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TMI Blog2006 (6) TMI 143X X X X Extracts X X X X X X X X Extracts X X X X ..... was a kind of a dual employment. The salaries and perquisites which these employees were receiving from the Japanese company were continued to be received by them. These salaries and perquisites were paid by the Japanese company not in India but outside. For their services to the assessee, they were paid a comparatively small amount of salary and perquisites. 2. In the previous years relevant to assessment years 1997-98 and 1998-99, the assessee claimed to have paid to the aforesaid employees by way of incentives the taxes which they have to pay in India in respect of the salary and perquisites received by them from the Japanese company outside India. The taxes amounted to Rs. 4,21,87,756/- for the assessment year 1997-98 and Rs. 2,78,28,161/- for the assessment year 1998-99. The amounts were claimed as deduction in computing the income for income tax purposes. It would appear that for both the years, the deductions were not claimed in the original returns but were claimed in the revised returns. It further appears that the amounts were claimed as deduction in the profit and loss account relating to assessment year 1999-2000 (year ended 31-3-1999) on payment basis but the tax audi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tember, 2002where it was admitted by the assessee that there was no contract with the expatriate employees regarding payment of the incentive. In the absence of any enforceable contractual liability, the amounts were not allowable as a deduction. In this view of the matter, he dismissed assessee's appeals on this point. 4. The assessee is in further appeal before the Tribunal. Mr. S.D. Kapila, the learned counsel for the assessee did not dispute that there was no contract in writing with the expatriate employees but submitted that there was an oral arrangement with them that whatever taxes they were liable to pay in respect of the salaries and perquisites received by them from the Japanese company outside India would be paid by the assessee-company by way of an incentive. He submits that the salary paid by the assessee to these employees was not much compared with what they were getting from the Japanese company which was their other employer, but since they had the expertise in international trading which was very necessary for the efficient functioning of the assessee-company, they had to be retained by the assessee by offering them attractive incentives which, in the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd if that is the correct position in law, even if the taxes are taken as part of the perquisites of the employees, they are allowable as part of the salary itself. In this connection, Mr. Kapila also pointed out that the taxes finally paid were grossed up amounts and not merely the amounts deductible under section 192 and that when the assessee paid those amounts during the year ended 31-3-1999, the Department accepted them and also dropped the proceedings initiated under section 271C for imposing penalty. The submission was that if the perquisites are part of the salary and if the salary relates to assessment years 1997-98. and 1998-99, the perquisites are also allowable as deduction in those years as it would be incongruous to say that while the salary is allowable as a deduction in those years, the perquisites cannot be so allowed. 6. The alternative prayer of Mr. Kapila was that in case the amounts are not found in law allowable for the years under appeal, a direction should issue that they should be allowed in the year of payment namely assessment year 1999-2000. 7. Mr. Sudhir Chandra, the learned CIT-DR besides strongly relying on the orders of the Income Tax authorities, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the taxes. Even from the inception, the employees were employed also by the Japanese company on substantial salaries and perquisites which were paid to them outside India. Their services were merely seconded to the assessee and compared to the salaries which they were receiving from the Japanese company, what the assessee was paying them was very little. For instance, the salary paid to an employee by name Tomoiya Tomota for the period from 1-4-1996 to 31-3-1997 by the assessee-company was Indian Rupees 5,50,892 compared to the salary of Rs. 38,67,789/- paid by the Japanese company outside India. The taxes payable on the salary paid by the Japanese company would, therefore, amount to a substantial amount which the employees would not like to delay. Further, if the employees were so important to the assessee because of their expertise in international trading, it stands to reason and probabilities that the assessee would employ them under clear terms and conditions reduced to writing. We have not been informed 3 as to whether even the salary paid by the assessee-company to the expatriates was only under oral arrangement or whether there was a contract in writing. Considering the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ACIT, Circle 23(3). Enl.: 4th Counterfoil of Challans worth Rs. 8,09,37,466/-." There is no need to refer to any commitment on behalf of the assessee, as has been mentioned in the aforesaid letter, to pay the taxes if really the assessee was under a contractual liability with the employees to pay the taxes as incentive and thus as part of their salary. There was also no reason to hold any discussions with the CIT, Delhi-VI and the President of the Japanese Chamber of Commerce & Industry in Delhi. The letter shows that the amounts were paid not under any contract with the employees, but in order to settle some controversy arising out of non-deduction of tax under section 192 of the Act in respect of the salaries paid by the Japanese company to the expatriate employees outside India. It seems to us that the amount that was to be deducted and paid by the Japanese company as taxes on the salaries was paid by the assessee-company under an arrangement or settlement with the Income-tax authorities. We are unable to accept the assessee's claim that they are paid under a contractual liability. It appears to us that there was no liability at all in the first place. 9. In the above vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the employees were seconded to it by the Japanese company to pay the tax in question as incentive to them and as p part of their salary payable by the assessee-company. If such a liability had been undertaken, it was not necessary for the assessee to put forth its claim on the principle of commercial expediency at all. The company cannot, at the same time, say that there was a contract - oral arrangement - with the employees to pay the taxes and, at the same time, contend that the taxes were paid not under any oral arrangement but voluntarily on grounds of commercial expediency and indirectly to facilitate the carrying on of the business. The argument based on the principle of commercial expediency is in any cost available to the assessee only in the year of payment i.e., assessment year 1999-2000. It is only in that year that the amount was actually paid without any pre-existing liability and therefore, this argument is open to the assessee to be raised only in that year. We, therefore, do not see how the amounts can be allowed as a deduction on the principle of commercial expediency for the years under consideration. Actually Mr. Kapila, perhaps realizing this difficulty, prayed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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