Indian Institute of Science, Bangalore V. DCIT, Bangalore

ITA 1589/BANG/2014

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8722 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 10-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DHIVAHAR JT
• Keywords: Difference of opinion
• Section: 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER S.P. NO.258/BANG/2014 & ITA NO. 1589/BANG/2014 ASSESSMENT YEAR : 2010-11 INDIAN INSTITUTE OF SCIENCE, SCIENCE INSTITUTE POST OFFICE, BANGALORE 560 012. PAN : AAATI 1501J VS. THE DY. COMMISSIONER OF INCOME TAX (TDS), CIRCLE 16(2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI GAURAV JAIN, C.A. RESPONDENT BY : SHRI P. DHIVAHAR, JT. CIT(DR) DATE OF HEARING : 12.02.2015 DATE OF PRONOUNCEMENT : 27.02.2015 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL VIZ., ITA NO.1589/BANG/2014 IS BY THE ASSESSEE AGAINST THE ORDER DATED 22.7.2014 OF THE CIT(APPEAL S)-V, BANGALORE RELATING TO ASSESSMENT YEAR 2010-11. ITA NO.1589/BANG/2014 & SP 258/BANG/2014 PAGE 2 OF 14 2. THE ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS AS TO WHETHER ORDER U/S. 201(1) AND 201(1A) OF THE ACT TREATING T HE ASSESSEE AS AN ASSESSEE IN DEFAULT FOR NOT DEDUCTING TAX AT SOURCE AND LEVYING INTEREST ON TAX NOT DEDUCTED AT SOURCE RESPECTIVELY CAN BE SUST AINED? 3. THE BRIEF FACTS ARE THAT THE ASSESSEE WHO IS REG ISTRAR OF INDIAN INSTITUTE OF SCIENCE ( IISC), BANGALORE AND PERSON RESPONSIBLE FOR DEDUCTION OF TAX AT SOURCE ON PAYMENTS MADE BY IISC CAN BE SA ID TO HAVE NOT DEDUCTED TAX AT SOURCE ON THE SALARY PAID TO THE EM PLOYEES. THE MAIN GRIEVANCE IS THAT WHILE DETERMINING THE INCOME UNDE R THE HEAD 'SALARY', THE ASSESSEE HAD VALUED PERQUISITES IN RESPECT OF RESID ENTIAL ACCOMMODATION PROVIDED TO THE EMPLOYEES BY NOT TREATING THE EMPLO YEES AS FALLING WITHIN SL.NO.1 OF CLAUSE (1) OF TABLE 1 OF RULE 3(1) OF TH E I.T. RULES. 4. THE ASSESSEE IS A PREMIER RESEARCH INSTITUTION ENGAGED IN IMPARTING HIGHER LEARNING AND CARRYING ON ADVANCED RESEARCH O F SCIENCE AND TECHNOLOGY. THE EMPLOYEES OF THE ASSESSEE ARE ALLO TTED UNFURNISHED QUARTERS. THE VALUE OF THE PERQUISITE IN THE FORM O F PROVIDING ACCOMMODATION TO ITS EMPLOYEES HAD TO BE COMPUTED B Y THE ASSESSEE. AFTER SUCH VALUATION THE ASSESSEE HAS TO INCLUDE TH E VALUE OF PERQUISITE IN THE INCOME UNDER THE HEAD SALARIES AND DEDUCT TAX A T SOURCE AS EMPLOYER. WHILE DETERMINING THE VALUE OF PERQUISITES THE ASSE SSEE APPLIED SL.NO.1 OF TABLE-1 OF RULE 3 OF THE INCOME TAX RULES, 1962 (RU LES). ACCORDING TO THE REVENUE SL.NO.1 OF TABLE-1 OF RULE 3 OF THE RULES I S NOT APPLICABLE TO THE ITA NO.1589/BANG/2014 & SP 258/BANG/2014 PAGE 3 OF 14 ASSESSEE AS THEY CANNOT BE CONSIDERED TO BE EMPLOYE ES EITHER HOLDING OFFICE OR POST IN CONNECTION WITH THE AFFAIRS OF TH E UNION OR OF SUCH STATE. THE RELEVANT TABLE AND RULE-3 IS AS FOLLOWS:- RULE-3: VALUATION OF PERQUISITES FOR THE PURPOSE OF COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD SALARIES, THE VALUE OF PERQUISITES PROVIDED BY THE EMPLOYER DIRECTLY OR INDIRECTLY TO THE ASSESSEE (HEREINAFTER REFERRED TO AS EMPLOYEE) OR TO ANY MEMBER OF HIS HOUSEHOLD BY REASON OF HIS EMPLOYMENT SHALL BE DETERMINED IN ACCORDANCE WITH THE FOLLOWING SUB-RULES, NAMELY : (1) THE VALUE OF RESIDENTIAL ACCOMMODATION PROVIDED BY THE EMPLOYER DURING THE PREVIOUS YEAR SHALL BE DETERMINED ON THE BASIS PROVIDED IN THE TABLE BELOW: TABLE I SL. NO. CIRCUMSTANCES WHERE ACCOMMODATION IS UNFURNISHED WHERE ACCOMMODATION IS FURNISHED (1) (2) (3) (4) (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. 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 EMPLOYEE. THE VALUE OF PERQUISITE AS DETERMINED UNDER COLUMN (3) 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 HE SAME BY THE EMPLOYEE DURING THE PREVIOUS YEAR. ITA NO.1589/BANG/2014 & SP 258/BANG/2014 PAGE 4 OF 14 (2) WHERE THE ACCOMMODATION IS PROVIDED BY ANY OTHER EMPLOYER AND (A) WHERE THE ACCOMMODATION IS OWNED BY THE EMPLOYER, OR (B) WHERE THE ACCOMMODATION IS TAKEN ON LEASE OR RENT BY THE EMPLOYER. (I) 15% OF SALARY IN CITIES HAVING POPULATION EXCEEDING 25 LAKHS AS PER 2001 CENSUS; (II) 10% OF SALARY IN CITIES HAVING POPULATION EXCEEDING 10 LAKHS BUT NOT EXCEEDING 25 LAKHS AS PER 2001 CENSUS; (III) 7.5% OF SALARY IN OTHER AREAS, IN RESPECT OF THE PERIOD DURING WHICH THE SAID ACCOMMODATION WAS OCCUPIED BY THE EMPLOYEE DURING THE PREVIOUS YEAR AS REDUCED BY THE RENT, IF ANY, ACTUALLY PAID BY THE EMPLOYEE. ACTUAL AMOUNT OF LEASE RENTAL PAID OR PAYABLE BY THE EMPLOYER OR 15% OF SALARY WHICHEVER IS THE VALUE OF PERQUISITES AS DETERMINED UNDER COLUMN (3) AND INCREASED BY 10% PER ANNUM OF THE COST OF FURNITURE (INCLUDING TELEVISION SETS, REFRIGERATORS, OTHER HOUSEHOLD APPLIANCES, AIR- CONDITIONING PLANT OR EQUIPMENT OR OTHER SIMILAR APPLIANCES OR GADGETS) OR IF SUCH FURNITURE IS HIRED FROM A THIRD PARTY, BY 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. THE VALUE OF PERQUISITE AS DETERMINED UNDER COLUMN (3) 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 OTHER SIMILAR APPLIANCES OR GADGETS) OR IF SUCH FURNITURE IS HIRED FROM A THIRD PARTY, BY THE ACTUAL HIRE CHARGES PAYABLE FOR THE SAME AS REDUCED BY ANY CHARGES PAID OR PAYABLE FOR THE ITA NO.1589/BANG/2014 & SP 258/BANG/2014 PAGE 5 OF 14 LOWER AS REDUCED BY THE RENT, IF ANY, ACTUALLY PAID BY THE EMPLOYEE. SAME BY THE EMPLOYEE DURING THE PREVIOUS YEAR. (3) WHERE THE ACCOMMODATION IS PROVIDED BY THE EMPLOYER SPECIFIED IN SERIAL NUMBER (1) OR (2) IN A HOTEL (EXCEPT WHERE THE EMPLOYEE IS PROVIDED SUCH ACCOMMODATION FOR A PERIOD NOT EXCEEDING IN AGGREGATE FIFTEEN DAYS ON HIS TRANSFER FROM ONE PLACE TO ANOTHER) NOT APPLICABLE 24% OF SALARY PAID OR PAYABLE FOR THE PREVIOUS YEAR OR THE ACTUAL CHARGES PAID OR PAYABLE TO SUCH HOTEL, WHICH IS LOWER, FOR THE PERIOD DURING WHICH SUCH ACCOMMODATION IS PROVIDED AS REDUCED BY THE RENT, IF ANY, ACTUALLY PAID OR PAYABLE BY THE EMPLOYEE: PROVIDED THAT NOTHING CONTAINED IN THIS SUB-RULE SHALL APPLY TO ANY ACCOMMODATION PROVIDED TO AN EMPLOYEE WORKING AT A MINING SITE OR AN ON-SHORE OI L EXPLORATION SITE OR A PROJECT EXECUTION SITE, OR A DAM SITE OR A POWER GENERATION SITE OR AN OFF-SHORE SIT E (I) WHICH, BEING OF A TEMPORARY NATURE AND HAVING PLINTH AREA NOT EXCEEDING 800 SQUARE FEET, IS LOCAT ED NOT LESS THAN EIGHT KILOMETERS AWAY FROM THE LOCAL LIMITS OF ANY MUNICIPALITY OR A CANTONMENT BOARD; O R (II) WHICH IS LOCATED IN A REMOTE AREA : PROVIDED FURTHER THAT WHERE ON ACCOUNT OF HIS TRANSFER FROM ONE PLACE TO ANOTHER, THE EMPLOYEE IS PROVIDED WITH ACCOMMODATION AT THE NEW PLACE OF POSTING WHILE RETAINING THE ACCOMMODATION AT THE OTHER PLACE, THE VALUE OF PERQUISITE SHALL BE DETERMINED WITH REFERENCE TO ONLY ONE SUCH ACCOMMODATION WHICH HAS THE LOWER VALUE WITH ITA NO.1589/BANG/2014 & SP 258/BANG/2014 PAGE 6 OF 14 REFERENCE TO THE TABLE ABOVE FOR A PERIOD NOT EXCEEDING 90 DAYS AND THEREAFTER THE VALUE OF PERQUISITE SHALL BE CHARGED FOR BOTH SUCH ACCOMMODATIONS IN ACCORDANCE WITH THE TABLE. EXPLANATION : FOR THE PURPOSES OF THIS SUB-RULE, WHERE THE ACCOMMODATION IS PROVIDED BY THE CENTRAL GOVERNMENT OR ANY STATE GOVERNMENT TO AN EMPLOYEE WHO IS SERVING ON DEPUTATION WITH ANY BODY OR UNDERTAKING UNDER THE CONTROL OF SUCH GOVERNMENT, (I) THE EMPLOYER OF SUCH AN EMPLOYEE SHALL BE DEEME D TO BE THAT BODY OR UNDERTAKING WHERE THE EMPLOYEE IS SERVING ON DEPUTATION; AND (II) THE VALUE OF PERQUISITE OF SUCH AN ACCOMMODATI ON SHALL BE THE AMOUNT CALCULATED IN ACCORDANCE WITH SL. NO. (2)(A) OF TABLE I, AS IF THE ACCOMMODATION IS OWNED BY THE EMPLOYER. 5. IF SL.NO.1 OF TABLE-1 OF RULE 3 OF THE RULES IS NOT APPLICABLE THEN VALUE OF PERQUISITE HAS TO BE COMPUTED IN ACCORDANC E WITH SL.NO.2 OF TABLE-1 OF RULE 3 OF THE RULES AND IF SO DONE THEN THE VALUE OF PERQUISITE WILL BE MUCH MORE AND CONSEQUENTLY THE AMOUNT OF TA X THAT HAS TO BE DEDUCTED BY THE ASSESSEE AS AN EMPLOYER ON THE INCO ME UNDER THE HEAD SALARIES PAID BY THE ASSESSEE WILL BE MUCH HIGHER. THE ASSESSEE HAD CONSEQUENTLY DEDUCTED LESS TAX AT SOURCE ON THE INC OME UNDER THE HEAD SALARIES PAID TO ITS EMPLOYEES. THE ITO(TDS) THERE FORE INITIATED PROCEEDINGS U/S.201(1) OF THE ACT AND TREATED THE A SSESSEE AS ASSESSEE IN DEFAULT U/S.201(1) OF THE ACT IN RESPECT OF TAX SHO RT DEDUCTED AT SOURCE AND ITA NO.1589/BANG/2014 & SP 258/BANG/2014 PAGE 7 OF 14 ALSO LEVIED INTEREST THEREON U/S.201(1A) OF THE AC T. THE CIT(A) CONFIRMED THE ACTION OF THE ITO(TDS). HENCE THESE APPEALS BY THE ASSESSEE BEFORE THE TRIBUNAL. 6. ACCORDING TO THE AO, THE PERQUISITE VALUE OF ACC OMMODATION PROVIDED TO EMPLOYEES WORKING IN AUTONOMOUS BODIES/ UNDERTAKINGS UNDER THE CONTROL OF STATE/CENTRAL GOVERNMENT AND SEMI GO VERNMENT ORGANIZATIONS, IS REQUIRED TO BE COMPUTED IN ACCORD ANCE WITH THE AMENDED PROVISIONS OF RULE-3 OF IT RULES, 1962, CONSEQUENT TO AMENDMENT OF RULE- 3 W.E.F. 01-04-2001. CIRCULAR ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES, NEW DELHI VIDE NO.13/2002 DATED 23-12-2002 GIVES T HE BACKGROUND OF THE AMENDMENT WHICH IS AS FOLLOWS: ' EXTRACTION FROM CIRCULAR NO.L13/2002 DATED 23-12-20 02 THE RULES FOR VALUATION OF PERQUISITE ARE AS UNDER: 1. ACCOMMODATION- UNDER THE OLD RULE-3 FOR PURPOSE OF VALUATION OF THE PERQUISITE OF UNFURNISHED ACCOMMODATION ALL EMPLOYEES WERE DIVIDED INTO THREE CATEGORIES: (I) CENTRAL AND STAT E GOVERNMENT EMPLOYEES, (II) EMPLOYEES OF PUBLIC SECTOR UNDERTAKING AND SEMI-GOVERNMENT ORGANIZATION AND (III) OTHERS INCLUDING PRIVATE SEC TOR EMPLOYEES. UNDER THE NEW RULE FOR THE PURPOSES OF VALUATION OF PERQUISITE OF ACCOMMODATION, EMPLOYEES ARE DIVIDED INTO TWO CATEGORIES: (I) CENT RAL & STATE GOVERNMENT EMPLOYEES: AND (II) OTHERS. FOR EMPLOYEES OF THE CENTRAL AND STATE GOVERNMENT THE VALUE OF PERQUISITE SHALL BE EQUAL TO THE LICEN SE ITA NO.1589/BANG/2014 & SP 258/BANG/2014 PAGE 8 OF 14 FEE CHARGED FOR SUCH ACCOMMODATION. FOR ALL OTHERS, I.E. THOSE SALARIED TAXPAYERS NOT N EMPLOYMENT OF THE CENTRAL GOVERNMENT AND THE STATE GOVERNMENT, THE VALUATION OF PERQUISITE IN RESPECT OF ACCOMMODATION WOULD BE AT PRESCRIBED RATES. THE RATE IS 10% OF SALARY IN CITIES HAVIN G POPULATION EXCEEDING FOUR LAKHS AS PER THE 1991 CENSUS. FOR OTHER PLACES, THE PERQUISITE VALUE WOULD BE 7.5% OF SALARY. 7. ACCORDING TO THE AO IN THE LIGHT OF THE AFORESAI D BACKGROUND IN WHICH THE AMENDMENT TO THE RULES WERE MADE, THE AO INITIA TED THE PROCEEDINGS U/S.201(1) OF THE ACT. THE CONTENTION OF THE ASSES SEE WAS THAT THEY ARE AUTONOMOUS BODIES/UNDERTAKINGS. THE EMPLOYEES OF TH ESE ORGANIZATIONS HAVE BEEN AGITATING OVER THE FACT THAT THE PERQUISI TE VALUE SHOULD BE WORKED OUT CONSIDERING THEM ON PAR WITH GOVERNMENT EMPLOYEES. 8. THE AO REJECTED THE CONTENTIONS OF THE ASSESSEE AND HELD THAT VALUATION OF PERQUISITES HAD TO BE DONE BY THE ASSE SSEE BY TAKING 15% OF THE SALARY AS VALUE OF PERQUISITES UNDER SL.NO.2 OF TABLE 1 OF RULE 3 OF THE I.T. RULES. THE AO REJECTED THE CONTENTION OF AS SESSEE THAT THE ASSESSEE WAS A CENTRAL GOVT. PROVIDING ACCOMMODATION TO ITS EMPLOYEES. 9. ON APPEAL BY THE ASSESSEE, THE CIT(A) CONFIRMED THE ORDER OF AO. HENCE THIS APPEAL BY THE ASSESSEE BEFORE THE TRIBUN AL. 10. AT THE TIME OF HEARING OF THE APPEAL, IT WAS P OINTED OUT THAT THIS TRIBUNAL IN THE CASE OF CFTRI V. ITO, TDS IN ITA NOS.1607 TO ITA NO.1589/BANG/2014 & SP 258/BANG/2014 PAGE 9 OF 14 1611/BANG/2011 FOR THE A.YS. 2007-08 TO 2011-12 BY ORDER DATED 4.7.2014 HOLDING THAT CFTRI IS NOT A CENTRAL GOVT. AND THER EFORE VALUE OF PERQUISITES CANNOT BE MADE ON THE BASIS OF LICENCE FEE PAID TO THE GOVT. FOR ACCOMMODATION PROVIDED BY GOVT. AND THAT 15% OF THE SALARY WILL BE THE VALUATION OF PERQUISITES. 11. THE FACTS AND CIRCUMSTANCES OF THE ASSESSEE'S CASE ARE IDENTICAL TO THE CASE DECIDED BY THE TRIBUNAL REFERRED TO ABOVE AND THEREFORE THE GRIEVANCE OF THE ASSESSEE PROJECTED IN THIS APPEAL TO THE EXTENT ALREADY DECIDED BY THE TRIBUNAL IN THE AFORESAID CASE CANNO T BE ACCEPTED. 12. THE LD. COUNSEL FOR THE ASSESSEE, HOWEVER, SUB MITTED THAT IN THE APPEAL BEFORE THE CIT(A), A SPECIFIC GROUND WAS RAI SED VIZ., GROUND NO.2.4 WHEREIN THE ASSESSEE HAD SPECIFICALLY STATED THAT T HE ESTIMATE OF INCOME UNDER THE HEAD 'SALARIES' OF EMPLOYEES BY THE ASSES SEE WAS BONA FIDE AND THAT UNDER THE PROVISIONS OF SECTION 192 OF THE ACT WHICH CASTS OBLIGATION ON THE ASSESSEE TO DEDUCT TAX AT SOURCE WHILE MAKING P AYMENT OF SALARY TO THE EMPLOYEES, IS ONLY TO MAKE A BONA FIDE ESTIMATE OF THE INCOME UNDER THE HEAD 'SALARIES'. 13. THE LD. COUNSEL FOR THE ASSESSEE FURTHER POINT ED OUT THAT THOUGH RULE 3 OF THE RULES HAS BEEN AMENDED FROM 1.4.2001, THE ASSESSEE HAS BEEN ENTERTAINING A BONA FIDE BELIEF THAT IT WAS CENTRAL GOVT. AND THEREFORE PERQUISITES WILL HAVE TO BE VALUED IN ACCORDANCE WI TH SL.NO.1 OF THE TABLE ITA NO.1589/BANG/2014 & SP 258/BANG/2014 PAGE 10 OF 14 UNDER RULE 3 OF THE I.T. RULES. IT WAS ALSO SUBM ITTED BY HIM THAT EVEN IN THIS APPEAL, THE ASSESSEE BELIEVED THAT IT WAS A CE NTRAL GOVT. AS THE ENTIRE CONTROL AND RULES & REGULATIONS APPLICABLE TO THE E MPLOYEES OF CENTRAL GOVT. BEING APPLICABLE TO THE ASSESSEE ALSO, WHICH ALL LED TO THE BELIEF THAT ASSESSEE WAS INSTRUMENTALITY OF CENTRAL GOVT. IT W AS FURTHER POINTED OUT BY HIM THAT ASSESSEE HAS BEEN DEDUCTING TAX AT SOURCE AS IT HAS BEEN DOING PRIOR TO THE AMENDMENT OF LAW AND EVEN AFTER THE AM ENDMENT OF LAW FROM A.YS. 2001-02 TO 2010-11 AND EVEN THEREAFTER. THE REVENUE HAS TAKEN PROCEEDINGS ONLY IN THE A.Y. 2010-11 AGAINST THE AS SESSEE. THE IMPUGNED PROCEEDINGS HAVING STARTED ONLY ON 25.2.2013 BY ISS UE OF A SHOW CAUSE NOTICE BY THE DCIT, TDS, CENTRAL 16(2), BANGALORE. IT WAS HIS SUBMISSION THAT WHENEVER THERE IS A BONA FIDE ESTIMATION OF IN COME UNDER THE HEAD 'SALARY', THERE CANNOT BE ANY LIABILITY U/S. 200(1) OF THE ACT. IN THIS REGARD, OUR ATTENTION WAS DRAWN TO THE FOLLOWING DECISIONS: - CIT V. NESTLE INDIA LTD., 243 ITR 435 GWALIOR RAYON SILKS V. CIT, 140 ITR 832 MP 14. BESIDES THE ABOVE, DECISION OF THE BANGALORE BE NCH OF THE TRIBUNAL IN ACIT V. INFOSYS BPO LTD. 150 ITD 132 WAS ALSO CITED ON BEHALF OF THE ASSESSEE. IN ALL THE AFORESAID DECISIONS, THE VIEW EXPRESSED IS THAT THE ASSESSEES OBLIGATION IS ONLY TO MAKE AN ESTIMATE O F INCOME UNDER THE HEAD SALARIES AND SUCH ESTIMATE HAS TO BE A BONA FIDE ESTIMATE. ITA NO.1589/BANG/2014 & SP 258/BANG/2014 PAGE 11 OF 14 15. THE LAW ON THE ISSUE AS EXPLAINED IN THE DECISI ON OF ITAT BANGALORE IN THE CASE OF INFOSYS BPO IS AS FOLLOWS:- 26. IT IS NO DOUBT TRUE THAT TDS IS TO BE MADE AT THE TIME OF PAYMENT OF SALARY AND NOT ON THE BASIS OF SALARY AC CRUED. SEC.192(3) OF THE ACT PERMITS THE EMPLOYER TO INCRE ASE OR REDUCE THE AMOUNT OF TDS FOR ANY EXCESS OR DEFICIENCY. WE HAVE ALREADY NOTICED THAT THE FACT THAT BILLS/EVIDENCE T O SUBSTANTIATE INCURRING OF EXPENDITURE ON MEDICAL TREATMENT UP TO RS.15,000/- AND THE AVAILING OF THE LTC BY THE EMPLOYEES AND TH E FULFILMENT OF THE CONDITIONS CONTEMPLATED BY SEC.10(5) OF THE ACT FOR AVAILING EXEMPTION BY THE EMPLOYEES SO AVAILING LTC , HAVE NOT BEEN DISPUTED BY THE AO. EVEN ASSUMING THE CASE OF THE AO, THAT AT THE TIME OF PAYMENT THE ASSESSEE OUGHT TO H AVE DEDUCTED TAX AT SOURCE, IS SUSTAINABLE; THE ASSESSEE ON A RE VIEW OF THE TAXES DEDUCTED DURING THE EARLIER MONTHS OF THE PREVIOUS YEAR IS ENTITLED TO GIVE EFFECT TO THE DEDUCTIONS PERMISSIBLE UNDER PROVISO (IV) TO SEC.17(2) OR EXEMPTION U/S.10(5) OF THE ACT IN THE LATER MONTHS OF THE PREVIOUS YEAR. WHAT HAS TO BE SEEN IS THE TAXE S TO BE DEDUCTED ON INCOME UNDER THE HEAD SALARIES AS ON THE LAST DATE OF THE PREVIOUS YEAR. THE CASE OF THE AO IS THAT LTC AND MEDICAL REIMBURSEMENT SHOULD BE PAID AT THE TIME THE EXPEND ITURE IS INCURRED OR AFTER THE EXPENDITURE IS INCURRED BY WA Y OF REIMBURSEMENT AND NOT AT AN EARLIER POINT OF TIME. IF IT IS SO PAID, THEN, EVEN THOUGH THE PAYMENT WOULD NOT FORM PART O F TAXABLE SALARY OF AN EMPLOYEE, THE EMPLOYER HAS TO DEDUCT T AX AT SOURCE TREATING IT AS PART OF SALARY, IS CONTRARY TO THE P ROVISIONS OF SEC.192(3) OF THE ACT AND CANNOT BE SUSTAINED. TH E RELIANCE PLACED BY THE AO ON THE EXPRESSION ACTUALLY INCURR ED FOUND IN SEC.10(5) OF THE ACT AND PROVISO (IV) TO SEC.17(2) OF THE ACT, IN OUR VIEW CANNOT BE SUSTAINED. IN ANY EVENT, THE IN TERPRETATION OF THE WORD ACTUALLY PAID IS NOT RELEVANT WHILE ASCE RTAINING THE QUANTUM OF TAX THAT HAS TO BE DEDUCTED AT SOURCE U/ S.192 OF THE ACT. AS FAR AS THE ASSESSEE IS CONCERNED, HIS OBLI GATION IS ONLY TO MAKE AN ESTIMATE OF THE INCOME UNDER THE HEAD SA LARIES AND SUCH ESTIMATE HAS TO BE A BONAFIDE ESTIMATE. 27. THE PRIMARY LIABILITY OF THE PAYEE TO PAY TAX REMAINS. SECTION 191 CONFIRMS THIS. IN A SITUATION OF HONEST DIFFERENCE OF OPINION, IT IS NOT THE DEDUCTOR THAT IS TO BE PROCE EDED AGAINST BUT THE PAYEES OF THE SUMS. TO REITERATE, THE PAYMENT T OWARDS ITA NO.1589/BANG/2014 & SP 258/BANG/2014 PAGE 12 OF 14 MEDICAL EXPENDITURE AND LEAVE TRAVEL IS MADE KEEPIN G IN VIEW THE EMPLOYEE WELFARE. THE EXCLUSION IN RESPECT OF PAYME NT TOWARDS MEDICAL EXPENDITURE AND LEAVE TRAVEL IS CONSIDERED AFTER VERIFYING THE DETAILS AND EVIDENCE FURNISHED BY THE EMPLOYEES . NO EXEMPTION IS GRANTED IN THE ABSENCE OF DETAILS AND/ OR EVIDENCE. THE EXEMPTION IN RESPECT OF MEDICAL EXPENDITURE IS RESTRICTED TO EXPENDITURE ACTUALLY INCURRED BY THE EMPLOYEES, OR RS. 15,000/- WHICHEVER IS LOWER. THE EXEMPTION IS GRANTED EVEN I F THE PAYMENT PRECEDES THE INCURRENCE OF EXPENDITURE. THE REQUIREMENTS/CONDITIONS OF SECTION 10(5) AND PROVIS O TO SECTION 17(2) ARE METICULOUSLY FOLLOWED BEFORE EXTENDING TH E DEDUCTION/ EXEMPTION TO AN EMPLOYEE. NO TAX CAN BE RECOVERED FROM THE EMPLOYER ON ACCOUNT OF SHORT DEDUCTION OF TAX AT SO URCE UNDER SECTION 192 IF A BONA FIDE ESTIMATE OF SALARY TAXAB LE IN THE HANDS OF THE EMPLOYEE IS MADE BY THE EMPLOYER, IS THE RAT IO OF THE FOLLOWING DECISIONS. CIT VS. NICHOLAS PIRAMAL INDIA LTD (2008) 299 ITR 0 356 (BOMBAY); CIT V. SEMICONDUCTOR COMPLEX LTD [2007] 292 ITR 636 (P&H) CIT VS. HCL INFO SYSTEM LTD. [2006] 282 ITR 263 (DE L) CIT V OIL AND NATURAL GAS CORPORATION LTD [2002] 25 4 ITR 121 (GUJ) ITO V GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD [2 001] 247 ITR 305 (GUJ) CIT V NESTLE INDIA LTD (2000) 243 ITR 0435 (DEL) GWALIOR RAYON SILK CO. LTD. V. CIT [1983] 140 ITR 8 32 (MP) ITO V G. D. GOENKA PUBLIC SCHOOL (NO. 2) [2008] 306 ITR (AT) 78 (DEL) USHA MARTIN INDUSTRIES LTD. V. ACIT (2004) 086 TTJ 0574 (KOL) NESTLE INDIA LTD. V. ACIT (1997) 61 ITD 444 (DEL) INDIAN AIRLINES LTD. V ACIT (1996) 59 ITD 353 (MUM) 16. THE LD. COUNSEL FOR THE ASSESSEE ACCORDINGLY PR AYED THAT THE ORDERS U/S. 201(1) AND 201(1A) BE CANCELLED. 17. THE LD. DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. ACCORDING TO HIM, THE CONSTITUTIONAL VALIDITY OF RU LE 3 WAS CHALLENGED IN ITA NO.1589/BANG/2014 & SP 258/BANG/2014 PAGE 13 OF 14 ASHOK KUMAR & ORS. V. UOI & ORS., 286 ITR 89 (SC) . IN THE DECISION RENDERED ON 15.9.2006, THE HON'BLE APEX CO URT HELD THAT AMENDMENT TO RULE 3 BY THE INCOME TAX 22ND AMENDMEN T RULES, 2001 WAS VALID. ACCORDING TO HIM, AFTER RENDERING OF TH E AFORESAID DECISION, THE ASSESSEE COULD NOT HAVE ENTERTAINED A BONA FIDE BELIEF THAT IT WAS A CENTRAL GOVT. 18. THE LD. COUNSEL FOR THE ASSESSEE IN REPLY POI NTED OUT THAT THE CONSTITUTIONAL VALIDITY OF RULE 3 ALONE WAS IN DISP UTE IN THE CASE OF ASHOK KUMAR (SUPRA) AND THE QUESTION AS TO WHETHER THE ASSESSEE WAS A CENTRAL GOVT. OR NOT WAS NEVER IN DISPUTE AND THE BONA FIDE BELIEF ENTERTAINED BY THE ASSESSEE CANNOT BE FOUND FAULT WITH. 19. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN OUR VIEW, THE PLEA OF THE ASSESSEE THAT IT MADE A BONA FIDE ESTIMATE OF EMPLOYEES SALARY BY VALUING THE PERQUISITES IN THE FORM OF RESIDENTIAL ACCOMMODATION PROVIDED TO THE EMPLOYEES BY VALUING THE SAME AS IF EMPLOYEE S 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 B EING A CENTRAL GOVT. WAS BROUGHT TO ITS NOTICE BY THE DEPARTMENT ONLY IN THE PROCEEDINGS INITIATED IN 2013. EVEN THEREAFTER, THE ASSESSEE HAS BEEN TAKIN G A STAND THAT ITS EMPLOYEES ARE EMPLOYEES OF CENTRAL GOVT. AS HELD IN SEVERAL DECISIONS REFERRED TO BY THE LD. COUNSEL FOR THE ASSESSEE, TH E OBLIGATION OF THE ASSESSEE IS ONLY TO MAKE A BONA FIDE ESTIMATE OF THE SALARY. IN OUR VIEW, IN ITA NO.1589/BANG/2014 & SP 258/BANG/2014 PAGE 14 OF 14 THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, AS SESSEE 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. 20. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . S.P. NO.258/BANG/2014 21. IN VIEW OF THE DISPOSAL OF THE APPEAL, THE STAY PETITION IS DISMISSED AS INFRUCTUOUS. PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF FEBRUARY, 2015. SD/- SD/- ( ABRAHAM P. GEORGE ) ( N.V. VASU DEVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 27 TH FEBRUARY, 2015. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.