2018 (8) TMI 910 - AT - Income Tax

Tribunal upholds KPTCL's salary estimate, quashes penalty.

The Tribunal allowed all the appeals of KPTCL, holding that KPTCL had made a bonafide estimate of its employees' income under the head 'salaries' and thus ... Assessee in Default u/s 201(1) - Failure to deduct tax at source (TDS u/s 192) - The assessee (KPTCL) paid cash equivalent to its employees at the time of their retirement - Exemption u/s 10(10AA) in respect of payment in lieu of leave period not availed by the employee - Sec.10(10AA) does not define as to who is to be regarded as employee of Central or a State Government. The revenue’s case is KPTCL is not State Government but a statutory corporation and therefore its employees cannot be regarded as employees of State Government. Held that:- There is no reason for them to think that its estimate of employee’s income under the head “Salaries” was incorrect as the belief it entertained was that its employees were to be regarded as employees of State Government and that its employees are entitled to exemption of the entire sum of unutilized leave encashment u/s.10(10AA)(i) of the Act. KPTCL has discharged its obligation u/s.192 and hence proceedings u/s.201(1) & 201(1A) of the Act deserves to be quashed and are hereby quashed. - Decided in favor of assessee. Issues Involved:1. Assumption of jurisdiction by the respondent.2. Period of limitation for passing orders under Section 201(1) & 201(1A).3. Nature of payments in question under Section 17(1)(va).4. Applicability of Section 10(10AA)(i) for KPTCL employees.5. Applicability of Section 201(1) & 201(1A) due to bonafide belief of KPTCL.Issue-wise Detailed Analysis:1. Assumption of Jurisdiction:KPTCL challenged the assumption of jurisdiction by the respondent as being bad in law, rendering the orders under Section 201(1) & 201(1A) invalid. However, this issue was not elaborated upon in the judgment.2. Period of Limitation:KPTCL contended that the orders passed under Section 201(1) & 201(1A) were beyond the period of limitation and hence barred by time. This issue was also not further discussed in the judgment.3. Nature of Payments under Section 17(1)(va):KPTCL argued that the payments made to its employees for unutilized leave period on retirement were not in the nature of income under Section 17(1)(va) and thus, there was no obligation to deduct tax at source. The Tribunal did not specifically address this argument but focused on the applicability of exemptions under Section 10(10AA).4. Applicability of Section 10(10AA)(i) for KPTCL Employees:KPTCL claimed that its employees should be considered as State Government employees, making the entire payment for unutilized leave period exempt under Section 10(10AA)(i). The revenue argued that KPTCL, being a statutory corporation, does not qualify as a State Government entity, and thus, only Rs. 3,00,000 is exempt under Section 10(10AA)(ii). The Tribunal referenced a previous decision in Central Food Technological Research Institute Vs. ITO, where it was held that employees of statutory corporations cannot be regarded as employees of the State or Central Government. Consequently, the Tribunal found no merit in KPTCL's proposition that Section 10(10AA)(i) applies to its employees.5. Applicability of Section 201(1) & 201(1A) Due to Bonafide Belief:KPTCL argued that it acted under the bonafide belief that its employees were State Government employees and thus exempt from tax deduction on unutilized leave payments exceeding Rs. 3,00,000. The Tribunal considered the historical background of KPTCL's formation and the consistent past practice of treating its employees as State Government employees. The Tribunal cited the ITAT Bangalore Bench's decision in the case of Indian Institute of Science Vs. DCIT, where it was held that a bonafide estimate of income under the head 'salaries' discharges the employer's obligation under Section 192, thereby quashing proceedings under Section 201(1) & 201(1A). The Tribunal found KPTCL's belief to be bonafide and ruled that KPTCL had discharged its obligation under Section 192, quashing the proceedings under Section 201(1) & 201(1A).Conclusion:The Tribunal allowed all the appeals of KPTCL, holding that KPTCL had made a bonafide estimate of its employees' income under the head 'salaries' and thus discharged its obligation under Section 192. Consequently, the proceedings under Section 201(1) & 201(1A) were quashed.Order Pronouncement:The order was pronounced in the open Court on 2nd May 2018.