COMMISSIONER INCOME TAX vs. M/S HUGHES SERVICES .

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ITA/346/2000HC UttarakhandUKHC01025251200330 December 2003Bench: OTHER3 pages
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What did the High Court hold?

The High Court held in favour of the assessee on both issues. Regarding the first issue, the Court, following its earlier decision in CIT vs. SEDCO Forex International Drilling Co. Ltd., held 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 therefore, not a perquisite whose value could be added to the assessee's income. For the second issue, the Court affirmed the ITAT's reasoning that Section 234B imposes interest that is compensatory, not penal. It noted that while Section 191 is not overridden by Sections 192, 208, and 209, the scheme of Sections 208 and 209 requires an assessee to estimate income and calculate tax, reduced by TDS. The Court found that the employer had not deducted tax at source as per law, and given the conflicting decisions of the Tribunal at the time and a pending bonafide dispute, the imposition of interest under Section 234B without hearing and without reasons was not justified. The appeal was disposed of answering 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 an order of the Income Tax Appellate Tribunal (ITAT). The respondent is M/s Hughes Services (Far East) Pvt. Ltd., acting as the agent for Mr. Grindrod L.R. The assessment year in question is 1989-90. The appeal challenges the ITAT's decision regarding the taxability of free boarding and lodging provided to the assessee on a rig and the charging of interest under Section 234B of the Income Tax Act. The High Court notes that the matter is squarely covered by its previous decision in a similar case, CIT vs. SEDCO Forex International Drilling Co. Ltd., dated October 9, 2003.

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 provisions related to perquisites. 2. Whether the ITAT was legally justified in holding that interest under Section 234B of the Income Tax Act cannot be charged when the entire income of the assessee was subject to Tax Deducted at Source (TDS), considering that this interest is chargeable on assessed tax as defined in Explanation I to Section 234B. Assessee's Contentions: The judgment does not explicitly record the assessee's contentions for these specific issues, but the ITAT's reasoning, as quoted by the High Court, suggests the assessee argued that free food and beverages were a necessity due to the hazardous nature of work on the rig, not a perquisite. For the second issue, the ITAT's reasoning implies the assessee argued that interest under Section 234B was not justified due to TDS and a bonafide dispute. Revenue's Contentions: The judgment does not explicitly record the revenue's contentions for these specific issues, but the questions posed by the revenue indicate their stance that the facilities were perquisites and interest under Section 234B was correctly chargeable.

Which sections of the Income-tax Act were involved?

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. 101 of 2001 (Old No.346/2000)

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

Versus

M/s Hughes Services (Far East) Pvt. Ltd., As agent of Mr. Grindrod L.R., 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 not as a penalty (See Union Home Products Vs Union of India 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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