1981 (8) TMI 58 - HC - Income Tax

Summary

Issues involved:
The validity and tenability of the order passed by the Income-tax Officer u/s 201 of the Income-tax Act, 1961.

Summary:
The case involved an assessee-company engaged in manufacturing tyres and rubber products, which entered into an Initial Service Agreement with an American company, Dayton, for technical assistance. The assessee made payments to Dayton without deducting tax, leading to a dispute with the Income-tax Officer (ITO). The ITO treated the assessee as an agent of Dayton and passed an order u/s 201 of the Income-tax Act, 1961, for non-deduction of tax. The assessee appealed to the Appellate Authority Commissioner (AAC), who held the assessee liable for deductions under s. 195. The assessee then appealed to the Income-tax Tribunal, arguing that being liable to pay tax as an agent of Dayton exempted them from the obligation to deduct tax. The Tribunal agreed with the assessee, stating that the assessee's liability as an agent precluded them from being deemed in default u/s 201. The Tribunal's decision was challenged, and the High Court upheld the Tribunal's view, citing a similar decision by the Calcutta High Court. The High Court ruled in favor of the assessee, stating that the assessee, once liable to pay tax as an agent, cannot be held in default for non-deduction of tax.

This judgment clarifies that when an assessee is deemed liable to pay tax as an agent of a non-resident entity, they are exempt from the obligation to deduct tax at the source under s. 195 of the Income-tax Act, 1961. The High Court's decision aligns with the principle that an assessee cannot be simultaneously treated as an agent u/s 163 and held in default u/s 201. The ruling provides clarity on the obligations of an assessee acting as an agent in tax matters, ensuring consistency in the application of tax laws and avoiding dual liabilities for the same transactions.