Commissioner of Income Tax vs Coromandel Fertilisers Ltd.

This Judgment has been overruled by : Commissioner of Income Tax, Gujarat Vs. Arvind Mills Ltd., AIR 1992 SC 718 : (1992) 101 CTR 91 : (1992) 193 ITR 255 : (1991) 5 JT 341 : (1991) 2 SCALE 1320 : (1992) 2 SCC 190 Supp : (1991) 3 SCR 303 Supp : (1992) 60 TAXMAN 192

Y.N. Anjaneyulu, J.—This reference arises u/s 256(1) of the Income Tax Act, 1961 ("the Act" for short), in connection with the Income Tax assessment years 1972-73, 1973-74 and 1974-75. The assessee is a company. The company secured the services of one Mr. Larner with the approval of the Central Government as a foreign technician subject to the provisions contained in section 10(6)(vii-a) of the Act. The Central Government conveyed its approval to the contract of Mr. Larner''s service in India, as required by section 10(6)(vii-a)(2) of the Act, consequently, salary to the extent of Rs. 4,000 paid to Mr. Larner is wholly exempt from Income Tax. Income Tax is, however, payable on the amount in excess of Rs. 4,000 paid to Mr. Larner but that liability to pay tax is that of the company in accordance with the contract of service approved by the Central Government. Mr. Larner himself is not under an obligation to pay any tax under the Income Tax Act on the salary paid to him whether to the extent of Rs. 4,000 or in excess of the sum of Rs. 4,000 pursuant to the contract of service entered into between the assessee-company and Mr. Larner, and approved by the Central Government for purposes of section 10(6)(vii-a). Accordingly, the assessee-company was under an obligation to pay the tax on the salary paid to Larner in excess of the sum of Rs. 4,000 per month. There is no dispute that the assessee-company paid the required tax on the sum paid in excess of the amount exempt u/s 10(6)(vii-a). The Revenue claims that in respect of the sum in excess of Rs. 4,000 which is not exempt as mentioned above, the assessee ought to have deducted tax at source u/s 192 of the Act and the failure to so deduct tax at source and pay the same to the Central Government attracted liability to pay interest u/s 201(1A) of the Act. In that view, the Revenue claimed interest from the assessee on the amount allegedly deductible u/s 192 of the Act. The Income Tax Officer''s claim for levy of interest stood negatived by the orders of the Appellate Assistant Commissioner as well as the Income Tax Appellate Tribunal. Aggrieved, the Commissioner is in reference before us and the following question of law has been referred for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the assessee is not liable to charging of interest u/s 201(1A) of the Income Tax Act, 1961, in respect of the assessment years 1972-73, 1974-74 and 1974-75"

We fail to see how the provisions of section 192 of the Act come into operation at all in this case, when admittedly the sum paid to Mr. Larner is not chargeable as income from salary in his hands. It is not the Revenue''s case that any part of the sum paid to Mr. Larner is liable to be assessed in his hands as income under the head "Salary" and, therefore, the obligation to deduct tax arises. There is no dispute about the fact that pursuant to the contract of service, Mr. Larner himself is not liable to pay tax on any part of the sum paid to him by the assessee-company. In the situation, the question of deducting any tax at source from out of the amount paid to Mr. Larner by the assessee does not arise. Unless there is an obligation on the part of the recipient, Mr. Larner, to pay tax under the head "Salary", the obligation to deduct tax u/s 192 does not arise. Once tax is not deductible u/s 192, the further question of paying such tax to the Central Government within any period of time and the payment of interest u/s 201(1A) of the Act do not also equally arise. The whole claim of the Revenue is based on a misapprehension that the tax which ought to be paid by Mr. Larner was paid by the assessee-company and such tax ought to have been deducted at source at the time of payment to Mr. Larner. The facts do not, however, support this claim of the Revenue inasmuch as the Central Government approved the contract of service to pay salary, without payment of any tax, to Mr. Larner, subject to the obligation that in excess of the sum of Rs. 4,000 per month paid to Mr. Larner, the assessee-company itself shall pay tax, This is, therefore, not a case where the provisions of section 192 of the Act come into operation. In our opinion, the Tribunal was right in rejecting the Revenue''s claim for payment of interest by the assessee for the three assessment years under consideration u/s 201(1A) of the Act. For the aforesaid reasons, we answer the question referred in the affirmative, i.e., against the Revenue and in favour of the assessee. The Revenue shall pay the costs of the assessee.