Arijit Pasayat, C.J— Alleging that certain actions/inactions on the part of the Income-tax authorities have caused huge loss to the public exchequer, this petition stated to be in public interest has been filed.
2. In a nutshell, the allegations are that in early 1994 Income-tax Department received reliable information to the effect that many multi-national companies operating in India are not fully declaring salaries/perks paid to their expatriate employees posted in India and in particular portion of the salaries paid to them outside India. Under the Income-tax Act, 1961 (in short the Act) the entire salaries received by such expatriate employees posted in India are liable to be declared irrespective of the fact whether it was paid in India or abroad and has to be taxed in India. The only condition requisite for such declaration was that stay of such employee in India for the relevant financial year exceeds 183 days in aggregate. Income-tax authorities issued notices to some foreign companies seeking information regarding salaries of expatriate employees which were paid to them outside India. On getting such notice, some of the companies deposited tax and some companies disclosed that they had earlier not declared salary paid abroad and thereafter declared that amount and deposited taxes on it. However, most of the multi-national companies did not do so. Circular No. 685 was also issued by the Central Board of Direct Taxes (in short the Board) on 17/20th June, 1994 highlighting such non-deduction of tax at source on salaries and allowances paid. However, in order to encourage immediate compliance, the Board decided that procedure under Section 221 and 271-C for levy of penalties and proceedings under Section 276B need not be resorted to in case an employer voluntarily comes forward and pays whole of the tax due under Section 192 along with interest liabilities under Section 201(1A) on or before 31-7-1994. Despite this circular, few foreign companies’ expatriate employees came forward and paid taxes. In 1997, Voluntary Disclosure of Income Scheme, also described as Amnesty Scheme, was launched giving chance to those who had not complied with requirements of law. An opportunity was given to pay tax by declaring concealed/undeclared income under the said Scheme and avoid penalty and prosecution. Some of the companies disclosed taxes that had been evaded on salaries paid abroad to their expatriate employees under the Scheme and paid taxes; while some of the companies did this partially, and some others who had been evading payment of such taxes did not even avail of this scheme. Survey was conducted on premises of various companies in 1998-1999. It is alleged that despite all these actions by giving premium to defaulters, penalties which were leviable have not been levied; on the other hand, by resorting to Section 273B of the Act orders have been passed not to levy penalties. A list of 95 cases has been annexed to show that in these cases requisite action has not been taken. It has also been stated that action against individual employees has not been taken though available to be taken. It has been urged that such action on the part of the income tax authorities has resulted in huge loss to public exchequer and has been done under pressure from Japanese Chamber of Commerce and Industry (in short the Chamber of Commerce). Further, the penalties have not been levied/proceedings have been dropped on the basis of a letter written by the Commissioner of Income-tax, Delhi VI indicating that penalties were not to be levied in non-survey cases. It is asserted that the letter was written pursuant to an agreement arrived at in a meeting held in the chambers of Chairman of the Board. In other words, it has been urged that there was no application of mind and only account of unauthorized interference by the Board and other high placed officials, penalties have not been levied/proceedings have been dropped.
3. In the counter-affidavit filed by the Income-tax authorities, allegations of illegal pressure have been denied. It is, on the other hand, stated that action was bona fide and in many cases penalty has been levied and in those cases where voluntary and bona fide action was taken by the assessee to deposit the tax and interest, it was decided not to levy penalties. Each case was considered on merits and after being satisfied that reasonable cause existed for non-compliance penalty has not been levied/proceedings have been dropped.
4. Learned counsel for the petitioner submitted that fine distinction made by the Income-tax authorities is not available to be drawn. The whole exercise was done, on the basis of directive issued by the higher authorities and there has been no application of mind. Reason which weighed with the authorities cannot be said to be reasonable so as to warrant non-levy of penalty. Learned counsel for the Revenue on the other hand submitted that each case has been examined on its merits and after recording satisfaction that reasonable cause existed penalty has not been levied.
5. From the materials on record we find that that the petition relates to 93 cases and not 95 cases as stated. Two names have been duplicated. It is further seen that in 46 cases penalty has been levied. In 41 cases either penalty has not been levied, or proceedings have been dropped. In 5 cases matter is still pending consideration. So far as the case where penalty has been levied, the petitioner cannot have any grievance. So far as the non-levy is concerned, we have perused the reasons indicated by the authorities for such non-levy. In essence the following reasons in each case seem to have weighed with the authorities for non-levy:
(i) Case where the deductor has voluntarily revised its TDS statements and paid taxes and iterest thereon.
(ii) The deductor has co-operated with the department in the proceedings.
(iii) The deductor was under a bona fide belief that it was not liable to deduct tax at source on the payments in question.
(iv) The deductor was guided by the Japanese Chamber of Commerce & Industry who held meetings with Chief Commissioner of Income-tax seeking waiver of penalty and prosecution if they come forward voluntarily and pay the taxes thereon.
6. At this juncture it is necessary to take note of Section 273A and 273B. Section 273A dealt with power to reduce levy of penalty etc by the Commissioner, in a case which relates to penalty under Section 271(1)(c) of the Act. Waiver can be done only if the following conditions are satisfied, i.e assessee has:—
a) Prior to detection of concealment of particulars of income or of inaccurate particulars furnished in respect of such income.
b) Voluntarily and in good faith made full and true disclosure of such particulars.
c) Co-operated in any enquiry relating to assessment of income.
A case of non-deduction of tax at source cannot prima facie be placed at a high pedestal than concealment of income or furnishing inaccurate particulars. The situation is rather reverse. Therefore, application of the ingredients/criteria applicable to Section 273A to a case governed by Section 273B cannot be held without logic or justification. The matter may be looked from another angle. In an hypothetical case, penalty under Section 271-C is levied, and the matter is carried to Tribunal in appeal. Tribunal applies the parameters applicable to Section 273A and cancels the penalty levied holding that reasonable cause existed. In that event a case for reference under Section 256(1) or (2) of the Act would not arise. What would constitute reasonable cause cannot be laid down with precision. It would depend upon factual background and scope for interference in a reference application or much less in a writ petition is extremely limited and unless the conclusions are perverse based on conjectures or surmises and/or have been arrived at without consideration of relevant material and/or taking into account irrelevant material, there is no scope for interference. Reasonable cause, as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. The expression reasonable” is not susceptible of a clear and precise definition, for an attempt to give a specific meaning to the word “reasonable” is trying to court what is not number and measure what is not space. It can be described as rational according to the dictates of reason and is not excessive or immoderate. The word “reasonable” has in law the prima facie meaning of reasonable with regard to those circumstances of which the actor, called on to act reasonably, knows or ought to know” (See Re. A. Solicitor (1945) KB 368). Reasonable cause can be reasonably said to be a cause which prevents a man of average intelligence and ordinary prudence, acting under normal circumstances, without negligence or inaction or want of bona fides.
Above being the position, action of the authorities in not levying the penalty/dropping proceedings cannot be said to be unreasonable. Considering the limited jurisdiction as well as limited scope for interference in a writ petition, we do not find any justification to interfere with orders holding that penalty was not leviable/dropping the proceedings.
7. So far as non action against individual employees is concerned, certain practical difficulties have been highlighted by the authorities. It is stated that tax and interest required to be paid by grossing up relevant amount has been calculated, and collection has been made. Except a negligible number, others have left the country on completion of projects, and it would be practically impossible to lay hands on those employees for further action relating to penalty etc. While this practical aspect cannot be lost sight of, nonetheless it would be desirable and appropriate for income tax authorities to take action against those who are still available in India in accordance with law. What particular action would be appropriate is for the concerned income tax authorities to decide. Writ petition is accordingly disposed of.
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