TaxTMI 
TaxTMI 
2008 (4) TMI 406
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....pons has been given to the employees for performance of their duty and not as mementos as claimed by your appellant and therefore, these are perquisites in the hands of the employees. Your appellant submits that in the facts and circumstances, gift coupons given to the employees cannot be considered as perquisite taxable under the head 'Salaries'. Your appellant, therefore, submits that it has not committed any default for short deduction of tax under section 192 of the Income-tax Act, as alleged. Under the circumstances, penalty levied under section 271(1)(c) for such alleged default and confirmed by the learned Commissioner of Income-tax (Appeals) is not at all justified. Your appellant submits that it be so held now and the penalty levied under section 271(1)(c) be cancelled now." The penalty levied under section 271(1)(c) are as under: Rs. 1996-97 1,25,58,513 1997-98 1,46,04,078 The assessee had sought to raise an additional ground in both these appeals that the order of the Assessing Officer imposing penalty was bad-in law being time-barred in vie....
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....bsp; 11,566 Cash gift on completion of 25 years-TDS 2. 1995-96 2,000 11,459 Cash in recognition of overall record performance- TDS 3. 1995-96 - 11,459 Coupon for safety performance gift issued in February 1996 ....
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....; shop/establishment having registration with sales tax authority. This was valid up to 15-3-1997. ------------------------------------------------------------ As will be seen from the above, the gifts at item Nos. 1 and 2 in cash are in recognition of the performance and have been treated as salary and tax has been deducted therefrom and paid to the Government. As regards item at serial No. 3, the company received various awards of honours and award of merits from National Safety Council of USA under occupational safety/health award-program. The company being desirous of sharing this ....
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....x in the hands of the employees and hence no tax was deducted therefrom. As will be seen from the above the company has deducted the tax whenever payment has been made to the employees, which is covered by term 'salary or perquisite' and no tax has been deducted from the last two items, as in our opinion, granting of mementos on such special occasion cannot be treated as income from which tax was required to be deducted. In view of the above, we submit that we had complied with the provision of the Act in connection with the deduction of tax from gifts given to the employees and there is no question of considering the company as an assessee in default as observed by you in your above letter. As regards the nature and basis of the conveyance allowance, as required by you in your above letter, we have to inform you that we have already explained the same vide our letter dated February 28, 1996 (copy enclosed). As regards details of houses of the employees taken on lease by the company we have to inform that only two employees whose houses have been taken on lease, who happened to be the directors of the company and the rent paid has been treated by them as their income. As regar....
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..... ITO [1991] 71 ITD 66 in I.T.A. Nos. 2811 and 2812/Ahd./1997 by ITAT, Ahmedabad. In the case of P.V. Rajagopal v. Union of India [1998] 233 ITR 678 the hon'ble High Court of the Andhra Pradesh, while dealing with the implication of section 201 of the Income-tax Act, held as under: 'This section has two limbs, one is where the employer does not deduct tax and the second where after deducting tax, the employer fails to remit it to the Government. There is nothing in this section to treat the employer as the defaulter where there is a shortfall in the deduction. The Department assumes that where the deduction is not as required by or under the Income-tax Act, there is a default. But the fact is that this expression "as required by or under this Act" grammatically refers only to the duty to pay the tax, that is deducted and cannot refer to the duty to deduct the tax. Since this is a penal section, it has to be strictly construed and it cannot be assumed that there is a duty to deduct the tax strictly in accordance with the computation under the Act and if there is any shortfall due to any difference of opinion as to the taxability of any item the employer can be declared to be an as....
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.... annual return filed under section 206 of the Income-tax Act and deliberately attempted to conceal this information from the Department which came to the notice of the Department from advertisements in newspapers and hoardings on certain shops, viz., "IPCL Coupons Accepted". The Income-tax Officer has conducted an inquiry and it was gathered that the company has distributed the gift coupons of Rs. 3,000 to each employees and when called for from the assessee-company, the company has tried to suppress the facts. Even the learned Commissioner of Income-tax (Appeals)-II, Baroda has also observed that during the course of appeal, the assessee was asked specifically about the details of cash gift paid in the financial year 1995-96 and the assessee-company had tried to suppress and delay the information to the Department in respect of gift payment and cash payment. I am, therefore, satisfied that it is a fit case for imposition of penalty under section 271(1)(c) of the Income-tax Act. I, therefore, levy penalty of Rs. 1,25,58,513 under section 271(1)(c) of the Income-tax Act which is 100 per cent. of non-deduction of tax for the financial year 1995-96 relevant to the assessment year 199....
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....inor non-deduction of part of tax which, at the relevant time, was not a case of P.V. Rajagopal [1998] 233 ITR 678 (AP) which has been relied on by the assessee and dealt with by the lower authorities. In this case also, the interest subsidy given by the assessee to employees was held to be liable for TDS, whereas the hon'ble High Court held that the tax need not be deducted. Learned counsel for the assessee contends that this judgment has been followed by the Ahmedabad Bench, in the case of Gujarat Narmada Valley Fertilizers Co. Ltd. v. ITO [1991] 71 ITD 66, wherein, in similar circumstances, the order passed by the Assessing Officer under section 201(1) and 201(1A) of the Act were quashed by the following observations: "After a survey was conducted on the premises of the assessee-company, the Assessing Officer found that there were certain allowances given to the employees in addition to salary by giving it different nomenclatures and as such these ought to have been included as salary income under section 15 and the assessee was duty bound to deduct the tax at source and since the assessee had failed to deduct the tax at source thereon, it had violated the provisions of section....
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....tax at source-Direct payment-Whether there is nothing in section 191 where by the primary obligation of the assessee is transferred to the payer of the income in the event of failure to deduct tax thereon under Chapter XVII-Held, yes." It was vehemently argued that had the Committee on Disputes given the permission, the assessee would have taken the same line of arguments and based on the judgments in the case of (i) P.V. Rajagopal [1998] 233 ITR 678 (AP); (ii) Gujarat Narmada Valley Fertilizers Co. Ltd. [1991] 71 ITD 66 (Ahd); and (ii) Associated Cement Co. Ltd. [2000] 74 ITD 369 (Mum) on fringe benefit, i.e., gift coupons with the assessee's bona fide belief to be not a perquisite in view of the various international awards granted to the assessee, the question of penalising the assessee does not arise. Reliance was also placed on the decision of the hon'ble Gujarat High Court in the case of CIT v. Bombay Conductors and Electricals Ltd. [2008] 301 ITR 328; [2008] 3 DTR 200, which is in the context of section 271(1) (c) of the Act, the hon'ble High Court held as under: "Held-The Tribunal has found that there is no evidence on record to show that infraction, of the provisions was....
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.... had not been found to be incorrect or false in any manner whatsoever. The assessee was a co-operative society managed through a governing board and as stated by the society, there was no personal interest involved. The omission had occurred not with an intention but due to oversight. There was nothing on record to show that any particular individual had any personal interest in committing the act of omission of showing the amount received from the insurance company as income of the assessee. In fact, the entries in the books of account reflected that the assessee had credited the said sum to the fund account directly and the said entry appeared in the balance-sheet without going through the profit and loss account. Penalty was not leviable." It was contended by learned counsel for the assessee that in this case also, the assessee is governed by a board of directors having Government nominees and there was nothing on record to indicate that any particular individual had any personal interest. This was a collective belief held by the responsible officers of the assessee-company and, therefore, the imposition of penalty on a public sector undertaking, who has a clean record of payme....
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....spect of these gift coupons and they also have paid tax. In the totality of the facts and circumstances, there is no loss whatsoever to the Revenue and in view thereof penalty under section 271(1)(c) of the Act is not justified. It was further contended that in view of the original provisions of section 201 of the Act which existed at the relevant time, the assessee could not have been treated as an assessee in default as there was only a minor short deduction. The retrospective amendment itself indicates that the Legislature was aware of this position which has been subsequently cured by a retrospective amendment. Therefore, technically speaking, at the relevant time, the assessee could not have been brought in the net of being assessee in default and subjected to the consequence thereof, i.e., the deduction of tax, levy of interest and the imposition of penalty. Reliance was further placed on the judgment of the hon'ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26, wherein it has been laid down that the penalty should not be levied merely because it is lawful to do so. Besides, the same should not be imposed for technical or venial breach ....
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....see tried to avoid disclosure of facts and, therefore, the assessee did not act with bona fides. The assessee had no reasonable cause as proper reasons about bona fide belief have not been given. The orders of the lower authorities were relied on. Learned counsel for the assessee, in the rejoinder, contends that the salary is one head and the payment given from time to time goes towards deduction of TDS from salary. Therefore, there is no justification in the argument of the learned Departmental representative that gift coupons TDS was an independent deduction and the assessee was covered by section 201 of the Act. Further, the allegation that the assessee did not act honestly or suppressed facts is without justification inasmuch as the fact about conferment of the gift award and granting of gift coupons to the employees was displayed by way of hoardings, advertisement, celebrations and company's resolution, the act of such a magnitude cannot be suppressed by any person. The assessee is a public sector undertaking in which the majority of share holding is held by the Central Government and it cannot be assumed that a public sector undertaking was suppressing some information which....
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.... it pleads that there was no personal interest of anybody to deliberately treat such payments as non taxable because the amount is very small as compared to salary and the number of employees. The fact that the safety awards were conferred and the gift coupons in question are linked to such safety award holding this a bona fide belief on the part of the assessee cannot be called a farce. The Department has not controverted the plea of bona fides except accusing that the assessee suppressed the information. It has not controverted that the fact of grant of gift awards and grant of gift coupons was displayed by the assessee by way of hoardings, advertisement, celebration and company's resolution. Therefore, the Department has not made out any case based on proper and independent facts to establish the charge of suppression or withholding of information. The assessee is a Central Government public sector undertaking managed by the board of directors and in the given facts and circumstances, we are unable to hold that there was any personal interest of any quarters to treat these small payments deliberately as tax free instead of knowing that they were taxable. The salary comes from r....
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.... rate in future on or before a certain specified date. No physical purchase of foreign currency is effected on the date of contract. However, on the date of maturity of the contract, if the market rate of foreign currency is lower than that fixed by the said contract, the appellant has to bear the losses. The authorised dealer, in turn, charges the appellant for the services rendered for such guarantee to supply foreign currency at a pre-determined rate, if the actual price of the said currency is higher than the pre-determined rate on that date, which is known as rollover charges. The appellant incurred loss of Rs. 53.50 lakhs on account of cancellation of such forward exchange contract and further paid rollover charges to the extent of Rs. 39.87 lakhs. According to the Assessing Officer, the loss of Rs. 53.50 lakhs was on account of the fact that as on the predetermined date, the market rate of such foreign currency was less than the contract rates. The risk in the variation of foreign currency was entirely on the appellant. He was, therefore, of the opinion that entering into such contract was speculative in nature having probability of getting losses and profits considering the....
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....visions of the exchange control manual containing directions and standing instructions to authorised dealer in foreign exchange issued by the RBI were referred to. It was, accordingly, submitted that the transaction involving forward contract in foreign exchange for payment in foreign currency for import of seeding material cannot thus be considered as speculative transaction as the same is within the parameters of guidelines issued by the RBI. The gain/loss has to be considered as revenue in nature. It was added that in fact in the assessment years 1993-94 to 1995-96, these has been considered as such by the Department. Under the circumstances, there is no ground for the Assessing Officer to consider the loss under consideration as speculative loss in the assessment made. The assessee was under bona fide belief and the disallowances carried more than one possible opinions, therefore, penalty should not be levied. The Assessing Officer however, did not accept the assessee's explanation and levied penalty under section 271 (1) (c) of the Act. In the first appeal, the Commissioner of Income-tax (Appeals) deleted the same. Aggrieved, the Revenue is in appeal. The learned Departmenta....
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....at the appellant had taken a loan from IBRD in foreign currency for payment towards import of seeding material which was to be manufactured by the plant being set up by the appellant. The loan was to be repaid in foreign currency. To guard against any future loss in payment to IBRD in foreign currency, because of fluctuation in exchange rate, the appellant, entered into forward exchange contract with SBI, a recognized dealer in this regard. For rolling over such contract after the expiry date of the previous contract and their cancellation before the maturity date at times, has resulted in losses under consideration. The transactions are in accordance with the guidelines issued in this regard by RBI. The appellant has considered these losses as revenue in nature on the ground that these are to guard against future fluctuation in exchange rate and that the said contracts had been taken in respect of the import of seeding material in which it has traded and as such, transaction relating to contract are in the course of its business. The Assessing Officer, however, interpreted the entire transaction as speculative in nature on the ground elaborated in the assessment order. It can thus....