1980 (12) TMI 1 - HC - Income Tax

Summary

Issues involved:
The judgment involves two main issues:
1. Whether the assessee should have deducted tax on the passage money paid to an employee for his children's journey to the U.K.
2. Whether the order passed by the Income-tax Officer under section 201 was within the time limit.

Issue 1:
The assessee, a tea estate company, paid passage money of Rs. 8,112 to an employee for his children's journey from the U.K. to India and back. The Income-tax Officer initially did not include this amount in the employee's income based on section 10(6)(i) of the Income-tax Act. However, later, the Officer issued a notice to the company under section 201 for not deducting tax at source on this payment. The company contended that it was not obligated to deduct tax as the children's journeys were within a year of the employee's journey. The Appellate Assistant Commissioner agreed with the company, citing a circular exempting such payments from tax. The Tribunal disagreed, stating the children's journeys were unrelated to the employee's travel and that the exemption did not apply. The Tribunal also found the proceedings were not time-barred. The High Court held that the Tribunal erred by not first determining the legality of initiating proceedings under section 201 before addressing the taxability issue. The case was remitted to the Tribunal for proper consideration.

Issue 2:
The judgment also delves into the legal aspect of section 201 of the Income-tax Act, which deems a person in default if they fail to deduct tax at source from an employee's salary. The Court emphasized that once an employee's assessment is finalized, the employer's liability is based on the assessed tax amount. In this case, the employee's assessment was completed, and the tax was paid to the Department. The Court questioned the Department's authority to pursue the employer under section 201 when the assessment order had already determined the taxability of the disputed amount. The Tribunal's failure to address this fundamental jurisdictional issue before ruling on the taxability aspect was deemed illegal by the High Court, leading to the case being sent back for proper adjudication.