Court rules in favor of assessee on tax deduction for uniform expenses; employee self-certification sufficient. Circular No.15 valid.

The Court upheld the decision of the Tribunal, ruling in favor of the assessee. It held that self-certification by employees was sufficient for the assessee not to deduct tax from the reimbursement allowance for uniform expenditure. The Court found no legal issue with the Tribunal's reliance on Circular No.15 dated 8.5.1969. The appeal by the revenue was dismissed, and no costs were awarded.

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Issues Involved:
1. Whether the Income Tax Appellate Tribunal was right in confirming the order of the Commissioner of Income Tax (Appeals) deleting the additions made by the Assessing Officer under section 201(1) of the Income Tax Act, 1961, and consequential interest charged by the Assessing Officer in relation to the assessee’s payments to its employees under the head of uniform allowance.

Issue-wise Detailed Analysis:

1. Survey and Findings by the Assessing Officer:
On 22.11.2010, a survey was conducted at the office premises of the assessee - Oil and Natural Gas Corporation Limited. It was found that the assessee made payments under the head "uniform allowance" but did not include this allowance in the total salary payments nor deducted tax at source (TDS) on such income. The Assessing Officer noted that there was no provision for granting exemption on the basis of self-certification and that the reimbursement of uniform allowance was not treated as taxable. The Assessing Officer observed that the employer did not verify whether the employees had actually incurred such expenditure and that the system of self-certification was prevalent without any checks. He concluded that the reimbursement of Rs. 3,92,67,843/- for 752 employees was taxable and required to be taxed as TDS was not deducted by the Drawing Disbursing Officer (DDO).

2. Appeal Before the Commissioner (Appeals):
The assessee contended that the reimbursement is exempt under rule 2BB (1)(f) of the Income Tax Rules, 1962, read with section 10(14)(i) of the Act. The Commissioner (Appeals) held that there exists a circular of the Board enabling non-deduction of tax from the reimbursement of allowances on the strength of the certificate of utilization from the employees. He noted that similar issues had been decided in favor of the assessee in earlier years and thus, held that the assessee cannot be considered in default within the meaning of section 201(1) read with section 201 (1A) of the Act, deleting the payment of Rs. 1,60,21,247/- raised under section 201(1) and 201(1A) of the Act.

3. Appeal Before the Tribunal:
The revenue contended that the specified allowances under section 10(14)(i) of the Act are exempt to the extent these are actually incurred for that purpose and that the Commissioner (Appeals) erred in allowing uniform allowance without considering whether such claim fulfilled the conditions laid down under section 10(14)(i) of the Act. The Tribunal observed that the uniform given to an employee for using during duty hours is presumed to be used for the purpose of employment only. The Tribunal noted that there was a CBDT circular enabling non-deduction of tax from the reimbursement of allowances on the basis of the utilization certificate of the employee and accordingly dismissed the appeal.

4. Contentions by the Appellant (Revenue):
The appellant argued that during the fringe benefit tax regime, the assessee treated uniform allowance as a perquisite and thus it cannot cease to be a perquisite. It was submitted that the reimbursement of uniform allowance for assessment year 2010-11 was not governed by the provisions of section 115WB(E) of the Act and hence, the Tribunal was not justified in relying on the earlier decision. It was further contended that in the absence of any uniform being prescribed, payment made in respect of uniform allowance is not exempt under section 10(14)(i) of the Act.

5. Contentions by the Respondent (Assessee):
The respondent argued that whether or not a uniform has been prescribed is essentially a question of fact and that the court cannot be called upon to invoke such facts which were never before the Tribunal. It was submitted that self-certification is permissible as per Circular No.15 dated 8.5.1969 and that the Assessing Officer of the concerned employee can examine the validity of the claim of exemption under section 10(14)(i) of the Act.

6. Court's Analysis:
The court noted that the sole issue raised by the Assessing Officer was that the assessee had claimed expenditure incurred towards uniform allowance as exempt under section 10(14)(i) of the Act on the basis of self-certification by the concerned employees without calling for any proof. The court observed that the decision of this court in Oil and Natural Gas Corporation Ltd. v. Assistant Commissioner of Income tax (TDS) was not applicable to the facts of the present case as the question of prescription of uniform or otherwise was not subject matter before the Tribunal in the present case.

7. Conclusion:
The court held that there is no legal infirmity in the impugned order passed by the Tribunal in placing reliance upon Circular No.15 dated 8.5.1969 for holding that self-certification on the part of the employees was adequate for the assessee not to deduct tax from the reimbursement allowance towards expenditure incurred for uniforms. The substantial question framed by the court was answered in the affirmative, in favor of the assessee and against the revenue. The appeal was dismissed with no order as to costs.

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