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Income Tax Appellate Tribunal, BANGALORE BENCH ‘ B ’
Before: SMT. P. MADHAVI DEVI & SHRI JASON P. BOAZ
O R D E R
Per Shri Jason P. Boaz, A.M. : This appeal by Revenue is directed against the order of the Commissioner of Income Tax (Appeals) – V, Bangalore dt.20.1.2015 for Assessment Year 2011-12. 2. The facts of the case, briefly, are as under :- 2.1 The assessee, an individual employed as Senior Vice President with M/s. Northern Operations Services Pvt. Ltd., filed his return of income for Assessment Year 2011-12 on 28.7.2011 declaring income of Rs.3,35,08,795. The case was selected for scrutiny and the assessment was concluded by an order under Section 143(3) of the Income Tax Act, 1961 (in short 'the Act') vide order dt.31.1.2014 wherein the assessee's income was determined at Rs.3,49,68,400 as against returned income of Rs.3,35,08,795; in view of a disallowance of Rs.14,58,689 on account of tax paid by the employer on behalf of the assessee under Section 192(1A) of the Act being valued as a perquisite under Section 17(2)(iv) of the Act thereby rejecting the assessee's claim for exemption thereof under Section 10(10CC) of the Act. 2.2 Aggrieved by the order of assessment dt.31.1.2014 for Assessment Year 2011-12, the assessee preferred an appeal before the CIT (Appeals) – V, Bangalore. The learned CIT (Appeals) allowed the assessee's appeal vide order dt.20.1.2015. Following the decisions of the Special Bench of ITAT, Delhi in the case of RBF Rig Corporation LLC V ACIT (2007) 109 ITD 141 and of the ITAT, Delhi Bench in the case of ACIT V Makote Hoshizeki (2009) 121 TTJ (Del) 791; the learned CIT (Appeals) held that the disallowance by the Assessing Officer of the amount of Rs.14,58,689 claimed exempt under Section 10(10CC) of the Act on account of taxes paid by the employer on behalf of the employee to the Government is not sustainable, as the same cannot be excluded from exemption under Section 10(10CC) of the Act. 3.1 Revenue being aggrieved by the order of the CIT (Appeals) – V, Bangalore dt.12.1.2015, has preferred this appeal raising the following grounds :- “
1. Whether on the facts and the circumstances of the case the CIT (Appeals) erred in deleting the addition of Rs.14,58,689 being the tax paid by the employer on behalf of the employee which is subject to taxed as perquisite within the meaning the section 17(2)(iv) of the Income Tax Act.
2. Whether on the facts and the circumstances of the case the CIT (Appeals) erred in holding that the condition that employer company should not claim the payment of tax in respect of non-monetary payment/perquisites, as revenue expenditure is without any legal basis.
3. Whether on the facts and the circumstances of the case the CIT (Appeals) erred in holding that the expenditure incurred by the employer on account of tax paid in respect of non-monetary perquisite is nothing but cost of employee to the company and eligible for deduction on account of expenditure incurred only and exclusively for the purpose of business.
4. Whether on the facts and the circumstances of the case the CIT (Appeals) erred in holding that the Assessing Officer has misdirected himself to treat the amount of tax paid by the employer company as not eligible u/s.10(10C), contrary to the fact that as per para 64.4 of the CBDT Circular 8/2002 dt.27.8.2002 such tax paid by the employer shall not be treated as an allowable expenditure in the hands of the employer under Section 40(a)(v) of the Income Tax Act and hence the assessee is eligible for exemption only when the employer company has not claimed it as a revenue expenditure.” The learned Departmental Representative was heard in support of the grounds raised (supra) and relied on the order of the Assessing Officer in the matter. 3.2 Per contra, the learned Authorised Representative supported the impugned order of the learned CIT (Appeals) and submitted that the finding therein, allowing the assessee's claim for exemption under Section 10(10CC) of the Act, is in order. The learned Authorised Representative reiterated the submissions put forth before the learned CIT (Appeals). It is submitted that the employees, including the assessee, working with Northern Operation Service Pvt. Ltd., on assignment from the company in Ireland to India, claimed exemption under Section 10(10CC) of the Act in respect of the tax remitted by the employer under Section 192(1A) of the Act. The Assessing Officer rejected the assessee's claim for exemption and brought the amount of Rs.14,59,589 to tax as a perquisite in the hands of the assessee. The learned Authorised Representative submitted that the learned CIT (Appeals) had correctly allowed the assessee's claim for exemption of this amount under Section 10(10CC) of the Act on account of taxes paid by the employer to the Government on behalf of the assessee following the decision of the Special Bench of the ITAT, Delhi in the case of RBF Rig Corporation LLC (supra). In this regard, the learned Authorised Representative also placed reliance on the decision of the Hon'ble High Court of Uttarakhand in the case of DIT (IT), Delhi V Sedco Forex International Drilling Inc. in dt.30.7.2012. 3.3.1 We have heard the rival submissions and perused and carefully considered the material on record; including the judicial pronouncements cited. The issue for our Section 10(10CC) of the Act on account of the tax remitted by the employer under Section 192(1A) of the Act on behalf of the assessee/employee amounting to Rs.14,58,689. In assessment proceedings, the Assessing Officer disallowed the exemption claimed under Section 10(10CC) of the Act; treated the same as perquisite and brought the same to tax in the assessee's hands, since he was of the view that the assessee is eligible for exemption under Section 10(10CC) of the Act only when (a) it is paid for non-monetary expenditure and (b) it is not claimed as revenue expenditure by the employer. On appeal, the learned CIT (Appeals) allowed the assessee's claim. 3.3.2 We concur with the view of the learned CIT (Appeals) that the expenditure incurred by the employer company on account of tax paid in respect of non-monetary perquisite is nothing but cost of employee to the company and eligible as deduction on account of expenditure incurred wholly and exclusively for the purposes of business. We find that the issue in question is squarely covered in favour of the assessee by the decision of the Special Bench of ITAT, Delhi in the case of RBF Rig Corporation (supra), wherein referring to the CBDT Circular No.8/2002 dt.27.8.2002, it held that payment by the employer to a third party, like payment of taxes to the Government is exempt under Section 10(10CC) of the Act and at paras 15 to 17 of its order observed/held as under :-
15…….. All these statutory provisions make it clear that an amount of tax which would have been payable by an employee assessee, if paid by the employer on behalf of the assessee, is to be included in the perquisites amounting to salary rendering it liable to tax by being included in income.
It is clear from above that taxes paid by employer on behalf of the employee were treated as a perquisite covered by sub-cl. (iv) of cl. (2) of s. 17 of the IT Act and, therefore, includible in the salary. There is no dispute that payment of taxes made by the employer on behalf of the employee is a perquisite and part of the income assessable under the head "Salary" if cl. 10(10CC) was not brought on the statute book. It is also a benefit or amenity enjoyed by the employee but it is not a monetary payment to the employee. It is a payment by the employer which discharges an obligation of the employee, which otherwise would have been discharged by the employee. Such payments of taxes, therefore, are fully covered by above sub-cl. (iv).
The decision of CIT vs. American Consulting Corpn. (1980) 14 CTR (Ori) 193 : (1980) 123 ITR 513 (Ori), noted above also supports the view that taxes paid on behalf of the assessee is a perquisite or a benefit, but not income from business. It could not be taxed except under cl. (iv) of s. 28 which provided that a benefit or perquisite was liable to be charged to tax. 17.1 It is not money, which is paid to the assessee when taxes are paid on his behalf. It is discharge of his obligation. The payment fully fits in the jacket of sub-cl. (iv) of s. 17(2) of the Act. It may be a monetary gain or monetary benefit or a monetary allowance but definitely it is not a monetary payment to the assessee. What is excluded in the clause is the perquisite is in the shape of a monetary payment to the assessee. If it is a payment to a third person like payment of taxes to the Government, then such payment of taxes cannot be excluded under cl. 10(10CC). The circular of the Board and provision of sub-s. (1A) of s. 192, s. 40(a)(v) and s. 195A fully support the claim of the assessee. We, therefore, hold that the taxes paid by the employer on behalf of the employee is a perquisite within the meaning of s. 17(2) of the IT Act, which is not provided by way of monetary payment. Therefore, there is no reason not to exclude such payment of taxes from the total income of the assessee. In other words, taxes paid by the employer can be added only once in the salary of the employee. Thereafter, tax on such perquisite is not to be added again. We, therefore, find substance in the contention advanced on behalf of learned counsel for the assessees and the interveners. The question referred to us is answered in favour of the assessee. The appeals of the assessees and interveners are allowed on this issue.”
3.3.3 The very same issue was up for consideration before the Hon'ble High Court of Uttarakhand in the case of DIT (IT), Delhi II V Sedco Forex International Drilling Inc in dt.30.7.2012 and other cases heard together when Revenue challenged the validity of the law decided by the Special Bench of the ITAT, Delhi in the case of RBF Rig Corpn. (supra). The Hon'ble High Court observed the facts of the matter at para 5 thereof which are extracted hereunder :-
5. The facts, to which there is no dispute, are that the employer paid salaries/remunerations to its employees. In addition to that, the employer paid to the Income Tax Department, the amount of tax payable by the employees on the salaries /remunerations that the employees received. The department contended that the employees are obliged to pay tax on the amount of such income tax paid by the employer on account of the employees to the Income Tax Department. The employees contended that the same being perquisite within the meaning of Section 17(2) of the Income Tax Act (hereinafter Act), the same is exempted in view of Section 10 (10CC) of the Act. This dispute went before the Tribunal. The Tribunal dealt with the issue by looking into Section 10 (10CC) of the Act, Section 17(2) of the Act and a Full Bench Judgment of the Tribunal, rendered in the case of RBF Rig Corporation LIC (RBFRC) versus Asstt. CIT, Dehradun, reported in (2007) 297 ITR 228. There is no dispute that in RBF Rig Corporation case, a substantial question of law was decided. Despite decision of such an important question of law, the Income Tax Department did not take the matter higher up. However, by presenting these appeals, the department has questioned, in fact, the validity of the law declared by the Tribunal in RBF Rig Corporation case.
After observing the facts at para 5 (supra), the Hon'ble High Court concurred with the findings of the Special Bench of the ITAT, Delhi in the case of RBF Rig Corporation LLC (supra) and decided the issue in favour of the assessee holding as under at paras 9 & 10 of its order :-
“ 9. According to Section 17(2) of the Act, perquisite includes many a things, including the one mentioned above. It includes value of rent-free accommodation, the value of any concession in the matter of rent, value of any benefit or amenity granted or provided free of cost, any sum payable by the employer on account of provident fund or on account of superannuation fund or towards the value of any other benefits, etc. Therefore, one of the perquisites, as mentioned in Section 17 (2) of the Act is any sum paid by the employer in respect of any of the obligation, which but for such payment, would have been payable by the assessee, i.e. the employee.
There is no dispute that the employer has entered into agreements with the employees and thereby has taken over an obligation to pay income tax payable by the employees. If the employer was not obliged to pay such income tax, the same would have been payable by the employees in question. Such payment, as has been provided in Section 10 (10CC) is notwithstanding anything contained in Section 200 of the Companies Act, 1956. Therefore, the payment of tax to the Income Tax Department on account of salaries/remunerations of the employees not by way of monetary payment to the employees concerned, but for or on their account to the Income Tax Department and the same being one of the perquisites included in Clause (2) of Section 17 of the Act, such payment was to be excluded from the income of the employees. The same, having been directed to be done by the Tribunal, while we answer the question as above in favour of the assessee, refuse to interfere with the judgments and orders of the Tribunal assailed in these appeals.” 3.3.4 Respectfully following the decisions of the Hon'ble Uttarakhand High Court in the case of Sedco Forex International Drilling Inc. (supra) and the Special Bench of the ITAT, Delhi in the case of RBF Rig Corporation LLC (supra), we uphold the finding of the learned CIT (Appeals) in the impugned order in allowing the assessee's claim for exemption under Section 10(10CC) of the Act on account of tax remitted by the employer under Section 192(1A) of the Act to the Government on behalf of the assessee/employee, amounting to Rs.14,58,689. Consequently, the grounds raised
by Revenue at S.Nos.1 to 4 are dismissed.
4. In the result, the Revenue’s appeal for Assessment Year 2011-12 is dismissed. Order pronounced in the open court on 24th July, 2015.