TaxTMI 
TaxTMI 
2018 (4) TMI 1484
X X X X Extracts X X X X
X X X X Extracts X X X X
....ference in terms of the Agreement. 2. Whether on the facts and in the circumstances of the case, the order of the Tribunal was correct in law in so far as it failed to note that these allowances paid to the employees deputed to the U.K. fall within the provisions of Section 10 (14) (i) of the Income Tax Act and that even if they were taxable under the Income Tax Act, there is no provision in the Act under which tax has to be deducted on payments of such allowances. 3. Whether on the facts and in the circumstances of the case, the order of the Tribunal is correct in law in confirming the order u/s. 201 (1) read with section 201 (1A) ignoring the fact that, the appellant was under a bona fide impression that it was not liable to deduct tax on the allowances in question?" 2. The brief facts leading to the filing of these appeals are stated as under: The appellant is a Private Limited Company, engaged in the business of software development, having its office at Hyderabad and branch office at London, U.K. In the course of execution of software projects in U.K., the appellant has deputed some local persons of Hyderabad to London to work in its branch office and it has also empl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t; ii. That the provision relating to T.D.S. does not apply to the payments exempted under Section 10 (14) of the Act and the assessee is not obligated to deduct the tax thereon and iii. That the allowances paid by the assessee to its employees deputed to U.K. are similar to the daily allowances paid to the government employees sent abroad on tour or deputation covered by Section IV of Appendix-6 of the Fundamental Rules and hence they are not treated as perquisites assessable under the head - 'salary'. A feeble contention is also raised by the learned counsel for the appellant that Section 9 (1) (ii) read with explanation thereto has no application to the present case as the services were rendered and allowances were earned and accrued outside India and payments were also made outside India. In support of his contentions, the learned counsel for the appellant has placed reliance on Commissioner of Income Tax, Gujarat, Vs. S.G.Pgnatale (1980) 124 ITR 391 (Guj.); Commissioner of Income Tax Vs. Bellien Michael Andersmant 1998 L.S. (A.P.) 672; Commissioner of Income Tax Vs. Kannan Devan Hill Produce Company Limited (1986) 161 ITR 477 (Ker.); and Commissioner of Income Tax....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of living, to the extent as may be prescribed. She has further submitted that the proviso to sub clause (ii) of sub-section (14) of Section 10 shall not apply to any allowance in the nature of personal allowance granted to the assessee to remunerate or compensate him for performing duties of a special nature relating to his office or employment, unless such allowance is related to the place of his posting or residence. She has drawn our attention to Rule 2BB of the Income Tax Rules, relating to subsection (14) of Section 10 of the Act and submitted that the lump sum payments made by the assessee to its employees deputed to work in U.K., do not fall under any of the exemptions enumerated thereunder. 5. We have carefully considered the respective submissions of learned counsel for both the parties and perused the record. 6. The substantial questions of law (1) and (2) pertain to the common issue. Hence, they are dealt with together. The assessee has produced consultant's agreement. One such agreement is dated 13-03-2000 between one of the employees deputed to work in U.K. and the assessee. Clause (2) of the said agreement reads as under: "Compensation for work performed: a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ribed]. [Provided that nothing in sub-clause (ii) shall apply to any allowance in the nature of personal allowance granted to the assessee to remunerate or compensate him for performing duties of a special nature relating to his office or employment unless such allowance is related to the place of his posting or residence]" 8. The rule making authority has prescribed various allowances which are exempted from total income. Rule 2BB reads as follows: (a) any allowance granted to meet the cost of travel on tour or on transfer; (b) any allowance, whether, granted on tour or for the period of journey in (c) any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit : Provided that free conveyance is not provided by the employer; (d) any allowance granted to meet the expenditure incurred on a helper where such (e) any allowance granted for encouraging the academic, research and training (f) any allowance granted to meet the expenditure incurred on the purchase or office or employment of profit. 9. In S.G.PGNATALE ( supra), a Division Bench of Gujarat High Court dealt with the meaning of 'perquisit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Heavy Plate and Vessels Ltd., Visakhapatnam. In connection with the said agreement, the services of technicians were utilised for erection and commissioning of a unit. Clause (3) of the agreement provided for payment of living allowance in addition to daily fees. As per the said clause, a sum of Rs. 220/- was payable at Delhi, Bombay, Calcutta and Madras @ Ra.150/- per day, plus free transport is payable at any other place in India. After considering Section 10 (14) of the Act, this Court has observed that there was no evidence on record to establish that the living allowance was paid to the assessees in connection with the duties to be performed by them and that in the absence of such evidence, it cannot be held that the allowance paid to them was exempted under Section 10 (14) of the Act. The Bench distinguished the judgment in S.G.PGNATALE (supra) and relied on the observations in the judgments of this Court in Zdziz-law Skakuz Vs. CIT, of Allahabad High Court in CIT (Addl.) Vs. A.K.Misra and of Patna High Court in CIT Vs. Arthur Fucks. The relevant portion of the judgment in Bellien Michael Andresmant (supra) is extracted below: "10. The judgment of the Gujarat High Court in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... an allowance is paid to the assessee to meet his personal expenses at the place where the duties of his office are ordinarily performed, the same is not exempt under Section 10 (14) of the Act. Allowance such as City Compensatory Allowance necessitated by the high cost of living in big cities and not granted with reference to the nature of duties but exclusively with reference to the place of posting is not exempt from tax under Section 10 (14) of the Act; and (iv) For being exempt under Section 10 (14) of the Act, an allowance should have specifically been granted wholly in the performance of duties. "6. Be that as it may, even considering for a while the assessee's plea that the allowances are only to reimburse the expenses actually incurredWhen we apply the above settled legal position to the facts of this case, we have no doubt that the lump sum payment made to the employees is by way of conferring additional advantage in order to make them to meet the high cost towards accommodation and other personal expenditure. Such expenditure in our opinion cannot be treated as having been incurred in connection with discharge of their duties within the meaning of Section 10 (14)....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the Act so as not to deduct tax or deduct tax at a lower rate. In the absence of such certificate obtained from the employees, the assessee is legally bound to deduct tax." Therefore, we have no hesitation to hold that the amounts in dispute attract the definition of perquisite in Section 17 (2) of the Act and they do not fall within the exception of Section 10 (14) of the Act. We accordingly answer question Nos. 1 and 2 against the appellant. 12. As regards question No. 3, under Section 201 of the Act, if an employer does not deduct or does not pay or after so deducting fails to pay the whole or any part of the tax, as required by or under the Act, such person shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax. Under Section 201 (1A) of the Act, such person is liable to pay tax as required by or under the Act apart from simple interest at the rate prescribed therein. Learned counsel for the appellant has submitted that as his client was under a bona fide impression that the amounts paid by it to its employees were not taxable, it failed to deduct the same and that as there was no malice or men....