COMMISSIONER INCOME TAX vs. M/S HUGHES SERVICES

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ITA/355/2000HC UttarakhandUKHC01025257200330 December 2003Author: OTHER3 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held in favour of the assessee on both issues. Regarding the first issue, it was held that free food and beverages provided on board a rig, where the work is hazardous, arduous, and continuous, are a necessity and not a luxury or a perquisite, and therefore, their value cannot be added to the income of the assessee. This reasoning was directly adopted from the High Court's prior decision in the SEDCO Forex case. Concerning the second issue, the Court held that interest under Section 234B, being compensatory in nature, was not justified. The Court noted that Section 191 of the Act is not overridden by Sections 192, 208, and 209(1)(a)(d). However, the scheme of Sections 208 and 209 indicates that advance tax computation requires the assessee to estimate income and tax, reduced by TDS. In this case, the employer had not deducted tax at source as per law. Given the conflicting Tribunal decisions and the bona fide dispute, imposing interest under Section 234B without hearing and without reasons was not justified. The Court answered both questions in the affirmative, in favour of the assessee.

What were the facts?

The Commissioner of Income Tax, Meerut (appellant) appealed against an order of the Income Tax Appellate Tribunal (ITAT) concerning assessment year 1989-90. The respondent is M/s Hughes Services (Far East) Pvt. Ltd., acting as agent for Mr. Weidmann J.T. The appeal challenges the ITAT's decision regarding the taxability of free boarding and lodging provided to the employee on a rig at sea and the charging of interest under Section 234B of the Income Tax Act. The High Court noted that the matter was covered by its previous decision in a similar case, Commissioner of Income Tax, Dehradun & another V/s SEDCO Forex International Drilling Co. Ltd., dated October 9, 2003.

What were the issues?

1. Whether on the facts and circumstances of the case, 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 (under Section 17(2) of the Income Tax Act, implicitly)? 2. Whether on the facts and circumstances of the case, the ITAT was legally justified in holding that interest under Section 234B of the Income Tax Act cannot be charged, given that the entire income of the assessee was subject to Tax Deducted at Source (TDS), whereas this interest is chargeable on assessed tax as defined by Explanation I below Section 234B? Assessee's contentions: Not explicitly recorded for the first issue. For the second issue, the assessee contended that interest under Section 234B should not be charged as their income was subject to TDS, and there were conflicting decisions of the Tribunal at the relevant time, creating a bona fide dispute. The employer company had not deducted tax at source as per law. Revenue's contentions: Not explicitly recorded for the first issue. For the second issue, the revenue argued that interest under Section 234B is chargeable on assessed tax as defined by Explanation I below Section 234B, irrespective of TDS.

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. 68 of 2001 (Old No.355/2000)

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

Versus

M/s Hughes Services (Far East) Pvt. Ltd., As agent of Mr. Weidmann J.T., 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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