COMMISSIONER INCOME TAX vs. M/S HUGHES SERVICES

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ITA/361/2000HC UttarakhandUKHC01025259200330 December 2003Author: OTHER3 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the ITAT was legally justified in its findings on both issues. Regarding the first question, the court affirmed the ITAT's reasoning that free food and beverages provided on board a rig, where the work was hazardous, arduous, and continuous, constituted a necessity rather than a luxury or a perquisite. Therefore, its value could not be added to the assessee's income. For the second question, the court agreed with the ITAT that interest under Section 234-B was not justified. The reasoning was that Section 234-B interest is compensatory, not penal. Furthermore, while Section 191 is not overridden by Sections 192, 208, and 209(1)(a)(d), the scheme of Sections 208 and 209 indicates that advance tax computation requires estimation of current income and tax thereon, reduced by TDS. In this case, the employer had not deducted tax at source as per law, and the assessee could not be faulted for this, especially given the bonafide dispute and conflicting Tribunal decisions at the time. The court answered both questions in the affirmative, in favour of the assessee.

What were the facts?

This case involves an appeal by the Commissioner of Income Tax, Meerut, and another against M/s Hughes Services (Far East) Pvt. Ltd., acting as an agent for Mr. Passos FJB, for the assessment year 1989-90. The appeal challenges an order passed by the Income Tax Appellate Tribunal (ITAT). The core of the dispute revolves around whether free boarding and lodging provided to the assessee on a rig in high seas constituted a perquisite, and whether interest under Section 234-B of the Income Tax Act was leviable when the entire income was subject to Tax Deducted at Source (TDS). The High Court noted that the matter was covered by its previous decision in a similar case.

What were the issues?

The High Court was asked to decide two questions of law: 1. Whether 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, turning on the interpretation of perquisites under the Income Tax Act. 2. Whether the ITAT was legally justified in holding that interest under Section 234-B 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 234-B, concerning the applicability of Section 234-B in the context of TDS and advance tax computations. The applicants (Revenue) argued that free boarding and lodging on a rig should be considered a perquisite. For the second issue, they contended that interest under Section 234-B is chargeable on assessed tax and not dependent on TDS. The respondent (Assessee) argued that the facilities were a necessity due to the hazardous and continuous nature of work on the rig, not a luxury or perquisite. Regarding Section 234-B, the assessee argued that since the entire income was subject to TDS and there were conflicting decisions of the Tribunal at the time, the imposition of interest was not justified.

Which sections of the Income-tax Act were involved?

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

AI-generated summary — verify with the full judgment below

Assessment Year 1989-90 IN THE HIGH COURT OF UTTARANCHAL AT NAINITAL Income Tax Appeal No. 74 of 2001 (Old No. 361 of 2000)

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

Versus

M/s Hughes Services (Far East) Pvt. Ltd., As agent of Mr. Passos FJB., 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 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."

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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