COMMISSIONER INCOME TAX vs. M/S HUGHES SERVICES

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ITA/352/2000HC UttarakhandUKHC01000081200330 December 2003Bench: HON'BLE MR. JUSTICE P. C. VERMA3 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held in favour of the assessee on both issues. For the first issue, it affirmed the ITAT's reasoning that free food and beverages provided on board a rig, where the work is hazardous, arduous, and continuous, are a necessity and not a perquisite, thus their value cannot be added to the assessee's income. For the second issue, the Court agreed with the ITAT that interest under Section 234B was not justified. The reasoning was that Section 234B interest is compensatory. 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, reducing it by TDS. In this case, the employer had not complied with TDS provisions, and the assessee could not be faulted, especially given conflicting tribunal decisions at the time. The imposition of interest without hearing and without reasons was deemed unjustified. The appeal was disposed of with no order as to costs.

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 assessee is M/s Hughes Services (Far East) Pvt. Ltd., acting as an agent for Mr. Hastings M.A., for the assessment year 1989-90. The appeal challenges the ITAT's decision regarding the taxability of free boarding and lodging and the charging of interest under Section 234B of the Income Tax Act. The High Court is considering the appeal based on the ITAT's prior rulings in similar cases.

What were the issues?

The High Court had to decide two questions: 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 do not constitute a perquisite, turning on the interpretation of perquisite provisions under the Income Tax Act. 2. Whether the ITAT was legally justified in holding that interest under Section 234B of the IT Act cannot be charged when the entire income of the assessee was subject to Tax Deducted at Source (TDS), and this interest is chargeable on assessed tax as defined by Explanation I to Section 234B. The appellants (Revenue) argued that free boarding and lodging on a rig are perquisites. The respondent (Assessee) contended that such facilities are necessities due to the hazardous and continuous nature of work, not luxuries, and therefore not perquisites. Regarding the second issue, the Revenue likely argued for the charging of interest under Section 234B. The Assessee's position, as reflected in the ITAT's reasoning, was that interest under Section 234B was not justified due to TDS, conflicting tribunal decisions, and the bona fide dispute pending.

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

Assessment Year 1989-90

IN THE HIGH COURT OF UTTARANCHAL AT NAINITAL

Income Tax Appeal No. 65 of 2001 Old No. 352 of 2000

The Commissioner of Income Tax, Meerut and another

............ Appellants

Versus

M/s Hughes Services (Far East) Pvt. Ltd., As a agent of Mr. Hastings M.A., 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.

Date: 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 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. Thus u/s 209(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 asseessee 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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