GUJARAT CO.OPERATIVE MILK MARKETING FEDERATION LTD vs. INCOME TAX OFFICER

TAXAP/895/2007HC GujaratGJHC24055537200709 May 2018Author: HONOURABLE MR. JUSTICE AKIL KURESHI,HONOURABLE MR. JUSTICE B.N. KARIA12 pages
AI SummaryAllowed

What were the facts?

The assessee, Gujarat Co-operative Milk Marketing Federation Ltd., filed returns for Assessment Years (AY) 2000-2001 and 2001-2002. The Assessing Officer (AO) noted that the assessee had not deducted Tax at Source (TDS) on amounts paid towards part payment of tuition fees for the children of its employees to Anandalaya Education Society. The AO considered this a perquisite to the employees under Section 17(2) of the Income-tax Act, 1961 (the Act), and liable for TDS. The assessee contended that the contribution was to recoup the society's deficiency, not a perquisite, and that a new Rule 3 inserted retrospectively from April 1, 2001, provided an exemption limit of Rs. 1,000 per month for AY 2002-2003 onwards. The AO issued a demand notice for Rs. 1,65,868 and interest under Section 201(1A). The Commissioner (Appeals) and the Income Tax Appellate Tribunal (ITAT) upheld the AO's order, leading to the present appeals.

What did the High Court hold?

The High Court held that the contribution made by the assessee to Anandalaya Education Society was to recoup the deficit in educational expenses for the wards of its employees, and the burden borne per child per month never crossed Rs. 1,000. The Court noted that Rule 3(e) of the Rules, as it stood before amendment, applied only to 'free educational facilities' and did not cover 'concessional educational facilities'. Since the contributions were towards a deficit and not entirely free education, Rule 3(e) was not applicable, and consequently, no perquisite arose in the hands of the employees. Therefore, the assessee was not liable for TDS under Section 192 read with Section 17 of the Act, nor for interest under Section 201(1A). The Tribunal's finding was deemed incorrect. The appeals were allowed, and the ITAT's order was quashed.

What were the issues?

1. Whether, in the facts and circumstances, the contribution made by the appellant to Anandalaya Education Society towards the deficit of education expenses of children of appellant’s employees is a perquisite in the hands of the employees pursuant to Section 17(2)(iii) and (iv) of the Income Tax Act, 1961, read with Rule 3 of the Income-tax Rules, 1962? Assessee's contentions: The contribution was to recoup the deficiency of the Society, not for providing free or concessional educational facilities. Rule 3(e) of the Rules, prior to amendment, applied only to 'free education facility' and not 'concessional rate'. The contribution per child per month did not exceed Rs. 1,000. Relied on Delhi Public School, [2011] 14 taxmann.com 45 (P&H). Revenue's contentions: The payment for educational fees attracts Section 17(2) of the Act, making the assessee liable for TDS. The school recovered full fees, partly from students/employees and partly from the assessee. The argument of free or concessional education is not applicable as there was no free/concessional facility provided by the employer. Rule 3(e) is not applicable. Relied on Section 17(2)(iii) and (iv) of the Act.

Which sections of the Income-tax Act were involved?

Section 17,Section 17(2),Section 17(2)(iii),Section 17(2)(iv),Section 192,Section 201(1),Section 201(1A)

AI-generated summary — verify with the full judgment below

C/TAXAP/894/2007 CAV JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL No. 894 of 2007 With R/TAX APPEAL No. 895 of 2007 FOR APPROVAL AND SIGNATURE : HONOURABLE Mr. JUSTICE AKIL KURESHI and HONOURABLE Mr. JUSTICE B.N. KARIA ============================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? No 2 To be referred to the Reporter or not ? No 3 Whether their Lordships wish to see the fair copy of the judgment ? No 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? No ============================================================== GUJARAT CO.OPERATIVE MILK MARKETING FEDERATION LTD Versus INCOME TAX OFFICER ============================================================== Appearance : Mr BS SOPARKAR for Mrs SWATI SOPARKAR, Advocates for the PETITIONER Mrs MAUNA M BHATT, Advocate for the RESPONDENT(s) No. 1 ============================================================== CORAM: HONOURABLE Mr. JUSTICE AKIL KURESHI and HO

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