1999 (5) TMI 62 - AT - Income Tax

Summary

Issues Involved:
1. Liability to deduct tax at source from salary paid outside India.
2. Reasonable cause for non-deduction of tax at source.
3. Confirmation of penalty under s. 271C of the IT Act.
4. Validity of penalty orders and adherence to natural justice.

Summary:

1. Liability to Deduct Tax at Source from Salary Paid Outside India:
The CIT(A) held that the appellant company was liable to deduct tax at source under the IT Act from salaries paid outside India. The appellant argued that the jurisdiction of the IT Act does not extend beyond India to foreign countries. However, the CIT(A) noted that the appellant had a presence in India through its liaison and project offices, and thus was required to deduct tax on salaries paid overseas.

2. Reasonable Cause for Non-Deduction of Tax at Source:
The appellant claimed that the non-deduction of tax was due to a bona fide belief based on legal advice that the provisions of Chapter XVII-B did not apply to salaries paid abroad. The CIT(A) rejected this argument, noting that the appellant did not seek clarification from the CBDT despite a voluntary disclosure scheme offering immunity from penalties.

3. Confirmation of Penalty under s. 271C of the IT Act:
The CIT(A) confirmed the penalties levied by the Dy. CIT under s. 271C for non-deduction of tax at source, stating that the appellant's actions were deliberate and without reasonable cause. The Dy. CIT noted that the tax was paid only after detection by the Revenue and persistent efforts by the Asstt. CIT.

4. Validity of Penalty Orders and Adherence to Natural Justice:
The appellant argued that the penalty orders were barred by limitation and violated principles of natural justice. The Tribunal found that the penalty orders were issued within the statutory period and that the appellant was given sufficient opportunity to present its case. However, the Tribunal noted that the lower authorities did not adequately consider the appellant's explanation and the existence of reasonable cause.

Conclusion:
The Tribunal concluded that there was a reasonable cause for non-deduction of tax at source, based on the legal advice received and the appellant's bona fide belief. The Tribunal also noted that the payment of short-deducted tax and interest was made voluntarily, indicating cooperation with the Revenue. Consequently, the penalties levied under s. 271C were not justified and were directed to be cancelled. The appeals were allowed in favor of the appellant.