2001 (12) TMI 202 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer.
2. Non-deduction of tax at source on emoluments paid in Japan.
3. Validity of penalty orders u/s 271C.
4. Existence of reasonable cause for non-deduction of tax.

Summary:

1. Jurisdiction of the Assessing Officer:
The appellant-company contended that the jurisdiction for TDS matters lay with the Asstt. Commissioner of Income-tax, TDS Circle 31(1), Mumbai, where they had been filing returns and paying taxes. The Tribunal found that the appellant had consistently filed returns and paid taxes in Mumbai, and the jurisdiction was transferred to New Delhi only on 11-2-1999 by the CBDT. The Tribunal held that the penalty orders passed by the Joint Commissioner of Income-tax, New Delhi, were without jurisdiction and thus null and void.

2. Non-deduction of tax at source on emoluments paid in Japan:
The appellant-company had not deducted TDS on emoluments paid to expatriate Japanese employees in Japan, believing that these payments were not taxable in India. The company voluntarily paid the TDS and interest in August 1996 after discussions with the Ministry of Finance and the CBDT.

3. Validity of penalty orders u/s 271C:
The Tribunal noted that the penalty orders were issued without establishing a clear liability to deduct tax. The Tribunal also found discrepancies in the figures mentioned in the penalty notices and the actual tax payments made by the appellant. The Tribunal held that the penalty orders were not valid as they were based on incorrect facts and without proper jurisdiction.

4. Existence of reasonable cause for non-deduction of tax:
The Tribunal found that the appellant had a bona fide belief that TDS was not required on emoluments paid in Japan, based on legal advice and consultations with other Japanese companies. The Tribunal cited the case of Mitsui & Co., where a similar bona fide belief was accepted as a reasonable cause. The Tribunal concluded that the appellant had a reasonable cause for the delay in TDS deduction and payment, and thus, the penalties u/s 271C should be cancelled.

Conclusion:
The Tribunal quashed the penalty orders passed by the Joint Commissioner of Income-tax, New Delhi, due to lack of jurisdiction and accepted the appellant's bona fide belief as a reasonable cause for non-deduction of TDS. All appeals of the appellant were allowed.