1959 (4) TMI 31 - HC - Income Tax

Summary

Issues:
Challenge of income-tax assessment orders and certificate proceedings regarding the assessment of an employee's salary and commission. Interpretation of the term "person responsible for paying" under section 18(9) of the Indian Income-tax Act. Company's liability for tax deduction on the commission paid to the employee. Impact of private arrangements between the company and the employee on statutory liability.

Analysis:
The petitioner, a company, challenged income-tax assessment orders and certificate proceedings related to the assessment of an employee's salary and commission. The main argument presented was regarding the interpretation of the term "person responsible for paying" under section 18(9) of the Indian Income-tax Act. The petitioner contended that the notices and certificates referred to the company itself, not the principal officer, and thus were invalid. However, the court dismissed this argument, emphasizing that the principal officer of the company is considered the "person responsible for paying" as per the explanation to section 18. The court noted that the company was clearly mentioned in the notice and certificate, and the principal officer acts on behalf of the company, making the company liable for tax deduction on the commission paid to the employee.

In the judgment, reference was made to a previous decision of the East Punjab High Court, where it was held that the term "person" in section 18 includes the company itself. This precedent was used to support the conclusion that the company, through its principal officer, is responsible for tax deductions. The court highlighted that the company had shown the salary and commission paid to the employee in its annual returns, indicating awareness of the tax liability. Therefore, the company could not evade its tax obligations based on the nature of the payment to the employee.

Additionally, the court addressed the petitioner's argument regarding a letter from the employee agreeing to pay income tax on the commission directly to the tax authorities. The court clarified that such private arrangements between the company and the employee do not absolve the company from its statutory duty to deduct tax at the appropriate rate. The court emphasized that regardless of any private agreements, the company remains liable under section 18(2) of the Indian Income-tax Act for tax deductions on payments made to the employee. Ultimately, as no other substantial points were raised, the court dismissed the petition, upholding the company's liability for tax deductions and vacating any interim orders without awarding costs to either party.