COMMISSIONER OF INCOME TAX Vs. SENCMA SA, FRANCE

JUDGEMENT

(1.) IN the course of survey operations, it was noticed that the respondent -assessed had not deducted tax at source on the amount of salaries paid by it to its expatriate employees working in India. The assessing officer was of the view that the salaries paid outside India for services rendered in India were chargeable to tax and that since no deduction of tax at source in regard to the said salaries had been made, the assessed was liable to suffer a penalty in terms of section 271C of the Income Tax Act, 1961. Penalties for the financial years 1991 -92 to 1998 -99 were accordingly imposed upon the respondent -assessed, SENCMA, India. Similarly, penalties for the financial years 1989 -90 to 1998 -99 were imposed upon the respondent -assessed, SENCMA, France.

(2.) AGGRIEVED by the said orders, the respondent -assesseds appealed to the Commissioner (Appeals), inter alia, contending that the assesseds were under a bona fide belief that salaries paid to expatriate employees outside India were not taxable and that no deduction at source was required to be made by the office that was making the said payment. It is also urged that non -deduction of tax from hardship allowance and educational allowance was also justified especially when such allowances were not taxable in France where the companies were registered. The Commissioner (Appeals) partly allowed the appeals filed by the assesseds and held that the levy of penalties qua the hardship and educational allowance was not warranted. Insofar as the non -deduction of tax at source from the salaries paid to the expatriate employees outside India was concerned, the Commissioner (Appeals) upheld the order passed by the assessing officer holding that the Explanation offered by the assesseds was not acceptable.

(3.) AGGRIEVED by the said orders, the revenue as also the assesseds preferred appeals before the Tribunal, Delhi, which have been disposed of by the said Tribunal in terms of a common order dated 11 -8 -2005. The Tribunal was of the view that the Explanation offered by the assesseds for the non -deduction of tax at source from out of the salaries paid to the expatriate employees in France was acceptable and that the failure to make the deduction was for bona fide reasons. The Tribunal held that there was certain amount of confusion in regard to the applicability of the provisions regarding deduction at source from out of salaries paid to expatriate employees in their countries of origin. It referred to four different batches of cases which were decided by the Tribunal involving similar questions and held that the fact situation in those cases was similar to the cases at hand. Following the view taken in the said cases, the Tribunal held that the levy of penalty was not justified. It, accordingly, dismissed the appeals filed with the revenue, while allowing those filed by the respondent -assesseds. The present appeals filed by the Revenue assail the correctness of the said order.