TDS : Salary : S. 192 of Income-tax Act, 1961 : A.Ys. 1992-93 to 1998-99 : Assessee was an Indian company engaged in food processing business : Pursuant to a technical collaboration agreement, employees of Japanese company were deputed to India for workin

[CIT v. Indo Nissin Food
Ltd., 194 Taxman 144 (Kar.)]

The assessee was an Indian
company engaged in the food processing business. Pursuant to a technical
collaboration agreement entered into between the assessee-company and the
Japanese company, the employees of the Japanese company were deputed to India
considering their expertise in the business and they were working in the
assessee-company during the relevant assessment years. The assessee had deducted
the tax at source u/s.192 based on the salary and perks disbursed by it to the
employees of the Japanese company working with it. The Assessing Officer imposed
penalty u/s.271C of the Income-tax Act, 1961 on the ground that the assessee
company had failed to deduct tax at source in regard to the payments made by the
Japanese company to its employees who were working with the assessee-company.
The Tribunal deleted the penalty holding that the assessee was not liable to
deduct the tax at source in respect of the payments made by the foreign company.

On appeal by the Revenue,
the Karnataka High Court upheld the decision of the Tribunal and held as under :

(i) It was not in dispute
that the assessee had paid salary to the employees who had been deputed from
the foreign company. S. 192 envisages the assessee to deduct the tax at source
in respect of the payments made by it to the employees. Therefore, the
assessee was required to deduct income-tax at source on the amount payable or
paid by it to its employees.

(ii) There was no record
to show that the amount paid by the foreign company to its employees was made
known to the assessee or the said amount was also disbursed to the employees
of the foreign company through the assessee. Therefore, it was not possible to
accept the arguments advanced by the Revenue, as S. 192 does not deal with
such cases. In the circumstances, when the payment was not made by the
assessee or the amount was not paid by a foreign company through the assessee,
the assessee was not required to deduct the tax at source u/s.192(1).

(iii) When there was no
violation of S. 192(1), the question of initiating the proceedings u/s.271C
did not arise.”