2008 (11) TMI 285 - AT - Income Tax

Tribunal decision on perquisite values, social security, tax assessment & IT Act proceedings.

The Tribunal partly allowed the Revenue's appeal and dismissed the assessee's cross-objection, restoring the AO's orders on various issues related to the ... Rent-free Accommodation Issues Involved1. Enhancement of perquisite value of rent-free accommodation.2. Reduction of exemption under Section 10(10CC) on non-monetary perquisites.3. Addition on account of social security contributions.4. Enhancement of perquisite value of tax borne by the employer.5. Assumption of jurisdiction under Section 148 of the IT Act.Detailed Analysis1. Enhancement of Perquisite Value of Rent-Free AccommodationThe AO included the tax paid by the employer in the salary for computing the perquisite value of rent-free accommodation, resulting in an addition of Rs. 35,131. The CIT(A) deleted this addition, relying on the Tribunal's decision in the case of Fumio Goto, which held that perquisites under Section 10(10CC) should not be included in salary for this purpose. The Tribunal, however, found that the AO had correctly adopted the actual rent paid by the employer as the perquisite value, as the tax element was not included in the value of Rs. 6,00,000. Consequently, the Tribunal restored the AO's order, setting aside the CIT(A)'s decision.2. Reduction of Exemption Under Section 10(10CC) on Non-Monetary PerquisitesThe AO reduced the exemption claimed by the assessee under Section 10(10CC) from Rs. 4,37,445 to Rs. 2,83,416, based on the value of non-monetary perquisites. The CIT(A) allowed the assessee's claim, but the Tribunal found that the AO's computation was correct and restored the AO's order, subject to verification of the actual tax payable on non-monetary perquisites.3. Addition on Account of Social Security ContributionsThe AO added Rs. 4,51,895 as the perquisite value of social security contributions, estimating it at 8% of the basic salary. The CIT(A) deleted this addition, relying on the Tribunal's decision in the case of Erik Matthew Gottesman, which held that social security contributions are not taxable until the employee has a vested right. The Tribunal remanded the issue back to the AO for re-examination to determine if any refund from social security was received by the assessee during the year.4. Enhancement of Perquisite Value of Tax Borne by the EmployerThe AO grossed up the tax borne by the employer, resulting in an enhanced perquisite value of Rs. 2,23,960. The CIT(A) held that this issue was consequential to other grounds. The Tribunal agreed with this view and dismissed the ground as being consequential.5. Assumption of Jurisdiction Under Section 148 of the IT ActThe assessee challenged the initiation of proceedings under Section 148, arguing that no income had escaped assessment. The Tribunal referred to the Supreme Court's decision in the case of Rajesh Jhaveri Stock Brokers (P) Ltd., which held that processing a return under Section 143(1) does not amount to assessment, and only one condition needs to be satisfied: that income has escaped assessment. The Tribunal found no merit in the assessee's argument and upheld the initiation of proceedings under Section 148.ConclusionThe Tribunal partly allowed the Revenue's appeal and dismissed the assessee's cross-objection, thereby restoring the AO's orders on various issues, subject to certain verifications and re-examinations.