Page 219 - DCOM301_INCOME_TAX_LAWS_I

Income Tax Laws – I

Notes
(iii) The rate is to be determined on the basis of the average rate of Income-tax for the
financial year, and
(iv) Most importantly, the rate is to be applied ‘on the estimated income of the assessee
under this head for that financial year’, i.e., for the totality of the assessable salary
income of the assessee-employee.
On behalf of the Department, it was, inter alia, further contended that the expression ‘any
person’ in Sec.192 would include any person responsible for making salary payment to an
employee, whether such employee is in India or outside India or whether such payment is
made in India or outside India. The only requirement is that the assessee employee must
be paid in respect of services rendered in India. A reference was also made in Sec.192(2) to
draw a distinction between the expressions, ‘making the payment’ and ‘making the
deduction’. With this distinction, it was contended that the very fact that Sec.192(2) authorises
the employee to choose one of the several persons ‘making the payment’ and not ‘making
the deduction’ is an indication that the obligation under Sec.192(1) attaches to ‘any’ person,
who is responsible for making payment of Salary Income and is not limited to a person,
who is under an obligation to deduct tax at source. It was finally contended that Sec.192
imposes a joint and several obligation on all the persons, who are responsible for paying
any Salary Income to employees in India. In the alternative, it was contended that if it is
held that it is only Indian Employer who is obliged to deduct tax at source and not the
foreign employer (who is directly paying to the foreign account of the employee outside
India), the obligation of the Indian employer has to be interpreted co-extensively and in
respect of the entire Salary Income of the employees, so long as such Salary Income of the
employee arises or accrues in India or is in respect of ‘services rendered in India’.
With regard to the issue relating to penalty under Sec.271C, on behalf of the Department
it was contended that such penalty is in the nature of civil liability. The burden of bringing
the case within the exception provided in Sec.273B, namely, showing ‘reasonable cause’, is
squarely on the assessee. It was pointed out that in these appeals, the assessee has pleaded
bona fide misunderstanding of law, which explanation does not satisfy the test of
‘reasonable cause’ and therefore, merits rejection.

The counsel appearing on behalf of M/s. Eli Lilly & Co. India Pvt. Ltd. [i.e., an Indian
Company] raised various contentions. The Indian Company (which is Employer in India)
was under no obligation to deduct tax under Sec.192(1) from the Home Salary, which was
admittedly not paid by it. Sec.192(1) obliges the Employer to deduct tax out of the estimated
salary income at the time of making payment thereof. Such TDS is required on estimated
income for the reason that Salary Income is liable to change during the year on account of
various reasons, such as increment, pay revision, payment of bonus, D.A., valuation of
perquisites in kind, etc. Unlike most of the other provisions, TDS is required under Sec.192(1)
at the time of payment of salary, the obligation of Employer is to deduct tax qua the
amount actually paid by the Employer or paid on his behalf or on his account. Sec.192(2)
specifically provides that when the employee is simultaneously in employment of more
than one employer, the employee has an option to file with one employer (the chosen
employer), a declaration of salary earned by him in Form No.12B and in that event, such
chosen employer is under an obligation to deduct tax on aggregate Salary Income of the
employee. In the absence of exercise of option under Sec.192(2), the obligation of each
employer is confined to the amount of salary actually paid by him and there is no statutory
obligation on one employer to take into account the salary paid by other employer for the
purpose of TDS. The TDS provisions are in the nature of machinery provisions, which
enable easy collection and recovery of tax and the same are independent of charging
provisions which are applicable to the recipients of income, whereas the TDS provisions
Contd...

214 LOVELY PROFESSIONAL UNIVERSITY