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Income Tax Laws – I

Notes average rate of Income-tax as provided in the Section. Sec.192(2) further provides that if
the assessee (Employee) is employed simultaneously under more than one employer
during the financial year, etc., he may furnish to the Employer referred to in Sec.192(1)
such details of his Salary Income from the other employer or employers in the prescribed
form (Form No.12B) and in that event, such Employer is under an obligation to take into
account such details for the purpose of making deduction under Sec.192(1). The provisions
contained in Sec.192(2) are regarded as optional for the assessee (Employee).
When a non-resident (say, a Foreign Company) makes payment outside India to any
resident (or to non-resident in certain cases) falling within any of the provisions contained
in Chapter XVIIB, then in such a case, whether such a non-resident also is required to
deduct tax or not is a matter which is currently under debate on the ground as to whether
such machinery provisions of the Act can be applied beyond the territories of India [i.e.,
on the ground of extra-territorial jurisdiction]. The Department holds the view that in
such an event, even such a non-resident making payment outside India is required to
deduct tax and comply with the provisions of the Act with regard to TDS. This view of the
Department is also reflected in some of the Circulars issued by the CBDT [e.g., Circular
No.726, dated 18.4.1995, under which certain exceptions for TDS are provided for payments
made by non-residents to resident Payees, being lawyers, chartered accountants, etc.].
In many cases, a Foreign Company enters into joint venture with an Indian partner in
respect of some business activities for which a company is incorporated in India jointly
with the resident joint venture partner [J. V. Company or Indian Company]. Similarly,
many a time, a Foreign Company incorporates a subsidiary company in India for carrying
out certain business activities [Indian Company]. In such cases, many a time, such Foreign
Company deputes its employees on secondment basis to such Indian Company and the
expatriates so seconded remain in India for a specified period in the employment of the
Indian Company (generally such expatriates also become resident in India under the Act
during such a period). In such cases, the Indian Company makes payment of salary, etc.
and deducts tax under Sec.192(1) in respect of such payments. At the same time, in many
such cases, such expatriates seconded by the Foreign Company to the Indian Company
retain their lien on their job with the Foreign Company and also continue to remain on
the rolls of the Foreign Company, and, apart from the salary, etc. received from the Indian
Company, they also receive the agreed remuneration outside India in foreign currency
from such Foreign Company (Home Salary). In such cases, no reimbursement is made by
the Indian Company in respect of such Home Salary received by the expatriates and the
same is also not claimed as deduction in computing the taxable income of the Indian
Company. In such cases, the issue with regard to taxability of such Home Salary in India
is under debate, which has to be decided on the basis of facts and circumstances of each
case. In cases where such Home Salary is related to the services rendered by such expatriates
in India, the same is generally treated as taxable income in India and in such an event,
further issue with regard to liability of TDS in respect of such Home Salary is also under
debate. In many cases, the Department has taken a stand that since such Home Salary
relates to services rendered in India, the same is deemed to have accrued or arisen in India
under Sec.9(1)(ii) and accordingly, the Indian Company is liable to deduct tax under
Sec.192(1), as no work is performed by such expatriates for the Foreign Company during
such periods.

Recently, the Apex Court had occasion to consider the issues referred to hereinbefore in
the case of Eli Lilly & Co. India Pvt. Ltd. [Civil Appeal No.5114/2007] and other cases.
Therefore, the judgment of the Apex Court in this batch of cases is of great importance and
hence, it is thought fit to consider the same in this column.
Contd...

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