2005 (6) TMI 231 - AT - Income Tax

Summary

Issues Involved:
1. Treatment of the assessee as "assessee in default" under Section 201(1).
2. Charging of interest under Section 201(1A) of the Income-tax Act.
3. Liability of the assessee to deduct tax at source on overseas salary.
4. Applicability of Section 192(1) and 192(2) in relation to salary paid overseas.
5. Interpretation of Section 9(1)(ii) and Section 163(1) of the Act.

Issue-wise Detailed Analysis:

1. Treatment of the Assessee as "Assessee in Default" under Section 201(1):
The assessee was treated as "assessee in default" for not clubbing the overseas salary of its Managing Director, Mr. W.G. Holt, for the purpose of tax deduction at source. The Assessing Officer passed orders under Section 201(1) due to unpaid tax on the overseas salary. The assessee initially agreed to this treatment and paid the tax and interest calculated by the Assessing Officer.

2. Charging of Interest under Section 201(1A):
Interest under Section 201(1A) was charged on the unpaid tax for the financial years 1998-99 and 1999-2000. The assessee paid the interest amounts calculated by the Assessing Officer but later contested the orders, arguing that it had no knowledge of the overseas salary payments to Mr. Holt.

3. Liability of the Assessee to Deduct Tax at Source on Overseas Salary:
The assessee argued that it was not responsible for deducting tax at source on the overseas salary as it was not aware of such payments. However, the CIT(A) found this contention incorrect, noting the commonality of interests between the assessee and Kinetic Technology International B.V., Netherlands, which held a 50% share in the assessee-company. The CIT(A) held that the salary paid overseas was part of an agreement between the companies and that the assessee was liable to deduct tax at source on this salary.

4. Applicability of Section 192(1) and 192(2) in Relation to Salary Paid Overseas:
The assessee relied on a previous ITAT decision, arguing that it was only responsible for deducting tax on the salary paid in India. The Tribunal in that case had noted that the assessee was not liable for tax deduction on the salary paid abroad as Mr. Holt had not disclosed this information. However, the current Tribunal found that the provisions of Section 9(1)(ii) and Section 163(1) were not considered in the previous decision, and thus, the assessee's liability under Section 201(1) and 201(1A) remained.

5. Interpretation of Section 9(1)(ii) and Section 163(1) of the Act:
The Tribunal observed that under Section 9(1)(ii) and its Explanation, the overseas salary paid to Mr. Holt for services rendered in India was chargeable to tax in India. Consequently, the assessee was liable to deduct tax at source under Section 192(1)/192(2). Additionally, the Tribunal noted that the assessee could be treated as an agent of Kinetic Technology International B.V., Netherlands under Section 163(1), given the mutual interests and shareholding. The Tribunal dismissed the assessee's argument about the lack of formal notice for being treated as an agent, emphasizing that the assessee had conceded to being treated as "assessee in default" during the proceedings.

Conclusion:
The Tribunal upheld the orders under Section 201(1) and 201(1A), finding them to be in accordance with the provisions of the Income-tax Act. The appeals were dismissed, affirming the assessee's liability to deduct tax at source on the overseas salary and the subsequent interest charges.