Law: Income Tax Act, 1961

Section: 201,201(1),201(1A)

Income tax-------Deduction of tax at source Salary Foreigner working in India with assessee under collaboration agreement Payment by foreign company of salary Failure to deduct tax at source Notice to assessed show cause why penalty and interest should not be levied High Court Writ petition No absence of jurisdiction Dismissal of petition Proper -Indian Income Tax Act, 1961, S.201(1), (1 A) Constitution of India, Art. 226. On coming to know that salary had been paid to four Japanese employees, who were working under a collaboration agreement with the appellants in India, by a Japanese Company, the Income Tax Officer issued notice under sections 201(1) and 201(1 A) of the Income Tax Act 1961, to show cause why penalty and interest should not be levied for failure to deduct tax at source from the salary so paid. The appellants filed a writ petition under Article 226 of the Constitution of India challenging the legality and validity of the show cause notice on the ground that they were not liable to deduct tax at source: in relation to payments received by foreign national in Yen in Japan. The High Court dismissed the writ petition holding that the Court would not invoke the writ jurisdiction at the stage of notice and directed the appellants to file their reply to the show cause notice and the Income Tax Officer to pass a final order after giving a hearing to the appellants. On appeal to the Supreme Court, it was stated that the Japanese Company had, during the pendency of the appeal before the Supreme Court, taken advantage of the Voluntary Disclosure Scheme and filed returns of income in respect of the four employees and also paid the entire amount of tax payable by them: Held, affirming the decision of the High Court, (i) that the Supreme Court could not take up for consideration the facts for the first time; (ii) that the High Court was right in coming to the conclusion that it was appropriate for the appellants to file their reply to the notice and take whatever defence were open to them. (The Supreme Court, accordingly, granted ten weeks time to the appellants to file their reply to the show cause notice, it being open to the appellants to place on record…

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