COMMISSIONER OF INCOME-TAX, NEW DELHI versus M/S ELI LILLY & COMPANY (INDIA) PVT. LTD.

Citation: [2009] 5 S.C.R. 20 · Decided: 25-03-2009 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Case Partly allowed

Cited by 3 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

(2009) 5 S.C.R. 20 
A 
COMMISSIONER OF INCOME-TAX, NEW DELHI 
II. 
M/S EU· LILLY & COMPANY (INDIA) PVT. LTD. 
(Civil Appeal No. 5114 of 2007) 
B 
MARCH 25, 2009 
[S.H. KAPADIA AND AFTAB ALAM, JJ.] 
Income Tax Act, 1961: 
c 
Chapter XV/1-B - Ss.192(1), 9(1)(ii) - TDS provisions 
relating to payment of income chargeable under the head 
'Salaries' - In the nature of machinery provisions to enable 
collection and recove1y of tax - Held: Forms an integrated 
code with the charging and computation provisions which 
D detem1ines the assessabilityltaxability of 'Salaries' in the 
~ 
hands '>f the employoe-assessee. 
S1".~tions 201(1) and 201 (1A)- Levy of interest- Scope 
of - Uiscussed - Directions issued to the AO and 
E Adjudicating Authority. 
Sections 271C rlw s.2738 - Liability to levy penalty can 
be fastened only on the persons who do not have good and 
sufficient reason for not deducting the tax - On the facts of 
the case, penalty pmceedings u/s 271C quashed. 
F 
The main ques.tion which arose for consideration in 
the appeals filed by the Revenue was whether TDS 
provisions in Chapter XVll-B of the Income Tax Act, 1961, 
which are in the nature of machinery provisions to enable 
G collection and rec1:>Very of taxes, are independent of the 
charging provisions which determines the assessability 
of income chargeable under the head 'Salaries' in the 
.,... 
hands of the recepient. 
H 
20 
• 
COMMISSIONER OF INCOME-TAX, NEW DELHI v. ELI 
21 
LILLY & COMPANY (INDIA) PVT. LTD. 
Partly allowing the appeals, the Court 
A 
HELD: 1.1. The scheme of the TDS provisions 
applies not only to the amount paid, which· bears the 
character of "income" such as salaries, dividends, 
interest on securities etc. but the said provisions also 
8 
apply to gross sums, the whole of which may not be 
income or profits in the hands of the recipient, such as 
payment to contrac~ors and sub-contractors. The 
purpose of TDS provisions in Chapter XVII B is to see that 
the sum which is chargeable under Section 4 for levy and 
collection of income-tax, the payer should deduct tax C 
thereon at the rates in force, if the amount is to be paid 
to a non-resident. The said TDS provisions are meant for 
tentative deduction of income-tax subject to regular 
assessment. [Para 21) (54-B-D] 
D 
1.2. The general concept as to the scope of income-
tax is that, given a sufficient territorial connection or 
nexus between the person sought to be charged and the 
country seeking to tax him, income-tax may extend to 
that person in respect of his foreign income. The 
E 
connection can be based on the residence of the person 
or business connection within the territory of the taxing 
State; and the situation within the State of the money or 
property from which the taxable income is derived. [Para 
24) (55-A-B] 
CIT v. S.G. PGNATALE 124 ITR 391(Gujarat); 
Transmission Corporation of A.P. Ltd. and Anr. v. CIT [1999) 
239 ITR 587 and A.H. Wadia v. CIT (1949) 17 ITR 63, 
referred to. 
'The Law and Practice of Income Tax' by Kanga and 
-t 
Palkhivala, seventh edition, p. 10 - referred to. 
2. If the payments of Home Salary abroad by the 
F 
G 
H 
22 
SUPREME COURT REPORTS 
[2009] 5 S.C.R. 
A Foreign Company to the expatriate has any connection 
or nexus with his rendition of service in India then such 
payment would constitute income which is deemed to 
accrue or arise to the r,ecipient in India as salary earned 
in India in terms of Section 9(1)(ii) (which is one of the 
B heads of income). Section 9(1 )(ii) lays down that income 
which falls under the head "Salaries", if it is earned in 
India, shall be deemed to accrue or arise in India. In fact, 
Section 9 explains the expression "is deemed to accrue 
or arise to him in India" used in Section 5(2)(b). Section 9 
C is not only a machinery section, it has the effect of 
rendering a person liable to tax on income which do not 
accrue or arise or are not received in India but which are 
deemed to be taxable by virtue of Section 9 which applies 
to residents and non-residents. Section 9 is, therefore, a 
0 typical example of a combination of a machinery 
provision which also provides for chargeability. [Para 26) 
[56-B-F] 
3. The 1961 Act has extra-territorial operation in 
respect of the subject-matters and the subjects which is 
E permissible under Article 245 of the Constitution and the 
provisions are enforceable within the Area where the 
1961 Act extends thrc1ugh the machinery provided under 
it. [Para 27) [56-

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