High Court of Delhi

Commissioner of Income-tax XVI

v.

Marubeni India (P.) Ltd.

Section 192 of the Income-tax Act, 1961 - Deduction of tax at source - Salary - Assessment year 1999-2000 - Whether where an assessee has more than one employer, liability of employer who is expected to deduct TDS in terms of section 192(1) would get triggered after employee furnishes such employer details of income due or received by him from other employer - Held, yes

Section 192, read with section 201, of the Income-tax Act, 1961 - Deduction of tax at source - Salary - Assessment year 2000-01 - There was short deduction of tax at source by assessee-employer on salary paid to its employees - Explanation of assessee was that it was deducting TDS from monthly salary of employees on an average rate and that performance incentive was paid to employees only in month of March 2000 and since precise amount of incentive could not be gauged while estimating salary income, there was a short deduction of TDS - Department rejected explanation of assessee and levied interest under section 201(1A) - Whether since payment of performance incentive was dependent on performance of company in a given financial year, payment of such incentive was not only uncertain but amount was also likely to vary - Held, yes - Whether, therefore, it could not be said that assessee was in default due to short deduction of corresponding TDS and, as such, section 201(1A) would not be attracted - Held, yes

Facts

The assessee-company, incorporated in India, employed foreign nationals. For the assessment years 1999-2000 and 2000-01, there was shortfall in deducting TDS on the salary paid to those overseas employees. The explanation of the assessee, for the assessment year 1999-2000, was that some of its expatriate employees were in receipt of income from certain foreign companies and they informed it of such receipts of income only in March, 2000 and, therefore, it could not deduct tax at source on said receipts earlier. As regards to shortfall for assessment year 2000-01, the explanation of the assessee was that it was deducting TDS from the monthly salary of the employees on an average rate and the performance incentive was paid to employees in the month of March 2000, and that since the precise amount of incentive could not be gauged while estimating the salary income, there was a short deduction of the TDS. The Deputy Commissioner rejected explanation of the assessee and levied interest under section 201(1A). The Commissioner (Appeals) upheld the order of the Deputy Commissioner. The Tribunal, however, allowed the appeal of the assessee holding that on the facts, the assessee could not be treated as the assessee-in-default.

On appeal :

Held

Section 192(1) indicates that the deduction of tax at source has to take place ‘at the time of payment’ of such salary. Secondly, the tax that is required to be deducted would be the tax payable at the rates in force during that financial year ‘on the estimated income of the assessee’ under the head ‘Salary’ for that financial year. The provision, therefore, envisages that the employer would proceed to deduct TDS on the estimated income. Where an assessee is employed simultaneously under more than one employer, he is required to furnish to the employer responsible for deducting tax at source “such details of the income under the head ‘Salaries’ due or received by him from the other employer”. Section 192(2) further mandates that once that information is furnished, ‘the person responsible for making payment referred to above shall take into account the details so furnished for the purposes of making the deduction under sub-section (1)’. The statutory scheme, therefore, appears to be that where an assessee has more than one employer, the liability of the employer who is expected to deduct TDS in terms of section 192(1) would get triggered after the employee furnishes such employer the details of the income due or received by him from the other employer. [Para 9]

In the instant case, it was not in dispute that the assessee received the intimation from the expatriate employees as regards the payment received by them from other employer only in the month of March 2000. The observation of the Deputy Commissioner that these expatriate employees were working exclusively only for the assessee and no one else, did not mean that these employees did not receive payment from the other employer. In fact the Deputy Commissioner himself acknowledged this position in the next sentence where he said, “whatever salaries they were getting in India or outside India were for the services to deductor-company itself on its behalf”. What had, however, been missed by the Deputy Commissioner was that the provisions to section 192(2) are attracted in such a situation and the liability to deduct TDS in terms of section 192(1) arises after the information is provided by the employee in terms of section 192(2). Therefore, in the facts of the instant case, it could not be said that the assessee was an assessee-in-default for the financial year 1998-99. There was no infirmity in the decision of the Tribunal in that regard. [Para 10]

As regards the financial year 1999-2000, the assessee was right in contending that by its very description the performance incentive could not be a fixed mandatory payment made year after year. Since it was dependent on the performance of the company in a given financial year, the payment of the incentive was not only uncertain but the amount was also likely to vary. Giving the requirement of section 192(1) that TDS should be deducted on the ‘estimated income of the assessee’, it could not be said that the assessee was in default on account of the short deduction of the TDS from the salary of its employees to the extent the short deduction was relatable to the performance incentive. Therefore, it could not be said that the assessee was in default due to short deduction of the corresponding TDS. On the facts of the instant case, section 201(1A) was not attracted. This was not a case of non-deduction of TDS, but one of short deduction of TDS for bona fide reasons. [Para 11]

Therefore, there was no ground to interfere with the impugned order of the Tribunal. No substantial question of law arose. The appeals were accordingly dismissed.