V. Balakrishna Eradi, C.J.
1. At the instance of the assessee--Kanan Devan Hill Produce Co. Ltd.--the Income-tax Appellate Tribunal, Cochin Bench (hereinafter called ''the Tribunal'), has referred to this court under Section 256(1) of the Income-tax Act, 1961, for short, 'the Act', the following two questions of law as arising out of the order dated March 22, 1979, passed by the Tribunal in ITA No. 483 (Coch) of 1977-78 :
' (1) Whether, on the facts and circumstances of the case, the asses-see should have deducted the tax relating to Rs. 8,112 paid to Mr. McLean by the assessee being the passage money for the journey of his two children who were studying and residing in U.K. ?
(2) Whether, on the facts and circumstances of the case, the order passed by the Income-tax Officer on December 21, 1976, under Section 201 of the Income-tax Act, 1961, was in time and not barred by limitation?'
2. The assessee, a company owning tea estates, had employed Mr. A. J. McLean as manager of one of the estates owned by it. The company had paid to Mr. McLean a sum of Rs. 8,112 being the passage money for the journey of his two children from the U.K. to India and back. For the assessment year 1971-72, Mr. McLean filed his return on July 7, 1971, disclosing net salary income of Rs. 59,611, the relevant accounting period being the financial year ending March 31, 1971. The aforesaid amount did not take in the sum of Rs. 8,112 aforementioned paid to him by the company by way of passage money for the journey of his children. The Income-tax Officer completed Mr. McLean's assessment on December 22, 1971, accepting the income returned by him. It is seen from the statement of the case that Mr. McLean had filed along with his return a statement wherein he had specifically mentioned that the company had paid to him the aforesaid sum of Rs. 8,112 during the relevant accounting period. The Income-tax Officer treated the said amount as not includible in the asses-see's income for purposes of taxation under the Act by virtue of the provision contained in Section 10(6)(i) of the Act.
3. Long thereafter, on February 16, 1976, the Income-tax Officer issued a notice to the assessee-company intimating that he proposed to treat the assessee as a person in default under Section 201 of the Act on the ground that the assessee had not deducted at source the tax payable on the aforesaid sum of Rs. 8,112 which the company had paid to Mr. McLean by way of passage money for his children. The assessee, by its reply dated January 20, 1976, contended, inter alia, that it was not bound to deduct any tax in respect of the said amount of Rs. 8,112 paid to Mr. McLean, since the dates of the journeys of the children were within a period of one year either way from the date of Mr. McLean's journey on home leave. It was further contended that the proceedings initiated under Section 201 were barred by limitation and hence it should be dropped. The Income-tax Officer overruled the aforesaid contentions and passed an order dated December 21, 1976, treating the assessee-company as a person in default under Section 201 of the Act and requiring it to pay Rs. 6,217 being the tax said to be due on the amount of Rs. 8,112 aforementioned paid to Mr. McLean.
4. Aggrieved by the said order, the assessee preferred an appeal to the Appellate Assistant Commissioner reiterating the contentions which it had taken before the Income-tax Officer. The Appellate Assistant Commissioner accepted the contentions of the assessee and held that in terms of the circular of the Central Board of Revenue dated May 19, 1958, the passage money paid by the assessee-company to Mr. McLean for the journeys of his children was exempt from tax under Section 10(6)(i)(a) of the Act. The Department thereupon took up the matter in appeal before the Tribunal. The Tribunal held that the journey performed by Mr. McLean's children from the U.K. to India and back had no connection at all with Mr. McLean's travel on home leave out of Indiajeither in 1969 or in 1970 and that hence the claim for exemption did not fall within the scope of the circular of the Central Board of Revenue dated May 19, 1958. The Tribunal then proceeded to consider only the plea of limitation raised by the assessee and recorded its conclusion that the proceedings taken against the assessee under Section 201 could not be said to be time-barred. Accordingly, the Tribunal allowed the appeal filed by the Department, set aside the order of the Appellate Assistant Commissioner and restored the order passed by the Income-tax Officer. Aggrieved by the said decision of the Tribunal, the assessee has got the aforesaid questions referred to this court by the Tribunal under Section 256(1) of the Act.
5. Provision for deduction of tax at source from salary paid to an employees is contained in Section 192 of the Act. In cases of failure to pay the tax after deducting it at source from the salary of the employee, Section 201 provides that the person who commits such failure shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax. The purpose underlying the scheme of Sections 192 and 201 is to safeguard the interests of the Revenue by ensuring that the tax that may be assessed against an employee is recovered by the process of deduction at source from the salary payable to the employee and in the event of failure by the employer to effect such deduction or to make payment to the Department after having made such deduction from the salary, the employer will be treated as an assessee in default. When once the assessment of the employee has been completed and the tax payable has been quantified and the said assessment proceeding has become final, the amount that ought to have been deducted by the employer from the salary of the employee must necessarily be taken to be represented by the final sum fixed in the assessment order as payable by the employee by way of income-tax, surcharge, etc. In the present case, it is common ground that the full amount assessed on Mr. McLean for the relevant assessment year has been deducted and paid over to the Department by the assessee. The assessment made on Mr. McLean has become final. The statement of facts does not disclose that any endeavour has been made to reopen the said assessment. The question, therefore, arises as to whether, in law, the Department is entitled to proceed against the employer under Section 201 of the Act by going behind the order of assessment and treating the sum of Rs. 8,112 paid to the employee as not exempt from taxation despite the fact that in the assessment order made on the employee, the said amount was treated as not includible in the taxable income of the assessee. This is a question which goes to the very root of the jurisdiction of the Income-tax Officer to proceed against the assessee-company under Section 201 of the Act. Being a pure question of law arising out of the facts which were available before it, the Tribunal should have considered this question in the first instance before it proceeded to consider on the merits the point as to whether the sum of Rs. 8,112 was or was not exempt from taxability under Section 10(6)(i)(a) of the Act. The approach made by the Tribunal to a consideration of the merits of the question concerning the taxability of the sum Rs. 8,112 without first addressing itself to the crucial question as to whether the initiation of the proceedings against the assessee under Section 201 was warranted in law on the basis of the admitted facts that were available before it was clearly illegal and the order passed by the Tribunal cannot, therefore, be regarded as evidencing a proper and valid disposal of the appeal. As already indicated, the question referred in this case would arise for consideration by the Tribunal only after it enters a finding on the jurisdictional point as to whether, on the facts and circumstances of this case, the initiation of proceedings against the assessee-company under Section 201 of the Act was legal and warranted. Inasmuch as the approach made by the Tribunal is found to be vitiated by a manifest illegality, we decline to answer the questions referred and remit the case to the Tribunal for fresh disposal in accordance with law in the light of the observations contained in this judgment. The parties will bear their respective costs.
6. A copy of this judgment under the seal of the court and the signature of the Registrar will be forwarded by the Tribunal as required by law.