2001 (11) TMI 234 - AT - Income Tax

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Non-deduction of tax at source on various allowances paid to employees.
3. Non-deduction of tax at source on commission payments to foreign agents.

Summary:

1. Delay in Filing the Appeal:
The appeal was delayed by one day due to the assessee's scooter accident. The delay was explained through an affidavit dated 23rd October 2001, and the delay was condoned.

2. Non-Deduction of Tax at Source on Various Allowances:
The appeal contested the order of the Commissioner of Income-tax (Appeals)-II, Hyderabad, for the assessment year 1994-95, which confirmed the Assessing Officer's decision u/s 201 of the Income-tax Act. The Assessing Officer held the assessee as an assessee in default for not deducting tax at source u/s 192 on allowances such as Book Allowance, Taxi Allowance, Entertainment Allowance, Daily Allowance, and Medical Reimbursement. The Commissioner of Income-tax (Appeals) upheld the order except for the Secretarial Allowance.

The Tribunal found that the assessee's duty u/s 192 is to make an honest estimate of salaries and deduct tax accordingly. The Tribunal relied on the decision in P.V. Rajgopal v. Union of India [1998] 233 ITR 678, which stated that certain reimbursements are not part of the salary. The Tribunal concluded that the assessee acted honestly in considering the allowances as reimbursements and not taxable, except for the Entertainment Allowance, which is not exempt unless received from 1955. Therefore, the assessee was not in default u/s 201 for the allowances except for the Entertainment Allowance.

3. Non-Deduction of Tax at Source on Commission Payments to Foreign Agents:
The Assessing Officer held that the commission payments to foreign agents were subject to deduction of tax at source u/s 195, and the assessee was in default u/s 201 for not doing so. The assessee argued that the payments were exempt based on CBDT Circular No. 786, dated 7th February 2000, which clarified that payments to foreign agents operating outside India are not taxable in India.

The Tribunal agreed with the assessee, stating that the payments were not taxable in India as per the CBDT Circular and the services were rendered outside India. The Tribunal held that if the amount is non-taxable, there is no need to approach the Assessing Officer for a certificate u/s 195(2). The Tribunal referred to the Supreme Court decision in Transmission Corpn. of A.P. Ltd. v. CIT [1999] 239 ITR 587, which supports that tax is to be deducted only on taxable amounts. The Tribunal concluded that the assessee was not liable to deduct tax at source on the commission payments and set aside the orders of the Revenue on this issue.

Conclusion:
The appeal was allowed in part, with the assessee not being held in default for the allowances (except Entertainment Allowance) and the commission payments to foreign agents.