable thereon. These facts were duly mentioned by the AO in his order under Section 201(1) and 201(1 A) for both the financial years 1998-99 and 1999-2000. Secondly the Ld. DR argued that it was unbelievable that the assessee who had such mutuality of interest and close connection with Kinetic Technology International B.V., Netherlands would not even be aware of the salary being paid overseas to Mr. Holt. The Ld. DR emphasized that Mr. Holt was none other than the Managing Director of the assessee company. Hence, the salary received by Mr. Holt automatically came to the knowledge of the assessee company. On the facts of the case it was patent that earlier an attempt was made to avoid Indian tax on the full salary paid to Mr. Holt. The assessee company was a party to it. At any rate, for the sake of argument without admitting if the default was on the part of the Netherlands company the assessee was to make good the default being its agen within the meaning of Section 163(1) of the Act.
7. We have carefully considered the rival submissions. At the outset, w may mention that (the order of IT AT Delhi bench 'B relied upon by the assesse has been made under the provisions of Section 271(1)(c) (sic) being penalty for concealment of income or for furnishing inaccurate particulars of income Hence, the entire conspectus of that decision is vastly different from the proceedings before us. In that case the Tribunal have inter alia made the following observations:- "9. We have carefully considered the entire material on record. The agreement between M/s Kinetics Technology (India) Ltd. and Mr. W.G. Holt is available at pages 35 to 39 of the paper book and as per this agreement in the meeting dated 23.7.1998 of the Board of Directors Mr. Holt was appointed as Managing Director of the company for three years. As per clause 2 of this agreement vide letter dated 10.9.1998 the Central Government approved the appointment of Mr.
Holt as Managing Director on the terms and conditions contained in that letter. A copy of this letter dated 10.9.1998 on the subject - Approval of Central Government Under Section 269, 198/309 and 637AA of the Companies Act, has been filed by the assessee and is available at pages 1 to 3 of the paper book. As per this letter, the salary of Rs. 1,00,000/- per month was approved, besides other perquisites as approved by the Board/Members of the company. There is no dispute that on the payment of salary as approved by the central Government, the assessee was deducting tax. So far as the other salary earned by Mr. Holt outside India from another company is concerned, there was no legal responsibility on the assessee company which was a separate juristic person to deduct tax at source on such salary. It is a different matter that in view of the discussion held in the meeting with the Addl. Commissioner of Income-tax as per letter dated 6.3.2000 on record, the assessee company agreed to bear the interest Under Section 201 (1A), but so far as the question of penalty Under Section 271(1)(c) is concerned, there was no default on the part of the assessee company, because it was not even aware of any salary being paid abroad by KTIB V to Mr.
Holt. Therefore, there was no shortcoming in the deduction of tax and deposit thereof in respect of salary and perquisite paid to Mr.
Holt in India by the assessee company. It may be pointed out that as the assessee was not liable to deduct TDS on salary paid abroad to the expatriate employee, there was no liability on the assessee Under Section 192(1) and (2). It may also be pointed out that in the show cause notice issued Under Section 271(1)(c) the assessee was required to show as to why it failed to deduct tax at source. As there was no liability of the assessee to deduct tax, there was no violation as mentioned in the notice and on this ground the assessee challenged even the validity of the notice.
10. On going through the provisions contained in Section 192(1), it is found that liability for deducting tax Under Section 192(1) is, "on any person responsible for paying any income chargeable under the head "salary. " Thus, the person paying or responsible for paying income is liable to deduct tax. Thus, the liability to deduct tax on the employee is on the amount of salary, which such employer pays to the employee. But if another employer pays such salary to that employee simultaneously or otherwise, then no liability can be fastened on the first mentioned employer to deduct tax on that amount at source. The Revenue has not challenged that the assessee company has not correctly deducted tax at source as per provisions of Section 192(1) on the amount of salary paid by it.
11. It may be pointed out that in view of Section 192(2) the responsibility was on the employee who was getting salary from another employer to furnish details. As in this case Mr. Holt had not disclosed the details of the salary received by him from the other company, there was no responsibility on the assessee company to make deductions in relations to such salary. In view of the above, the fault Under Section 271(1)(c) cannot be laid on the assessee.
12. Besides above, in our considered view, the plea of reasonable cause being on the part of the assessee in failing to deduct the tax also deserves to be allowed on the facts and in the circumstances of this case and in particular on account of the fact that the assessee company was not informed by the Managing Director about the receipt of income outside India by him. " We need to observe, with respect, the provisions of Section 9(1)(ii) and Explanation thereto as well as the provisions of Section 163(1) were not brought to the notice of the Tribunal. Also, the fact that Kinetic Technology International B.V. Netherlands was having at that time 50% shareholding in the assessee company was not brought to their notice. Moreover, the decision of the Tribunal is based on the fact that Mr. Holt had not formally communicated to the assessee company the fact of salaries received by it overseas. We, therefore, hold that the aforesaid decision of the Tribunal rendered in relation to penalty Under Section 271(1)(c) (sic) has not adjudicated the question of assessee's liability Under Section 201(j) and 201(1A) in dispute before us.
8. In our opinion, the impugned orders Under Section 201(1) and 201(1A) are good orders both in terms of the provisions of Section 192 of the Act as well as under the provisions of Explanation to section 9(1)(ii) read with Section 163(1) of the Act. We see considerable force in the contention of the Ld. DR that Mr. W.G. Holt was managing Director of the assessee company and, therefore, his having received the salary overseas in respect of services rendered by it in India to the assessee company, from Kinetic Technology International B.V. Netherlands instantaneously came to the knowledge of the assessee company. The fact that Mr. Holt did not formally communicate it in writing to the assessee company may be considered a mitigating circumstance for the purposes of the penal provisions of the Act only.
9. As to the provisions of Explanation appended to section 9(1)(ii) the provisions are quite clear. As long as Mr. Hot was paid salaries overseas for services rendered in India, such payments fell under the head "Salaries',' as income earned in India and chargeable to income-tax. Consequently, the provisions of Section 192(1)/192(2) apply. Kinetic Technologies International B.V. Netherlands was 50% shareholder of the assessee company at the relevant time and had considerable interest in the business of the assessee company and, therefore, the assessee was natural agent of Kinetic Technology International B.V. Netherlands within the meaning of Section 163(1) of the Act. During the course of hearing before us the ld. AR of the assessee argued that the assessee company could not be treated as agent of the Netherlands company within the meaning of Section 163(1) without having been served a notice of the Ld. AO's intention to appoint the assessee as an agent. Though the provisions of Section 163(1) do not make a formal notice mandatory, we agree that a reasonable opportunity of being heard must be afforded before any person is treated as agent of a non-resident within the meaning of Section 163(1) of the Act. We would have, therefore, restored the matter to the file of the AO to grant the assessee such opportunity in the first instance and, thereafter pass fresh orders in accordance with law. But we find that during the course of proceedings Under Section 201(1) the assessee company itself agreed to be treated as an assessee in default and has made full payments of the demands aggregating to Rs. 24,64,898/-. There is not even! a whisper of an objection on the part of the assessee against being treated the assessee in default during the course of the proceedings Under Section 201(1) and 201(1A) conducted by the Ld. AO.These facts have been duly recorded by the AO and during the course of proceedings either before the CIT(A) or before us there is no refuter on the part of the assessee. Where was the question of want of opportunity to the assessee when the assessee himself conceded the issue? As a matter of fact the assessee's appeals are liable to be dismissed on this short ground alone. At any rate, on merits and substance also we find the order passed by the AO to be good order in accordance with the provisions of the Act.
10. In the result, both these appeals fail and are accordingly dismissed.