2001 (2) TMI 981 - AT - Income Tax

Tribunal Upholds Assessee-Bank's Win in Tax Appeals, Emphasizes Compliance & Judicial Impact

Income-tax Officer (TDS) Versus State Bank of India

Income-tax Officer (TDS) Versus State Bank of India - [2001] 252 ITR (A. T.) 95 Issues:- Relief on account of demand raised under section 201(1) for short deduction of tax on compensatory city allowance- Relief on account of interest under section 201(1A) of the Income-tax Act, 1961- Requirement of obtaining clearance from the high powered committee on dispute settlement before filing appeals- Merit of appeals filed by the Department- Tax deduction on compensatory city allowance (CCA) by the assessee-bank- Applicability of tax deduction on CCA based on jurisdictional High Court's decision- Impact of subsequent amendment in section 2(24) of the Act on tax deduction- Liability of the assessee-bank for short deduction of tax and interest under section 201(1A)Analysis:The Department filed appeals against the relief granted by the Commissioner of Income-tax (Appeals) on the demand raised under section 201(1) for short deduction of tax on compensatory city allowance (CCA) and interest under section 201(1A) of the Income-tax Act, 1961. However, the appeals faced a procedural hurdle as it was mandatory to obtain clearance from the high powered committee on dispute settlement before filing the appeals. The absence of such clearance rendered the appeals not maintainable, highlighting the importance of compliance with procedural requirements before initiating legal proceedings.The jurisdictional High Court's decision in the case of CIT v. R. R. Bajoria held that CCA did not form part of salary, impacting the tax deduction obligations of the assessee-bank. The subsequent insertion of sub-clauses in section 2(24) of the Act mandated tax deduction on CCA with retrospective effect, leading to the demand raised by the Assessing Officer for short deduction of tax and interest. The first appellate authority allowed the appeals by the assessee-bank, emphasizing that the bank had complied with the law by collecting tax based on existing provisions, as evidenced in the annual returns.The Tribunal agreed with the Commissioner of Income-tax (Appeals) that the assessee was not required to deduct tax on CCA based on the jurisdictional High Court's decision during the relevant assessment years. The Tribunal also noted that the assessee-bank fulfilled its obligations under section 192 of the Act by collecting tax from employees' salaries as per the prevailing law, negating the existence of short deduction of tax. However, the Tribunal upheld the direction to recover the short deduction of tax arising from the retrospective amendment in section 2(24) from the concerned employees, while dismissing the grounds of appeal against the Department regarding interest levied under section 201(1A).In conclusion, the Tribunal found the order of the Commissioner of Income-tax (Appeals) to be in accordance with the law, leading to the dismissal of the appeals filed by the Department. The detailed analysis highlighted the significance of legal compliance, impact of judicial decisions on tax obligations, and the retrospective effect of legislative amendments on tax liabilities.