It has been recently held by the Hon'ble High Court of Delhi in the case of CIT v M/s AIR Liquide India Holdings reported in 2015-TIOL-2808-HC-DEL-IT that no penalty under Section 271C of the Income Tax Act, 1961 can be levied against the Assesee and he cannot be held an Assesse in default when there was nothing brought on record by the Department to show that the Respondent had been intimated by the expatriate employees about the remuneration received by them from ALF.

Brief facts of the case :

The fact leading to filing of the appeal by the revenue was that the Respondent was a wholly owned Indian subsidiary of Air Liquid France (ALF), a French multinational company. The Indian company has both Indian as well as expatriate employees on its pay rolls. A survey was conducted in the premises of the Respondent by the Department u/s 133A on a suspicion that multinational corporations were evading taxes on salary and allowances paid by them to the expatriate staff outside India. During the survey it was found that 2 employees were deputed by ALF to look after the Indian operations who were paid remuneration both by Indian company as well as ALF. TDS was deducted by the Respondents on the salaries paid by them to the said two persons, however no tax was deducted at source on the salaries paid to them by the parent company i/e ALF in terms of Section 192 read with S. 9 (1)(ii) of the Act. Accordingly, penalty proceedings u/s 271C were initiated against the Respondent.

The Additional Commissioner of Income Tax (TDS) and CIT (Appeals) dismissed the appeals filed by the respondent while rejecting the explanation offered by the respondent that it was unaware of the payment of salary by ALF to the expatriate employee and therefore, did not deduct tax.

However, the Hon'ble ITAT made a fact finding that there was no material on record to show that the respondent had been intimated by the expatriate employees about the remuneration being received by them from ALF. It noted that:

"Neither in the course of search under Section 133A nor subsequent thereto in evidence was found by the Department to this effect".

It was further noticed by the ITAT that after the search operation under Section 133A and discussion with the income tax authorities, the Respondent having become aware of the taxability of the remuneration received by the expatriate employees from ALF obtained the details and concurrence of ALF for the payment of tax dues. After completing necessary formalities and by arrangement with ALF, the Respondent commenced depositing not only the TDS but also the interest for the delay. Thus, both Sections 192(1) and 192(2) stood complied with by the Respondent even before penalty was levied under Section 271C of the Act by the order dated 17th November, 2000.

The Hon'ble ITAT observed that a duty to deduct tax at source from salary received by an expatriate employee from the 'other employer' could arise only when the employee himself furnishes the details in that regard to the company in India with which he was employed.

On appeal before the Hon'ble High Court, the Court in the light of the factual findings of the ITAT and relying on a similar case of CIT v Marubeni India (P) Ltd. reported in [2007] 294 ITR 157 (Del), accordingly dismissed the appeals filed by the revenue.

Conclusion:

The Duty to deduct TDS with regards an expatriate arises, only when he himself furnishes the details regards the other employer.

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