Rta72412005 The Commissioner Of Income Tax v. M/S Tei Quebecor Printing Ltd

...1,. * IN THE HIGH COURT OF DETHI AT NEW Date of D ecision:Tanuary,ry 2006 1. rTh72612005THE COMMISSIONER OF INCOME TAX .....Appellant.dM/S TEI QUEBECOR PRINTING LTD. ..... Respondent 2. rTA72412005THE COMMISSIONER OF INCOME TAX .....Appellant.versusM/S TEI QUEBECOR PRINTING LTD. ..... Respondent3. rTA72512005THE COMMISSIONER OF INCOME TAX .....Appellant.VCTSUSM/S TEI QUEBECOR PRINTING LTD. ..... Respondent 4. LTA7L't2005THE COMMISSIONER OF INCOME TAX .....Appellant. VCTSUSM/S TEI QUEBECOR PRINTING LTD. ..... Respondent A[aocates ufto appearef in tftis case: For the Appellant: Mr. R.D. Jolly with Ms. Sonia Mathur,Advocates. For the Respondents: Mr.G.C.Sharma, Sr. Adv. with Mr.M.K.GiriMr. T.R. Talwar, Ms. Anjali Sharma'Advocates. CORAM:,|HON'BLE MR.IUSTICE T.S. TTIAKURHON'BLE MR. IUSTICE B.N.CHATURVEDI l.Whether reporters of local papers may be allowed to see theljudgment? Ijudgment? I I Z.Tobe referred to the Reporter or not? f [V"] 3.'Whether the [judgment ]should be reported in the Digest? II : T.S. TIIAKUR. f. These appeals under Section 260-A of the Income TaxAct, L962 (for short "the Act"), arise out of a common orderpassed by the Income Tax Appellate Tribunal for the assessmentyears 1994-95 to 1998-99, and shall stand disposed of by thiscommon order. 2. The respond.ent joint venture company employed oneMr. Lester Garnett, a Canadian national at a fixed remunerationwith perquisite of rent free accommodation, car with driver and aservant. The said employee filed his individual tax return andpayrng taxes on the same under Section 1404. of the Act. TheAssessing Officer noticed from a perusal of the bank account ofthe employee and the TDS return filed by the assessee that no ITA Nos.726, 715, 724, 725/2005 ' salary had been paid to the employee nor any deduction [under]Section 192 made by the respondent-assessee. [The ][Assessing]Officer accordingly held the assessee company to be in [default]under Section 201(1) and 201(1A) of the Act. Liability [arising on]account of interest @ LSTo p.a. for different [periods ]for [the]assessment years 1995-96 to 1999-2000 was [consequently]determined by the Assessing Offi.cer in terms of an order [dated]I4ft Febru&rf, 2001. Aggrieved by the said order, the [assessee]appealed to the Commissioner of Income Tax [(Appeals) ]inter aliacontending that since no salary had been [paid ]to Mr. Garnett,there was no obligation for the assessee to deduct tax at sourceon the same. The finding recorded by the Assessing Officer to theeffect that the alleged credits in the Indian Bank accounttantamount to receipt of remuneration by the employee was alsoassailed. 3. The Commissioner of Income Tax [(Appeals) ]allowedthe appeal in part and held that the assessee had [paid ]the salaryto Mr.Garnett, the expatriate employee through its partnerabroad, but subsequently when the Revenue started surveys, theassessee in an attempt to get out of the mess took the plea that ithad not made any such payment and that no tax at source wasdeductible. The Commissioner also held that both the assesseeand its employee were tr.wng to benefit from the defaultsITA Nos.726, 715, 724, 725/2005 page 3 of I I \-.J- \ 3. The Commissioner of Income Tax [(Appeals) ]allowedthe appeal in part and held that the assessee had [paid ]the salaryto Mr.Garnett, the expatriate employee through its partnerabroad, but subsequently when the Revenue started surveys, theassessee in an attempt to get out of the mess took the plea that ithad not made any such payment and that no tax at source wasdeductible. The Commissioner also held that both the assesseeand its employee were tr.wng to benefit from the defaultsITA Nos.726, 715, 724, 725/2005 page 3 of I I \-.J- \ in as much [as ][the ][assessee ][was ][arguing ][that]committed by them, it did not deduct the taxes [because ][no ][salary was ][paid while ][the]employee was arguing that [interest relating ][to ][deferment ][of]advance tax was not [payable ][as ][the ][salary ][was ][nbt ][liable ][to]deduction of tax at source. [The ][Commissioner ][on those ][findings]directed the Assessing Officer to [give ][credit ][to ][the ][extent of ][taxes]paid by Mr.Garnett and recover the remaining [amount ][including]interest from the assessee company. The respondent [company].then [preferred ][a ][further ][appeal ][to ][the ][Income ][Tax. ][Appellate]Tribunal who delivered a split decision. 'vVhile [the ][judicial]member of the Tribunal held [that ][since ][the ][salary payable to]Mr.Garnett had not been actually paid to him,. no obligation [to]deduct tax at Source under [Section ][192 ][of the ][Act ][arose ][nor ][was]the assessee liable to either [pay ]tax under Section [20I ][or ][interest]under Section 201(1A) of the Act. [The ][Accountant ][member ][of ][the]Tribunal however adopted a different line of [reasoning ][and]opined that the obligation to deduct tax at [source ][arose ][even ][if]the salary payable to the employee [was ][simply ][credited ][into ][his]account even if not actually'paid. The following [question ][was, ][in]the face of that decision, referred [to ][the ][Third ][Member ][under]Section 255(4) of the Income Tax Act : ['] "Whether on the facts of the case and in law theassessee was liable to deduct tax at [source]under Section 192 and consequently liable [to] ITA Nos.726, 715,724, 725/2005 I pay the demand of tax and interest underSection 201(1) and 201(1A) of [the Act?"] 4. The Third Member agreed with the [view ][taken ][by ][the] judicial member of the Tribunal and opined that the obligation todeduct tax at source did not [arise ][in ][the instant ][case ][as ][the ][salary]payable to Mr.Garnett had not been actual$ paid to him. [lVhile]s4ylng so, the third member distinguished [the ][decision ][of ][the]Supreme Court in Raghaua Reddi and Another [us. ][Commissioner]of Income Tax, Andhra Pradesh 44 ITR [72O ][telied upon ][by ][the]Accountant Member. The Third Member held that [wherever the]Parliament intended deduction to be made at [source ][even]without actual payment to the recipient, it had [specifically]provided for the same as was the position in cases falling underSection 193, 194A, 194C and 195 etc. [Reliance was ][also ][placed ][by]the Third Member upon the decision of the Andhra [Pradesh ][High]Court in Y.S.C. Babu us. Syndicate Bank [(A.P) ][253 ] [where]the said court has taken the view that for a deduction of tax [at]Source under Section L92, itwas necessary that both [accrual ][of]salary and its payment should co-exist. In accordance [with ][the]majority opinion, the Tribunal eventually allowed the [appeals]filed by the assessee company in terms of its order dated llhOctober,2004 in these appeals.5. Appearing for the Revenue, Mr. Iolly strenuously ITA Nos.726, 715, 724, 725/2005 \ ITA Nos.726, 715, 724, 725/2005 \ argued that a substantial [question ][of ][law ][as ][to the ][interpretation]of Section L92 of the [Income ][Tax ][Act, ][1961 arises ][for]consideration of this court. Relying [upon the ][decision ][of ][the]Supreme Court in Standard [Triumph ][Motor ][Co. ][Ltd. ][us.]Commissioner of Income Tax [20f ] [391, ][he ][submitted ][that]once the amount was credited to the account of [the ][employee,]the same amounted to [receipt thereof ][by ][the ][payee ][giving ][rise ][to]the obligation to deduct tax at source. He urged that [the]distinction drawn by the [majority ][judgmetrt ][of ][the ][Tribunal]between the facts of Standard Triumph [Motor ][Company's ][case](supra) and the case at hand was without any difference. Oncethe payment credited to the account of the [payee ][was accepted ][as]having been received by qe [payee ][for purposes of ][Section ][5(2) ][(b)]of the Act, such payment must be [deemed ][to ][be ][a ][payment ][good]not only for the said provision but also for the [provisions ][of]Section 192 of the Act.6. Mr. Sharma, learned senior counsel for the respondent on the other hand [argued ][that ][the majority view ][of]the Tribunal on the interpretation of Section L92 of the [Act ][was]unexceptionable. He urged [that ][there was ][a ][basic ][difference]between the taxability of an income in the hands of the [payee]and the obligation of the [person ][making the payment ][to ][deduct]tax at source. He contended that all that Section 5(2)(b) [of ][the]ITA N0s.726, 7 I 5, 724, 725/2005page 6 of 11 Act envisaged was that even crediting of the amount in theaccount of the payee was suffi.cient to give rise to the liability topay tax on the said amount even if actual [payment ]thereof [was]not made or received by the payee. That was not however so inthe case of Section 192 of the [Act where ][the obligation ][to ][deduct]tax arises only in case actual payment of the amount is made tothe payee. He referred to the provisions of Section [194, ][1948,]19488, 194EE, 194F and 194L to support his submission thatunder the said provisions, deduction of tax at source could bemade only if actual payment of the amount was made to thepayee. In sharp contrast the provisions of Sections 193, 1944,194C, 194D, 194E, 194G, 194H, 194I, L94L I94K, 195, 1964,1968, 196C and 196D of the Act authorised deduction of taxat source even in cases where the [payrnent ][was ]either creditedor made to the payee. This distinction could not be over lookedaccording to Mr. Sharma, while interpreting the provisions ofSection 192. He placed reliance upon the decision of the AndhraPradesh High Court in Y.S.C. Babu's case [(supra) ]to argue that foran obligation to deduct tax at source, payment as also accrualshould co-exist. 7. 7. Section 192 of the Income Tax Act, inter alia, requiresany person responsible for paying any income chargeable underthe head "salaries" to deduct income-tax on the amount payableITA Nos.726, 7 I 5, 724, 725/2005page 7 of 1I l \" 7. 7. Section 192 of the Income Tax Act, inter alia, requiresany person responsible for paying any income chargeable underthe head "salaries" to deduct income-tax on the amount payableITA Nos.726, 7 I 5, 724, 725/2005page 7 of 1I l \" at the stipulated rate at the time [of ][payment. ][The ][term]"payment" has not been defined either [in ][Section ][192 ][or at ][any]other place of the Act. [The expression shall, ][therefore, ][have to be]given its ordinary literal meaning. It follows that [the ][person]making the payment can or [is ][required ][to ][make ][a ][deduction]towards tax at source only at the time of [making ][such payment.]The accrual of the [payment and ][the ][actual ][act ][of ][making ][the]payment must both exist in order that a deduction [at source ][may]be made. No deduction [at ][source ][is contemplated under ][Section]192 in cases where a payment towards [salary ][has accrued ][but ][is]not made. This position becomes clearer [if ][we ][refer ][to ][similar]other provisions in the Act like Sections [194(8), ][194(BB), ][194(EE),]194(F) and 194(L) under which also a deduction [at ][source ][is]envisaged only if actual [payment ][of the amount is ][made ][to ][the]payee. In contradiction to that requirement, there are [provisions]in the Act which authorise deduction [at ][source even ][in ][cases]where the payment is either made to the [payee ]or [credited to his]account. The provisions of Section [193, ][194(A), 194(C), ][194(D),]194(E), 194(G), 194(H), 194(I), 194(D, [194(K), ][195, ][196(A), ][196(B),]196(C) & 196(D) are in this regard [relevant. ][The ][inference]therefore is that wherever the Parliament [intended ][deductions ][to]be made at source only at the time of making the [payment, ][it]provided so and wherever deductions were intended to [be ][made]ITA Nos,726,715, 724, 725/2005 page 8 of 11 I ) even if the payment is credited to the account [of the ][payee ][it]made a specific provision to that effect. The distinction [between]the two cannot be obliterated by interpreting [the ][provisions ][of]Section 192 in a manner which would amount [to ][re-writing ][the]said provision so as to bring them at [par ]with [the provisions ][that]require deductions at the time of [payrnent ]or [credit ][of ][the']amount to the payee's account. .The decision of the [Andhra]Pradesh High Court in Syndicate Bank's [case ][(supra) ][takes ][a]somewhat similar view. B. In Standard Triumph Motor's case [relied ][upon ][by]Mr.Iolly, the Supreme Court was dealing with a situation [where ][a]Non-resident Indian company was entitled to a [royalty ][on ][all]sales effected by it. The Indian company [which ][was ][liable ][to]make this payment credited the amount of royalty to [the]appellant in its account books. In the returns [filed ][by ][the]assessee-Non-resident Company it admitted the royalty but [filed]nil returns claiming that it was maintaining [its ][accounts ][on ][cash]basis and since no part of the royalty had been [received ]by [it,]therefore, nothing was payable. The [question ][was ][whether ][the]credit entry of the royalty to the account of the appellant-.assessee amounted to receipt of the royalty [by the appellant ][and]was, therefore, taxable. Interpreting Section 5(2)(b) of the [Act,]the Apex Court held that as soon as money [is ][credited ][to ][the]ITA Nos.726, 715, 724, 725/2005 page 9 of 1l I I> I I> account of the assessee it must be [deemed ][to ][have received the]same, hence taxable. In arriving at the conclusion, [the ][Supreme]Court placed reliance upon its [earlier decision ][in ][Raghava ][Reddi]Vs. CIT. 44 ITR 72O.9. It is, therefore, evident that the Supreme [Court ][was]not dealing with a case involving deduction [of tax ][at ][source ][under]Section L92 of the Act. It was, on the [other ][hand, ][dealing ][with ][the]question of taxability of the amount credited to the [account ][of]the assessee having regard to the [provisions ]of [Section 5(2)(b) ][of]the Act. The question whether the [amount ][was taxable ][in ][the]hands of the payee and, if so, for which assessment [year ][is,]however, a matter distinctly different from the [question of]deduction of tax at source under Section L92. [The ][majority]decision of the Tribunal, therefore, rightly [held ][that ][the]obligation to deduct tax at source did not in [the ][instant ][case ][arise]as the amount of salary due to the employee [had not ][been ][paid.]f 0. Mr.Iolly made a feeble attempt to urge that [the ][salary]due to Mr.Garnett had in fact been [received ]by [him ][outside the]country and that the plea of non-payment [was ][raised ][only ][to]avoid the liability arising out of the non-deduction of [tax ][at]source. We see no reason to [go ]beyond [the finding ][of ][fact]recorded by the Tribunal that there was no actual [payment ]of [the]salary by the assessee to Mr.Garnett. The Tribunal [has, ][in ][this]ITA Nos.726, 715, 724, 725/2005 page l0 of I1 ,2 , regard, observed: "The lower authorities have simplyproceeded on the assumption that themoney credited in the account [of ][Mr.Garnett]with Hongkong & Shenghai [Banking]Corporation was paid by the [assessee ][out ][of]unkno',nrn sources. Such assumption, in [our]is based on surmises [and]opinion, coniectures and, therefore, flo [adverse]infsrence can be drarnrn against [the ][assessee.]If the Assessing Officer could obtain [the]account of Mr.Garnett from the bank, [he]could also make enquiries [as ][to ][who paid ][the]amount in the account [of ][Mr.Garnett. ][On ][the]other hand, the assessee has been [able ][to]place the evidence that Quebecor World ofCanada had paid this amount as advance [to]Mr.Garnett for discharging his [income-tax]liability in India. It further shows [that ][this]money was returnable by Mr.Garnett to theCanadian Company on receiving his salaryfrom India. Accordingly, it is held that [the]revenue has not discharged its [onus ][to ][prove]that any payment of salary [was ][made by ][the]assessee to Mr.Garnett during the [year ]underconsideration." 11. 11. In the light of, what we have said [above, ][we ][see ][no]error of law in the view taken by the Tribunal to [warrant]interference by this Court. The appeal, [accordingly, fails ][and ][is]hereby dismissed. l +-',v1 -tT.S.JHAKUR,l ;B.N. CHATURVEDFI- Ianuary [l) ],2006PK