COMMISSIONER INCOME TAX vs. M/S HUGHES SERVICES.

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ITA/356/2000HC UttarakhandUKHC01025258200330 December 2003Author: OTHER3 pages
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What did the High Court hold?

The High Court held in favour of the assessee on both issues, following its earlier decision in CIT vs. SEDCO Forex International Drilling Co. Ltd. Regarding the first issue, the Court affirmed the ITAT's finding that free food and beverages provided on board a rig were a necessity due to the hazardous, arduous, and continuous nature of the work, and thus not a perquisite whose value could be added to the assessee's income. For the second issue, the Court agreed that interest under Section 234B was not justified. The reasoning was that Section 234B imposes compensatory interest. While Section 191 is not overridden by Sections 192, 208, and 209, the scheme of Sections 208 and 209 requires estimation of current income and calculation of tax, reduced by TDS. In this case, the employer had not deducted tax at source as per law, and the assessee could not be faulted. A bona fide dispute was pending, and the imposition of interest without hearing or reasons was not justified. The appeal was disposed of accordingly.

What were the facts?

This appeal concerns Assessment Year 1989-90, filed by the Commissioner of Income Tax (the Revenue) against an order of the Income Tax Appellate Tribunal (ITAT). The assessee is M/s Hughes Services (Far East) Pvt. Ltd., acting as an agent for Mr. Kinaird W. The dispute revolves around whether free boarding and lodging provided to the assessee on board a rig at sea constitutes a perquisite, and whether interest under Section 234B of the Income Tax Act, 1961, is leviable when the entire income was subject to Tax Deducted at Source (TDS). The High Court is deciding the appeal based on its prior decision in a similar case.

What were the issues?

1. Whether, on the facts and circumstances, the ITAT was legally justified in holding that free boarding and lodging facilities provided by the employer on board a rig in high seas cannot be construed as a perquisite, as per Section 17(2) of the Income Tax Act, 1961? The Revenue likely argued that such facilities are taxable perquisites. 2. Whether, on the facts and circumstances, the ITAT was legally justified in holding that interest under Section 234B of the Income Tax Act, 1961, cannot be charged since the entire income of the assessee was subject to TDS, whereas this interest is chargeable on assessed tax as defined by Explanation I below Section 234B? The Revenue likely contended that interest under Section 234B is mandatory on the shortfall in advance tax, irrespective of TDS, based on the assessed tax. The assessee's contentions are not explicitly detailed but are implied by the ITAT's reasoning adopted by the High Court.

Which sections of the Income-tax Act were involved?

Section 17(2),Section 234B,Section 191,Section 192,Section 208,Section 209(1)(a),Section 209(1)(d)

AI-generated summary — verify with the full judgment below

2003:UHC:3930

Assessment Year 1989-90

IN THE HIGH COURT OF UTTARANCHAL AT NAINITAL

Income Tax Appeal No. 69 of 2001 (Old No.356/2000)

The Commissioner of Income Tax, Meerut and another …………. Appellants

Versus

M/s Hughes Services (Far East) Pvt. Ltd., As agent of Mr.Kinaird W., Dehradun. ……… Respondent Mr. S.K. Posti, Advocate for appellants. Mr. V.K. Bist, Advocate for the respondent.

Coram: Hon'ble P.C. Verma, A.C.J. Hon'ble Rajesh Tandon, J.

Dated: 30.12.2003:

PC:

The matter is squarely covered by our decision dated 9th October 2003 in Income Tax Act Appeal No. 57 of 2002; The Commissioner of Income Tax, Dehradun & another V/s SEDCO Forex International Drilling Co. Ltd.

The questions raised before us are as follows:-

QUESTIONS:

1.

Whether on the facts and circumstances of the case the Ld. ITAT was Legally justified in holding that free boarding and lodging facilities provided by the employer on board the rig in high seas cannot be construed to be perquisite?

2.

Whether on the facts and circumstances of the case, the Ld. ITAT was legally justified in holding that interest u/s 234-B of the IT Act cannot be charged since the entire income of the assessee was subject to TDS whereas this interest is 2003:UHC:3930

chargeable on assessed tax as defined by Explanation I below section 234-B? In our decision dated 9th October 2003 in Income Tax Act Appeal No. 57 of 2002; The Commissioner of Income Tax, Dehradun & another V/s SEDCO Forex International Drilling Co. Ltd., the reasoning regarding question No.1 is as under: "In this case, assessee had to work on the rig. It was hazardous, arduous and continuous. Under such circumstances free food and beverages is a necessity. It is not a luxury. It is not a perquisite. Its value cannot be added to the income of the assessee." The reasoning regarding question No.2 is as under:

"In this connection it is important to note that section 234B imposes interest, which is compensatory in nature and reported in 215-ITR-758 at page 766). Secondly, although section 191 of the Act is not over-ridden by sections 192, 208 & 209(1)(a)(d) of the Act, the scheme of sections 208 & 209 of the Act indicates that in order to compute advance tax the assessee has to interalia estimate his current income and calculate the tax on such income by applying the rates in force. That u/s209(1)(d) the income-tax calculated is to be reduced by the amount of tax which would be deductible at source or collectible at source, which in this case has not been done by the employer company according to the law prevailing for which the assessee cannot be faulted. As stated above at the relevant time there were conflicting decisions of the Tribunal. A bonafide dispute was pending. The assessee had to estimate his current income. The words used u/s 209(1)(a) makes the Assessee estimate his current income and since a bonafide dispute was pending, imposition of interest u/s 234B was not justified without hearing and without reasons. Accordingly, we answer this question in the affirmative i.e. in favour of the assessee and against the department."

2003:UHC:3930

For the reasons aforesaid, we answer both the above questions in the affirmative i.e. in favour of the assessee and against the department. Appeal disposed of. No order as to costs.

(Rajesh Tandon, J.) (P.C. Verma, A.C.J.)

Gur

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