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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI N. V. VASUDEVANAND SHRI JASON P BOAZ
Per Jason P Boaz, Accountant Member
These appeals by the assessee are directed against the order of the CIT(A)-13, Bangalore, dated 23.08.2017, for Assessment Years 2011-12 to 2013-14.
Briefly stated, the facts of the case are as under: to 1875/Bang/2017 Page 2 of 13 2.1 The assessee is an organization, engaged in research and production of silkworm seeds, functioning under the control of the Central Silk Board, Ministry of Textiles, Govt. of India. The Assessing Officer (‘AO’), after putting the assessee on notice, proceeded to hold the assessee as an ‘assessee in default’ under section 201(1) and 201(1A) of the Income Tax Act, 1961 (in short ‘the Act’) for non-deduction of the tax at source in respect of rent free residential accommodation provided by the assessee to its employees. The AO computed the tax liability in accordance with Table 1 of Rule 3 and by treating the assessee in the category of employer “other than Central Government” or “State Government”. The AO was of the view that since the assessee is neither Central Government nor State Government; therefore neither could the assessee’s or employees be considered to be holding the office or post in connection with the affairs of the Union or State. The AO accordingly determined the tax liability vide the orders under section 201(1) and 201(1A) of the Act dated 23.09.2013 for Assessment Years 2011-12 to 2013-14. On appeal, the CIT(A)-13, Bangalore, allowed the assessee partial relief vide the impugned orders dated 23.03.2017.
3. Aggrieved by the consolidated orders of the CIT(A)-13, Bangalore, dated 23.08.2017 for Assessment Years 2011-12 to 2013-14, the assessee has preferred these appeals before the Tribunal, wherein it has raised similar grounds. We, therefore, extract hereunder the grounds raised by the assessee only for Assessment Year 2012-13:
The learned Commissioner ( Appeals ), on facts and in law, erred in sustaining the order passed by the Assessing Officer under sections 201(1) & 201(1A) treating the appellant as an assessee in default in respect of its alleged non-deduction of tax at source on the perquisite value of unfurnished accommodation provided to its employees and levying interest thereon.
2. The learned Commissioner ( Appeals ) erred in upholding the findings of the Assessing Officer that the appellant is an autonomous organisation and that it cannot be treated as Government.
The learned Commissioner ( Appeals ) failed to appreciate that the appellant is financially, functionally and administratively controlled by the Ministry of Textiles, Government of India, that it is entirely and exclusively funded by the Government of India, that it is not a registered society or a limited company or an autonomous body and that it does not have Bye-laws for its functioning and activities.
The learned Commissioner ( Appeals ) erred in upholding the finding of the Assessing Officer that it was required to value the unfurnished accommodation provided to its employees in terms of SI. No. 2 of Table - I of Rule 3 of the Income Tax Rules, 1962 which is applicable to accommodation provided by private employers.
The learned Commissioner ( Appeals ) ought to have appreciated that the appellant constituted ' the State ' within the meaning of Article 12 of the Constitution of India and that the salaries to its employees are paid from the Consolidated Fund of India and accordingly. ought to have held that the employees of the appellant are employees of the Central Government.
The learned Commissioner ( Appeals ) erred in following the decision of the Hon'ble Income Tax Appellate Tribunal - Bangalore Bench in Central Food Technological Research Institute v. ITO in to 1611/Bang/2013 which is distinguishable on facts and the ratio of which is not applicable to the case of the appellant.
The learned Commissioner ( Appeals ) ought to have followed the decisions of the Hon'ble Income Tax Appellate Tribunal - Delhi Bench in Ram Kanwar Rana v. ITO 159 ITD 431 & Pune 'B' Bench in Smt. Sapna Sanjay
Raisoni v. ITO 179 TTJ (Pune) (UO) 34 relied upon by the appellant and accordingly, ought to have held that the employees of the appellant are employees of the Central Government.
The learned Commissioner ( Appeals ) erred in not considering and adjudicating upon Ground No. 1 raised by the appellant before him.
The learned Commissioner ( Appeals ) ought to have adjudicated upon Ground No. 1 and considered the Additional Written Submissions made in support'thereof and accordingly, ought to have quashed the order passed by the Assessing Officer as being bad in law, invalid and ab initio void as the appellant had filed the quarterly statements of deduction of tax referred to in section 200(3) in the status of Government ' and the Assessing Officer had passed the order under sections 201(1) & 201(1A) on the appellant in the status of Autonomous Organisation '.
10. The learned Commissioner ( Appeals ) ought to have appreciated that the appellant bona fide believed that it constitutes Central Government ' and, therefore, SI. No. 1 of Table - I of Rule 3 of the Income Tax Rules, 1962 was applicable in respect of valuation of unfurnished accommodation provided by it to its employees which is fortified by the fact that it filed quarterly statements of deduction of tax referred to in section 200(3) in Form No. 24Q in the status of Government ' and accordingly, ought to have held that the appellant could not be treated as an assessee in default.
11. The learned Commissioner ( Appeals ) erred in not considering and adjudicating upon Ground Nos. 9 & 10 raised by the appellant before him.
The learned Commissioner ( Appeals ) ought to have adjudicated upon Ground Nos. 9 and 10 and considered the submissions made in support thereof and accordingly, ought to have held that Interest under section 201(1A) could not be levied on the appellant.
The learned Commissioner ( Appeals ) failed to take note of the Written Submissions & Additional Written Submissions filed before him, the various decisions relied upon by the appellant. the various documents filed before him, facts of the case and the weight of evidence of record.
The order of the learned Commissioner ( Appeals ), in so far as it is against the appellant is opposed to law and facts of the case.
For these and other grounds that may be urged at the time of hearing. the appellant prays that the appeal may be allowed.
4.1.1 The learned AR was heard in support of the grounds raised (supra). It was submitted that the Central Silk Board and its constituent unit, the National Silkworm Seed Organisation (i.e., the assessee) are entirely and exclusively funded by the Central Government; and their working is directly controlled by the Ministry of Textiles, Government of India. The assessee receives grants from Government of India based on budget proposals from Ministry of Textiles, which are distributed from the Consolidated Fund of India. Its employees are governed by Govt. of India Pay and Allowances Rules, Conduct Rules, etc., as applicable to Central Govt. employees. The assessee is therefore financially, functionally and administratively controlled by the Govt. of India. It is contended that the assessee is an instrumentality of the Central Govt. and constitutes the State within the meaning of Article 12 of the Constitution of India. Therefore, the employees of the assessee have to be treated as Central Govt. employees and the perquisite value of rent-free residential accommodation/quarters provided to them is required to be determined as per Sl. No. 1 of Table – 1 of Rule 3 of the Income Tax Rules, 1962 (in short ‘the Rules’). The learned AR has submitted that the Licence Fee in respect of accommodation fixed as per Govt. of India Rules was recovered from the assessee’s employees and therefore the value of perquisite in respect of unfurnished residential accommodation was NIL. to 1875/Bang/2017 Page 6 of 13 4.1.2 The learned AR further submitted that the assessee has valued the perquisite by way of bona fide estimate by considering Sl. No. 1 of Table 1 of Rule 3 and therefore the assessee cannot be held as an assessee in default in respect of the rent-free residential accommodation provided to its employees. In this regard, the learned AR placed reliance on the following judicial pronouncements:
(i) Indian Institute of Science (‘IISc’) Vs. DCIT in dated 27.02.2015. (ii) ACIT Vs. IISc in ITA No.1262/Bang/2015 dated 11.08.2016.
Thus, it was contended that the assessee’s valuation of perquisite is based on bona fide estimate that no tax liability could be imposed on the assessee.
4.2 Per contra, the learned DR for Revenue supported the orders of the authorities below. It is submitted that after the amendment to the Rules, the category of employees of public sector undertakings (PSU) and semi government organizations had been removed and therefore, since the assessee does not fall under the first category of being Central or State Government, then the perquisite value of rent free residential accommodation has to be computed as per Sl. No. 2 category in Table 1 of Rule 3. It was further contended that an organization that receives grants from the government cannot be deemed to be government for the purposes of Rule – 3 and the assessee also has significant financial as well as administrative autonomy. In support of the proposition canvassed above, the learned DR placed reliance on the decision of the Co-ordinate Benches of this Tribunal in the case of (i) Central Silk Board Vs. ITO (TDS) in dated 23.10.2017 and Central Food Technology Research Institute Vs. ITO (TDS) in ITA Nos. 1607 to 1611/Bang/2013 dated 04.07.2014; wherein on identical facts, the Tribunal has held that an autonomous body constituted under the Statute, receiving grants from the government to 1875/Bang/2017 Page 7 of 13 cannot be treated as Government or State for the purposes of Rule-3 of the IT Rules.
4.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. As regards the applicability of Sl. No. 2 in Table 1 of Rule 3 of the IT Rules, for the purposes of computing the perquisite value of rent free residential accommodation provided to the assessee, in our considered view, the issue is covered in favour of Revenue and against the assessee by the decision of the Co-ordinate Bench of this Tribunal in the case of Central Silk Board Vs. ITO (TDS) in dated 23.10.2017; wherein the Tribunal, after considering the factual and legal matrix of the case, at paras 6 to 11 thereof have held as under:
“6. We have considered the rival submissions as well as the relevant material on record. As regards the applicability of the Sl.No.2 in Table 1 of Rule 3 for the purpose of computing the perquisite value of the accommodation provided by the assessee, the issue is covered by the decision dt.4.7.2014 of the co-ordinate Bench of this Tribunal in the case of Central Food Technology Research Institute Vs. ITO (supra) wherein the Tribunal after discussing all the relevant facts held in paras 10 to 12 as under :
We are of the view that the reliance placed by the learned counsel for the Assessee on the aforesaid decision is of any help to the present case. The question in the case of Pradeep Kumar Biswal (supra) was regarding as to whether CSIR is "State" within the meaning of Article 12 of the Constitution of India. As rightly submitted by the learned DR before us, the meaning of the word "State" has been defined in Article 12 of the Constitution of India and the decision has to be confined to those cases and cannot extent to interpretation of Rule 3 of the IT Rules, 1962. Public corporations are established by - Government to achieve purpose of welfare state. Financial autonomy and functional. autonomy are required for such purpose. These corporations are to 1875/Bang/2017 Page 8 of 13 commercial corporations, development corporations, social services corporations or financial corporations. Such corporations have all trappings of Government but their. employees cannot be equated with employees either holding office or post in connection with the affairs of the Union or of such State. Eminent Author Seervai in his book Constitutional Law of India, 1984 Vol II pp.2578-79 has deducted the following principles with regard to the status of employees of a statutory corporation- (i) a statutory corporation has a separate and independent existence and is a different entity from the Union or the State Government with its own property and its own fund and the employees of the corporation do not hold civil post under the Union or the State; (ii) it makes little difference in this respect, whether the or the State holds the majority share of the Corporation and controls its administration by policy directives or otherwise; (iii) it also makes little difference if such a statutory corporation imitates or adopts the Fundamental Rules to govern the service conditions of its employees; (iv) although the ownership, control and management of the stator corporation may be, in fact, vested in the Union or State, yet in the eye of law the corporation is its own master and is a separate entity and its employees do not hold any 'civil post under the Union or the State; (v) if, however, the State or the Union controls a post under a stator corporation in such a manner that it can create or abolish the post or can regulate the conditions subject to which the post is or will be held and if the Union or the State pays the holder the post out of its own funds, then although the post carries the name of an office of the statutory corporation, it may be a civil post under the State or the Union.
We are of the view that in the light of the law on Rule 3 the IT Rules, 1962 as understood by the Hon'ble Supreme Court in the case of Arun Kumar (supra)
and the background in which Rule 3 was enacted w.e.f. 1-4-2001 as explained in the CBDT circular No.1.077/Bang/2017 circular referred to earlier, we are of the view that the applicable rule in the case of the Assessee for the purpose of computing perquisite value would be SI.No.2 of Table-1 of Rule 3 of the IT Rules, 1962. Accordingly, we uphold the order of the CIT(A) and dismiss the appeals by the Assessee.”
4.3.2 Respectfully following the decision of the Co-ordinate Bench in the case of Central Silk Board (supra), we are also of the view that the law on Rule 3 of the IT Rules, 1962 as understood by the Hon’ble Apex Court in the case of Arun Kumar (2006) 155 taxman.com 659 (SC) and the background in which Rule 3 was enacted w.e.f. 01.04.2001, that the applicable rule in the case of the assessee for the purpose of computing perquisite value of the rent free accommodation provided to its employees would be Sl. No. 2 of Table – 1 of Rule 3 of the IT Rules, 1962. Accordingly, we uphold the orders of the CIT(A) and finding no merit in the grounds raised on this issue by the assessee, we dismiss the same for Assessment Years 2011- 12 to 2013-14.
5.1 We, however, find that this issue has not been examined by the authorities below from the angle of ‘Bona fide’ estimate made by the assessee while valuing the perquisite on rent free residential accommodation provided to its employees; by valuing the same as if the employees were employees of Central Government. In support of this proposition canvassed by it, the learned AR of the assessee placed reliance on the decision of the Central Silk Board Vs. ITO(TDS) in dated 23.10.2017, wherein this issue was set aside to the file of the AO to examine the matter in the light of the decisions relied upon by the parties.
5.2 The learned DR for Revenue, while relying on the aforesaid decision in the to 1875/Bang/2017 Page 10 of 13 case of Central Silk Board (supra) on the issue of whether the assessee / its employees constitute ‘State’ for the purpose of valuing the rent free accommodation, opposed the finding rendered by the Tribunal in that decision on the proposition of bona fide estimate made by the assessee for valuing the perquisite on account of provision of rent free accommodation by the assessee to its employees as canvassed by the assessee. In this regard, the learned DR placed reliance on the following judicial pronouncements: (i) DGIT (Investigation) Vs. Spacewood Furnishers (P) Ltd., (2015) 57 taxmann.com 292 (SC).
After respectfully perusing this decision, we find that this judgment was rendered in the context of section 132 of the Act r.w. Article 226 of the Constitution; in the context of sufficiency/adequacy of reasons and authenticity of information on which satisfaction has been reached by the authorities for issue of warrant of authorization for search and seizure action. In our humble opinion, this decision is not applicable or relevant to the issue before us; i.e., of ‘bonafide’ of estimate by the assessee of valuation of perquisite on rent free residential accommodation provided to employees.
(ii) Arun Kumar Vs. UoI (2006) 155 Taxman 659 (SC) –
On careful perusal of the above decision and particularly to paras 91 to 93 thereof, we find that the finding rendered was not in respect of ‘bona fide’ estimate made by the assessee while valuing rent free residential accommodation provided to its employees. Therefore, in our humble opinion, this decision too would not apply to the plea of ‘bona fide’ made by the assessee which is under consideration.
5.3.1 We have heard the rival contentions and perused and carefully considered the ITA Nos. 1873 to 1875/Bang/2017 Page 11 of 13 material on record; including the judicial pronouncements cited (supra). In our view, the plea of the assessee that it made a ‘bona fide’ estimate of employee’s salary for valuing the perquisite arising from the provision of rent free residential accommodation to its employees; by valuing the same as if the employees were employees of the Central government, has not been examined by the authorities below. We find that the Co-ordinate Bench of this Tribunal in the case of Central Silk Board Vs. ITO, TDS in dated 23.10.2017, after considering the decision of this Tribunal in the case of IISc Vs. DCIT in ITA No.1589/Bang/2014 dated 27.02.2015 and ACIT Vs. IISc in ITA No.1262/Bang/2015 dated 11.08.2016 has dealt with this issue, and held as under at para 7 thereof:
“7. However the issue has not been examined by the authorities below from the angle of bona fide estimate made by the assessee while valuing the perquisite. The Tribunal in the case of IISC Vs. DCIT dt.27.2.2015 (supra) has dealt with this issue in para 19 as under :
We have considered the rival submissions. In our view. the plea of the assessee that it made a bona tide estimate of employees salary by valuing the perquisites in the form of residential accommodation provided to the employees by valuing the same as if employees were employees of Central Govt. has to be accepted. In this regard, it is clear from the records that the position with regard to the assessee not being a Central Govt. was brought to its notice by the department only in the proceedings initiated in 2013. Even thereafter, the assessee has been taking a stand that its employees are employees of Central Govt. As held in several decisions referred to by the Id. counsel for the assessee, the obligation of the assessee is only to make a bona
fide estimate of the salary. In our view in the facts and circumstances of the present case, assessee has made such an estimate. The assessee's obligation u/s. 192 is therefore properly discharged and hence proceedings u/s. 201(1) & 201(1A) of the Act have to be quashed and are hereby quashed.
This decision was again followed by the Tribunal in the case of ACIT Vs. IISC for the Assessment Year 2011-12 vide order dt.11.8.2016. We further note that it is not a fresh issue raised by the assessee but it is only a plea in respect of the same subject matter and issue of deduction of TDS in respect of the accommodation provided to the employees. Therefore in the facts and circumstances and in view of the decisions of the Tribunal, we set aside this issue to the record of the Assessing Officer to examine the matter in the light of the decisions as relied upon by the assessee as well as by the department.”
5.3.2 We, respectfully following the decision of the Co-ordinate Bench of this Tribunal in the case of Central Silk Board Vs. ITO, TDS (supra), further note that this is not a fresh issue raised by the assessee but it is only a plea in respect of the same subject matter and issue of deduction of TDS in respect of rent free residential accommodation provided by the assessee to its employees. Taking into consideration the facts and circumstances and the view of the Co-ordinate Bench of this Tribunal (supra), we set aside the issue to the file of the AO to examine the matter in the light of the judicial pronouncements cited by the assessee as well as Revenue. Needless to add, the AO shall afford the assessee reasonable opportunity of being heard and to file details / submissions required, which shall be considered by the AO before deciding the issue in accordance with law for Assessment Years 2011-12 to 2013-14. We hold and direct accordingly.
In the result, the assessee’s appeals for Assessment Years 2011-12 to 2013-14 6. to 1875/Bang/2017 Page 13 of 13 are partly allowed for statistical purposes. Pronounced in the open court on 06.02.2019.