HORACE DANSEREAU,REP.BY AGENT KSEB.,TVM. vs. ASST.COMMR.OF INCOME TAX,CIRCLE I(1),TVM

ITA/7/2007HC KeralaKLHC01025001200712 December 2017Author: HONOURABLE MR.JUSTICE K.VINOD CHANDRAN,HONOURABLE MR. JUSTICE ASHOK MENON15 pages
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What were the facts?

The appeals concern foreign nationals employed by SNC-Shawinigan Inc. Canada (Consultant) for a project with Kerala State Electricity Board (KSEB). The Consultant was liable for employee salaries, but KSEB was responsible for the income tax component. The foreign nationals, represented by KSEB as their agent, returned their Indian income and treated the tax paid by KSEB as 'income from other sources'. The Assessing Officer (AO) added this tax component to the salary, treating it as income under Section 195A of the Income Tax Act, 1961. The Commissioner (Appeals) reversed the AO's order, directing the tax to be taxed as 'income from other sources'. The Income Tax Appellate Tribunal (ITAT) restored the AO's order, upholding the application of Section 195A. The appeals are against the ITAT's common order dated 28.04.2006 for assessment year 1996-97.

What did the High Court hold?

The High Court held in favour of the revenue, but on different reasoning than the Tribunal. The Court found that the Tribunal's reliance on Clause 1.9.2 of the agreement to hold that KSEB was not paying salary or tax, but getting reimbursed, was not sustainable. The agreement clearly stipulated that the Consultant paid the salary and KSEB paid the tax. However, the Court disagreed with the assessee's argument that Section 195A requires both salary and tax to be paid by the same person. The Court reasoned that income should be assessed in the hands of the recipient. In this case, the salary and income-tax were ultimately borne by KSEB, as the salary of the employees was included in the consultancy charges paid by KSEB. The Court found C.W. Steel (supra) more relevant, interpreting 'salary' to include perquisites, and that any payment by an employer to satisfy an employee's obligation would be includable. Section 195A achieves this effect. The Court noted that Emil Webber (supra) was decided before Section 195A was enacted and directed the tax payment to be treated as 'income from other sources' due to the absence of such a provision. The Court directed the AO to recompute the amounts properly under Section 195A within two months, noting that assessees had already paid amounts and only a balance would need to be satisfied. The appeals were ordered accordingly.

What were the issues?

1. Whether Section 195A of the Income Tax Act, 1961, is applicable when the salary is paid by the Consultant and the income tax is paid by KSEB, or if it requires both to be paid by the same person (employer)? (Question of law) Assessee's contention: Section 195A is applicable only when both salary and tax are paid by the employer, as per the specific wording of the provision. They relied on the consultancy agreement (Annexure A), particularly Clauses 1.2, 1.9.1, and 1.9.2, to argue that KSEB was liable for income tax and the Consultant for salary, establishing distinct liabilities. They also cited Emil Webber v. Commissioner of Income Tax (200 ITR 483). Revenue's contention: The Tribunal upheld the AO's order, implying the revenue argued for the applicability of Section 195A. The Tribunal's reasoning, which the revenue likely supported, was based on interpreting the contract and the nature of the payment. The revenue also relied on Commissioner of Income Tax v. C.W. Steel – 1972 (86) ITR 817.

Which sections of the Income-tax Act were involved?

Section 195A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUE AY, THE 12TH DAY OF DECEMBER 2017/21ST AGRAHAYANA, 1939 ---------------------- AGAINST THE COMMON ORDER DATED 28-04-2006 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH IN ITA NO.811/COC/2004 (1996-97) APPELLANT/APPELLANT/RESPONDENT IN ITA: ---------------------------------------- HORACE DANSEREAU, REPRESENTED BY AGENT KSEB, PATTOM, TRIVANDRUM.

BY ADVS.

SRI.E.K.NANDAKUMAR RESPONDENT/RESPONDENT/APPELLANT IN ITA: -------------------------------------- ASST.COMMISSIONER OF INCOME TAX, CIRCLE I(1), TRIVANDRUM.

BY ADV.SRI.JOSE JOSEPH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 12-12-2017, ALONG WITH ITA. 9/2007 AND CONNECTED MATTERS, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

APPENDIX PETITIONER'S ANNEXURES A:OF THE CONTRACT DATED 02.04.1993 ENTERED INTO BETWEEN KSEB AND SNC-SHAWINIGAN INC. CANADA (WITHOUT ITS ENCLOSURES (APPENDICES) B:OF THE ASSESSMENT ORDER DATED 14.02.2003 PASSED BY THE RESPONDENT FOR THE A.Y. 1996-

The order continues below.

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