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TMI Blog2015 (10) TMI 2658X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of deduction of tax at source from the salary of non residents expatriated to India has been debatable issue in as much as whether the tax was required to be deducted by their employer abroad while making payment in their country or by their joint venture partners in India. In the context of provisions of section 192 read with section 9 of the Act vis-a-vis the deduction of tax at source, the Hon 'ble Apex court in the case of CIT vs. Eli Lilly and Co. (312 ITR 225) has held that this was the first instance' that such an issue was examined by the Court. The Hon'ble Court also went ahead in holding that where the tax deductor was under a genuine and bonafide belief that it was not under an obligation to withhold taxes, there was no question of imposition of penalty as the assessees had been able to discharge the burden of showing reasonable cause for non deduction of taxes. The Hon'ble Court held that only those persons will be liable to penalty who do not have good and sufficient reason for not deducting the tax. The present case is not the case of the Revenue that the tax has been deducted but not paid to the credit of the company. Hence, we uphold the order of ld. CIT(A) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpatriates was processed partly in India and partly in Japan. The local companies have done tax withholding on the salaries paid in India and paid the same to the credit of tax authorities. The respondent assessee company being a corporate registered under the laws of Japan was in the process of ascertaining the taxability of salary being paid to the deputed personnel and the modalities to discharge the liability of payment of taxes on salary and other requirements in India. 1.3 At the outset, it is submitted that under the scheme of employment, all the employees deputed to India were covered under the tax equalization policy of the respondent assessee company. As per the said tax equalization policy, the employer is required to bear the tax liability arising out of the employment in India. The tax borne by the employer is grossed up and was included as part of the salary for the period the services were rendered by the employee in India. Thus, in case of the respondent assessee company, the entire tax liability in the hands of the employees in India on account of salary payment was borne by the respondent assessee company, which was calculated only at the time of deposit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for penalty of ₹ 25,00,000. Being aggrieved, an appeal was filed before the learned CIT(A), who vide order dated 14th March, 2011 deleted the penalty vide paras 6 6.1 of his order, which read as under: 6. I have considered the submissions of learned counsel for the appellant and gone through the documents and evidences placed on record as well as the judicial rulings relied upon by the learned counsel. The facts, as emanating from the written submissions of the appellant, are that the appellant had deputed certain employees to its two joint venture companies with L T group in India to work under the control and supervision of Indian JV companies,. Under the scheme of employment, all the employees deputed to India were covered under the tax equalization policy of the appellant in which the employer is required to bear the tax liability arising out of the employment in India. The tax borne by the employer was grossed up and included as part of the salary for the period the services rendered by the employees in India. The payrolls of such expatriates were processed partly in India and partly in Japan, The appellant, being a corporate entity registered under the laws ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch penalty he has paid the tax. The explanation to section 221 provides that penalty may be imposed even if assessee makes payment of tax before the levy of penalty. However, second proviso to section 221 (1) of the Act states that where the assessee proves to the satisfaction of the Assessing Officer that the default was for good and sufficient reasons, no penalty shall be levied under this section. The proviso to section 201(1) also lays down that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax. Thus, the levy of penalty under section 221 (1) is subject to the satisfaction of the AO and reasonable cause for non compliance. The learned counsel has relied upon the decision of Hon'ble Supreme Court in the case of Hindustan Steel Ltd. vs. State of Oris sa (83 ITR 26), wherein the Hon'ble Apex Court has held that an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct tax at source in respect of salary paid by their employer as such salary income was taxable in India by virtue of the provisions of section 9 of the Act, for having rendered services in India. The case of appellant is that the salary has paid by their parent employer in Japan in their home country but the services by the expatriate employees were rendered in India by virtue of the joint venture arrangement with L T Group. It is for these reasons of uncertainty and difficulties involved in several cases that the Hon'ble Supreme Court has quashed penalty proceedings u/s 271C initiated for default of non deduction of tax at source by the Indian joint venture partners. The Hon'ble Court has specifically restricted the action only to the charging of interest for non compliance to the provisions relating to the TDS. In para 38 of the order is reproduced below: 38. For the reasons mentioned hereinabove, however, no penalty proceedings under section 271 C shall be taken in any of these cases as the issue involved was a nascent issue. Accordingly we quash the penalty proceedings under section 271C. When penalty u/s 271C has not been held to be leviable in these facts and cir ..... X X X X Extracts X X X X X X X X Extracts X X X X
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