2003 (9) TMI 294 - AT - Income Tax

Income - Deemed to accrue or arise in India, Penalty - For failure to deduct tax at source, Return of income, etc., not to be invalid in certain cases

Summary

Issues Involved:
1. Validity of notices issued under Section 271C.
2. Limitation period for issuing penalty notices.
3. Liability to deduct tax at source on payments made in Japan.
4. Applicability of Section 192(2) of the Income Tax Act.
5. Existence of reasonable cause for non-deduction of tax.

Detailed Analysis:

1. Validity of Notices Issued under Section 271C:
The notices issued were addressed to "Indo Nissin Foods" instead of the full legal name "Indo Nissin Foods Ltd." and were not addressed to the principal officer as required under Section 282(2)(b) of the Act. The defect in the notices was deemed not curable under Section 292B, rendering them invalid. The Tribunal relied on precedents, including the Kerala High Court decision in P.N. Sasikumar vs. CIT, which held that such fundamental infirmities could not be cured by Section 292B.

2. Limitation Period for Issuing Penalty Notices:
The Tribunal acknowledged the delay in initiating penalty proceedings but found it justified due to the Revenue's lack of knowledge about the salaries paid in Japan until the Japanese company voluntarily deposited the TDS amount. The Tribunal referenced the Bombay Tribunal's decision in Raymond Woollen Mills Ltd. vs. ITO and the Calcutta High Court's decision in Simplex Concrete Piles (India) Ltd. vs. Dy. CIT, which suggested a period of four years as a reasonable time for issuing notices.

3. Liability to Deduct Tax at Source on Payments Made in Japan:
The Tribunal examined Section 9(1)(ii) and its amendment by the Finance Act, 1999, effective from 1st April 2000. It concluded that prior to the amendment, remuneration paid for services rendered outside India was not taxable in India. The Tribunal also referenced the Supreme Court decision in CIT vs. Morgenstern Werner, which supported the non-taxability of such payments. Consequently, there was no liability for the assessee-company to deduct tax on the payments made in Japan.

4. Applicability of Section 192(2) of the Income Tax Act:
The Tribunal found that Section 192(2) required expatriate employees to furnish details in the prescribed form (Form 12B) to the employer, which did not happen in this case. The Tribunal cited its own decision in Blue Star Ltd., holding that the assessee-company had no obligation to deduct tax on payments made by Nissin in Japan without such details being furnished.

5. Existence of Reasonable Cause for Non-deduction of Tax:
The Tribunal noted that the taxes were paid voluntarily by Nissin before any detection by the Department, indicating a bona fide belief similar to other Japanese companies where penalties were dropped. The Tribunal relied on the Delhi High Court decision in Azadi Bachao Andolan vs. Union of India, which highlighted similar cases of delayed tax payments without penalties. The Tribunal concluded that there was a reasonable cause for the non-deduction of tax, further supporting the cancellation of the penalty.

Conclusion:
The Tribunal canceled the penalty on multiple grounds: the invalidity of notices, the absence of tax liability on payments made in Japan, the existence of reasonable cause, and the non-applicability of Section 192(2). All appeals were allowed.