Ravindra Kumar Dutta ors. Vs. Union of India (Uoi) and anr. - Court Judgment

Excerpt:
service - ban on participation - service law, rule 5 of central civil services (conduct) rules, 1964 and articles 19 (1), 19 (2) and 19 (4) of constitution of india - question raised on vires of rule 5 which bans government employees from participation in any form of political activity - contention of offending article 19 (1) (a) to 19 (1) (c) and ban not imposed in interest of sovereignty and integrity of india or public order or morality - question raised is of great importance and needs consideration by constitution bench. - sections 192, 9 (1)(ii), explanation, 201,271-c and 273-b:[s.h. kapadia & aftab alam, jj] salary income - tax deducted at source (t.d.s.) payment made abroad by foreign company to its expatriate who had rendered services in india applicability of t.d.s. provisions held, section 9(1)(ii) of the act enacts that income chargeable under the head salaries under section 15 shall be deemed to accrue or arise in india if it is earned in india, i.e., if the services under the agreement of employment are or were rendered in india, the place or receipt or actual accrual of the salary being immaterial. thus, section 192(1) has to be read with section 9(1)(ii). from the above analysis two conclusions flow. firstly, it cannot be stated as broad proposition that the tds provisions which are in the nature of machinery provisions to enable collection and recovery of tax are independent of the charging provisions which determines the assessability in the hands of the employee-assessee. secondly, whether the home salary payment made by the foreign company in foreign currency abroad can be held to be deemed to accrue or arise in india would depend upon the in-depth examination of the facts in each case. if the home salary/special allowance payment made by the foreign company abroad is for rendition of services in india and if as in the present case no work was found to have been performed for the said foreign company then such payment would certainly come under section 192(1) read with section 9(1)(ii). hence, when the post-survey operations revealed that no work stood performed for the foreign company by the four expatriates to the joint venture company in india and that the total remuneration paid was only for services rendered in india, in such a case the tax-deductor assessee was statutorily obliged to deduct tax under section 192(1) of the income tax act. consequently, if any payment of income chargeable under the head salaries falls within section 9(1)(ii) then tds provisions would stand attracted. therefore, the tax deductor assessee were duty bound to deduct tax at source under section 192(1) from the home salary/special allowance (s) paid abroad by the foreign company, particularly when no work stood performed for the foreign company and the total remuneration stood paid only on account of services rendered in india during the period in question. a perusal of section 201(1) and section 201(1a) shows that both these provisions are without prejudice to each other. it means that the provisions of both the sub-sections are to be considered independently without affecting the rights mentioned in either of the sub-sections. hence the supreme court directed the assessing officer (a.o.) to examine each case to ascertain whether the employee-assessee (recipient) has paid the tax due on the home salary / special allowances received from the foreign company. in case taxes due on home salary/special allowance(s) stands paid off then the ao shall not proceed under section 201(1). in cases where the tax has not been paid, the ao shall proceed under section 201(1) to recover the shortfall in the payment of tax. similarly, the ao shall examine and find out whether interest has been paid/recovered for the period between the date on which tax was deductible till the date on which the tax was actually paid. if, in any case, interest accrues for the aforestated period and if it is not paid then the adjudicating authority shall take steps to recover interest for the aforestated period under section 201(1a). section 273-b states that notwithstanding anything contained in section 271c, no penalty shall be imposed on the person or the assessee for failure to deduct tax at source if such person or the assessee proves that there was a reasonable cause for the said failure. therefore, the liability to levy of penalty can be fastened only on the person who do not have good and sufficient reason for not deducting tax at source. only those persons will be liable to penalty who do not have good and sufficient reason for not deducting the tax. the burden, of course, is on the person to prove such good and sufficient reason. in the instant case non-deduction of tax at source took place on account of controversial addition. the concept of aggregation or consolidation of the entire income chargeable under the head salaries being eligible to deduction of tax at source under section 192 was a nascent issue. it has not been considered by supreme court before. further, in most of these cases, the tax-deductor assessee has not claimed deduction under section 49(1)(iii) in computation of its business income. this is one more reason for not imposing penalty under section 271c because by not claiming deduction under section 40(a)(iii), in some cases, higher corporate tax has been paid. accordingly penalty proceedings under section 271c were quashed.order1. dr. chitale has squarely raised the question of vires of rule 5 of central civil services (conduct) rules, 1964 the effect of which is to ban government employees from participation in any form of political activity. he contends that the ban offends article 19(1)(a) and (c) and that it is not protected by clauses (2) and (4) of article 19 as it cannot be said to have been imposed in the interest of the sovereignty and integrity of india or public order or morality. dr. chitale relies upon the decisions of this court in : 1983crilj1872 and : (1983)illj299sc , which to the extent that they go, appear to support his contention. the question raised is of great importance and the acceptance of the contention may lead to complete revision of the accepted civil service philosophy. we think it is desirable that these matters should be heard by a constitution bench. the registry will seek appropriate directions from hon. the chief justice.

Judgment:
ORDER

1. Dr. Chitale has squarely raised the question of vires of Rule 5 of Central Civil Services (Conduct) Rules, 1964 the effect of which is to ban Government employees from participation in any form of political activity. He contends that the ban offends Article 19(1)(a) and (c) and that it is not protected by Clauses (2) and (4) of Article 19 as it cannot be said to have been imposed in the interest of the sovereignty and integrity of India or public order or morality. Dr. Chitale relies upon the decisions of this Court in : 1983CriLJ1872 and : (1983)ILLJ299SC , which to the extent that they go, appear to support his contention. The question raised is of great importance and the acceptance of the contention may lead to complete revision of the accepted Civil Service Philosophy. We think it is desirable that these matters should be heard by a Constitution Bench. The Registry will seek appropriate directions from Hon. the Chief Justice.