TaxTMI 
TaxTMI 
2005 (1) TMI 332
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.... salary paid by the assessee to its employees was truly reflected in the return filed in Form No. 24. The learned Assessing Officer brought this to the notice of the assessee by a specific letter dated23-12-1993. The same has been reproduced by the Assessing Officer in the order under section 201(1) of the Act. The learned Assessing Officer reminded the assessee by a letter dated18-1-1994requiring the assessee to furnish information on a number of points enumerated in that letter. According to the Assessing Officer, the assessee did not co-operate fully and only scant details were furnished. According to the learned Assessing Officer, even the final notice issued to the assessee on22-2-1994remained uncomplied with. 3. In the order under section 201(1), the Assessing Officer has held the assessee to be an assessee in default in respect of taxes as follows:- --------------------------------------------------- Sl Particulars Amount paid Short No. &nb....
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....f the assessee. 4. During the course of appeal before the learned CIT (Appeals), the assessee argued that expenses in relation to refreshment were reimbursement of expenses for refreshment incurred by the employees during working hours in the office premises. For that purpose maximum amount had been fixed against each grade of employees. It was re-paid at the rate of Rs. 30 per day to grade A & B; Rs. 45 per day to grade I to VI and Rs. 60 per day to Managers/Assistant Managers. For this purpose the assessee filed Photostat copies of declarations given by certain officers. The assessee clarified that such allowances were paid only on the days when an official was on duty. The assessee explained that the shift allowance was paid in addition to refreshment allowance to the employees rendering services in shifts. That allowance was paid to the airport staff at the rate of Rs. 15 per day for grade A and B; Rs. 22.50 per day for grade I to VI and Rs. 30 per day for Managers/Assistant Managers. Those were in the nature of reimbursement with reference to actual expenses incurred by employees limited to the prescribed amount of allowance. The transport expenses were paid to the employee....
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....t been filed or produced before him. 6. The learned CIT(A) referred to the judgment of Hon'ble Supreme Court in the case of Aggarwal Chamber of Commerce Ltd. v. Ganpat Rai Hira Lal [1958] 33 ITR 245 to the effect that the persons who are bound to make deduction of income-tax at the time of making payment of any income, profit or goods, are not concerned with the ultimate results of the assessment of the persons to whom the payment is made. The Hon'ble Bombay High Court in the case of Sohanlal G. Sanghi v. CIT [ 1966] 61 ITR 203 had observed that a special allowance can be excluded from the total income of the employee only if and so far as the employee establishes that the allowance has been expended for the specific purpose. In the case of Shailender Kumar v. Union of India [1989] 175 ITR 494, the Hon'ble Allahabad High Court held that where a certain payment is made to the employee by way of reimbursement of an amount expended by the employee, such reimbursement is covered by section 17(3)(ii) and not by section 17(2)(iv). On this basis the learned CIT (Appeals) held that it was incumbent and necessary on the part of the assessee-Airline to show all these allowances in the sal....
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....bt that the benefit accrued to the employee because of his employment with the assessee-company. The plea that it did not cost the assessee-company any amount was not correct. There were reciprocal arrangements amongst the airlines, who were members of IATA. The learned CIT (Appeals), therefore, held that the sum of Rs. 4 lakhs had been rightly treated as perquisite. He, however, allowed the assessee to furnish the necessary details as against the estimate of Rs. 4 lakhs made by the Assessing Officer. 8. In respect of estimate of payments to 12 Indian managers at the rate of Rs. 2,50,000 per annum and 5 expatriate employees at the rate of Rs. 1 lakh per month aggregating to Rs. 30 lakhs and Rs. 60 lakhs, the assessee informed the learned CIT (Appeals) that as regards to the remuneration paid to expatriate employees, the assessee-company had availed of Amnesty Scheme and deposited the tax including interest by 31 -8-1994. In that view of the matter, the learned CIT (Appeals) deleted the tax demand as raised by the Assessing Officer in relation to expatriates. For Indian managers the assessee argued that no extra amounts had been paid to them. The learned Assessing Officer argued ....
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....because the provisions of section 10(14) applied only to an allowance or benefit. The same did not apply to reimbursement of expenditure. The learned AR argued that section 10(14) had two limbs for which the separate clause (i) and clause (ii) were provided. There were several distinctions between clause (i) and clause (ii). The word "benefit" did not find place in clause (ii). Secondly, the conditions of having been incurred wholly, necessarily and exclusively in the performance of the duties as well as the condition of expenditure being actually incurred was laid down in clause (i) but not in clause (ii). The expenditure referred to in (a), (b) and (c) could not by any means be considered as covered by clause (i). If at all the same would fall for consideration under clause (ii) as being the expenditure of the nature of personal expenses of the employees. It was important to note that the word "benefit" was not mentioned in clause (ii). The payments made by the assessee as referred to in (a),(b) and (c) could not be treated as allowance because they were reimbursement. If they resulted into any benefit to employees, the word "benefit" was not included in clause (ii), although the....
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....hat the payment/reimbursement for refreshment expenses would not actually be spent. The assessee was under bona fide belief that the payment was reimbursement of the expenditure actually incurred by the employees. The learned AR relied upon the decision of ITAT in the case of Indian Airlines v. Asstt. CIT [1996] 59 ITD 353 (Bom.). In that case, the Tribunal had held that the assessee had a bona fide belief that payments/allowances were only the reimbursement of the expenditure by the employees and, therefore, the same did not form part of employees' income. If at all there was any default on the part of the assessee, that was entirely bona fide and the assessee acted honestly in estimating the income of its employees. 15. The learned AR argued that the case law referred to by the learned CIT(Appeals) was not relevant. The judgment in Sohanlal G. Sanghi's case did not deal with the deduction of tax at source. There was no evidence to suggest that the special allowance was granted to employee to meet expenses in performance of his duty. The judgment in Shailender Kumar v.UnionofIndia[l989] 175 ITR 494 (All.) dealt with allowances which were not subject-matter of the assessec's app....
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....] 243 ITR 435 (Delhi), the Hon'ble High Court held that no question of law arose from the order of the Tribunal holding that assessee's belief that conveyance allowance was not taxable was bona fide. The fact that reimbursement was up to a maximum limit and not more did not detract from the fact that expenses were being paid as far as the employer was concerned towards reimbursement of the actual expenses incurred by the employees in undertaking the official journey. The learned AR strongly relied upon the judgment of Hon'ble Gujarat High Court in the case of CIT v. ONGC [2002] 254 ITR 121 in this respect. In that case it was further observed that the fact that the employee, during the course of his assessment to tax, was found not entitled to full benefit under section 10(14) did not in any way reflect on the estimate made by the employer at the lime of deduction of tax at source. The learned A.R. argued that the assessee had set up it s office inIndiasince 1960. Prior to financial year 1986-87, this payment was never treated to be taxable salary. For that reason also the person responsible for the deduction of tax at the assessee's office could not have any reason to doubt that r....
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....uld not, therefore, be said that there was no check on actual expenses being incurred by the employee. The assessee held bona fide belief that payment was for expenses actually incurred by the employee. 22. The learned AR also relied upon reported decision of ITAT, Delhi Bench "E" in the case of American Express Bank Ltd. being order [IT Appeal Nos. 1772 and 1773 (Delhi) of 1997], particularly in relation to transport allowance paid to the employees for' travel between home to office and back. 23. The learned DR stated that the assessee was merely giving an alluring name to the payments, i.e., "reimbursement". Reimbursement was always made when actual expenditure was incurred. In the case of the assessee, the basis of payment was not actual expenditure, but an agreement with employees' union, which bound both the assessee as well as employees. Thus, the assessee was bound to make the payments as per contract and, therefore, it was not justified to call it "reimbursement". The payments were the results of agreement and not factum of incurrence of expenditure. The learned DR referred to the Memorandum of Settlement between the management of Thai Airways International Ltd. and a....
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....e assessee to its employees for services rendered. Hence, these payments fell to be considered under section 17(3)(ii). There was clear finding of the learned CIT (Appeals) in that respect. There was justification as to why the learned CIT (Appeals) did not accept the theory of reimbursement because those payments were already 'fait accompli'. 25. Referring to the declaration made by the employees, the learned DR pointed out that some of those declarations pertained to a period prior to the agreement with the employees. At any rate, the same were self-serving statements obtained by the assessee. Even it was not known as to whether these statements were received from each employee every time the payments were made. 26. In relation to concessional air tickets, the learned DR argued that the word "concession" was misnomer. A concession could not be claimed as a matter of right. As to the dispute raised by the assessee in relation to estimated addition in respect of 12 Indian managers, the learned DR pointed out that the estimated addition was made because the assessee stonewalled all queries from the Assessing Officer. At any rate, the learned CIT (Appeals) had asked the Assessi....
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.... issue before us, as already stated, is whether or not these payments would be considered to be "Salary" as defined under section 17 of the Act. Section 10(14) has the effect of exempting certain payments from an employer to his employee to the extent prescribed from chargeability of tax. If provisions of section 10(74) do not apply, the entire payments would be chargeable to tax in the hands of the employees unless any of these payments may be found to be not covered by the definition of "Salary" as given under section 17(1) of the Act. We are, therefore, unable to see as to how the case of the assessee before us is advanced on the ground that these payments were in the nature of reimbursement. It is not the case of the assessee that these payments were reimbursement of any expenditure or liability of the assessee himself, as distinguished from that of its employees. We may state here that the manner in which these payments have been made by the assessee do not suggest that they were in the nature of reimbursement of expenditure. The learned D.R. has rightly pointed out that reimbursement is always made when actual expenditure is incurred. The payments in question have been made b....
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....under a bona fide belief that these payments were not chargeable to tax in the hands of employees whom they were paid and, therefore, the assessee was not required to deduct tax at source. Relying upon the decisions of the Income-tax Appellate Tribunal in the cases of Indian Airlines v. Asstt. CIT [1996] 59 ITD 353 (Bom.); KLM Royal Dutch Airlines v. Asstt. CIT [1998] 62 TTJ (Delhi) 268 and Nestle India Ltd. v. Asstt. CIT [1997] 61 ITD 444 (Delhi), the learned authorized representative of the assessee has pleaded before us that the provisions of sections 201(1) and 201(1A) cannot be applied against the assessee, as the assessee acted under a bona fide impression. The learned A.R. of the assessee is, however, silent as to how such self-serving belief was formulated in the first instance. It is not the case of the assessee that he was so advised by an expert or knowledgeable person in this regard. 32. It would be pertinent to reproduce the provisions of section 201(1) at this juncture:- "201(1) If any such person and in the cases referred to in section 194, the principal officer and the company of which he is the principal officer does not deduct or after deducting fails to pay....
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....), the assessee claimed that the amount of Rs. 5,21,964 was not deemed dividend within the meaning of section 2(22)(e) and section 194 and, therefore, the assessee was not liable to deduct tax at source. However, on assessee's plea being found not tenable, the assessee was treated assessee in default within the provisions of section 201(1). From these decided cases it would appear that the question as to whether an assessee, who did not deduct tax at source while making payment of a particular sum, should be treated an assessee in default or not depends on the correct position of law and not the view that an assessee may take of his own obligations in that behalf. In other words, it is not a question of bona fide, but of the correct legal position. 35. However, in the case of Gwalior Rayon Silk Co. Ltd. v. CIT [1983] 140 ITR 832, the Hon'ble Madhya Pradesh High Court held that unless an inference could be reasonably raised against an employer that the employer had not acted honestly and fairly no default can be found with him. This judgment of Hon'ble Madhya Pradesh High Court has been followed by the Income-tax Appellate Tribunal,Bombayin the case of Indian Airlines v. Asstt. C....
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.... Ltd. [1996] 219 ITR 324 (Gauhati); and Kanoi Industries (P.) Ltd. v. Asstt. CIT [2003] 261 ITR 488 (Cal.). 39. Respectfully following the judgments enumerated above, we hold the assessee to be liable to pay interest under section 201(1A) in respect of all such payments made by it during the financial year in respect of which the assessee was required to deduct tax at source but the tax was not deducted. Reverting to the amounts enumerated at page 3 of this order, we find that the assessee has been able to point out that transport allowance paid to sales staff was exempt under section 10(14) in view of Notification No. GSR 606, dated9-6-1989. We, therefore, direct the Assessing Officer not to levy interest under section 201(1A) in respect of those payments as are covered by Notification No. GSR 606, dated9-6-1989, 178 ITR (St.) 43. In addition, we find that the learned CIT (Appeals) has already held that laundry expenses could be treated as exempt under section 10(14) and the revenue is not in appeal before us against that finding. We hold that in respect of all other amounts enumerated at A, B, C, D & E at page 3, the Assessing Officer has charged interest under section 201(....