Transocean Discoverer 534 LIC as agent of, V. ACIT, Circle-I,

ITA 1719/DEL/2006

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3821 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 09-06-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 15-05-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S SAHOTA
• Keywords: Gift; Salary income; TDS
• Section: 234B; 250; 201; 191; 208; 264; 192; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E : NEW DELHI BEFORE SHRI A.D.JAIN, JM AND SHRI R.C.SHARMA, AM ITA NO.1715/DEL/2006 ASSESSMENT YEAR : 2004-05 TRANSOCEAN DISCOVERER 534 LLC AS AGENT OF MR.ROBB ERIC LAWRENCE, C/O NANGIA & COMPANY, B-57, SOAMI NAGAR, NEW DELHI 110 017. VS. ASSTT.COMMISSIONER OF INCOME TAX, CIRCLE-1, DEHRADUN. (APPELLANT) (RESPONDENT) ITA NO.1716/DEL/2006 ASSESSMENT YEAR : 2004-05 TRANSOCEAN DISCOVERER 534 LLC AS AGENT OF MR.DEVRIES ANTONIUS JDH, C/O NANGIA & COMPANY, B-57, SOAMI NAGAR, NEW DELHI 110 017. VS. ASSTT.COMMISSIONER OF INCOME TAX, CIRCLE-1, DEHRADUN. (APPELLANT) (RESPONDENT) ITA NO.1717/DEL/2006 ASSESSMENT YEAR : 2004-05 TRANSOCEAN DISCOVERER 534 LLC AS AGENT OF MR.ROONEY MICHAEL, C/O NANGIA & COMPANY, B-57, SOAMI NAGAR, NEW DELHI 110 017. VS. ASSTT.COMMISSIONER OF INCOME TAX, CIRCLE-1, DEHRADUN. (APPELLANT) (RESPONDENT) ITA-1715 TO 1720/D/2006 2 ITA NO.1718/DEL/2006 ASSESSMENT YEAR : 2004-05 TRANSOCEAN DISCOVERER 534 LLC AS AGENT OF MR.HORAN IVAN JOHN, C/O NANGIA & COMPANY, B-57, SOAMI NAGAR, NEW DELHI 110 017. VS. ASSTT.COMMISSIONER OF INCOME TAX, CIRCLE-1, DEHRADUN. (APPELLANT) (RESPONDENT) ITA NO.1719/DEL/2006 ASSESSMENT YEAR : 2004-05 TRANSOCEAN DISCOVERER 534 LLC AS AGENT OF MR.SWINGLER JOHN R, C/O NANGIA & COMPANY, B-57, SOAMI NAGAR, NEW DELHI 110 017. VS. ASSTT.COMMISSIONER OF INCOME TAX, CIRCLE-1, DEHRADUN. (APPELLANT) (RESPONDENT) ITA NO.1720/DEL/2006 ASSESSMENT YEAR : 2004-05 TRANSOCEAN DISCOVERER 534 LLC AS AGENT OF MR.BEGAGIC JASMIN, C/O NANGIA & COMPANY, B-57, SOAMI NAGAR, NEW DELHI 110 017. VS. ASSTT.COMMISSIONER OF INCOME TAX, CIRCLE-1, DEHRADUN. (APPELLANT) (RESPONDENT) APPELLANTS BY : SHRI NEERAJ SHARMA, CA. RESPONDENT BY : SHRI G.S.SAHOTA, SR.DR. ORDER PER BENCH : THESE ARE THE APPEALS FILED BY THE ASSESSEES AGAIN ST THE ORDER OF CIT(A) FOR THE AY 2004-05. ITA-1715 TO 1720/D/2006 3 2. AT THE OUTSET, IT WAS SUBMITTED BY THE LEARNED A R THAT THE FIRST COMMON GROUND RAISED BY THE ASSESSEES IN THE PRESENT APPEA LS RELATING TO EXEMPTION U/S 10(10CC) IS COVERED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF RBF RIG CORPN.LLC (RBFRC) VS. ASSTT.COMMISS IONER OF INCOME TAX 109 ITD 141. 3. WE HAVE GONE THROUGH THE ORDER OF THE SPECIAL BE NCH WHEREIN ISSUE WITH REGARD TO ASSESSEES CLAIM OF EXEMPTION U/S 10(10CC ) WAS DECIDED IN FAVOUR OF THE ASSESSEE AFTER HAVING THE FOLLOWING OBSERVATION:- 11.3 WE ARE OF VIEW THAT FROM THE CHANGES INTRODUCED TH ROUGH THE FINANCE ACT, 2002, WITH EFFECT FROM 1-4-2003, T HE LEGISLATURE HAS REFLECTED ITS INTENTION IN CLEAR TERMS TO EXEMP T IN THE HANDS OF THE EMPLOYEE, THE TAX PAID BY HIS EMPLOYER ON THE P ERQUISITE FALLING UNDER CLAUSE ( 2 ) OF SECTION 17. THE SAID PERQUISITE ITSELF WAS TAX PAID BY THE EMPLOYER AT HIS OPTION WHICH THE EM PLOYEE WAS OBLIGED TO PAY. THIS HAS BEEN SPECIFICALLY PROVIDED IN CLAUSE 10( 10CC ) OF THE INCOME-TAX ACT AND IS FURTHER CORROBORATED B Y CHANGES MADE IN SECTION 40( A )( V ), SECTIONS 192(1A) AND 195A AND OTHER CONSEQUENTIAL AMENDMENTS. THESE CHANGES A RE TO BE SEEN WITH SIMILAR PROVISION EXISTING EARLIER TO APP RECIATE THE NEW SCHEME. THE NOTES AND MEMORANDUM ISSUED WITH THE BI LL HAS THE TITLE SCHEME FOR TAXATION OF PERQUISITES SIMPLIFIE D WITH EMPLOYER GIVEN OPTION TO PAY TAX ON BEHALF OF EMPLOYEES, (R EPRODUCED AND HIGHLIGHTED IN PARA 6.5 PAGE 19 (ABOVE), LEAVE NO A MOUNT OF DOUBT THAT TAX PAID BY THE EMPLOYER ON BEHALF OF TH E EMPLOYEE IS A PERQUISITE AND TAX ON SUCH INCOME IS EXEMPT UNDER CLAUSE 10( 10CC ). THE SAME CONCLUSION, AS EXPRESSED IN THE CIRCULA R AND NOTES, FOLLOWS FROM CONSIDERATION OF THE PROVISIONS NOTED BELOW : SECTION 10. INCOMES NOT INCLUDED IN TOTAL INCOME. IN COMPUTING THE TOTAL INCOME OF A PREVIOUS YEAR OF AN Y PERSON, ANY INCOME FALLING WITHIN ANY OF THE FOLLOWING CLAUSES SHALL NOT BE INCLUDED ( 10CC ) IN THE CASE OF AN EMPLOYEE, BEING AN INDIVIDUAL D ERIVING INCOME IN THE NATURE OF A PERQUISITE, NOT PROVIDED FOR BY WAY OF MONETARY PAYMENT, WITHIN THE MEANING OF CLAUSE ( 2 ) OF SECTION 17, THE TAX ON SUCH INCOME ACTUALLY PAID BY HIS EMP LOYER, AT THE OPTION OF THE EMPLOYER, ON BEHALF OF SUCH EMPLOYEE, ITA-1715 TO 1720/D/2006 4 NOTWITHSTANDING ANYTHING CONTAINED IN SECTION 200 O F THE COMPANIES ACT, 1956 (1 OF 1956). 11.4 IT IS CLEAR FROM ABOVE THAT THE CLAUSE IS APPLICAB LE, IF THE FOLLOWING CIRCUMSTANCES CONJECTIVELY EXIST : (1) THE ASSESSEE IS AN EMPLOYEE (INDIVIDUAL) DERIVI NG INCOME IN THE NATURE OF A PERQUISITE; AND (2) THE SAID PERQUISITE IS NOT PROVIDED BY WAY OF M ONETARY PAYMENT WITHIN THE MEANING OF CLAUSE (2) OF SECTION 17; AND (3) TAXES ACTUALLY PAID BY EMPLOYER AT HIS OPTION O N BEHALF OF EMPLOYEE ON ABOVE PERQUISITE IS EXEMPT AND WOULD NO T FORM PART OF THE TOTAL INCOME OF THE EMPLOYEE. THIS WOULD BE NOTWITHSTANDING ANYTHING CONTAINED IN SECTION 200 OF THE COMPANIES ACT. 11.5 TAKING THE LAST SENTENCE OF THE CLAUSE, WE HAVE AL READY NOTED PROVISION OF SECTION 200 OF THE COMPANIES ACT PROHI BITING A COMPANY FROM PAYING TAX FREE SALARY TO ITS OFFICERS OR EMPLOYEES. IF THE CLAUSE DID NOT HAVE ANYTHING TO DO WITH PAYM ENT OF REMUNERATION FREE OF TAX, ONE WOULD WONDER WHY OVER RIDING EFFECT WAS GIVEN TO THE CLAUSE BY STATING THAT CLAU SE WOULD APPLY NOTWITHSTANDING ANYTHING CONTAINED IN SECTION 200 OF THE COMPANIES ACT. THEREFORE, REFERENCE TO SECTION 200 OF THE COMPANIES ACT ONLY SUPPORT THE VIEW THAT CLAUSE WAS INTENDED TO EXEMPT PAYMENT OF TAXES BY THE EMPLOYER ON THE REMU NERATION PAID TO THE EMPLOYEE. 11.6 AS FAR AS OTHER CIRCUMSTANCES MENTIONED ABOVE ARE CONCERNED, THERE IS SOME CONTROVERSY AS TO WHAT IS THE MEANING OF AT THE OPTION OF THE EMPLOYER ON BEHALF OF THE EMP LOYEE. IN OUR OPINION, THE WORDS AT THE OPTION OF THE EMPLOYER ONLY IMPLY THAT THE EMPLOYER NOW HAS AN OPTION TO PAY THE TAXES ON BEHALF OF THE EMPLOYEES. IT IS FOR THE EMPLOYER TO DECIDE WHETHER TAXES ARE TO BE PAID BY THE EMPLOYEE OR THE EMPLOYER. THE CLAUSE IS NOT APPLICABLE IN CASES TAXES ARE PAID BY THE EMPLOYEE WHO IS OTHERWISE OBLIGED TO PAY IT. WHEN SO PAID, NO PERQU ISITE, AS FAR AS EMPLOYEE IS CONCERNED, WOULD BE INVOLVED. THIS IS M ORE THAN CLEAR FROM PROVISIONS OF SECTION 192(1A) AND SECTIO NS 195, AND 195A AND FROM OTHER CONSEQUENT CHANGES MADE THROUGH FINANCE ACT, 2002 WITH EFFECT FROM 1-4-2003 NOTED ABOVE. SU B-SECTION (1A) TO SECTION 192 INTRODUCED THROUGH THE SAME FIN ANCE ACT, QUOTED ABOVE PROVIDES THAT THE EMPLOYER, MAY PAY A T HIS OPTION, TAX ON THE WHOLE OR PART OF SUCH INCOME WITHOUT MAK ING ANY DEDUCTION THEREFROM. 12. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAD CONTEN DED THAT IT IS VERY ESSENTIAL TO SEE AGREEMENTS BETWEEN THE EMPLOYER AND EMPLOYEE IN ALL THE CASES AND PARTICULARLY THE TERM RELATING TO ITA-1715 TO 1720/D/2006 5 PAYMENT OF TAXES. WE FIND THAT IN MOST OF THE CASES , THE AGREEMENT PROVIDING TERMS AND CONDITIONS OF EMPLOYM ENT INCLUDING THAT RELATING TO THE PAYMENT OF TAXES IS ON RECORD. AS PER SAID AGREEMENTS, THE EMPLOYER HAS AGREED TO PAY SALARY TO THE EMPLOYEE FREE OF TAXES. IN OTHER WORDS, TAXES HAV E BEEN PAID BY THE EMPLOYER ON BEHALF OF THE EMPLOYEE. IN SOME CAS ES, WHERE SUCH AGREEMENTS ARE NOT AVAILABLE, THERE ALSO THE A SSESSING OFFICER, IN THE ASSESSMENT ORDER HAS CLEARLY OBSERV ED THAT EMPLOYER HAD PAID TAXES ON BEHALF OF THE EMPLOYEES AND, THEREFORE, DOUBLE OR MULTIPLE GROSSING UP WERE CARR IED ON. FROM ABOVE, IT CAN SAFELY BE INFERRED THAT IN ALL CASES, THE EMPLOYER WAS OBLIGED TO PAY TAXES, ON BEHALF OF THE EMPLOYEES. T HE ASSESSMENTS HAVING BEEN MADE ON ABOVE TERMS, IT IS TOO LATE FOR THE REVENUE TO CONTEND THAT WE SHOULD AGAIN CONCENT RATE ON WHETHER THE EMPLOYER HAD AN OBLIGATION TO PAY TAXES ON BEHALF OF THE EMPLOYEE. 12.1 THE LEARNED DR FURTHER CONTENDED THAT TAXES PAID B Y THE EMPLOYER ON BEHALF OF THE EMPLOYEE WAS PART OF THE SALARY AND LIABLE TO BE TAXED AS SUCH. THERE IS NO DISPUTE THAT THIS TAX PAID IS A PERQUISITE, TO WHICH CLAUSE ( IV ) OF SECTION 17(2) IS APPLICABLE. WE WILL ELABORATE ON THIS. SOME COURTS, WITHOUT A DOUB T HAVE HELD THAT TAXES PAID BY EMPLOYER IS PART OF THE SALARY A ND IS LIABLE TO BE TAXED AS SUCH. FOR THE PURPOSE OF RESOLVING THE CONTROVERSY BEFORE US, THIS DISTINCTION DOES NOT MAKE ANY DIFFE RENCE AS NOW IT IS IN-BUILT IN CLAUSE 10( 10CC ) THAT TAXES ACTUALLY PAID IS A PERQUISITE WITHIN THE MEANING OF SECTION 17( 2 ) OF THE INCOME-TAX ACT. THE CONTROVERSY IS WHETHER IT IS A MONETARY PA YMENT. 13. IN ORDER TO SOLVE ABOVE CONTROVERSY, WE MAY NOW RE FER TO DECISIONS TO WHICH OUR ATTENTION WAS DRAWN AND WHIC H ARE RELEVANT TO THE ISSUE INVOLVED. IN THE CASE OF TOKYO SHIBAURA ELECTRIC CO. LTD. V. CIT [1964] 52 ITR 283, THE HONBLE MYSORE HIGH COURT HELD AS UNDER : HEAD NOTE : AN AGREEMENT BETWEEN A, A NON-RESIDENT COMPANY, AN D B, A RESIDENT COMPANY, PROVIDED THAT IN CONSIDERATION OF THE LICENCE GRANTED BY A TO B TO MANUFACTURE CERTAIN ARTICLES, AND SERVICES TO BE RENDERED BY A, B SHALL PAY TO A ROYALTY AT THREE PER CENT ON THE NET SALES OF ARTICLES MANUFACTURED AND SOLD BY B AN D FURTHER THAT ALL PAYMENTS TO BE MADE SHALL BE MADE WITHOUT DEDU CTIONS FOR TAXES OR OTHER CHARGES ASSESSED IN INDIA, WHICH SHA LL BE ASSUMED BY B (THE RESIDENT COMPANY). THE DEPARTMENT CONTEN DED THAT THE REAL INCOME OF A UNDER THE AGREEMENT UPON WHICH B C OULD BE ASSESSED AS THE AGENT OF A WAS NOT THE AMOUNT OF RO YALTY PAYABLE IN FACT TO A PLUS THE TAX PAYABLE IN INDIA IN RESPECT OF THE SAID SU M ITA-1715 TO 1720/D/2006 6 AS CLAIMED BY THE ASSESSEE, BUT SUCH AN AMOUNT AS W OULD, IF THE TAX PAYABLE IN INDIA THEREON WAS DEDUCTED, LEAVE TO A THE STIPULATED THREE PER CENT OF THE SALE PROCEEDS. THE NET ROYALTY PAYABLE TO A UNDER THE AGREEMENT FOR THE YEARS 1953 -54 TO 1957- 58 WAS RS. 10,702, RS. 43,963, RS. 77,001, RS. 96,3 53 AND RS. 1,15,077 RESPECTIVELY. THE TRIBUNAL UPHELD THE CONT ENTION OF THE DEPARTMENT AND ASSESSED THE ROYALTIES RECEIVED BY A FOR THE YEARS 1953-54 TO 1957-58, AT THE GROSSED UP SUM OF RS. 21 ,271, RS. 83,379, RS. 1,63,180, RS. 2,54,827 AND RS. 2,98,901 RESPECTIVELY. HELD (AGREEING WITH THE TRIBUNAL), THAT THE REAL INCOME BY WAY OF ROYALTY RECEIVED BY A UNDER THE AGREEMENT WAS SUCH AMOUNT AS WOULD, IF THE TAX THEREON HAD BEEN DEDUCTED, HAVE L EFT A ROYALTY OF 3 PER CENT OF THE PROCEEDS TO A, AND NOT THE NET RO YALTY PAYABLE PLUS THE TAX THEREON AND ACCORDINGLY THE ASSESSMENT MAD E BY THE TRIBUNAL WAS VALID. 13.1 IN THE CASE OF INSTALMENT SUPPLY (P.) LTD. V. CIT [1984] 149 ITR 457 (DELHI), THE QUESTION INVOLVED WAS WHETHER CASH REIMBURSEMENT PAID TO THE MANAGING DIRECTOR AS AN E MPLOYEE BY THE ASSESSEE-COMPANY WAS A PERQUISITE LIABLE TO BE DISALLOWED UNDER SECTION 40( A )( V ) OF THE INCOME-TAX ACT. RELEVANT PORTION OF SECTION 40( A )( V ) PROVIDED AS UNDER :- ( V ) ANY EXPENDITURE WHICH RESULTS DIRECTLY OR INDIREC TLY IN THE PROVISION OF ANY BENEFIT OR AMENITY OR PERQUISITE, WHETHER CONVERTIBLE INTO MONEY OR NOT, TO AN EMPLOYEE (INCL UDING ANY SUM PAID BY THE ASSESSEE IN RESPECT OF ANY OBLIGATI ON WHICH BUT FOR SUCH PAYMENT WOULD HAVE BEEN PAYABLE BY SUCH EM PLOYEE) OR : THE COURT HELD THAT CASH PAYMENT BY THE EMPLOYER WA S NOT A PERQUISITE. IN COMING TO ABOVE CONCLUSION, THEIR LO RDSHIPS OF DELHI HIGH COURT NOT ONLY CONSIDERED IN DETAIL THE RELEVANT PROVISIONS BUT ALSO CONSIDERED VARIOUS DECISIONS ON THE ISSUE. THE DISCUSSION IS AS UNDER : THE COUNSEL ALSO DREW OUR ATTENTION TO THE RELEVAN T PROVISION AS CONTAINED IN SECTION 40A(5) WHICH LIMITS THE ALLOWA NCE AND IS IN TWO PARTS, WHERE EXPENDITURE INCURRED BY THE COMPAN Y RESULTS DIRECTLY OR INDIRECTLY IN THE PAYMENT OF ANY SALARY TO ITS EMPLOYEE AND, WHERE THE COMPANY INCURS ANY EXPENDITURE WHICH RESULTS, DIRECTLY OR INDIRECTLY, IN THE PROVISION OF ANY PER QUISITE, WHETHER CONVERTIBLE INTO MONEY OR NOT TO AN EMPLOYEE. THIS , ACCORDING TO THE COUNSEL, IS A CLEAR POINTER TO THE FACT THAT TH E EARLIER PROVISIONS, AS CONTAINED IN CLAUSE ( C )( III ) AND CLAUSE ( A )( V ) OF SECTION 40 OF THE ACT, DID NOT INCLUDE ANY CASH PAYMENT MADE BY THE COMPANY TO THE EMPLOYEE WITHIN THE MEANING OF T HE WORDS ANY BENEFIT, AMENITY OR PERQUISITE . ITA-1715 TO 1720/D/2006 7 IN SUPPORT OF HIS CONTENTIONS, MR. VED VYAS REFERRE D TO VARIOUS DECISIONS WHICH MAY BE NOTICED. IN CIT V. KANAN DEVAN HILLS PRODUCE CO. LTD. [1979] 119 ITR 431, THE CALCUTTA HIGH COURT HELD THAT ANY CASH PAY MENT DIRECTLY MADE TO THE EMPLOYEE CANNOT BE CONSIDERED TO BE A P ERQUISITE WITHIN THE MEANING OF SECTION 40( C )( III ) OF THE ACT, WHICH PROVISION CORRESPONDS TO SECTION 40A(5). THE QUESTI ON BEFORE THE COURT WAS WHETHER THE OVERSEAS ALLOWANCE, MANAGING ALLOWANCE, DEVALUATION ALLOWANCE AND TRANSPORT ALLOWANCE DID N OT FALL WITHIN THE EXPRESSION BENEFIT, AMENITY OR PERQUISI TE WITHIN THE MEANING OF SECTION 40(C)(III) OF THE ACT. THE COURT OBSERVED AS FOLLOWS (P. 437): IN OUR VIEW, IN THEIR ORDINARY MEANING, THE WORDS WHICH RESULTS DIRECTLY OR INDIRECTLY IN THE PROVISION OF ANY BENE FIT OR AMENITY OR PERQUISITE WHETHER CONVERTIBLE INTO MONEY OR NOT I N CLAUSE ( C )( III ) OF SECTION 40 EXCLUDES CASH PAID DIRECTLY TO AN E MPLOYEE AS THERE IS NO QUESTION OF CONVERTIBILITY TO MONEY WHERE CASH WOULD BE PAID. THIS INTERPRETATION IS REINFORCED BY THE FACT THAT ORIGINALLY THE SAID SUB-SECTION CONTAINED THE EXPRE SSION REMUNERATION WHICH WAS SPECIFICALLY EXCLUDED BY THE AMENDMENT INTRODUCED IN 1964 WHICH ALSO INTRODUCED THE CLAUSE WHETHER CONVERTIBLE INTO MONEY OR NOT. IN SUB-CLAUSE ( I ) OF THE SAID CLAUSE ( C ), THE EXPRESSION REMUNERATIONWAS RETAINED ALONG WITH THE OTHER EXP RESSIONS BENEFITAND AMENITY EVEN AFTER THE AMENDMENT. THIS WOULD SHOW THAT THE LEGISLATURE HAD IN VIEW THE DISTINCTI ON BETWEEN THE SAID EXPRESSIONS AND YET CHOSE TO DELETE THE EXPRES SION REMUNERATION FROM THE SAID CLAUSE ( III ). THE PHRASE WHETHER CONVERTIBLE INTO MONEY OR NOT IN OUR OPINION DOES NOT GOVERN ONLY THE EXPRESSION PERQUISITE. T HE WORDS IN THE SECTION ARE ANY BENEFIT OR AMENITY OR PERQUISITE. THE WORDS IN THE SECTION ARE ANY BENEFIT OR AMENITY OR PERQUISITE . IF THE PHRASE WHETHER CONVERTIBLE INTO MONEY OR NOT WAS INTENDE D TO GOVERN ONLY THE WORD PERQUISITE THEN THE CORRECT GRAMMAT ICAL FORM WOULD HAVE BEEN ANY BENEFIT OR AMENITY OR ANY PERQUISITE WHETHER CONVERTIBLE INTO MONEY OR NOT. IN INDIAN LEAF TOBACCO DEV. CO. LTD. V. CIT [1982] 137 ITR 827 (CAL.), THE COURT WAS CONCERNED WITH THE QUESTION A S TO WHETHER MONETARY PAYMENT MADE BY THE COMPANY TO ITS EMPLOYE ES FOR REIMBURSEMENT OF MEDICAL EXPENSES INCURRED BY THE E MPLOYEES REPRESENTED EXPENDITURE RESULTING DIRECTLY OR INDIR ECTLY IN THE PROVISION OF ANY BENEFIT OR AMENITY OR PERQUISITE T O THE SAID EMPLOYEE WITHIN THE MEANING OF SECTION 40A(5) OF TH E ACT. THE COURT FOLLOWING ITS EARLIER DECISION IN CIT V. KANAN DEVAN HILLS ITA-1715 TO 1720/D/2006 8 [1979] 119 ITR 431 (CAL.), HELD THAT A DIRECT PAYME NT TO THE EMPLOYEE DID NOT COME WITHIN THE SCOPE OF EXPENDITU RE RESULTING DIRECTLY OR INDIRECTLY IN THE PROVISION OF ANY PERQ UISITE TO AN EMPLOYEE WHETHER CONVERTIBLE INTO MONEY OR NOT FOR THE PURPOSE OF WORKING OUT DISALLOWANCE UNDER SECTION 40A(5). THE COURT, THEREFORE, HELD THAT THE EXPENDITURE INC URRED BY THE COMPANY FOR REIMBURSEMENT OF MEDICAL EXPENSES INCUR RED BY THE EMPLOYEE COULD NOT BE TREATED AS A PERQUISITE OF TH E EMPLOYEE FOR THE PURPOSE OF MAKING DISALLOWANCE UNDER SECTION 40A(5) . IN ANOTHER CASE OF THE CALCUTTA HIGH COURT IN CIT V. NATIONAL AND GRINDLAYS BANK LTD. [1984] 145 ITR 457 , THE QUESTION WAS WHETHER THE CASH PAYMENTS ON ACCOUNT OF REIMBURSEMENT OF ME DICAL EXPENSES OF THE EMPLOYEES OF THE COMPANY COULD NOT BE INCLUD ED IN THE VALUE OF BENEFITS, AMENITIES OR PERQUISITES FOR THE PURPO SE OF DISALLOWANCE IN EXCESS OF THE LIMITS LAID DOWN UNDER SECTION 40( C )( III ) OR SECTION 40( A )( V ) OF THE ACT. THE COURT ANSWERED THE QUESTION IN FA VOUR OF THE ASSESSEE FOLLOWING ITS DECISION IN INDIAN LEAF TOBACCO DEV. CO. (1982) 137 ITR 827 (CAL.). IN CIT V. VENKATARAMAN [1978] 111 ITR 444 , THE MADRAS HIGH COURT HAD OCCASION TO CONSIDER A SIMILAR PROVISION AS CONTAINED IN SECTION 2(6C)( III ) OF THE INDIAN I.T. ACT, 1922, WHICH DEFINED INCOME AS INCLUDING THE VALUE OF ANY BENEFIT OR PE RQUISITE, WHETHER CONVERTIBLE INTO MONEY OR NOT OBTAINED FROM A COM- PANY. IT WAS HELD THAT FROM THIS LANGUAGE IT IS C LEAR THAT THE BENEFIT OR PERQUISITE CONTEMPLATED CANNOT BE MONEY ITSELF. IF IT IS MONEY, THE QUESTION OF ITS VALUE BEING TAKEN INTO A CCOUNT OR THE BENEFIT OR PERQUISITE BEING CONVERTED INTO MONEY WI LL NOT ARISE. IT WAS ALSO OBSERVED THAT THE SAME SECTION MADE A D ISTINCTION BETWEEN BENEFIT OR PERQUISITE ON THE ONE HAND AND ANY SUM PAID ON THE OTHER INDICATING THAT THE BENEFIT OR P ERQUISITE CONTEMPLATED BY THE SECTION WAS OTHER THAN MONEY. IN CIT V. MANJUSHREE PLANTATIONS LTD. [1980] 125 ITR 150 (MAD.), THE QUESTION WAS WHETHER THE LEAVE ALLOWANC E WAS NOT A PERQUISITE AND, THEREFORE, THE ALLOWANCE OF THE SAM E WOULD NOT FALL TO BE RESTRICTED IN TERMS OF SECTION 40( A )( V ) OF THE ACT. THE COURT REFERRED TO THE DECISION OF THE CALCUTTA HIGH COURT IN KANAN DEVANS CASE (1979) 119 ITR 431 (DELHI), AND ALSO TO AN EARLIER DECISION OF THE MADRAS HIGH COURT IN CIT V. VENKATARAMAN [1978] 111 ITR 444 , AND HELD THAT IN ORDER TO TERM A PAYMENT AS PERQUISITE, IT HAD TO BE A PAYMENT OTHER THAN A CAS H PAYMENT IN PURSUANCE OF A CONTRACT OF SERVICE. IN CIT V. WARNER HINDUSTAN LTD. [1984] 145 ITR 24 (AP) THE QUESTION WAS AS TO WHETHER THE FEES AND MEDICAL BIL LS SHOULD BE TAKEN INTO ACCOUNT AS PERQUISITE FOR THE PURPOSE OF DISALLOWANCE ITA-1715 TO 1720/D/2006 9 UNDER SECTION 40A(5) OF THE ACT. RELYING ON THE DEC ISION OF THE CALCUTTA AND MADRAS HIGH COURTS, IT WAS HELD THAT P AYMENTS MADE DIRECTLY TO AN EMPLOYEE DO NOT FALL WITHIN THE MEANING OF THE EXPRESSION PERQUISITE. IN CIT V. MYSORE COMMERCIAL UNION LTD. [1980] 126 ITR 340 , THE KARNATAKA HIGH COURT WAS OF THE VIEW THAT THE E XPRESSION WHETHER CONVERTIBLE INTO MONEY OR NOT, OCCURRING IN SECTION 40( A )( V ), IS SOMETHING APART FROM MONEY SUCH AS SOMETHING IN KIND, WHICH MAY BE CONVERTIBLE INTO MONEY OR NOT AN D THAT THIS EXPRESSION WOULD NOT BE APPROPRIATE WHEN ONE CONSID ERS A PAYMENT IN CASH. IT, THEREFORE, HELD THAT PAYMENT O F BONUS TO ITS EMPLOYEES IN CASH WAS NOT A PERQUISITE AND COULD NO T BE DISALLOWED UNDER SECTION 40( A )( V ). [EMPHASIS SUPPLIED]THEIR LORDSHIPS DISSENTED FROM THE VIEW TAKEN BY FULL BEN CH OF KERALA HIGH COURT IN CIT V. COMMONWEALTH TRUST LTD. [1982] 135 ITR 19 . IN THE KERALA HIGH COURT, THEIR LORDSHIP HAD HELD AS UNDER: THE ONLY QUESTION BEFORE US IS WHETHER DESPITE THE VERY CLEAR INDICATION BY REASON OF THE CONTEXT OF THE PROVISIO N IN SECTION 40( A )( V ) THAT THE TERM BENEFIT, AMENITY OR PERQUISITE MU ST EXHAUST ALL ADVANTAGES THAT AN EMPLOYEE GETS OTHER THAN HIS SALARY, SHOULD A DIFFERENT MEANING BE GIVEN TO THIS TERM BE CAUSE OF THE WORDS WHETHER CONVERTIBLE INTO MONEY OR NOT FOLLO WING IT. IT IS SEEN TO HAVE BEEN ARGUED, AND SUCCESSFULLY, IN SOME CASES THAT THE WORDS WHETHER CONVERTIBLE INTO MONEY OR NOT REFLE CT ON THE NATURE OF BENEFIT, AMENITY OR PERQUISITE. SUCH A QUALIFICATION IS SAID TO BE INAPPROPRIATE IN THE CASE OF A CASH BENE FIT. IN OTHER WORDS, CASH CANNOT BE QUALIFIED BY THE TERM WHETHE R CONVERTIBLE INTO MONEY OR NOT AND, THEREFORE, WHATEVER MAY BE THE NATURAL MEANING OF THE TERM BENEFIT, AMENITY OR PERQUISITE , ANY ADVANTAGE IN TERMS OF MONEY WHICH MAY FALL NORMALLY WITHIN ANY ONE OF THE THESE THREE MUST STAND EXCLUDED. WE NOTI CE THAT THIS ARGUMENT SUCCEEDED BEFORE THE KARNATAKA HIGH COURT IN CIT V. MYSORE COMMERCIAL UNION LTD. [1980] 126 ITR 340 , BEFORE THE CALCUTTA HIGH COURT IN CIT V. KANAN DEVAN HILLS PRODUCE CO. LTD. [1979] 119 ITR 431 AND BEFORE THE MADRAS HIGH COUR T IN CIT V. MANJUSHREE PLANTATIONS LTD. [1980] 125 ITR 150 . THOUGH REFERENCE IS MADE BY THE COUNSEL FOR THE ASSESSEE T O THE DECISION OF THE MADRAS HIGH COURT IN CIT V. G. VENKATARAMAN [1978] 111 ITR 444 THAT COULD EASILY BE EXPLAINED BECAUSE THE LANGUAG E OF THE SECTION WHICH THE COURT CONSIDERED IN THAT CASE WAS MATERIALLY DIFFERENT FROM WHAT WE ARE DEALING WITH HERE. WE DONT SEE ANY REASON TO GIVE UNDUE EMPHASIS TO T HE WORDS WHETHER CONVERTIBLE INTO MONEY OR NOT SO AS TO GI VE A VERY RESTRICTED MEANING TO THE TERM BENEFIT, AMENITY OR PERQUISITE, A ITA-1715 TO 1720/D/2006 10 MEANING WHICH WOULD NOT SERVE THE EVIDENT PURPOSE O F THE SECTION. WE SAY SO BECAUSE THAT WOULD MEAN THAT ANY CASH ALL OWANCE PAID BY THE EMPLOYER TO AN EMPLOYEE OF ANY SUM WHAT SOEVER WILL BE ENTITLED TO DEDUCTION DESPITE SECTION 40( A )( V ) BECAUSE RESTRICTION IS LIMITED ONLY TO NON-CASH ADVANTAGE G IVEN TO THE EMPLOYEE. SUCH A CONSTRUCTION APPEARS TO US TO BE Q UITE IRRATIONAL DEFEATING THE VERY PURPOSE OF PRESCRIBING THE LIMIT UNDER SECTION 40( A )( V ) SO AS TO DISSUADE AN EMPLOYER FROM PAYING UNDULY LARGE SUMS BY WAY OF BENEFIT, AMENITY OR PERQUISITE. TH E STATUTE ITSELF LAYS DOWN THE PERMISSIBLE LIMIT OF DEDUCTION IN RES PECT OF SALARY AND THAT WOULD BE INCOMPLETE UNLESS A PERMISSIBLE L IMIT OF DEDUCTION IS LAID DOWN IN RESPECT OF OTHER BENEFITS THAT ARE EXTENDED TO AN EMPLOYEE. THOUGH THE WORDS WHETHER CONVERTIBLE INTO MONEY OR NOT MAY AT FIRST SIGHT APPEAR TO IND ICATE THAT WHATEVER ARE NOT CONVERTIBLE INTO MONEY STAND EXCLU DED FROM THE SCOPE OF THE TERM BENEFIT, AMENITY OR PERQUISITE, THAT NEED NOT NECESSARILY BE SO. THE TERM BENEFIT, AMENITY OR PE RQUISITE MAY TAKE IN ANY BENEFITS IN KIND AND IN SERVICE AND MAY TAKE IN ALSO CASH. WHETHER CONVERTIBLE INTO MONEY OR NOT NEED NOT QUALIFY THE WHOLE RANGE. IT ONLY MEANS THAT IT IS IMMATERIA L WHETHER THE BENEFIT, PERQUISITE OR AMENITY MAY OR MAY NOT BE CO NVERTIBLE INTO MONEY. THAT WOULD BE IMMATERIAL. ACCORDING TO US, T HIS WOULD BE THE PROPER READING OF THE SECTION. 13.2 IN THE CASE OF CIT V. SHRIRAM REFRIGERATION INDUSTRIES LTD. [1992] 197 ITR 431 (DELHI), THE QUESTION WAS WHETHER REIMBURSEMENT OF MEDICAL EXPENSES AND COMPUTATION O F PERQUISITE VALUE OF RESIDENTIAL ACCOMMODATION AND C ASH ALLOWANCE IN THE SHAPE OF CAR ALLOWANCE AND HOUSE R ENT ALLOWANCE COULD BE TREATED AS PART OF SALARY FOR PURPOSES OF CALCULATION UNDER SECTION 40A(5) OF THE INCOME-TAX ACT. THEIR L ORDSHIPS HELD AS UNDER: THERE HAS BEEN A CATENA OF AUTHORITIES WHICH HAVE TAKEN THE VIEW THAT PAYMENT OF CASH ALLOWANCE TO AN EMPLOYEE BY WAY OF REIMBURSEMENT OF MEDICAL EXPENSES OR HOUSE RENT IS NOT A PERQUISITE. THEIR LORDSHIPS REVIEWED ENTIRE CASE LAW AND OBSERV ED AS UNDER: THE LEADING CASE ON THIS POINT IS CIT V. KANAN DEVAN HILLS PRODUCE CO. LTD. [1979] 119 ITR 431 (CAL.). THAT DECISION OF THE CALCUTTA HIGH COURT WAS BASED ON THE INTERPRETATION OF SECTION 40( C )( III ) OF THE ACT AND IT CAME TO THE CONCLUSION THAT THE WORDS WHETHER CONVERTIBLE INTO MONEY OR NOT OCCURRING I N THE SAID SUB-CLAUSE CLEARLY INDICATED THAT CASH PAYMENT WAS NOT CONTEMPLATED BY THE SAID PROVISION. THIS DECISION O F THE CALCUTTA ITA-1715 TO 1720/D/2006 11 HIGH COURT WAS FOLLOWED BY THE SAME COURT IN (1982) 137 ITR 827 (CAL.), INDIAN LEAF TOBACCO DEVELOPMENT CO. LTD. V. CIT [1983] 139 ITR 763 (CAL.), CIT V. ORIENTAL BANK LTD. [1984] 145 ITR 457 (CAL.), CIT V. NATIONAL & GRINDLAYS BANK LTD. [1986] 161 ITR 820 (CAL.), ALKALI & CHEMICAL CORPORATION OF INDIA LTD. V. CIT [1986] TAX LR 483 (CAL.), CIT V. DARJEELING CO. LTD. [1989] 176 ITR 331 (CAL.), CIT V. INDIAN PRESS EXCHANGE LTD. [1989] 180 ITR 275 (CAL.), NATIONAL & GRINDLAYS BANK LTD. V. CIT [1991] 192 ITR 144 (CAL.), CIT V. INDIAN EXPLOSIVES LTD. [1990] 184 ITR 339 (CAL.) AND CIT V. INDIAN OXYGEN LTD. THE BOMBAY HIGH COURT FOLLOWED THE AFORESAID DECISI ON IN KANAN DEVAN HILLS PRODUCE CO. LTD. [1979] 119 ITR 431 (CAL.) IN CIT V. INDOKEM (P.) LTD. [1981] 132 ITR 125 . THIS VIEW WAS REITERATED BY THE BOMBAY HIGH COURT IN [1988] 169 ITR 44 CIT V. MERCANTILE BANK LTD. [1989] 177 ITR 96 (BOM.), CIT V. BOEHRINGER-KNOLL LTD. [1987] 163 ITR 528 (BOM.), CIT V. J. GOVINDRAM (P.) LTD. [1989] 177 ITR 204, CIT V. MANSANTS CHEMICALS (P.) LTD. [1991] 191 ITR 75 (BOM.), RUSTON AND HORNSBY (INDIA) LTD. V. CIT [1991] 191 ITR 367 (BOM.), CIT V. GREAVES COTTON & CO. LTD. [1991] 191 ITR 58 (BOM.), CIT V. ALEMBIC DISTRIBUTORS LTD. [1986] 162 ITR 565 (BOM.), CIT V. YORKSHIRE INSURANCE CO. LTD. [1991] 192 ITR 169 (BOM.), CIT V. MAFATLAL GANGABHAI & CO.(P.) LTD. 192 ITR 89 (BOM.), ASBESTOS CEMENT LTD. V. CIT [1991] 192 ITR 245 (BOM.), CIT V. EMPIRE DYEING & MFG. CO. LTD. THE ANDHRA PRADESH HIGH COURT HAS TAKEN THE SAME VIEW AND THE FIRST JUDGMEN T IS REPORTED AS CIT V. WARNER HINDUSTAN LTD. [1984] 145 ITR 24 (AP) WAS FOLLOWED BY THE ANDHRA PRADESH HIGH COURT IN THREE OTHER CASES, REPORTED AS [1986] 160 ITR 217 CIT V. WARNER HINDUSTHAN LTD. [1989] 175 ITR 87 , CIT V. SINGARENI COLLIERIES CO. LTD. , THE MADRAS HIGH COURT HAS ALSO TAKEN THE SAME VIEW IN [ 1980] 125 ITR 150 CIT V. MANJUSHREE PLANTATIONS LTD. [1992] 196 ITR 802 , CIT V. JAYANTHI FILMS (MADURAI) P. LTD . THE KARNATAKA HIGH COURT HAS ALSO COME TO THE SAME CONCLUSION IN CIT V. MYSORE COMMERCIAL UNION LTD. [1980] 126 ITR 340 AND THIS WAS FOLLOWED BY IT IN [1988] 173 ITR 374 (KAR.), CIT V. MOTOR INDUSTRIES CO. LTD. TWO DECISIONS OF THE KERALA HIGH COURT IN FAVOUR OF THE AFORESAID VIEW OF THE CALCUTTA HIGH C OURT ARE [1984] 145 ITR 563 CIT V. TOSHIBA ANAND LAMPS LTD. [1985] 153 ITR 444 AND TRAVANCORE TEA ESTATES CO. LTD. V. CIT . AS FAR AS THIS COURT IS CONCERNED, THE VIEW OF THE CALCUTTA HIGH COURT IN KANAN DEVAN HILLS PRODUCE CO. LTD. [1979] 119 ITR 431 HAS FOUND FAVOUR. IN THE CASE INSTALMENT SUPPLY (P.) LTD. V. CIT [1984] 149 ITR 457 (DELHI), IT WAS HELD BY THIS COURT THAT ITA-1715 TO 1720/D/2006 12 REIMBURSEMENT OF MEDICAL EXPENSES BY PAYING CASH TO THE EMPLOYEE WAS NOT A PERQUISITE. THIS VIEW WAS REITER ATED BY THIS COURT IN CIT V. ESCORTS LTD. [1987] 59 CTR 284 AND CIT V. JAY ENGINEERING WORKS LTD. [1990] 182 ITR 181 . APART FROM THE AFORESAID AUTHORITIES INCLUDING THRE E DECISIONS OF THIS COURT, IT IS CLEAR TO US THAT PAYMENT OF THE T YPE WHICH WAS MADE IS NOT A PERQUISITE. THE EXPLANATION 2 ( B ) TO SECTION 40A(5) IS EXHAUSTIVE. THE PAYMENT IN CASH MADE BY THE EMPL OYER TO AN EMPLOYEE BY WAY OF REIMBURSEMENT DOES NOT FALL UNDE R SUB- CLAUSES ( I ) TO ( V ) OF CLAUSE ( B ) OF EXPLANATION 2. THIS BEING SO, THE PAYMENT IN QUESTION CANNOT BE REGARDED AS A PERQUIS ITE AT ALL. IT WAS SOUGHT TO BE CONTENDED BY MR. RAJENDRA THAT SECTION 40A(5)( A )( II ) OF THE ACT USES THE EXPRESSION INCURS DIRECTLY O R INDIRECTLY ANY EXPENDITURE AND HE SUBMITS THAT THE PAYMENT WHICH HAS BEEN MADE BY THE EMPLOYER TO THE EMPLOYEE WOULD FALL IN THIS CATEGORY. WE ARE UNABLE TO AGREE WITH THIS SUBMISSION. SUB-CLAUSE ( II ) OF SECTION 40A(5)( A ) DEALS WITH TWO TYPES OF CASES. FIRSTLY, IT DEALS WITH THE EXPENDITURE INCUR RED DIRECTLY OR INDIRECTLY BY AN ASSESSEE IN RESPECT OF ANY ASSETS OF THE ASSESSEE USED BY AN EMPLOYEE EITHER WHOLLY OR PARTLY FOR HIS OWN PURPOSE OR BENEFIT. READING THE WORDS INCURS DIRECTLY OR I NDIRECTLY ANY EXPENDITURE, IN ISOLATION, WOULD GIVE NO MEANING T O THE SAID SUB- SECTION. THE NATURE OF THE EXPENDITURE IS CLEARLY INDICATED IN THE LATTER PART OF THIS SUB-SECTION, AND THAT IS EXPEND ITURE IN RESPECT OF ANY ASSETS OF THE COMPANY WHICH ARE USED BY AN EMPL OYEE FOR HIS OWN PURPOSES OF BENEFIT. THE CASH PAYMENT OR REIMBU RSEMENT IS NOT INCLUDED IN THIS SUB-CLAUSE AT ALL. THEREFORE, WHILE AGREEING WITH THE AFORESAID DECISI ON, QUESTION NO. 1 HAS TO BE ANSWERED IN THE AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. 13.3 IN THE CASE OF CIT V. MAFATLAL GANGABHAI & CO. (P.) LTD. [1996] 219 ITR 644 , THEIR LORDSHIPS OF SUPREME COURT HAVE CONSIDERED THE QUESTION WHETHER CASH PAYMENT MADE B Y AN ASSESSEE TO ITS EMPLOYEE FALL WITHIN THE MISCHIEF O F SECTION 40( A )( V ) AND SECTION 40A(5). THEIR LORDSHIPS NOTED, ON APPEAL, THE CIT(A) UPHELD THE ASSESSEES CONTENTION THAT CA SH PAYMENTS CANNOT BE TREATED AS PERQUISITES FOR THE PURPOSE OF AND WITHIN THE MEANING OF SECTION 40A(5). REVENUES APPEAL TO THE TRIBUNAL WAS DISMISSED. AN APPLICATION UNDER SECTION 256(1) WAS ALSO DISMISSED BY THE TRIBUNAL WHEREUPON IT APPROACHED T HE HIGH COURT WHICH TOO REJECTED ITS APPLICATION UNDER SECT ION 256(2), AS STATED ABOVE. AFTER ELABORATE CONSIDERATION OF RELEVANT PROVISIONS INCLUDING DEFINITION OF PERQUISITE UND ER SECTION 17 ITA-1715 TO 1720/D/2006 13 AND CASE LAW, THEY AGREED WITH THE VIEW EXPRESSED B Y MAJORITY OF HIGH COURTS INCLUDING DELHI, KARNATAKA, KERALA AND MADRAS DISAGREED WITH THE VIEW TAKEN BY KERALA HIGH COURT IN COMMONWEALTH TRUST LTD.S CASE ( SUPRA ). THEIR LORDSHIPS HELD AS UNDER: 6. ON A CONSIDERATION OF BOTH THE POINTS OF VIEW, WE ARE INCLINED TO AGREE WITH THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEES. THE LANGUAGE EMPLOYED IN THE SUB-CLAUSE IS NOT CAPABLE OF TAKING WITHIN ITS AMBIT CASH PAYMENTS MA DE TO THE EMPLOYEES BY THE ASSESSEE. THESE CASH PAYMENTS WILL , OF COURSE, BE TREATED AS SALARY PAID TO THE EMPLOYEES AND WILL BE SUBJECT TO THE LIMITS/CEILING, IF ANY, IN THAT BEHALF . BUT THEY CANNOT BE BROUGHT WITHIN THE PURVIEW OF THE WORDS ANY EXPEND ITURE WHICH RESULTS DIRECTLY OR INDIRECTLY IN THE PROVISION OF ANY BENEFIT OR AMENITY OR PERQUISITE - MORE SO BECAUSE OF THE FOL LOWING WORDS WHETHER CONVERTIBLE INTO MONEY OR NOT. 7. NOW, COMING TO SECTION 40A(5), THE POSITION IS N O DIFFERENT. IT WOULD, HOWEVER, BE APPROPRIATE TO POINT OUT THE DIS TINCTION BETWEEN SECTION 40( A )( V ) AND SECTION 40A(5). WE SHALL REFER TO THE FORMER PROVISION AS SUB-CLAUSE AND THE LATTER PROVISION AS SUB-SECTION. THE SUB-SECTION IS WIDER IN ITS SCOPE AND APPLICATION THAN THE SUB-CLAUSE. SUB-CLAUSE ( I ) OF CLAUSE ( A ) OF SUB-SECTION (5) DEALS WITH ANY EXPENDITURE WHICH RESULTS DIRECTLY OR INDIRECTLY IN THE PAYMENT OF ANY SALARY TO AN EMPLOYEE OR A FORMER EM PLOYEE. SUB-CLAUSE ( I ) OF CLAUSE ( C ) OF SUB-SECTION (5) DEALS WITH ANY EXPENDITURE WHICH RESULTS DIRECTLY OR INDIRECTLY IN THE PAYMENT OF ANY SALARY TO AN EMPLOYEE OR A FORMER EMPLOYEE. SU B-CLAUSE ( I ) OF CLAUSE ( C ) OF SUB-SECTION (5) SETS OUT THE LIMITS/CEILINGS O N SUCH EXPENDITURE WHILE CLAUSE ( A ) OF EXPLANATION 2 APPENDED TO THE SUB-SECTION DEFINES THE EXPRESSION SALARY FOR THE PURPOSES OF THIS SUB-SECTION. THESE FEATURES WERE ABSENT IN SUB -CLAUSE ( V ) OF SECTION 40( A ). NOW, COMING TO SUB-CLAUSE ( II ) OF CLAUSE ( A ) OF SUB-SECTION (5) WHICH CORRESPONDS TO SECTION 40( A )( V ) IT USES ONLY ONE EXPRESSION PERQUISITE AS AGAINST SECTION 40( A )( V ) WHICH SPOKE OF BENEFIT OF AMENITY OR PERQUISITE, BUT TH IS IS NO REAL DISTINCTION BECAUSE THE DEFINITION OF PERQUISITE : IN CLAUSE ( B ) OF EXPLANATION (2) TO THE SUB-SECTION TAKES IN BOTH BENEFITS AND AMENITIES. THE SAID DEFINITION ALSO INCLUDES, INTER ALIA, PAYMENT BY THE ASSESSEE OF ANY SUM IN RESPECT OF ANY OBLIGA TION WHICH BUT FOR SUCH PAYMENT, WOULD HAVE BEEN PAYABLE BY THE EM PLOYEE - WORDS WHICH ARE FOUND IN THE MAIN LIMB OF SECTION 4 0( A )( V ) BUT WHICH ARE MISSING IN THE MAIN LIMB OF SUB-CLAUSE ( II ) OF CLAUSE ( A ) OF SUB-SECTION (5). THUS, EXCEPT FOR CERTAIN STRUCT URAL CHANGES, SECTION 40A(5)( A )( II ) AND SECTION 40( A )( V ) ARE SIMILAR IN ALL ITA-1715 TO 1720/D/2006 14 MATERIAL ASPECTS. IT, THEREFORE, FOLLOWS THAT WHAT WE HAVE SAID WITH RESPECT TO SECTION 40( A )( V ) APPLIES EQUALLY TO SECTION 40A(5)( A )( II ). 8. THERE STILL REMAIN THE WORDS INCLUDING ANY SUM PAID BY THE ASSESSEE IN RESPECT OF ANY OBLIGATION WHICH BUT FOR SUCH PAYMENT WOULD HAVE BEEN PAYABLE BY SUCH EMPLOYEE IN SECTIO N 40( A ) ( V ) AND SIMILAR WORDS FOUND IN SECTION 40A(5)( A ) ( II ) AS WELL, I.E., IN SUB-CLAUSE ( IV ) OF THE DEFINITION OF PERQUISITE IN CLAUSE ( B ) OF EXPLANATION 2 TO SUB-SECTION (5). WHAT DO THEY MEAN ? THE SAID WORDS CONTEMPLATE A SITUATION WHERE THE ASSESSEE MA KES A PAYMENT (IN CASH) IN RESPECT OF AN OBLIGATION OBL IGATION OF THE EMPLOYEE WHICH WOULD HAVE BEEN PAYABLE BY THE EMP LOYEE IF IT IS NOT PAID BY THE ASSESSEE. THE PAYMENT BY THE ASS ESSEE CONTEMPLATED BY THESE WORDS IS NOT EVIDENTLY A PAYM ENT TO THE EMPLOYEE BUT TO A THIRD PARTY, NO DOUBT, ON ACCOUNT OF THE EMPLOYEE. SUB-CLAUSE ( V ) OF THE DEFINITION OF PERQUISITE IN CLAUSE ( B ) OF EXPLANATION 2 TO SUB-SECTION (5) ALSO REFERS TO CASH PAYMENT BUT THAT TOO IS NOT TO THE EMPLOYEE, THOUGH UNDOUBTEDLY FOR HIS BENEFIT . 9. FOR THE ABOVE REASONS, WE HOLD THAT CASH PAYMENT S BY AN ASSESSEE TO HIS/ITS EMPLOYEES DO NOT FALL WITHIN TH E AMBIT OF SECTION 40( A )( V ) OR SECTION 40A(5)( A )( II ), AS THE CASE MAY BE. WE DISAGREE WITH THE OPINION OF THE KERALA HIGH COURT IN COMMON WEALTH TRUST LTD. (SUPRA) AND AGREE WITH THE OTHER HIGH COURTS WHICH HAVE TAKEN A VIEW ACCORDING WITH OUR VIEW, VIZ . , CIT V. MYSORE COMMERCIAL UNION LTD. [1980] 126 ITR 340 (KAR.), CIT V. SHRIRAM REFRIGERATION INDUSTRIES LTD. [1992] 197 ITR 431 (DELHI), CIT V. KANAN DEVAN HILLS PRODUCE CO. LTD. [1979] 119 ITR 431 (CAL.), CIT V. INDOKEM PVT. LTD. [1981] 132 ITR 125 (BOM.), CIT V. WARNER HINDUSTAN LTD. [1984] 145 ITR 24 (AP), INSTALMENT SUPPLY PVT. LTD. V. CIT [1984] 149 ITR 457 (DELHI), CIT V. MANJUSHREE PLANTATIONS LTD. [1980] 125 ITR 150 (MAD.) AND CIT V. NEW INDIA INDUSTRIES LTD. [1993] 201 ITR 208 (GUJ.) ACCORDINGLY, THE APPEALS ARE DISMISSED. NO COSTS. [EMPHASIS SUPPLIED] 13.4 IN THE CASE OF FRANK BEATON V. CIT [1985] 156 ITR 16 (DELHI), THE ASSESSEE A NON-RESIDENT UNDER AN AGREE MENT WITH ITS EMPLOYER WAS NOT TO PAY TAX ON HIS SALARY AND ALLOW ANCES. HIS EMPLOYER COMPANY WAS TO PAY TAX ON SALARY AND ALLOW ANCES. THEIR LORDSHIPS HELD THAT SINGLE GROSSING UP OF TAX AND NOT MULTIPLE GROSSING UP WAS PERMITTED UNDER THE STATUT E, JUSTICE ITA-1715 TO 1720/D/2006 15 RANGANATHAN, WHO WROTE SEPARATE BUT CONCURRING JUDG MENT MADE THE FOLLOWING RELEVANT OBSERVATIONS : THE ASSESSEE IS AN EMPLOYEE AND THE INCOME IN QUES TION IS CHARGEABLE TO TAX IN HIS HANDS UNDER THE HEAD SALA RIES . SECTION 17(1)( IV ) OF THE ACT INCLUDES, WITHIN THE SCOPE OF THE CHAR GE IMPOSED BY THIS SECTION PERQUISITES IN LIEU OF, O R IN ADDITION TO, ANY SALARY. SECTION 17(2) DEFINES PERQUISITES TO INCLUDE, INTER ALIA, ( IV ) ANY SUM PAID BY THE EMPLOYER IN RESPECT OF ANY OBLIGATION WHICH, BUT FOR SUCH PAYMENT, WOULD HAVE BEEN PAYABLE BY THE ASSESSEE. IT, THEREFORE, FOLLOWS THAT, IF THE EMPLOYER PAYS A NY INCOME-TAX, THE OBLIGATION TO PAY WHICH LIES ON THE EMPLOYEES, THE AMOUNT OF ANY INCOME-TAX SO PAID WILL BE ASSESSABLE IN THE HA NDS OF THE EMPLOYEE-ASSESSEE AS PART OF HIS SALARY INCOME. THE PROVISION MAY RAISE A FURTHER QUESTION REGARDING THE YEAR IN WHICH THE PERQUISITE INCOME WILL BECOME ASSESSABLE, AN ASPECT TOUCHED UPON IN SCIANDRA V. CIT [1979] 118 ITR 675 (CAL.), BUT IT MAY NOT BE NECESSARY TO DEAL WITH THAT ASPECT FOR THE P URPOSES OF THE PRESENT CASE. 13.5 IN THE CASE OF CIT V. H.D. DENNIS [1982] 135 ITR 1 (BOM.), THEIR LORDSHIPS HELD AS UNDER : WE ARE FORTIFIED IN THE VIEW WE ARE TAKING BY TWO DECISIONS, VIZ. , ONE OF THE KERALA HIGH COURT IN CIT V. C. W. STEEL (NO. 1) [1972] 86 ITR 817, AND THE OTHER OF THE MADRAS HIGH COURT IN CIT V. MACKINTOSH [1975] 99 ITR 419 . IN BOTH THE CASES, THE VERY SAME QUESTION FELL FOR CONSIDERATION, VIZ. , WHETHER THE INCOME-TAX PAID BY THE EMPLOYER WAS SALARY FOR THE PURPOSES OF FIN DING OUT THE VALUE OF THE RENT-FREE ACCOMMODATION GIVEN TO THE E MPLOYEE. BOTH THE COURTS HAVE ANSWERED THE ISSUE IN FAVOUR O F THE REVENUE AND AGAINST THE ASSESSEE. THE MADRAS HIGH COURT IN ITS JUDGMENT HAS APPROVED OF THE RATIO OF THE DECISION OF THE KE RALA HIGH COURT. WE ARE RESPECTFULLY IN AGREEMENT WITH THE DE CISIONS OF BOTH THE COURTS ON THE SAID POINT. WE ARE, THEREFOR E, SATISFIED THAT THE REVENUE IS ENTITLED TO SUCCEED ON THE FIRST QUE STION AND THE ANSWER TO THE FIRST QUESTION WILL HAVE TO BE GIVEN IN ITS FAVOUR AND AGAINST THE ASSESSEE. 13.6 IN THE CASE OF BOEING V. CIT [2001] 250 ITR 667 (MAD.), THE CASE RELIED UPON BY THE LEARNED DEPARTMENTAL REPRES ENTATIVE, THEIR LORDSHIPS OF MADRAS HIGH COURT WERE DEALING W ITH A QUESTION WHETHER A CLOTH DEALER RECEIVING GIFT FROM ITS MANUFACTURER AS INCENTIVE FOR ADDITIONAL EFFORTS WOULD CONSTITUTE PROFIT AND GAINS OF BUSINESS. THEIR LORD SHIPS HELD THAT GIFT WAS A TRADING RECEIPT AND, THEREFORE, VALUE OF GIFT CONSTITUTED PROFITS AND GAINS OF BUSINESS OF THE DEALER. IN OUR CONSIDERED ITA-1715 TO 1720/D/2006 16 OPINION, AFORESAID DECISION HAS NO APPLICATION TO T HE FACTS INVOLVED US. 13.7 IN THE CASE OF CIT V. TARA SINGH [1998] 233 ITR 669 (DELHI), ANOTHER CASE RELIED BY THE DEPARTMENTAL RE PRESENTATIVE, THE QUESTION BEFORE THE HONBLE DELHI HIGH COURT WA S WHETHER DEBIT BALANCE IN THE ACCOUNT OF THE ASSESSEE WHO WA S DIRECTOR OF THE COMPANY COULD BE TREATED AS A BENEFIT LIABLE TO BE TAXED, IN VIEW OF SECTION 2(24)( IV ). THE TRIBUNAL HAD HELD THAT VALUE OF BENEFIT IN THE FORM OF A DEBIT BALANCE IN THE ACCOU NTS OF THE COMPANY WAS NOT A BENEFIT WHICH COULD BE TREATED AS INCOME WITHIN THE MEANING OF SECTION 2(24)( IV ) OF INCOME-TAX ACT. ON APPEAL, THEIR LORDSHIPS RELIED UPON THE DECISION OF MADRAS HIGH COURT IN THE CASE OF CIT V. S.S.M. LINGAPPAN [1981] 129 ITR 597 2 AND HELD THAT BENEFIT COULD BE TAXED AS A PERQUISI TE UNDER SECTION 17(2)( III ) OF THE INCOME-TAX ACT. THIS CASE, IN OUR VIEW, IS ALSO OF NO HELP TO THE REVENUE. 13.8 IN THE CASE OF EMIL WEBBER V. CIT [1993] 200 ITR 483 , RELIED UPON BY THE REVENUE, THE QUESTION BEFORE THE HONBLE SUPREME COURT WAS WHETHER THE ASSESSEE, ONE OF THE FOREIGN PERSONNEL WHOSE SERVICES WERE PROVIDED FOR SETTING UP PLANT IN INDIA FOR AN INDIAN CONCERN (BALLARPUR LTD.). THE A GREEMENT PROVIDED THAT SALARY OF THE FOREIGN PERSONNEL WERE PAYABLE FREE OF TAX OR DUTY. THE TAXES PAID ON EMPLOYEES INCOME WA S HELD TO BE INCOME FROM OTHER SOURCES AS THERE WAS NO RELATIONS HIP OF EMPLOYER AND EMPLOYEE WITH M/S. BALLARPUR LTD. THIS FINDING OF T HE TRIBUNAL WAS CONFIRMED ON APPEAL BY THE HONBLE HIGH COURT. THE SUPREME COURT CONFIRMED THE DECISION OF THE HIGH CO URT, BY OBSERVING AS UNDER (HEAD NOTE) : HELD, AFFIRMING THE DECISION OF THE HIGH COURT, ( I ) THAT THE AMOUNT PAID BY BALLARPUR WAS NOTHING BUT A TAX UPON THE SALARY RECEIVED BY THE APPELLANT. IT WAS PAID BY VIRTUE OF THE OBLIGATION UNDERTAKEN BY BALLARPUR AND, THEREFORE, THE PAYMENT WAS NOT A GRATUITOUS PAYMENT BUT WAS FOR AND ON BEHALF OF THE APPELLANT. IT WOULD BE UNREALISTIC TO SAY THAT THE PAYMENT HAD NO INTEGRAL CONNECTION WITH THE SALARY RECEIVED BY THE APPELLAN T. THEREFORE, THE TAX PAID BY BALLARPUR WAS LIABLE TO BE INCLUDED IN THE INCOME OF THE APPELLANT (SEE PP. 486G, H, 487A, B). ( II ) THAT INASMUCH AS THE APPELLANT WAS NOT AN EMPLOYE E OF BALLARPUR, THE AMOUNT COULD NOT BE BROUGHT UNDER TH E HEAD SALARY WITHIN THE PURVIEW OF SECTION 17 OF THE IN COME-TAX ACT, 1961, AND HAD NECESSARILY TO BE PLACED UNDER SECTIO N 56(1), VIZ., UNDER THE HEAD INCOME FROM OTHER SOURCES (SEE P. 487C). ITA-1715 TO 1720/D/2006 17 THIS CASE IN OUR CONSIDERED VIEW HAS NO APPLICATION TO THE FACTS OF THE CASE. 14. IT IS EVIDENT FROM ABOVE CITED DECISIONS THAT WHEN PAYMENT IS MADE IN CASH BY EMPLOYER TO THE EMPLOYEE, IT IS NOT A PERQUISITE. THE CASH PAYMENT TO THE EMPLOYEE HAS BEEN HELD TO B E DIFFERENT FROM A PERQUISITE. IT WAS HELD TO BE DIFFERENT FR OM CONVERTIBLE INTO MONEY OR NOT. THE CASH PAYMENT WAS NOT HELD T O BE MONEY PAYMENT WHILE CONSIDERING THE QUESTION WHETHER SUCH PAYMENT WAS A BENEFIT, AMENITY OR A PERQUISITE, THOUGH CASH PAYMENT BY THE EMPLOYER TO THE EMPLOYEE MAY BE LIABLE TO BE AS SESSED AS SALARY. 14.1 WE HAVE ALREADY NOTED SPECIFIC FINDING TO THE ABOV E EFFECT IN THE CASE OF SHRIRAM REFRIGERATION INDUSTRIES LTD. ( SUPRA ) ALTHOUGH THEIR LORDSHIPS WAS CONSIDERING DIFFERENT PROVISION OF SECTION 40( A )( V ) BUT THAT DOES NOT MAKE ANY DIFFERENCE AS IN THE CASE OF MAFATLAL GANGABHAI & CO. (P.) LTD. ( SUPRA ). THEIR LORDSHIPS OF SUPREME COURT CONSIDERED MEANING OF EX PRESSION PERQUISITE AS DEFINED IN SUB-SECTION (2) OF SECTI ON 17 AND ARRIVED AT THE SAME CONCLUSION. 14.2 THEIR LORDSHIPS OF SUPREME COURT FURTHER NOTED THE DIFFERENCE BETWEEN A PAYMENT BY EMPLOYER TO THE EMP LOYEE AND A PAYMENT BY THE EMPLOYER TO A THIRD PARTY. A PAYMENT TO A THIRD PARTY IN RESPECT OF ANY OBLIGATION WHICH BUT FOR SU CH PAYMENT WOULD HAVE BEEN PAYABLE BY THE EMPLOYEE WOULD ONLY BE A PERQUISITE IN THE HANDS OF THE EMPLOYEE. WHEN IT IS A PAYMENT TO A THIRD PARTY, HOW CAN IT BE TREATED AS A MONETARY PA YMENT TO THE ASSESSEE. SHRI M.S. SYALI, THE LEARNED SENIOR COUNS EL FOR THE ASSESSEE INTERVENERS AND SHRI TULSIYAN, THE LEARNED COUNSEL FOR THE MAIN PETITIONER HERE, WERE RIGHT IN POINTING OUT THAT CL AUSE 10( 10CC ) EMPHASIZES ON DIRECT MONETARY PAYMENT TO THE EMPLOY EE TO BE EXCLUDED FROM THE APPLICATION OF THE PROVISION. THE PAYMENT OF TAX ON BEHALF OF THE EMPLOYEE AT THE OPTION OF THE EMPL OYER CAN ONLY BE TREATED AS DISCHARGE OF AN OBLIGATION OF THE EMPLOY EE WHICH BUT FOR SUCH PAYMENT WOULD HAVE BEEN PAYABLE BY THE EMPLOYE E HIMSELF. IT IS A PERQUISITE FULLY COVERED BY SUB-CLAUSE ( IV ) OF CLAUSE ( 2 ) OF SECTION 17 OF THE ACT AND NOTHING ELSE. 14.3 THE CASH PAYMENT TO THE EMPLOYEE BY THE EMPLOYER M IGHT BE ASSESSABLE AS SALARY BUT IT IS NOT A PERQUISITE OR AMENITY OR BENEFIT. WE HAVE ALREADY NOTED VIEW OF FULL BENCH OF KERALA HIGH COURT IN COMMON WEALTH TRUST LTD.S CASE ( SUPRA ) WHERE THEIR LORDSHIPS SAW NO GOOD REASON TO GIVE RESTRICTED MEA NING TO THE TERM BENEFIT, AMENITY OR PERQUISITE AS THE SAME WOULD NOT SERVE THE PURPOSE OF THE SECTION. THEIR LORDSHIPS SAW NO RATI ONALITY IN THE VIEW OF THE MAJORITY HIGH COURTS, IF IT IS HELD THA T CASH ALLOWANCE ITA-1715 TO 1720/D/2006 18 PAID BY THE EMPLOYER TO AN EMPLOYEE WOULD BE ENTITL ED TO DEDUCTION, DESPITE SECTION 40( A )( V ) AND RESTRICT THE APPLICATION OF ABOVE PROVISION TO NON-CASH ADVANTAGE. SUCH CONSTRUCTION, ACCORDING TO THEIR LORDSHIPS, WOULD BE QUITE IRRATIONAL, DEFEATI NG THE VERY PURPOSE OF THE LEGISLATION. THE AFORESAID VIEW, AS NOTED AB OVE, HAS NOT BEEN APPROVED BY THE APEX COURT AND A DISTINCTION HAS BE EN DRAWN BETWEEN CASH PAYMENT ON ONE HAND AND BENEFIT, AMEN ITY OR A PERQUISITE ON THE OTHER. 14.4 IT IS, THEREFORE, REASONABLE TO CONCLUDE THAT PAYM ENT OF TAXES BY THE EMPLOYER, ON BEHALF OF THE EMPLOYEE, IS A PERQU ISITE WITHIN THE MEANING OF CLAUSE ( 2 ) OF SECTION 17 OF THE INCOME-TAX ACT. IT CANNOT BE A MONETARY PAYMENT TO THE ASSESSEE WITHIN THE ME ANING OF ABOVE CLAUSE WHICH IS INTENDED TO BE EXCLUDED FROM APPLIC ATION OF CLAUSE 10( 10CC ) OF THE ACT. 15. IN THE TWO EARLIER DECISIONS, TRIBUNAL, WHILE NOT GRANTING BENEFIT TO THE ASSESSEE UNDER SECTION 10( 10CC ) OF THE INCOME-TAX ACT HELD THAT THE TAX PAID BY THE ASSESSEE WAS NOTHING BUT P ART OF THE SALARY AND, THEREFORE, IT WAS TO BE ASSESSED AS SUCH. IT W AS ALSO TREATED AS A MONETARY PAYMENT. SHRI SYALI HAD RIGHTLY POINTED OU T THAT NO REASONS WERE GIVEN AS TO WHY IT IS BEING TREATED AS PART OF MONETARY PAYMENT. IMPORTANT PROVISIONS AND CIRCULAR ETC. WERE NOT BRO UGHT TO THE NOTICE OF THE BENCHES AND, THEREFORE, AN INCORRECT VIEW OF THE MATTER WAS TAKEN IN THOSE CASES. 15.1 THE LEARNED DEPARTMENTAL REPRESENTATIVE ALSO PLACE D RELIANCE ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF T.P.S. SCOTT V. CIT [1998] 232 ITR 475 , WHEREIN IT IS HELD AS UNDER ON TAXES PAID BY THE EMPLOYER ON BEHALF OF THE EMPLOYEE : WE MAY REFER TO THE RELEVANT STATUTORY PROVISIONS. SECTION 15 SETS OUT THE INCOME WHICH SHALL BE CHARGEABLE TO INCOME- TAX UNDER THE HEAD SALARIES. VIDE CLAUSE ( B ) THEREOF ANY SALARY PAID OR ALLOWED TO AN EMPLOYEE IN THE PREVIOUS YEAR BY OR ON BEHALF OF AN EMPLOYER OR A FORMER EMPLOYER THOUGH NOT DUE OR BEFORE IT BECAME DUE TO HIM IS AN INCOME CHARGEABLE TO TAX UNDER THE HEAD SALARIES. FOR THE PURPOSE OF SECTION 15 VIDE SECTION 17(1)(IV), PERQUISITES A RE INCLUDED IN SALARY. VIDE SUB-CLAUSE (IV) OF CLAUSE (2) OF SECTI ON 17 ANY SUM PAID BY THE EMPLOYER IN RESPECT OF ANY OBLIGATION WHICH, BUT FOR SUCH PAYMENT, WOULD HAVE BEEN PAYABLE BY THE ASSESSEE, I S INCLUDED IN PERQUISITES . THE INTERPRETATION CLAUSE I.E., SECTION 2 OF THE ACT, VIDE SUB-CLAUSE ( III ) OF CLAUSE ( 24 ) THEREOF, INCLUDES THE VALUE OF ANY PERQUISITE OR PROFIT IN LIEU OF SALARY TAXABLE UNDE R CLAUSES ( 2 ) AND ( 3 ) OF SECTION 17, WITHIN THE MEANING OF INCOME. ALL THESE STATUTORY PROVISIONS MAKE IT CLEAR THAT A N AMOUNT OF TAX WHICH WOULD HAVE BEEN PAYABLE BY AN EMPLOYEE-ASSESS EE, IF PAID BY THE EMPLOYER ON BEHALF OF THE ASSESSEE, IS TO BE IN CLUDED IN THE ITA-1715 TO 1720/D/2006 19 PERQUISITES AMOUNTING TO SALARY RENDERING IT LIABLE TO TAX BY BEING INCLUDED IN INCOME . [EMPHASIS SUPPLIED] 16. IT IS CLEAR FROM ABOVE THAT TAXES PAID BY EMPLOYER ON BEHALF OF THE EMPLOYEE WERE TREATED AS A PERQUISITE COVERED B Y SUB-CLAUSE ( IV ) OF CLAUSE ( 2 ) OF SECTION 17 OF THE INCOME-TAX ACT AND, THEREFOR E, 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 SALAR Y IF CLAUSE 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 MON ETARY PAYMENT TO THE EMPLOYEE. IT IS A PAYMENT BY THE EMPLOYER WH ICH DISCHARGES AN OBLIGATION OF THE EMPLOYEE, WHICH OTHERWISE WOUL D HAVE BEEN DISCHARGED BY THE EMPLOYEE. SUCH PAYMENTS OF TAXES, THEREFORE, ARE FULLY COVERED BY ABOVE SUB-CLAUSE ( IV ). 17. THE DECISION OF CIT V. AMERICAN CONSULTING CORPN. [1980] 123 ITR 513 (ORI.), NOTED ABOVE ALSO SUPPORTS THE VIEW THAT TAX ES PAID ON BEHALF OF THE ASSESSEE IS A PERQUISITE OR A BENEFIT , BUT NOT INCOME FROM BUSINESS. IT COULD NOT BE TAXED EXCEPT UNDER C LAUSE ( IV ) OF SECTION 28 WHICH PROVIDED THAT A BENEFIT OR PERQUIS ITE WAS LIABLE TO BE CHARGED TO TAX. 17.1 IT IS NOT MONEY, WHICH IS PAID TO THE ASSESSEE WHE N TAXES ARE PAID ON HIS BEHALF. IT IS DISCHARGE OF HIS OBLIGATI ON. THE PAYMENT FULLY FITS IN THE JACKET OF SUB-CLAUSE ( IV ) OF SECTION 17(2) OF THE ACT. IT MAY BE A MONETARY GAIN OR MONETARY BENEFIT OR A MON ETARY ALLOWANCE BUT DEFINITELY IT IS NOT A MONETARY PAYME NT 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 PAYMEN T TO A THIRD PERSON LIKE PAYMENT OF TAXES TO THE GOVERNMENT, THEN SUCH PAYMENT OF TAXES CANNOT BE EXCLUDED UNDER CLAUSE 10( 10CC ). THE CIRCULAR OF THE BOARD AND PROVISION OF SUB-SECTION (1A) OF SECTION 192, SECTION 40( A )( V ), 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 SECT ION 17(2) OF THE INCOME-TAX ACT, WHICH IS NOT PROVIDED BY WAY OF MON ETARY PAYMENT. THEREFORE, THERE IS NO REASON NOT TO EXCLUDE SUCH P AYMENT OF TAXES FROM THE TOTAL INCOME OF THE ASSESSEE. IN OTHER WOR DS, TAXES PAID BY THE EMPLOYER CAN BE ADDED ONLY ONCE IN THE SALARY O F THE EMPLOYEE. THEREAFTER, TAX ON SUCH PERQUISITE IS NOT TO BE ADD ED AGAIN. WE, THEREFORE, FIND SUBSTANCE IN THE CONTENTION ADVANCE D ON BEHALF OF LEARNED COUNSEL FOR THE ASSESSEES AND THE INTERVENE RS. THE QUESTION REFERRED TO US IS ANSWERED IN FAVOUR OF THE ASSESSE E. THE APPEALS OF THE ASSESSEES AND INTERVENERS ARE ALLOWED ON THIS I SSUE. 18. THAT IN SOME OF THE CASES, THERE IS QUESTION OF LE VY OF INTEREST UNDER SECTIONS 234, 235 OF THE INCOME-TAX ACT. PART IES APPEARING ITA-1715 TO 1720/D/2006 20 BEFORE US CONCEDED THAT THIS GROUND WAS CONSEQUENTI AL. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO RE-CALCU LATE TAXES, IF ANY, LEVIABLE UNDER THE ABOVE PROVISION. 19. IN SOME CASES, THERE IS GROUND CHALLENGING INITIAT ION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)( C ). THE ABOVE GROUND WAS NOT PRESSED AND IS ACCORDINGLY DISMISSED. 19.1 BEFORE CLOSE WE WISH TO THANK SHRI SYALI, LEARNED SENIOR ADVOCATE FOR THE ASSESSEES AS INTERVENERS AS ALSO S HRI TULSIYAN FOR ASSISTING US. WE ALSO THANK ALL THE LEARNED DEPARTM ENTAL REPRESENTATIVES FOR THEIR ASSISTANCE AND FOR THEIR PLACING FULL CASE LAWS BEFORE US. 20. ALL THE APPEALS OF THE ASSESSEES ARE ALLOWED IN TE RMS STATED ABOVE. 4. IN VIEW OF THE DECISION OF THE SPECIAL BENCH IN THE ABOVE REFERRED CASE, WE HOLD THAT THE TAX BORNE BY THE EMPLOYER ON PERQUISI TES OF THE EMPLOYEES WOULD CONSTITUTE NON-MONETARY BENEFIT AND AS SUCH THE SAM E IS EXEMPTED U/S 10(10CC) OF THE ACT. WE, THEREFORE, REVERSE THE ORDER OF THE A UTHORITIES BELOW ON THIS POINT AND ALLOW THE ASSESSEES CLAIM THAT THE TAX PAID BY THE EMPLOYER IN RESPECT OF SALARY PAID TO THE AFORESAID ASSESSEES WOULD CONSTITUTE NO N-MONETARY PERQUISITE ELIGIBLE FOR EXEMPTION U/S 10(10CC) OF THE ACT. IN OTHER WO RDS, THE ASSESSEES CLAIM OF EXEMPTION U/S 10(10CC) OF THE ACT IN RESPECT OF TAX PAID BY THE EMPLOYER IN RESPECT OF SALARY PAID TO ITS EMPLOYEES, OF THE ACT IS DIRECTED TO BE ALLOWED. THE AO SHALL MODIFY THE ASSESSMENT ORDERS OF ALL THESE ASSESSEES ACCORDINGLY. 5. IT IS PERTINENT TO MENTION THAT THE TRIBUNAL VID E ORDER DATED 13.8.2009, IN THE CASE OF THIS ASSESSEE ITSELF DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE SPECIAL BENCH REFERRE D TO ABOVE. THE AO IS DIRECTED TO ALLOW ASSESSEES CLAIM OF EXEMPTION U/S 10(10CC) IN TERMS INDICATED HEREINABOVE. 6. THE ASSESSEES IN ITA NOS.1716, 1718 & 1720/DEL/2 006 HAVE ALSO TAKEN GROUND WITH REGARD TO CHARGING OF INTEREST U/S 234B . WE FOUND THAT THE ISSUE IS DECIDED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SEDCO ITA-1715 TO 1720/D/2006 21 FOREX DRILLING CO.LTD. 264 ITR 320, WHEREIN IT WA S HELD THAT INCOME WHICH IS SUBJECT TO TDS AND BONA-FIDE DISPUTE ARISES AT THE RELEVANT TIME WHEN THERE ARE CONFLICTING DECISIONS OF THE TRIBUNAL VIS--VIS THE TAXABILITY OF OFF-PERIOD SALARY DUE TO NON-RESIDENT ASSESSEES, NO INTEREST IS LEVIA BLE U/S 234B. IT WAS FURTHER HELD THAT INCOME TAX CALCULATED U/S 209(1)(B) IS TO BE R EDUCED BY THE AMOUNT OF TAX DEDUCTIBLE AT SOURCE AND WHEN THE EMPLOYER COMPANY FAILED TO DEDUCT TAX AT SOURCE FOR WHICH ASSESSEE CANNOT BE FAULTED, THUS C HARGING OF INTEREST U/S 234B WAS HELD TO BE NOT JUSTIFIED. RESPECTFULLY FOLLOWI NG THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT, WE HOLD THAT IN THE INST ANT APPEALS, NO INTEREST IS LEVIABLE U/S 234B OF THE ACT. 7. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEES ARE ALLOWED, IN TERMS INDICATED HEREINABOVE. DECISION PRONOUNCED IN THE OPEN COURT ON 9 TH JUNE, 2010. SD/- SD/- (A.D.JAIN) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 09.06.2010. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT DEPUTY REGISTRAR ITA-1715 TO 1720/D/2006 22