2007 (1) TMI 277 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reassessment proceedings under section 148 of the Income-tax Act, 1961.
2. Impact of employer's payment of tax dues on the reassessment proceedings.
3. Credit for taxes paid by the employer on behalf of the employee.

Detailed Analysis:

1. Validity of reassessment proceedings under section 148 of the Income-tax Act, 1961:

The primary issue in this case was whether the reassessment proceedings initiated by the Assessing Officer (AO) under section 148 were legally sustainable. The assessee, a Japanese national employed as Managing Director of Hitachi CG Motor Engineering Limited, disclosed an income of Rs. 12,44,286 in his tax return, which included salary received in Indian Rupees and US Dollars but excluded salary received in Japanese Yens. The AO noticed that the salary received in Japan, amounting to US $18,104 (equivalent to Rs. 7,10,039), had escaped assessment. Consequently, the AO reopened the assessment under section 148.

The Tribunal upheld the reassessment proceedings, noting that the actual taxable income of the assessee was Rs. 81,08,156, whereas the completed assessment only showed an income of Rs. 12,44,286. The Tribunal emphasized that the reassessment was validly initiated as a significant portion of the assessee's salary income had escaped assessment, and this was not disclosed in the original Form 16 or the tax return filed by the assessee.

2. Impact of employer's payment of tax dues on the reassessment proceedings:

The assessee argued that since the employer had paid all the tax dues in response to demands raised by the AO (TDS) under section 201 read with section 192, the reassessment proceedings should be dropped. The Tribunal rejected this contention, stating that the scheme of tax deduction at source (TDS) by the employer is distinct from the assessment proceedings of an employee's income. The payment of taxes by the employer on behalf of the employee is relevant only for the collection or recovery of taxes, not for determining the taxable income of the employee.

The Tribunal clarified that once reassessment proceedings are validly initiated, they cannot be dropped merely because the employer has paid the taxes due. The determination of income escaping assessment must precede the grant of credit for tax deductions.

3. Credit for taxes paid by the employer on behalf of the employee:

The Tribunal acknowledged that the assessee would get due credit for any taxes paid by the employer on his behalf, as long as appropriate certificates for such tax deductions are issued by the employer. This credit is granted in accordance with the scheme of the Act, particularly sections 199 and 203.

The Tribunal also referenced the Amnesty Scheme introduced by the Central Board of Direct Taxes (CBDT) in 1994, which provided that assessments of employees would not be reopened if employers made true disclosures about salary payments from which tax deductions were not earlier made. However, the Tribunal noted that this was a one-time concession and did not apply to the present case, where the disclosures by the employer were not voluntary but compelled by the revenue authorities.

Conclusion:

The Tribunal dismissed the appeal, upholding the reassessment proceedings initiated under section 148 and rejecting the contention that these proceedings should be dropped due to the employer's payment of tax dues. The Tribunal emphasized the distinction between tax deduction at source and the determination of taxable income, and confirmed that the assessee would receive credit for taxes paid by the employer as per the provisions of the Income-tax Act.