INDIAN INSTITUTE OF SCIENCE vs. THE DY. COMMISSIONER OF INCOME TAX

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 14TH DAY OF JULY 2021 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE HEMANT CHANDANGOUDAR I.T.A. NO.277 OF 2015 BETWEEN: INDIAN INSTITUTE OF SCIENCE SCIENCE, INSTITUTE POST OFFICE BANGALORE-560012 REP. BY ITS REGISTRAR MS. INDUMATI SRINIVASAN. ... APPELLANT (BY SMT. KAVITHA JHA, ADV., FOR SRI. PRASHANTH KUMAR D, ADV.,) AND: THE DY. COMMISSIONER OF INCOME TAX CIRCLE 16(2), BANGALORE. ... RESPONDENT (BY SRI. K.V. ARAVIND, ADV.,) - - - THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 27.02.2015 PASSED IN ITA NO.1589/BANG/2014 FOR THE ASSESSMENT YEAR 2010- 11, PRAYING TO: (i) FORMULATE THE SUBSTANTIAL QUESTION OF LAW AS STATED ABOVE IN FAVOUR OF THE APPELLANT BY ALLOWING THE APPEAL AND SET ASIDE THE TRIBUNAL ORDER IN ITA NO.1589/BANG/2014 DATED 27.02.2015 (ANNEXURE A) IN SO FAR AS THE QUESTIONS OF LAW RAISED IN THIS APPEAL.

2 (ii) ALLOW THE APPEAL AND REVERSE THE IMPUGNED ORDER INSOFAR AS THE ISSUES RAISED IN THIS APPEAL ARE CONCERNED. THIS I.T.A. COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the assessee. The subject matter of the appeal pertains to the Assessment year 2010-11. The appeal was admitted by a bench of this Court on the following substantial questions of law: "(a) Whether on the facts and circumstances of the case the Tribunal erred in law in holding that the appellant is not an instrumentality and/or agency of the Government and thus cannot be treated at par with the Government employees under Table 1 of Rule 3 of the Income Tax Rules, 1962? (b) Whether the rules applicable to the Government employees for the purpose of computing value of perquisites under

3 Section 17(2) of the Act would be applicable in the case of the appellant?" (c) Whether the Tribunal erred in not appreciating that the Assessing Officer was obligated to establish that the Appellant has provided any concession to the Employees in respect of the accommodation before applying Rule 3 of the Income Tax Rules 1962?"

(d) Whether the appellant can be treated as an assessee in default without the Assessing Officer establishing that the appellant has extended any concession in the form of accommodation to its employees?

(e) Whether Rule 3 of the Income Tax Rules, 1962 will only apply once a liability is created under the charging provision - Section 17(2)(ii) of the Income Tax Act, 1961? 2. Facts leading to filing of this appeal briefly stated are that the assessee is a premier research

4 institution engaged in imparting higher learning and carrying out advanced research in science and technology. The assessee is recognized as a 'Deemed University' under the provisions of University Grants Commission Act, 1956 (hereinafter referred to as 'the UGC Act' for short). The service conditions of the employees of the assessee are governed by the rules as are applicable to the Central Government employees. Accordingly, TDS Return in Form 24Q was filed by the assessee under Section 192 of the Act read with Section 17(2) of the Act, for the period 01.04.2009 to 31.03.2010, which is applicable in respect of the employees of the Central Government. The Assessing Officer by order dated 26.04.2013 passed under Section 201(1) and 201(1A) read with Section 192 of the Act for the Assessment Year 2010-11 and held that the assessee had not correctly worked out the perquisite value of accommodation in accordance with amended Rule 3 of the Rules and the assessee is liable to be

5 treated as assessee in default under Section 201(1) of the Act for non deduction / short deduction. It was further held that assessee is liable to pay interest under Section 201(1A) of the Act. 3. The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals) who by an order dated 22.07.2014 affirmed the orders passed by the Assessing Officer. The assessee thereupon filed an appeal before the tribunal. The tribunal, by an order dated 27.02.2015, inter alia, held that the employees of the assessee cannot be construed to be employees of the Central Government for the purposes of computing perquisite value is governed by Sl.No.2 of Table 1 appended to Rule 3 of the Rules. Accordingly, the appeal was dismissed. In the aforesaid factual background, this appeal has been filed. 4. Learned counsel for the assessee submitted that assessee is a Trust constituted under Charitable

6 Endowment Act, 1890. It is further submitted that the assessee functions under the financial, administrative and functional control of the Central Government. It is also argued that service conditions of the employees of the assessee are governed by the Rules, which are applicable to the Central Government. It is submitted that assessee is an instrumentality agency of the Central Government engaged in scientific research and imparting higher education and therefore, the rates of taxes, which are applicable for computation of perquisite value governed by Sl.No.1 of Table 1 of Rule 3 of the Rules. It is also urged that Rule 3 of the Rules is not applicable to the case of the assessee as there is no finding that the assessee had provided any concession by way of providing accommodation to its employees. It is also submitted that similar benefit was given to the employees of the Indian Institute of Management and the decision of the tribunal was accepted by the revenue. It is further submitted that that assessee

7 cannot be treated to be assessee in default in the absence of any finding that assessee had extended any concession in the form of accommodation to its employees. It is further submitted that Rule 3 of the Rules applies only once a liability is created under Section 17(2)(ii) of the Act. In support of aforesaid submissions, reliance has been placed on decisions in 'R.D.SHETTY VS. INTERNATIONAL AIRPORT AUTHOIRTY OF INDIA AND OTHERS', AIR 1979 SC 1628, 'AJAY HASIYA VS. KHALID MUJEEB SEHRAVARDI', AIR 1981 SC 487, 'PRADEEP KUMAR VS. INDIAN INSTITUTE OF CHEMICAL BIOLOGY', (2002) 7 SCC 111, 'ARUN KUMAR VS. UNION OF INDIA', (2006) 286 ITR 89 (SC), 'STAR TELEVISION NEWS LTD. VS. UNION OF INDIA', (2009) 184 TAXMAN 400 (BOM.). 5. On the other hand, learned counsel for the revenue submits that Sl.No.1 of Table 1 appended to Rule 3(1) of the Rules apply when the accommodation

8 is provided by the Central Government or State Government. It is submitted that assessee is not a Central Government and therefore, is governed by Sl.No.2 of Table 1 appended to Rule 3(1) of the Rules. It is also submitted that the Supreme Court in 'ARUN KUMAR AND OTHERS VS. UNION OF INDIA', (2006) 286 ITR 89 (SC) has drawn a distinction between Central Government, State Government and employee of the other statutory Corporation / Undertaking. It is further submitted that Explanation 1 has been incorporated to Section 17(2) of the Act by Finance Act, 2007 with retrospective effect i.e., from 01.04.2002. Therefore, the question of grant of concession does not arise. It is also submitted that Section 201 of the Act covers the case of shortfall in payment of tax also and no question of law has been framed in this case with regard to applicability of Section 201 of the Act in case of shortfall of payment of tax. 6. We have considered the rival submissions

9 made by learned counsel for the parties and have carefully perused the record. Before proceeding further, we may refer to the well settled principles of interpretation laid down in relation taxing statute. In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. [See: BANARASI DEBI VS. ITO, AIR 1964 SC 1742]. It is equally a well settled legal proposition that in all tax matters one has to interpret the taxation statute strictly. Simply because one class of legal entities is given a benefit which is specifically stated in the Act, does not mean that the benefit can be extended to legal entities not referred to in the Act as there is no equity in matters of taxation. 7. The issue, which arises for consideration is whether the assessee, which is a Trust registered under

10 the Charitable Endowment Act, 1890 can be treated as Central Government as provided in Sl.No.1 of Table 1 appended to Rule 3(1) of the Rules. Before proceeding further, it is apposite to take note of relevant extract of Section 17(2) Explanation 1, Rule 3(1) read with relevant extract of Table 1 appended to it, which read as under: 17(2) "Perquisite" includes - (i) the value of rent-free accommodation provided to the assessee by his employer; (ii) the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer. Explanation 1:- For the purposes of this sub-clause, concession in the matter of rent shall be deemed to have been provided if - (a) in a case where an unfurnished accommodation is provided by an employee other than the Central Government or any State Government and - (i) the accommodation is owned by the employer,, the value of the accommodation determined at the

11 specified rate in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the rent recoverable from, or payable by, the assessee; (ii) the accommodation is taken on lease or rent by the employer, the value of the accommodation being the actual amount of lease rental paid or payable by the employer or fifteen per cent of salary, whichever is lower, in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the rent recoverable from, or payable by, the assessee. (b) in a case where a furnished accommodation is provided by the Central Government or any State Government, the licence fee determined by the Central Government or any State Government in respect of the accommodation in accordance with the rules of such Government as

12 increased by the value of furniture and fixtures in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the aggregate of the rent recoverable from, or payable by, the assessee and any charges paid or payable for the furniture and fixtures by the assessee; (c) in a case where a furnished accommodation is provided by an employer other than the Central Government or any State Government and - (i) the accommodation is owned by the employer, the value of the accommodation is determined under sub-clause (i) of clause (a) as increased by the value of the furniture and fixtures in respect of the period during which the said accommodation was occupied by the assessee during the previous year exceeds the rent recoverable from, or payable by the assessee. (ii) the accommodation is taken on lease or rent by the

13 employer, the value of the accommodation determined under sub-clause(ii) of clause (1) as increased by the value of the furniture and fixtures in respect of the period during which the said accommodation was occupied by the assessee during the previous year exceeds the rent recoverable from, or payable by, the assessee; (d) in a case where the accommodation is provided by the employer in a hotel (except where the assessee is provided such accommodation for a period not exceeding in aggregate fifteen days on his transfer from one place to other), the value of the accommodation determined at the rate of twenty four per cent of salary paid or payable for the previous year or the actual charges paid or payable to such hotel, whichever is lower, for the period during which such accommodation is provided, exceeds the rent recoverable from, or payable by, the assessee.

14 Sl. No. Circumstances Where accommodation is unfurnished Where accommodation is furnished 1. Where the accommodation is provided by the Central Government or any State Government to the employees either holding office or post in connection with the affairs of the Union or of such State or serving with any body or undertaking under the control of such Government on deputation. License fee determined by the Central Government or any State Government

in respect of accommodation in accordance with the rules framed by such Government as reduced by the rent actually paid by the employees The value of perquisite as determined under column 93) and increased by 10% per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air conditioning plant or equipment) or if such furniture is hired from a third party, the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year. 8. Thus, it is evident that the value of residential accommodation provided by the Central Government or

15 any State Government to the employees either holding office or post in connection with affairs of the Union or of such State or serving with any body or Undertaking under the control of such Government on such deputation has to be determined in the manner provided in Column Nos.3 and 4 of Sl.No.1 of Table 1 of Rule 3 of the Rules. The assessee, which is a Trust under the 1890 Act, is controlled and financed by the Central Government. The assessee is a Body or an undertaking controlled by the Central Government. governed by the Rules governing the service conditions of the employees of the Central Government. The assessee may be an instrumentality of the State of for the purpose of Article 12 of the Constitution of India. However, for the purposes of Rule 3, the requirement is that the accommodation should be provided by the Central Government or State Government to the employees either holding office or post in connection with affairs of Union or of State or serving with any body or

16 undertaking under the control of such government from deputation. The aforesaid expression is unambiguous and unclear and therefore, its meaning cannot be expanded to include any body, undertaking under the control of Central Government. Merely because assessee is a body or undertaking owned or controlled by the Central Government, it cannot be elevated to the status of Central Government. Thus, the assessee cannot claim that valuation of perquisites in respect of residential accommodation should be computed as in case of an accommodation provided by the Central Government. Therefore, Sl.No.1 of Table 1 of Rule 3 of the Rules does not apply to the assessee. The substantial questions of law No.1 and No.2 are answered against the assessee and in favour of the revenue. 9. Explanation 1 has been incorporated in Section 17(2) of the Act by Finance Act, 2007 with effect from 01.04.2002. Thus, in view of Explanation 1 to Section 17(2) of the Act, which provides that concession

17 in the matter of rent shall be deemed to have been provided, the substantial question of law No.3 does not arise for consideration in this appeal. The liability is created under Section 17(2)(ii) of the Act by a deeming provision. Therefore, the provisions of Rule 3 of the Rules shall apply to the case of the assessee. Accordingly, the substantial question of law No.3 is answered. 10. So far as substantial question of law No.4 is concerned, suffice it to say that the tribunal has already granted the relief to the assessee in respect of proceedings under Section 201 and 201(1A) of the Act. The aforesaid part of the order has attained finality. Therefore, we need not answer the substantial question of law No.4.

18 In view of preceding analysis, the appeal is dismissed. Sd/- JUDGE Sd/- JUDGE ss