2010 (6) TMI 657 - AT - Income Tax

Employer's Tax Payment for Employee Qualifies as Exempt Perquisite

The Tribunal allowed the appeals, determining that the tax paid by the employer for the employee qualifies as a non-monetary perquisite exempt under ... Perquisite, not provided by monetary payment Issues Involved:1. Exemption under section 10(10CC) of the Income-tax Act.2. Charging of interest under section 234B of the Income-tax Act.3. Initiation of penalty proceedings under section 271(1)(c) of the Income-tax Act.Detailed Analysis:1. Exemption under section 10(10CC) of the Income-tax Act:The primary issue in these appeals was whether the tax paid by the employer on behalf of the employee constitutes a non-monetary perquisite eligible for exemption under section 10(10CC) of the Income-tax Act. The Tribunal referred to the decision of the Special Bench in the case of RBF Rig Corpn. LIC (RBFRC) v. Asstt. CIT, where it was held that the tax paid by the employer on the perquisite falling under clause (2) of section 17 is exempt in the hands of the employee. The Tribunal observed that the legislative intention was clear from the Finance Act, 2002, and other related provisions such as section 40(a)(v), sections 192(1A), and 195A. It was concluded that the tax paid by the employer is a perquisite and not a monetary payment, thus qualifying for exemption under section 10(10CC). The Tribunal reversed the orders of the authorities below and allowed the assessee's claim for exemption under section 10(10CC).2. Charging of interest under section 234B of the Income-tax Act:The Tribunal addressed the issue of charging interest under section 234B, referencing the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Sedco Forex International Drilling Co. Ltd. It was held that when income is subject to TDS and there is a bona fide dispute, no interest is leviable under section 234B. The Tribunal found that in the instant appeals, the employer's failure to deduct tax at source should not result in the assessee being faulted, and thus, charging of interest under section 234B was not justified. The Tribunal directed the Assessing Officer to re-calculate taxes accordingly.3. Initiation of penalty proceedings under section 271(1)(c) of the Income-tax Act:The Tribunal noted that the ground challenging the initiation of penalty proceedings under section 271(1)(c) was not pressed by the assessees and hence, dismissed this ground.Conclusion:The Tribunal allowed the appeals of the assessees, holding that the tax paid by the employer on behalf of the employee constitutes a non-monetary perquisite exempt under section 10(10CC). It also held that no interest is leviable under section 234B due to the employer's failure to deduct tax at source. The ground challenging the initiation of penalty proceedings under section 271(1)(c) was dismissed as it was not pressed. The Assessing Officer was directed to modify the assessment orders accordingly.