Extra-Territorial Jurisdiction of Provisions of the Income Tax Act

CIT vs. M/s Eli Lilly & Co. (India) P. Ltd.[(312 ITR 225)(SC)]

Facts:

•           Expatriates were seconded to the Indian JV by the foreign enterprise. The JV had deducted tax at source on the salary payable in India u/s 192 but did not deduct tax on the home salary paid to expatriates.

•           The department took a position the JV/BO should have deducted tax on the home salary as well .The department also initiated penal proceedings for non-deduction of tax at source. The tribunal and the High Court ruled in favour of the JV

Issue:

•           Whether the JV is liable to deduct Indian tax on home salary and whether provisions dealing with TDS which are in nature of machinery provisions for collection of taxes are independent of the charging provisions, which determines chargebility of income under the head “Salaries”inthe hands of the expatriates.

Decision:

•           The Supreme Court held that the provisions relating to TDS, which are in nature of machinery provisions to enable collection and recovery of tax forms an integrated code with the charging provisions which determines charge to tax in the hands of expatriates.

•           The Supreme Court ruled that an Indian company is responsible for withholding tax on remuneration paid to its expatriates by a foreign company outside India if the services are rendered solely in India. Section 192 has extra-territorial jurisdiction when salaries taxable u/s 9(1 )(ii) are payable outside India.

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3. When CIT cannot exercise jurisdiction u/s 263 of Income Tax Act, 1961
4. Section 120(1) and (2) of the Income-tax Act, 1961- Income-tax authorities – Jurisdiction of – Amendment in Notification No. S.O. 732(E), dated 31-7-2001
5. Filing of an income-tax return mandatory for a foreign company even if the income is not taxable in India under the provisions of DTAA