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TMI Blog2001 (11) TMI 234X X X X Extracts X X X X X X X X Extracts X X X X ..... t by way of various allowances to its employees as under: 1. Secretarial Allowance. 2. Book Allowance. 3. Taxi Allowance. 4. Entertainment Allowance. 5. Leave Travel Allowance. 6. Children Educational Allowance. 7. House Rent Allowance. 8. Medical Allowance. 9. Daily Allowance. The Assessing Officer observed that the assessee did not deduct tax at source as required under section 192 of the Income-tax Act in respect of the above allowances paid to the employees. So, he treated the assessee as an assessee in default under section 201 of the Income-tax Act and directed the assessee to pay, interalia, the short deduction under the head "Salaries" of Rs. 2,47,547. 4. On appeal, the Commissioner of Income-tax (Appeals) held that there was no short deduction in respect of the Secretarial Allowance. He, however, upheld the order under section 201 passed by the Assessing Officer in respect of short deduction on the other allowances mentioned hereinabove. 5. Before us, the assessee has taken the following two grounds: "5. The learned Commissioner of Income-tax (Appeals), on the facts and in the circumstances of the case, erred in upholding the order under section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have excluded the entertainment allowance from the purview of salary for the purpose of deduction of tax at source. 7. The same is not the position with regard to the other allowances paid by the assessee, which are in issue before us. The claim of the assessee is that it made the payments in question by way of reimbursement of expenses under the various allowances. it is also pleaded that, where an employee makes a declaration about expenses incurred, an employer cannot go behind such declarations in view of the decision of the Honourable Punjab and Haryana High Court in the case of State Bank of Patiala v. CIT [1999] 236 ITR 281. 8. In the light of the decision of the Honourable Madhya Pradesh High Court in the case of Gwalior Rayon Silk Co. Ltd. v. CIT[1983] 140 ITR 832, the duty of the employer to deduct tax is on the basis of an honest estimate of salaries. As per the relevant portion of the head note of this decision, it has been held as under: "The provisions of section 201 of the Act are attracted in the case of an employee only when that employer does not deduct tax at source or after deducting fails to pay the tax as required by the Act. A duty is cast on an empl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re delivered to the Post Office on its own and not at the instance of the agents in question. It is claimed that the said payments are exempt from tax in view of the CBDT Circular No. 786, dated 7th February, 2000. The relevant portion of which reads as under: "The deduction of tax at source under section 195 would arise if the payment of commission to the non-resident agent is chargeable to tax in India. In this regard attention to CBDT Circular No. 23, dated 23rd July, 1969, is drawn where the taxability of 'Foreign Agents of Indian Exporters' was considered along with certain other specific situations. It had been clarified then that where the non-resident agent operates outside the country, no part of his income arises in India. Further, since the payment is usually remitted directly abroad it cannot be held to have been received by or on behalf of the agent in India. Such payments were therefore, held to be not taxable in India. The relevant sections, namely, section 5(2) and section 9 of the Income-tax Act, 1961, not having undergone any change in this regard, the clarification in Circular No. 23 still prevails. No tax is therefore deductible under section 195 and consequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tribunal in the case of Shriram Refrigeration Industries v. ITO [IT Appeal No. 1721 (Hyd.) of 1996], for the assessment year 1994-95. It is also pleaded that this view of the Tribunal is in conformity with the decision of the Honourable High Court of Andhra Pradesh in the case of CIT v. Superintending Engineer, Upper Sileru [1985] 152 ITR 753. It is also mentioned that the said decision of the Honourable High Court of Andhra Pradesh has been affirmed by the Apex Court in the case of Transmission Corpn. of A.P. Ltd v. CIT [1999] 239 ITR 587. So, it is pleaded that the orders of the Revenue on this issue deserve to be upheld. 12. We are of the view that the assessee deserves to succeed on this issue. Admittedly, the foreign parties have not made any request to the assessee to send the cheques by Post Office or any other mode. At any rate, there is no such evidence that they made such request. It is also evident from the case laws cited by the learned counsel for the assessee that the onus of proving, that the receipt of the cheques was within the territories of India, is on the Revenue for the said receipt to become taxable in terms of section 5(2)(a) of the Income-tax Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest on securities and salary) to a non resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Assessing Officer to determine (by general or special order), the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable." It is evident from the language of section 195(2) that the said provision is attracted only in a case where "the whole of such sum would not be income chargeable in the case of the recipient". In other words, this provision is attracted only in a case where at least a portion is chargeable as income in the case of the recipient. If no portion is chargeable, we are of the view that section 195(2) does not come into play at all. 13. Now let us turn to the decision of the Apex Court in the case of Transmission Corpn. of A.P. Ltd., the relevant portion of which reads as under: "The scheme of sub-sections (1), (2) and (3) of section 195 and section 197 leaves no doubt that the expression 'any other sum chargeable under the provisions of this Act' would me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (1) of section 195 is to see that the sum which is chargeable under section 4 of the Act for levy and collection of income tax, the payer should deduct income-tax thereon at the rates in force, if the amount is to be paid to a non-resident. The said provision is for tentative deduction of income-tax thereon at subject to regular assessment and by the deduction of income-tax, the rights of the parties are not, in any manner adversely affected. Further, the rights of the payee or recipient are fully safeguarded under sections 195(2), 195(3) and 197. The only thing which is required to be done by them is to file an application for determination by the Assessing Officer that such sum would not be chargeable to tax in the case of the recipient to receive the amount without deduction of tax, or deduction of income tax at any lower rates or no deduction. On such determination, tax at source. If no such application is filed, income-tax on such sum is to be deducted and it is the statutory obligation of the person responsible for paying such 'sum' to deduct tax thereon before making payment. He has to discharge the obligation of tax deduction at source". In the light of the ratio of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision. In this context, we may invite attention to the following observations of the Tribunal: "In the present case before us, the assessee-company has not made any application to the ITO under section 195(2) to determine whether the assessee was bound to deduct tax at source or not. The non-resident recipients also have not obtained a certificate of exemption from the Assessing Officer under section 195(3). In these circumstances, the assessee should have deducted tax at source before making the remittances to the non-residents as provided in section 195(1). The assessee-company had not done so. Therefore, at the outset itself, it is clear that the assessee has violated the provisions of section 195(1) and has become an assessee in default as provided in section 201. When the assessee-company was heard by the ITO in the course of proceedings under section 201, the assessee-company could have consolidated its position by providing appropriate evidence to the ITO. If it was the contention of the assessee-company that the remittances made by it to the non-residents were not incomes chargeable to Indian income-tax as far as the recipients are concerned, the assessee-company shou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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