Superannuation Fund Contributions Exceeding 1 Lakh Not Subject to Tax Deduction

The ruling delivered on May 9, 2014, concluded that tax is not required to be deducted at source under Section 192 on contributions to the superannuation fund exceeding one lakh rupees per employee. The Authority determined that such contributions do not result in a direct present benefit to the employee, thus not constituting a perquisite. Therefore, the need to address the second question regarding the grossing-up provision under Section 195A was obviated.

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Issues Involved:
1. Whether tax is required to be deducted at source under Section 192 of the Income-tax Act, 1961, on contributions to the superannuation fund exceeding one lakh rupees per employee as perquisite.
2. If the answer to the first issue is affirmative, whether the tax borne by the Applicant on behalf of the employees should be taxed again in the hands of the employees, and whether the grossing-up provision under Section 195A of the Act should be applicable.

Issue-wise Detailed Analysis:

1. Tax Deduction at Source on Superannuation Fund Contributions:

The applicant, a Bank incorporated in the Netherlands with branches in India, sought an advance ruling on whether tax is required to be deducted at source under Section 192 of the Income-tax Act, 1961, on contributions to the superannuation fund exceeding one lakh rupees per employee as perquisite. The superannuation scheme in question is a defined benefit plan approved by the Commissioner of Income-Tax. The applicant argued that it is not possible to derive the contribution on a per-employee basis from the actuarial valuation report, which calculates the contribution for the entire organization as a whole.

The Revenue contended that as per clause (vii) of Section 17(2) of the Act, any contribution to an approved superannuation fund by the employer exceeding one lakh rupees per employee should be treated as a "perquisite." Consequently, tax is deductible at source under Section 192(1) of the Act, and failure to do so would render the employer liable as an assessee in default under Section 201(1) of the Act.

2. Tax Borne by the Employer and Grossing-up Provisions:

The second issue was whether the tax borne by the Applicant on behalf of the employees should be taxed again in the hands of the employees and whether the grossing-up provision under Section 195A should apply. The Revenue argued that Section 192(1A) applies only when the employer opts to pay the tax on non-monetary perquisites, which requires actual payment by the employer. The applicant contended that the contribution to the superannuation fund in excess of one lakh rupees is a non-monetary perquisite.

However, the Revenue maintained that the contribution involves actual monetary payment, and the perquisite is provided to the employee by way of monetary payment, which accumulates for retirement benefits. Therefore, the tax on such perquisites borne by the employer cannot be exempt under Section 10(10CC) of the Act, and the grossing-up provision under Section 195A would apply.

Relevant Legal Provisions and Judicial Precedents:

The judgment referenced Section 10(10CC) and Section 17(2) of the Income-tax Act, 1961. Section 10(10CC) exempts tax paid by the employer on non-monetary perquisites from being included in the employee's total income. Section 17(2) outlines various perquisites, including contributions to superannuation funds exceeding one lakh rupees.

The judgment also cited the Supreme Court's decision in CIT vs. L.W. Russel, which held that a perquisite does not apply to contingent payments to which the employee has no right until the contingency occurs. The Delhi High Court's decision in CIT v. Mehar Singh Sampuran Singh Chawla and the case of Yoshio Kubo v. Commissioner of Income Tax were also referenced, supporting the view that contributions to employee welfare funds do not constitute perquisites if the employee does not acquire a vested right in the sum contributed.

Conclusion:

The Authority concluded that the applicant does not get a vested right at the time of contribution to the fund by the employer. The contributions to the superannuation fund do not result in a direct present benefit to the employee but assure a future benefit, thus not constituting a perquisite. Therefore, the question of whether tax is required to be deducted at source under Section 192 was answered in the negative, and there was no need to address the second question regarding the grossing-up provision under Section 195A.

Ruling:

The ruling was delivered on May 9, 2014, and concluded that tax is not required to be deducted at source under Section 192 on the contributions to the superannuation fund exceeding one lakh rupees per employee. Consequently, the second question was not addressed.

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