COMMISSIONER INCOME TAX vs. M/S HUGHES SERVICES

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ITA/353/2000HC UttarakhandUKHC01025255200330 December 2003Author: OTHER3 pages
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What did the High Court hold?

The High Court, in its decision dated 30.12.2003, answered both questions in the affirmative, in favour of the assessee and against the department. For the first issue, the Court relied on its previous decision in CIT vs. SEDCO Forex International Drilling Co. Ltd., holding that free food and beverages provided on a rig were a necessity due to the hazardous, arduous, and continuous nature of the work, and therefore not a perquisite whose value could be added to the assessee's income. Regarding the second issue, the Court reiterated the reasoning from the SEDCO Forex case. It noted that Section 234B interest is compensatory. It also held that while Section 191 is not overridden by Sections 192, 208, and 209, the scheme of Sections 208 and 209 implies that advance tax computation requires estimating current income and applying rates, reduced by tax deductible at source. Since the employer did not deduct tax at source as per law, and there were conflicting Tribunal decisions creating a bonafide dispute, imposing interest under Section 234B without hearing and without reasons was not justified. The appeal was disposed of accordingly.

What were the facts?

This appeal concerns Assessment Year 1989-90. The Commissioner of Income Tax (CIT), Meerut, and another are the appellants, and M/s Hughes Services (Far East) Pvt. Ltd., acting as the agent of Mr. Ross M.J. of Dehradun, is the respondent. The appeal challenges an order passed by the Income Tax Appellate Tribunal (ITAT). The core dispute revolves around whether free boarding and lodging provided to an employee on a rig at sea constitute 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 of Uttaranchal at Nainital is hearing this appeal.

What were the issues?

The Tribunal had to decide two questions: 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 (Section 17(2) of the Income Tax Act, 1961). 2. Whether, on the facts and circumstances, the ITAT was legally justified in holding that interest under Section 234B of the IT Act 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 (Sections 234B, 191, 192, 208, 209 of the Income Tax Act, 1961). Assessee's contentions were not explicitly recorded for these specific questions, but the ITAT's reasoning implies the assessee argued that the facilities were a necessity due to the hazardous work environment and that interest under Section 234B was not justified due to TDS and bonafide disputes. Revenue's contentions were not explicitly recorded, but the appeal itself indicates their disagreement with the ITAT's findings on both issues.

Which sections of the Income-tax Act were involved?

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

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. 66 of 2001 (Old No.353/2000)

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

Versus

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