Decided on September 17,1996



V.K.Gupta, J. - (1.)This appeal by the appellants, Indo Asahi Glass Company Ltd., and Shri Purnendu Narain Roy, director of Indo Asahi Glass Company Limited, is against the judgment and order dated July 18, 1996, in C. O. No. 8405(W) of 1996, passed by the learned single judge of this court disposing of the writ application filed by the appellants challenging the legality and validity of a show-cause notice, dated May 16, 1996, issued by respondent No. 1, Income-tax Officer (TDS), Ward-21(1), Calcutta.
(2.)The appellants have entered into a collaboration agreement with Asahi Glass Company Ltd., a company incorporated in Japan, with regard to manufacture of sheet glass in India. The collaboration agreement was executed on May 20, 1983, between the appellants and the aforesaid Asahi Company Ltd. It appears that the appellants engaged some Japanese nationals as their technical personnel for manufacturing operations and also obtained the requisite permission from the Government of India and the Reserve Bank of India for such engagement of foreign nationals and for regulating their terms and conditions, including the payment of salary and other perquisites. It appears that some information came to be received by the respondents with regard to some alleged payments made to the foreign nationals employed and engaged by the appellants and accordingly, respondent No. 1 started proceedings against the appellants with regard to their alleged liability of deducting income-tax at source arising out of these salaries allegedly received by the abovementioned foreign nationals in yen in Japan, while they were in the service of the appellants in India. On January 24, 1995, respondent No. 2 sent a communication to the principal officer of appellant No. 1 requesting him to submit the information and the copies of the documents mentioned in paragraph 4 of this communication. The reply having been sent by the appellants on February 23, 1995, the matter was processed further by the respondents, ultimately culminating in the issuance of the show-cause notice on May 16, 1996, by respondent No. 1, wherein certain factual aspects relating to the subject-matter of controversy were highlighted and ultimately the appellants were asked to show cause as to why they should not be held liable for not having deducted income-tax at source in respect of these monies received by the foreign nationals as salaries in yen in Japan while they were in service in India. In terms of Section 201(1A) of the Income-tax Act, the appellants were also asked to show cause as to why the demand under Sections 201 and 201(1A) of the Income-tax Act may not be raised against them. They were accordingly requested to appear before the respondents on June 5, 1996, at 11.30 a.m. for showing such cause. They were also called upon to submit copies of the collaboration agreement or other documents which guided payment to the foreign employees and receipts of the filing of the annual returns towards the payment of salaries, dividends, etc., in respect of the subject-matter of the controversy.
(3.)Feeling aggrieved by the issuance of the aforesaid show-cause notice, the appellants filed a writ application under Article 226 of the Constitution of India challenging the legality and the validity of the show-cause notice by contending, inter alia, that respondent No. 1 should not have issued the show-cause notice to the appellants because the appellants were not liable to pay any income-tax, much less make deductions at source because they were not basically liable or responsible to deduct any tax at source for any alleged payment allegedly having been received by the foreign nationals in yen in Japan where they might have been residing, even though being in the service of the appellants and working for them.

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