The Income Tax Department has sought the Supreme Court's directions on whether Ericsson Telephone Corporation India AB was liable to deduct tax at source on portion of salaries (child education expenses) paid to its expatriate staff.
A bench headed by Justice H K Sema while admitting the I-T department's appeal clubbed the matter with a similar petition of Itochu Corporation pending before it.
According to the department, Ericsson was not deducting tax at source on the portion of salary paid to its expatriate employees.
The assessing officer had held the assessee in default for lower deduction of tax at source and asked it to pay tax of over Rs 33.60 lakh and Rs 28.65 lakh for financial years 1995-96 and 1996-97 respectively -- 100 per cent of the tax not deducted at source.
The Commissioner of Income Tax (CIT) had allowed Ericsson's appeal by holding that its action was bonafide and the default under section 192 occurred due to genuine belief of the Swedish principles that the reimbursements related to child education were not taxable in India as the same were non-taxable in that country.
Both income tax appellate tribunal and the Delhi High Court had upheld the cit order.
Earlier, the department had challenged a Delhi High Court order which had held that Eli Lilly & Company (India) Pvt lTd was not liable to pay tax on salaries paid to its expatriate employees by its foreign partner outside India.
The Supreme Court had also admitted the appeal seeking its direction on whether domestic companies must deduct tax at source on salaries paid to their expatriate staff and if tax can be levied on these employees on wages given abroad by foreign joint venture partners of the Indian firms.