2007 (11) TMI 337 - AT - Income Tax

Tax-inclusive Salary for Perquisites Calculation Upheld, AO Retains Jurisdiction for Rectification

Mitsubhishi Corporation. Versus Deputy Commissioner Of Income-tax, Tds Circle 50(1), New Delhi.

The Tribunal upheld the inclusion of tax paid by the employer in the salary for calculating perquisites related to rent-free accommodation. The Assessing ... Salaries Issues Involved:1. Whether the tax paid by the employer in respect of salaries paid to the employees is 'salary' under rule 3 for computing the value of perquisites for rent-free accommodation.2. Whether the Assessing Officer had the jurisdiction to rectify the order under section 154 of the Income-tax Act.3. Whether the issue of including tax paid by the employer in 'salary' is debatable or a patent mistake of law.Issue-Wise Detailed Analysis:1. Tax Paid by Employer as 'Salary' for Perquisites Calculation:The core issue was whether the tax paid by the employer should be considered as 'salary' under rule 3 for computing the value of perquisites related to rent-free accommodation provided to expatriate employees. The Commissioner of Income-tax (Appeals) (CIT(A)) held that the tax paid by the employer is part of the salary, not a perquisite, as both 'salary' and 'perquisite' are inclusive terms. The CIT(A) pointed out that any monetary payment by the employer is part of the salary. The Tribunal, following the decision of the Delhi High Court in T.P.S. Scott v. CIT, affirmed this view, stating that tax perquisite is part of the gross salary. The Tribunal also referenced the decisions of the Kerala High Court in C.W. Steel (No. 1) and the Bombay High Court in H.D. Dennis, which supported the inclusion of tax paid by the employer in the salary for determining the value of rent-free accommodation.2. Jurisdiction of the Assessing Officer under Section 154:The Tribunal examined whether the Assessing Officer had the jurisdiction to rectify the order under section 154 after the Tribunal's order. The Tribunal noted that the original order of the Assessing Officer did not merge with the Tribunal's order as the Tribunal did not adjudicate on the specific issue of including the tax perquisite in the salary. Therefore, the Assessing Officer retained the jurisdiction to rectify the order under section 154. The Tribunal cited sub-section (4) of section 154, which allows the income-tax authority concerned to amend the order if the mistake is apparent from the record.3. Debatable Issue or Patent Mistake of Law:The Tribunal considered whether the inclusion of tax paid by the employer in the salary was a debatable issue or a patent mistake of law. The Tribunal found that the definition of 'salary' in rule 3 was clear and did not exclude the tax paid by the employer. The Tribunal referenced the decisions of the Kerala and Bombay High Courts, which had already clarified that tax paid by the employer is part of the salary. The Tribunal concluded that there was no scope to exclude the tax from 'salary' under the rule as it existed for the relevant years. Therefore, the mistake was apparent from the record and could be rectified under section 154.Conclusion and Remand:The Tribunal upheld the order of the CIT(A) and the Assessing Officer regarding the inclusion of tax paid by the employer in the salary for computing the value of perquisites related to rent-free accommodation. However, the Tribunal remanded the matter to the Assessing Officer to examine the calculations provided by the assessee and determine the correct value of perquisites for all three years.Final Outcome:The appeals were partly allowed, with the Tribunal directing the Assessing Officer to re-examine the calculations for the value of perquisites.