Of Income Tax. . . Appellantthrough :Ms.rashmichopra,Advocate v. Nhkjapan Broadcastingcorporation

IN THE HIGH COURT OF DELHI AT NEW DELHI ITA 168 OF 2011ITA 169 OF 2011ITA 188 OF 2011ITA 189 OF 2011ITA 190 OF 2011 ITA 186 OF 2011 %lUDGMENTRESERVEDON; 19.04.2011lUDGMENTDELIVERED ON:11.5.2011 (1)ITA 168 OF 2011COMMISSIONEROF INCOME TAX OF INCOME TAX. . . APPELLANTThrough :Ms.RashmiChopra,Advocate. VERSUS NHKJAPAN BROADCASTINGCORPORATION ..RESPONDENTThrough:Mr. Salil Kapoor, Kapoor,advocate Mr. Salil Kapoor, Kapoor,advocatewithMr.SanatKapoor,Advocate. (2)ITA 169 OF 2011COMMISSIONEROF INCOME TAX. . . APPELLANTThrough:Ms.RashmiChopra,Advocate. VERSUS NHKJAPAN BROADCASTiNGCORPORATION ..RESPONDENT Mr. Salil Kapoor,advocatewithMr.SanatKapoor,Advocate. Through: (3)ITA 188 OF 2011COMMISSIONEROF INCOME TAXThrough : . . . APPELLANTMs.RashmiChopra,Advocate. VERSUS ITA168/2011,ITA169/2011,ITA188/2011,ITA 189/2011,ITA 190/2011,ITA186/2011 Page 1 of 3 NHK JAPAN BROADCASTING CORPORATION ..RESPONDENTMr. Salil Kapoor,advocatewithMr.SanatKapoor,Advocate. Through: (4)ITA 189 OF 2011COMMISSIONEROF INCOME TAX OF INCOME TAX. . . APPELLANTThrough;Ms.RashmiChopra,Advocate. VERSUS NHKJAPAN BROADCASTINGCORPORATION ..RESPONDENTThrough:Mr. Salil Kapoor,advocatewithMr.SanatKapoor,Advocate. (5)ITA 190 OF 2011COMMISSIONEROF INCOME TAX. . . APPELLANTThrough :Ms.RashmiChopra,Advocate. VERSUS NHKJAPAN BROADCASTINGCORPORATION ..RESPONDENTThrough:Mr. Salil Kapoor, Kapoor,advocate Mr. Salil Kapoor, Kapoor,advocatewithMr.SanatKapoor,Advocate. (6)ITA 186 OF 2011COMMISSIONEROF INCOME TAX. . . APPELLANTThrough:Ms.RashmiChopra,Advocate. VERSUS NHKJAPAN BROADCASTINGCORPORATIONThrough: ..RESPONDENTMr. Salil Kapoor, advocatewithMr.SanatKapoor,Advocate. CORAM HON'BLE MR. JUSTICE A.K. SIKRIHON'BLE MR. JUSTICE M.L. MEHTA 1.WhetherReportersofLocalnewspapersmaybeallowed to see the Judgment?allowed to see the Judgment?2.To be referred to the Reporter or not?3.Whetherthe Judgmentshouldbereportedin theDigest?3.Whetherthe Judgmentshouldbereportedin theDigest? A.K. SIKRI.I. 1.For orders, see ITA 164 of 2011. (A.K. SIKRI)JUDGE MAY 11, 2011skb (M.L. MEHTA)JUDGE ITA168/2011,ITA169/2011,ITA188/2011,ITA 189/2011,ITA190/2011,ITA186/2011 Page 3 of 3 IN THE HIGH COURT OF DELHI AT NEW DELHI ITA 164 OF 2011 ITA 168 OF 2011ITA 169 OF 2011ITA 188 OF 2011ITA 189 OF 2011ITA 190 OF 2011 ITA 186 OF 2011 %tUDGMENTRESERVEDlUDGMENTDELIVERED ON: 19.04.2011ON:ll.5.2011 (1)ITA 164 OF 2011COMMISSIONEROF INCOME TAX. . . APPELLANT.Through:Ms.RashmiChopra,Advocate.VERSUSNHK JAPAN BROADCASTINGCORPORATION..RESPONDENTThrough:Mr. SalilKapoor,advocatewithMr.SanatKapoor,Advocate. (2)ITA 168 OF 2011COMMISSIONEROF INCOME TAX. . . APPELLANTThrough:Ms.RashmiChopra,Advocate.VERSUSNHK JAPAN BROADCASTINGCORPORATION..RESPONDENTThrough:Mr. SalilKapoor,advocatewithMr.SanatKapoor,Advocate.(3)ITA 169 OF 2011COMMISSIONEROF INCOME TAX. „ . APPELLANTThrough:Ms.RashmiChopra,Advocate.VERSUS ITA 164/2011,ITA 168/2011,ITA169/2011,ITA188/2011,ITA 189/2011,ITA 190/2011,ITA186/2011 Page 1 of 13 NHK JAPAN BROADCASTING CORPORATION .. RESPONDENT Through: Mr. SalilKapoor,advocatewithMr.SanatKapoor,Advocate. (4)ITA 188 OF 2011COMMISSIONEROF INCOME TAXThrough: . . . APPELLANTMs.RashmiChopra,Advocate. VERSUS NHK JAPAN BROADCASTING CORPORATIONThrough:Mr. Salil ..RESPONDENTMr. SalilKapoor,advocatewithMr.SanatKapoor,Advocate.- (5)ITA 189 OF 2011COMMISSIONEROF INCOME TAXThrough:Ms.VERSUSNHK JAPAN BROADCASTINGCORPORATIONThrough:Mr. Salil Kapoor, . . . APPELLANTMs.RashmiChopra,Advocate...RESPONDENTMr. Salil Kapoor,advocatewithMr.SanatKapoor,Advocate. (6)ITA 190 OF 2011COMMISSIONEROF INCOME TAXThrough : . . . APPELLANTMs.RashmiChopra,Advocate. VERSUS NHK JAPAN BROADCASTINGCORPORATIONThrough:Mr. Salil Kapoor, ..RESPONDENTMr. Salil Kapoor,advocatewith.Mr.SanatKapoor,Advocate. (7)ITA 186 OF 2011 .. RESPONDENT Through: Mr. SalilKapoor,advocatewithMr.SanatKapoor,Advocate. (4)ITA 188 OF 2011COMMISSIONEROF INCOME TAXThrough: . . . APPELLANTMs.RashmiChopra,Advocate. VERSUS NHK JAPAN BROADCASTING CORPORATIONThrough:Mr. Salil ..RESPONDENTMr. SalilKapoor,advocatewithMr.SanatKapoor,Advocate.- (5)ITA 189 OF 2011COMMISSIONEROF INCOME TAXThrough:Ms.VERSUSNHK JAPAN BROADCASTINGCORPORATIONThrough:Mr. Salil Kapoor, . . . APPELLANTMs.RashmiChopra,Advocate...RESPONDENTMr. Salil Kapoor,advocatewithMr.SanatKapoor,Advocate. (6)ITA 190 OF 2011COMMISSIONEROF INCOME TAXThrough : . . . APPELLANTMs.RashmiChopra,Advocate. VERSUS NHK JAPAN BROADCASTINGCORPORATIONThrough:Mr. Salil Kapoor, ..RESPONDENTMr. Salil Kapoor,advocatewith.Mr.SanatKapoor,Advocate. (7)ITA 186 OF 2011 COMMISSIONEROF INCOME TAX . . . APPELLANT ITA164/2011,ITA168/2011,ITA169/2011,ITA188/2011,,ITA 189/2011,ITA190/2011,ITA186/2011 Through :Ms.'RashmiChopra,Advocate. VERSUS NHK JAPAN BROADCASTINGCORPORATION.^RESPONDENTThrough:Mr. Salil Kapoor,advocatewithMr.SanatKapoor,Advocate. CORAM HON'BLE MR. JUSTICE A.K. SIKRIHON'BLE MR. JUSTICE M.L. MEHTA 1.WhetherReportersofLocalnewspapersmaybeallowed to see the Judgment?2.To be referred to the Reporter or not?3.WhethertheJudgmentshouldbereportedIn theDigest? A.K. SIKRI.I. 1.Therespondentassesseewhichis a PublicBroadcastingCompanyof Japan(and,therefore,naturallyaNon-ResidentCompany)istreatedasanassesseeindefaultundertheprovisionsof Section 201 and 201 (1) and 201 (lA) of the IncomeTax Act (hereinafterreferred to as 'the Act').Companyof Japan(and,therefore,naturallyaNon-ResidentCompany)istreatedasanassesseeindefaultundertheprovisionsof Section 201 and 201 (1) and 201 (lA) of the IncomeTax Act (hereinafterreferred to as 'the Act'). 2.Before we spell out the exact nature of default attributedtothe assessee,we deem it apposite to recount the facts in brief. The respondent,NHK Japanis a governmentownedpublicbroadcastingcompanyof Japanhaving news bureausin manycountriesincludingIndia. The respondenthad deputedexpatriate employeesfrom Japanforworkingin itsofficeinIndia.Theexpatriateswere receivingsalary in India and a portion of sajaryand allowancesin Japan.Under the law in Japan, citizens/nationalsof Japan are liable to levy of an annual municipalCitizen Tax alsoreferred to as Inhabitant tax which is charged on account of beingan inhabitantof Japan.In case a Japanesecitizenis renderingservicesin an employmentin Japan or abroadon a transfer fromJapan for which he receives any salary in Japan, the citizen tax fora year in which he was in Japan on the first day of January of thatyearis requiredtobewithheldby his ernployerfromsuchemployee'ssalaryincomein Japanandpaiddirectlyto theconcernedMunicipality.NHK, was accordingly,withholdingandpaying, over to the concernedmunicipal authorityin Japan, thecitizen'staxleviedunderthe Japaneselaw, fromthe salariespayable by it in Japan to its expatriateemployees assigned by it toits news bureau in India.The citizen tax withheld from the salariesin accordancewith the law in Japan was claimedto be excludibleanddeductiblein thecomputationof salaryincomeof theemployeesliable to tax in India. The AO passed order under Section201 (1) and 201 (lA) ofthe Act onDecember,1999 for the Financial year 1988-89 to1998-99.The AO did not acceptthe claimsof deductionand made additionsby working out the differenceof additionaltax andinterest takinginto account(i) number of work days outsideIndia(ii) Citizen tax and (iii) Housing norm. The AO passed order under Section201 (1) and 201 (lA) ofthe Act onDecember,1999 for the Financial year 1988-89 to1998-99.The AO did not acceptthe claimsof deductionand made additionsby working out the differenceof additionaltax andinterest takinginto account(i) number of work days outsideIndia(ii) Citizen tax and (iii) Housing norm. On appeal before the Commissionerof Income Tax (Appeals)it was held that citizen tax is a statutorylevy in Japan on Japanesecitizensand that such tax constitutesan overridingcharge on thesalaryincomeandthereforethe samehadtobe excludedincomputationof taxable, income.On the issue of assesseebeingheld to be in defaultu/s 201 (1) and 201 (lA) and housingnormdeduction,the matter was decided against the assessee.The CIT. (A) decidedthe appealsfor 11 financialyearsi.e.FY 1988-89to1998-99 by way of a common order dated SO'^Mvjarch, 2001. i' Against the order of CIT (A), 11 appealswere filedby theassesseebeforetheITAT on the groundsof assesseebeingin. default,housingnormdeduction,andanadditionalgroundregardingordersforFY 1988-89to1994-95beingbarredbylimitation.11 appeals were filed by the Revenuebefore the ITATon issue of citizen tax deduction.All appealswere decidedby acommonorderdated10*^^ March, 2006.Theappealsof theassesseewere allowedand those of the Revenuewere dismissed.OrdersforFY 1988-89to 1994-95wereheld as invalidontheground of limitationand for FY 1995-96to 1998-99 assesseewas Page5 of 13 held not to be in default.The Tribunalupheld the Commissioner'sorder on citizen tax issue. The Revenue filed 22 appeals in this Court against the abovementionedordersof theITAT, whichwerealldismissed.ThisCourt vide orders dated 30'^ March, 2007 on 11 appealsby therevenueoncitizentaxissuedismissedthesamebasingitsdecision on the judgment of the Supreme Court in the case of CITVs. SitaldasTirathdas[1961]41ITR 367.Vide a separateordersdated23^^ April, 2008, other11 appealsfiled by theRevenue on the issue of order under Section 201 (1) and 201 (lA)were dismissed on the ground that action was barred by limitation.The Revenuewent in appealbefore the SupremeCourt in twobatches.In the1®*^ batch,it agitatedthe citizen tax issue and inthe 2"^ batch, it challenged the issue of limitation. The SupremeCourtvideordersdated16''^ March,2008in thebatchofappealsdirectedthe Tribunalto considerthe matterafreshinaccordancewithlaw asregardcitizentaxissue.It wouldbepertinent to quote the exact direction given by the Supreme courtin the aforesaidorder as much turns on those directions:- "Withoutgoinginto the meritsof the. case,sufficeit to state that in the present case, inour view, the Commissioner(Appeals)oughtto have examinedthe scope of the Japanese Page 6 of 13 law, namely. Citizens IndividualInhabitantTaxAct. In the letter of appointmentissued, thereisareferencetothewords.TherelevantClause reads as under; "Tour emolumentsshall be subject todeductionof taxes as per applicablelawssndthetaxliabilityonhostcountry(India)shallbebornebyNHK-JapanBroadcastingCorporation." "Withoutgoinginto the meritsof the. case,sufficeit to state that in the present case, inour view, the Commissioner(Appeals)oughtto have examinedthe scope of the Japanese Page 6 of 13 law, namely. Citizens IndividualInhabitantTaxAct. In the letter of appointmentissued, thereisareferencetothewords.TherelevantClause reads as under; "Tour emolumentsshall be subject todeductionof taxes as per applicablelawssndthetaxliabilityonhostcountry(India)shallbebornebyNHK-JapanBroadcastingCorporation." Analysingthe said Clauseone finds that theemolumentspaid by the assessee was subjectto deductionof tax as per applicablelaws.Therefore,inourview,Commissioner(Appeals)oughttohaveexaminedtheprovisionsof Citizens IndividualInhabitant TaxAct whichis a Japaneselaw and it ought tohaveanalysedtheprovisionsof thatlaw,particularly,whenit was requiredto decidethe question as to nature of the levy being anoverridingchargeon the salaryincome,asstatedhereinabove.The controversyin thepresent case is that citizens tax is a statutorylevyinJapanontheJapanesecitizensconstitutingan overridingcharge.If it is anoverridingchargethenofcoursetheCommissioner(Appeals) was right in sayingthat it would not be an income.However,inour view, since the provisionsof the Act havenot been examined,the matterneeds to be•consideredafreshbytheTribunal.Accordingly,weremitthemattertotheTribunalfor fresh considerationin accordancewith law. We express no opinion on the meritsof the case."It is clear from the above that the Supreme Court was of theview that issue at hand could not be decided without going intothe specific provisionscontainedin Citizens Individual InhabitantTax Act (hereinafter referred to as 'the CitizensTax Act') of Japan andanalyzingthoseprovisions.Since thescopeof aforesaidJapaneselaw was not examined,the Supreme Court remittedthecase back to the Tribunalfor freshconsideration"in accordancewith law" and to ascertain from the provisions of the Citizens TaxAct as to whetherthe statutorylevy in Japanconstitutedanoverridingcharge.The Supreme Court made it clear-thatif it wasan overridingcharge, then it would not be an income.. 3.When the matter reached back to Tribunal,the parties weredirected to place on record copy of the aforesaid Citizens Tax Actdyly translated into English vide orders dated 16*^^ March, 2009.The Counsel for the assessee filed the copy of the aforesaid Actalongwithits English translationbut did.nottake the responsibilitywith respect to the authenticity of its English translation.In such asituation, the order dated 9'^^ December,2009 was passed by theTribunaldirectingtheDepartmentalRepresentativeoftheRevenue to place on record the copies of the provisions translatedinto English. Even after seeking adjournments,the Revenue failedto file the translatedcopyof the relevant provisions of the saidAct.This posed a dilemmain the minds of the Tribunal.On theone hand, there was a direction given by the Supreme Court todecide the issue with reference to the provisions of the Citizens Tax Act and on the other hand, the Tribunalfelt helpless as it wasunableto proceedunlessthe authenticatedcopy of the Englishtranslationversionof the said Act was producedbeforeit.TheTribunalwas consciousof the directionsgivenby the SupremeCourt whichis specificallytaken note in para 8 of the impugnedorder.However, two reasons prevailedin the mind of the Tribunalwhich led to passing of the impugnedorder dismissingthe appealof the Revenue namely: Tax Act and on the other hand, the Tribunalfelt helpless as it wasunableto proceedunlessthe authenticatedcopy of the Englishtranslationversionof the said Act was producedbeforeit.TheTribunalwas consciousof the directionsgivenby the SupremeCourt whichis specificallytaken note in para 8 of the impugnedorder.However, two reasons prevailedin the mind of the Tribunalwhich led to passing of the impugnedorder dismissingthe appealof the Revenue namely: (i)Asalreadypointedoutabove,thedepartmentfailedtoplaceonrecordtheEnglish version of the Citizens Tax Act in theabsenceof whichit becameimpossibleforthe Tribunalto decide the issue.departmentfailedtoplaceonrecordtheEnglish version of the Citizens Tax Act in theabsenceof whichit becameimpossibleforthe Tribunalto decide the issue.(ii)Anotheraspectwhichheavilyweighwiththe Tribunalwas the subsequentdecisionoftheSupremeCourtitselfwherebyit hadupheldthe quashingof the orderspassedunder Section201 (1)and 201(1A)of theAct.Fromthis, the Tribunalconcludedthatit would be a futile exercise to determinetheissuenamelywhetherthe CitizensTax Acthadan. overridingchargeover the salaryincome of the assesseeor not.the Tribunalwas the subsequentdecisionoftheSupremeCourtitselfwherebyit hadupheldthe quashingof the orderspassedunder Section201 (1)and 201(1A)of theAct.Fromthis, the Tribunalconcludedthatit would be a futile exercise to determinetheissuenamelywhetherthe CitizensTax Acthadan. overridingchargeover the salaryincome of the assesseeor not. 4.In so far as first reasongiven by the Tribunalis concerned,no doubt, the Tribunal felt helplessto determinethe issue as perdirectionof the Supreme Court for no fault of its own.Normally, insuch a situation,it could have asked the other party namely theassesseeto approachthe SupremeCourtfor variationsof the directionsgivenby the SupremeCourtin its orderdatedIG""jviarch, 20.09 inasmuch, as,the Tribunalis bound to carry out suchdirections.However,if the secondgroundgivenby the Tribunalhas merit,theremay not be any fault with the impugnedorderpassedby the Tribunal,therefore,we proceedto examinetheveracity of the second ground taken by the Tribunal. 5.As pointedout above,therewere two batchesof appeals.beforetheSupremeCourt,batchwasconcernedwiththeCitizens Tax Act in which directionsdated16'^''' jviarch, 2009 werepassedby the SupremeCourt,as noted above. The 2"'' batch ofappealswasconcernedwiththeissueof limitation.Asnotedabove,the orders in respect of financialyear 1988-89 to 1994-95were heldto be invalid on the groundof limitationby the Tribunalwhich order was upheldby this Court and SpecialLeave Petitionwasfiledagainstthatorder.Thisbatchof appealswasstillpending. 6.In the meantime,the questionof non-deductionof taxatsourceon overseaspaymentsto expatriateemployeescame upforconsiderationbeforetheSupremeCourtinthecaseofCommissionerof IncomeTax Vs. Eli Lilly& Co.Pvt.Ltd. i (2009) 312 ITR 22.These cases included the appealpertainingtothe present assesseealso.When the 2"^^batch of appeals cameup for hearingbefore the SupremeCourt,goingby the aforesaidordersdated25'^ March,2009in Eli Lilly& Co.(supra),theSupremeCourt passedthe followingordersdated20''" January, 2010:- "Delay condoned. Leave granted. The followingsubstantialquestionof law arisesforconsiderationin this batch of civil appeals:- "WhethertheIncomeTaxAppellateTribunalwas correctIn law in holdingthat the orderspassedunder Sections201(1)and 201(1A)of the Income TaxAct,1961areinvalidandbarredbytimehavingbeenpassedbeyondareasonableperiod." i (2009) 312 ITR 22.These cases included the appealpertainingtothe present assesseealso.When the 2"^^batch of appeals cameup for hearingbefore the SupremeCourt,goingby the aforesaidordersdated25'^ March,2009in Eli Lilly& Co.(supra),theSupremeCourt passedthe followingordersdated20''" January, 2010:- "Delay condoned. Leave granted. The followingsubstantialquestionof law arisesforconsiderationin this batch of civil appeals:- "WhethertheIncomeTaxAppellateTribunalwas correctIn law in holdingthat the orderspassedunder Sections201(1)and 201(1A)of the Income TaxAct,1961areinvalidandbarredbytimehavingbeenpassedbeyondareasonableperiod." Havingheardlearnedcounselon bothsides,weare.oftheviewthat,onthefactsandcircumstancesof these cases, the questionon thepoint of limitationformulatedby the Income TaxAppellateTribunalin the presentcasesneednotbe goneintofor the simplereasonthat,at therelevant time, there was a debate on the questionastowhether. TDSwasdeductibleundertheIncome Tax Act, 1961,on foreignsalarypaymentasacomponentof the totalsalarypaidtoanexpatriateworkinginIndia?Thiscontroversycame to an end vide judgmentof this Court in thecase of Commissionerof Income Tax Vs. Eli Lilly &Co.(India)Pvt.Ltd.,reportedin (2009)312ITR2235.The qyestionon limitationhas becomeacademicinthesecasesbecause,evenassuming that the Departmentis right on the (— i I i issueof limitationstillthe questionwouldarise whether on such debatablepoints, theassessee(s)couldbedeclaredasassesseeSs)indefaultunderSection192read with Section201 of the income Tax Act,1961.Further,we are informedthat the assesseehave paid the differentialtax.They have paid theinterestand theyfurtherundertakenot to claimrefundfor the amountspaid.Beforeconcluding,we may also state that, in Eli Lilly & Co. (India)Pvt.Ltd.(supra)videparagraph21,thisCourthasclarifiedthat the law laid down in the said case wasonly applicableto the provisionsof Section192 ofthe Income Tax Act, 1961. I "Nj / Leavingthe questionof law openon limitation,thesecivilappealsfiledbytheDepartmentaredisposedof with no order as to costs." It is thus clear that the same Benchof the SupremeCourtwhich issueddirectionon le''" ivjarch, 2009 passed the aforesaidorder making itemphatically clearthat even the issue oflimitationhad becomeacademicas the assesseecouldnotbedeclaredasassesseeindefaultunderSection192readwithSection201 of theAct.The falloutof the aforesaidorder dated20"^^ January,2010is that the Supreme'Courthas held that theassessee for the assessment years in question, cannot be treatedas assesseein default.The consequencewould be to quash theproceedinginitiatedby theAO treatingthe assesseetobeindefault under Section 201 (1)and 201 (lA) of the Act. ITA 164/2011,ITA 168/2011,ITA169/2011,ITA188/2011,ITA 189/2011,ITA190/2011,ITA186/2011Page 12 of 13 7.We, thus agree with the Tribunal that the issue had becomeacademicin natureand there was no reasonleft to decide thisissue.This happenedbecauseof the subsequentorder of theSupremeCourt itself.This resultedas a consequenceof theorders passed by the Supreme Court, that too, in the case of thisvery assesseepertainingto the appealsof the assessmentyearson the same question.We thus find no merit in these appealswhich are dismissedon this ground alone. MAY 11, 2011skb (A.K. SIKRI)JUDGE(M.L. MEHTA)JUDGE ITA 164/2011,ITA 168/2011,ITA169/2011,ITA188/2011,ITA 189/2011,ITA190/2011,ITA186/2011