Employees State Insurance Corporation , Bangalore V. Income Tax Officer TDS Ward-1(2), Bangalore

ITA 2169/BANG/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 5421 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 10-07-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R G BALASUBRAMANYAM
• Keywords: Bonafide belief; Difference of opinion; TDS
• Section: 201(1); 201; 191; 192; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI JASON P. BOAZ , ACCOUNTANT MEMBER I TA NO S. 2163 TO 2170/BANG/2018 ASSESSMENT YEAR S : 2011 - 12 TO 2014 - 15 EMPLOYEES STATE INSURANCE CORPORATION, BINNY MILL, BINNYPET, BANGALORE 560 023. PAN: BLRE 0379 D VS. THE INCOME TAX OFFICER (TDS), WARD 1(2), BANGALORE. APP EL L ANT RESPONDENT APP ELL ANT BY : SHRI R.G. BALASUBRAMANYAM, CA RE SPONDENT BY : DR. P.V. PRADEEP KUMAR, ADDL.CIT (DR)(ITAT), BENGALURU. DATE OF HEARING : 14.08 .2019 DATE OF PRONOUNCEMENT : 28 . 0 8 . 201 9 O R D E R PER BENCH THESE ARE APPEALS BY THE ASSESSEE AGAINST THE CO MMON ORDER DATED 12.04.2018 OF THE CIT(APPEALS)-13, BENGALURU RELATING TO ASSESSMENT YEARS 2011-12 TO 2014-15. IN THE IMPUGN ED ORDER, THE CIT(APPEALS) HAS UPHELD THE ORDER OF THE AO TREATIN G THE ASSESSEE AS AN ASSESSEE IN DEFAULT U/S. 201(1) OF THE INCOME-TAX A CT, 1961 [THE ACT] AND LEVYING INTEREST ON TAX THAT OUGHT TO HAVE BEEN DED UCTED ON DATE ON WHICH IT SHOULD HAVE BEEN PAID TO THE CREDIT TO THE CENTR AL GOVT. TILL SUCH TIME IT IS ACTUALLY PAID U/S. 201(1A) OF THE ACT. ITA NOS. 2163 TO 2170/BANG/2018 PAGE 2 OF 17 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 CORPORATIO N IS ESTABLISHED BY AN ACT OF THE PARLIAMENT TO PROVIDE FOR CERTAIN BEN EFITS TO EMPLOYEES IN CASE OF SICKNESS, MATERNITY AND EMPLOYMENT INJURY A ND TO MAKE PROVISION FOR CERTAIN OTHER MATTERS IN RELATION THERETO. THE CORPORATION IS UNDER THE CONTROL OF BOTH CENTRAL AND STATE GOVERNMENTS AND G OVERNED BY MINISTRY OF LABOUR AND EMPLOYMENT. SOME OF THE RELEVANT SECTION S FROM THE EMPLOYEES STATE INSURANCE CORPORATION ACT, 1948 ARE EXTRACTED BELOW:- 3. ESTABLISHMENT OF EMPLOYEES' STATE INSURANCE CORPORA TION (1) WITH EFFECT FROM SUCH DATE AS THE CENTRAL GOVER NMENT MAY, BY NOTIFICATION IN THE OFFICIAL GAZETTE, APPOINT I N THIS BEHALF THERE SHALL BE ESTABLISHED FOR THE ADMINISTRATION O F THE SCHEME OF EMPLOYEES' STATE INSURANCE IN ACCORDANCE WITH THE P ROVISIONS OF THIS ACT A CORPORATION TO BE KNOWN AS THE EMPLOYEES ' STATE INSURANCE CORPORATION. (2) THE CORPORATION SHALL BE A BODY CORPORATE BY TH E NAME OF EMPLOYEES' STATE INSURANCE CORPORATION HAVING PERPE TUAL SUCCESSION AND A COMMON SEAL AND SHALL BY THE SAID NAME SUE AND BE SUED. 16. PRINCIPAL OFFICERS . [(1) THE CENTRAL GOVERNMENT MAY, IN CONSULTATION WITH THE CORPORATION, APPOINT A DIRECT OR-GENERAL AND A FINANCIAL COMMISSIONER.] (2) THE DIRECTOR-GENERAL SHALL BE THE CHIEF EXECUT IVE OFFICER OF THE CORPORATION. ITA NOS. 2163 TO 2170/BANG/2018 PAGE 3 OF 17 (3) [THE DIRECTOR-GENERAL AND THE FINANCIAL COMMIS SIONER] SHALL BE WHOLE-TIME OFFICERS OF THE CORPORATION AND SHALL NOT UNDERTAKE ANY WORK UNCONNECTED WITH THEIR OFFICE WI THOUT THE SANCTION OF THE CENTRAL GOVERNMENT 2 [AND OF THE CO RPORATION]. (4) [THE DIRECTOR-GENERAL OR THE FINANCIAL COMMISS IONER] SHALL HOLD OFFICE FOR SUCH PERIOD, NOT EXCEEDING FI VE YEARS, AS MAY BE SPECIFIED IN THE ORDER APPOINTING HIM. AN OUTGOI NG [DIRECTOR- GENERAL OR FINANCIAL COMMISSIONER] SHALL BE ELIGIBL E FOR RE- APPOINTMENT IF HE IS OTHERWISE QUALIFIED. (5) [THE DIRECTOR-GENERAL OR THE FINANCIAL COMMISS IONER] SHALL RECEIVE SUCH SALARY AND ALLOWANCES AS MAY BE PRESCRIBED BY THE CENTRAL GOVERNMENT. (6) A PERSON SHALL BE DISQUALIFIED FROM BEING APPO INTED AS OR FOR BEING [THE DIRECTOR GENERAL OR THE FINANCIAL CO MMISSIONER] IF HE IS SUBJECT TO ANY OF THE DISQUALIFICATIONS SPECI FIED IN SECTION 13. (7) THE CENTRAL GOVERNMENT MAY AT ANY TIME REMOVE [THE DIRECTOR-GENERAL OR THE FINANCIAL COMMISSIONER] FRO M OFFICE AND SHALL DO SO IF SUCH REMOVAL IS RECOMMENDED BY A RES OLUTION OF THE CORPORATION PASSED AT A SPECIAL MEETING CALLED FOR THE PURPOSE AND SUPPORTED BY THE VOTES OF NOT LESS THAN TWO-THI RD IS OF THE TOTAL STRENGTH OF THE CORPORATION. 17. STAFF (1) THE CORPORATION MAY EMPLOY SUCH OTHER STAFF OF OFFICERS AND SERVANTS AS MAY BE NECESSARY FOR THE E FFICIENT TRANSACTION OF ITS BUSINESS PROVIDED THAT THE SANCT ION OF THE CENTRAL GOVERNMENT SHALL BE OBTAINED FOR THE CREATI ON OF ANY POST [THE MAXIMUM MONTHLY SALARY OF WHICH [EXCEEDS SUCH SALARY AS MAY BE PRESCRIBED BY THE CENTRAL GOVERNMENT. (2) (A) THE METHOD OF RECRUITMENT, SALARY AND ALLOW ANCES, DISCIPLINE AND OTHER CONDITIONS OF SERVICE OF THE M EMBERS OF THE STAFF OF THE CORPORATION SHALL BE SUCH AS MAY BE S PECIFIED IN THE REGULATIONS MADE BY THE CORPORATION IN ACCORDANCE WITH THE RULES AND ORDERS APPLICABLE TO THE OFFICERS AND EMPLOYEES OF THE CENTRAL GOVERNMENT DRAWING CORRESPONDING SCALES OF PAY : ITA NOS. 2163 TO 2170/BANG/2018 PAGE 4 OF 17 PROVIDED THAT WHERE THE CORPORATION IS OF THE OPINI ON THAT IT IS NECESSARY TO MAKE A DEPARTURE FROM THE SAID RULES O R ORDERS IN RESPECT OF ANY OF THE MATTERS AFORESAID, IT SHALL O BTAIN THE PRIOR APPROVAL OF THE CENTRAL GOVERNMENT. PROVIDED FURTHER THAT THIS SUB-SECTION SHALL NOT AP PLY TO APPOINTMENT OF CONSULTANTS AND SPECIALISTS IN VARIO US FIELDS APPOINTED ON CONTRACT BASIS.] (B) IN DETERMINING THE CORRESPONDING SCALES OF PAY OF THE MEMBERS OF THE STAFF UNDER CLAUSE (A), THE CORPORAT ION SHALL HAVE REGARD TO THE EDUCATIONAL QUALIFICATIONS, METHOD OF RECRUITMENT, DUTIES AND RESPONSIBILITIES OF SUCH OFFICERS AND EM PLOYEES UNDER THE CENTRAL GOVERNMENT AND IN CASE OF ANY DOUBT, TH E CORPORATION SHALL REFER THE MATTER TO THE CENTRAL G OVERNMENT WHOSE DECISION THEREON SHALL BE FINAL.] (3) EVERY APPOINTMENT TO [POSTS [(OTHER THAN MEDICA L POSTS)] CORRESPONDING TO [GROUP A AND GROUP B] POSTS UNDER THE CENTRAL GOVERNMENT] SHALL BE MADE IN CONSULTATION WITH THE UNION PUBLIC SERVICE COMMISSION: PROVIDED THAT THIS SUB-SECTION SHALL NOT APPLY TO AN OFFICIATING OR TEMPORARY APPOINTMENT FO R [A PERIOD] NOT EXCEEDING ONE YEAR. [PROVIDED FURTHER THAT ANY SUCH OFFICIATING OR TEMP ORARY APPOINTMENT SHALL NOT CONFER ANY CLAIM FOR REGULAR APPOINTMENT AND THE SERVICES RENDERED IN THAT CAPACITY SHALL NO T COUNT TOWARDS SENIORITY OR MINIMUM QUALIFYING SERVICE SPECIFIED I N THE REGULATIONS FOR PROMOTION TO NEXT HIGHER GRADE.] (4) IF ANY QUESTION ARISES WHETHER A POST CORRESPON DS TO A 3 [GROUP A AND GROUP B] POST UNDER THE CENTRAL GOVERN MENT, THE QUESTION SHALL BE REFERRED TO THAT GOVERNMENT WHOSE DECISION THEREON SHALL BE FINAL.] 93. CORPORATION OFFICERS AND SERVANTS TO BE PUBLIC SERVANTS. ALL OFFICERS AND SERVANTS OF THE CORPORATION SHAL L BE DEEMED TO BE PUBLIC SERVANTS WITHIN THE MEANING OF SECTION 21 OF THE INDIAN PENAL CODE (45 OF 1860). ITA NOS. 2163 TO 2170/BANG/2018 PAGE 5 OF 17 4. ACCORDING TO THE ASSESSEE, IT HAS ALL THE CHARAC TERISTICS OF AN ORGAN OF THE GOVERNMENT. BASED ON THIS THE ASSESSEE WAS A LWAYS CALCULATING THE PERQUISITE VALUE ON ACCOMMODATION PROVIDED TO ITS E MPLOYEES UNDER THE BONAFIDE BELIEF THAT IT IS AN ORGAN OF THE GOVERNMENT EVEN AFTER THE AMENDMENT OF RULE 3 IN THE YEAR 2001. THE EMPLOYEE S OF THE ASSESSEE ARE ALLOTTED UNFURNISHED QUARTERS. THE VALUE OF THE PERQUISITE IN THE FORM OF PROVIDING ACCOMMODATION TO ITS EMPLOYEES HAD TO BE COMPUTED BY THE ASSESSEE. AFTER SUCH VALUATION THE ASSESSEE HAS TO INCLUDE THE VALUE OF PERQUISITE IN THE INCOME UNDER THE HEAD SALARIES AN D DEDUCT TAX AT SOURCE AS EMPLOYER. WHILE DETERMINING THE VALUE OF PERQUIS ITES THE ASSESSEE APPLIED SL.NO.1 OF TABLE-1 OF RULE 3 OF THE INCOME TAX RULES, 1962 (RULES). ACCORDING TO THE REVENUE SL.NO.1 OF TABLE- 1 OF RULE 3 OF THE RULES IS NOT APPLICABLE TO THE ASSESSEE AS THEY CAN NOT BE CONSIDERED TO BE EMPLOYEES EITHER HOLDING OFFICE OR POST IN CONNECTI ON WITH THE AFFAIRS OF THE 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 REAS ON OF HIS EMPLOYMENT SHALL BE DETERMINED IN ACCORDANCE WITH T HE FOLLOWING SUB-RULES, NAMELY : (1) THE VALUE OF RESIDENTIAL ACCOMMODATION PROVIDED BY THE EMPLOYER DURING THE PREVIOUS YEAR SHALL BE DETERMIN ED ON THE BASIS PROVIDED IN THE TABLE BELOW: ITA NOS. 2163 TO 2170/BANG/2018 PAGE 6 OF 17 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 THE SAME BY THE EMPLOYEE DURING THE PREVIOUS YEAR. (2) WHERE THE ACCOMMODATION IS PROVIDED BY ANY OTHER EMPLOYER AND (A) WHERE THE ACCOMMODATION IS OWNED BY THE EMPLOYER, OR (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 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 ITA NOS. 2163 TO 2170/BANG/2018 PAGE 7 OF 17 (B) WHERE THE ACCOMMODATION IS TAKEN ON LEASE OR RENT BY THE EMPLOYER. 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 LOWER AS REDUCED BY THE RENT, IF ANY, ACTUALLY PAID BY THE EMPLOYEE. 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 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 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: ITA NOS. 2163 TO 2170/BANG/2018 PAGE 8 OF 17 ANOTHER) PROVIDED THAT NOTHING CONTAINED IN THIS SUB-RULE SH ALL APPLY TO ANY ACCOMMODATION PROVIDED TO AN EMPLOYEE WORKING AT A MINING SITE OR AN ON-SHORE OIL EXPLORATION SITE OR A PROJE CT EXECUTION SITE, OR A DAM SITE OR A POWER GENERATION SITE OR AN OFF- SHORE SITE (I) WHICH, BEING OF A TEMPORARY NATURE AND HAVING P LINTH AREA NOT EXCEEDING 800 SQUARE FEET, IS LOCATED NOT LESS THAN EIGHT KILOMETERS AWAY FROM THE LOCAL LIMITS OF ANY MUNICI PALITY OR A CANTONMENT BOARD; OR (II) WHICH IS LOCATED IN A REMOTE AREA : PROVIDED FURTHER THAT WHERE ON ACCOUNT OF HIS TRANS FER FROM ONE PLACE TO ANOTHER, THE EMPLOYEE IS PROVIDED WITH ACC OMMODATION AT THE NEW PLACE OF POSTING WHILE RETAINING THE ACC OMMODATION AT THE OTHER PLACE, THE VALUE OF PERQUISITE SHALL BE D ETERMINED WITH REFERENCE TO ONLY ONE SUCH ACCOMMODATION WHICH HAS THE LOWER VALUE WITH REFERENCE TO THE TABLE ABOVE FOR A PERIO D NOT EXCEEDING 90 DAYS AND THEREAFTER THE VALUE OF PERQU ISITE 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 D EPUTATION WITH ANY BODY OR UNDERTAKING UNDER THE CONTROL OF S UCH GOVERNMENT, (I) THE EMPLOYER OF SUCH AN EMPLOYEE SHALL BE DEEME D TO BE THAT BODY OR UNDERTAKING WHERE THE EMPLOYEE IS SERVING O N 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. ITA NOS. 2163 TO 2170/BANG/2018 PAGE 9 OF 17 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 ALSO LEVIED INTEREST THEREON U/S.201(1A) OF THE AC T. 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.113/2002 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 ACCOMMO DATION ALL EMPLOYEES WERE DIVIDED INTO THREE CATEGORIES: (I) C ENTRAL AND STATE GOVERNMENT EMPLOYEES, (II) EMPLOYEES OF PUBLI C SECTOR UNDERTAKING AND SEMI-GOVERNMENT ORGANIZATION AND (I II) OTHERS INCLUDING PRIVATE SECTOR EMPLOYEES. UNDER THE NEW RULE FOR THE PURPOSES OF VALUATION OF PERQUISITE OF ACCOMMODATIO N, EMPLOYEES ARE DIVIDED INTO TWO CATEGORIES: (I) CENTRAL & STAT E GOVERNMENT EMPLOYEES: AND (II) OTHERS. ITA NOS. 2163 TO 2170/BANG/2018 PAGE 10 OF 17 FOR EMPLOYEES OF THE CENTRAL AND STATE GOVERNMENT T HE VALUE OF PERQUISITE SHALL BE EQUAL TO THE LICENSE FEE CHARGE D FOR SUCH ACCOMMODATION. FOR ALL OTHERS , I.E. THOSE SALARIED TAXPAYERS NOT IN EMPLOYMENT OF THE CENTRAL GOVERNMENT AND THE STA TE GOVERNMENT, THE VALUATION OF PERQUISITE IN RESPECT OF ACCOMMODATION WOULD BE AT PRESCRIBED RATES. THE RA TE IS 10% OF SALARY IN CITIES HAVING 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 AFORESAID B ACKGROUND IN WHICH THE AMENDMENT TO THE RULES WERE MADE, THE AO INITIATED THE PROCEEDINGS U/S.201(1) OF THE ACT. THE CONTENTION OF THE ASSESSEE WAS THAT THEY ARE AUTONOMOUS BODIES/UNDERTAKINGS. THE E MPLOYEES OF THESE ORGANIZATIONS HAVE BEEN AGITATING OVER THE FACT THA T THE PERQUISITE VALUE SHOULD BE WORKED OUT CONSIDERING THEM ON PAR WITH G OVERNMENT 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 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 ITA NOS. 2163 TO 2170/BANG/2018 PAGE 11 OF 17 ACCOMMODATION PROVIDED BY GOVT. AND THAT 15% OF THE SALARY WILL BE THE VALUATION OF PERQUISITES. 11. IT IS NOT DISPUTED BEFORE US THAT THE FACTS AN D CIRCUMSTANCES OF THE ASSESSEE'S CASE ARE IDENTICAL TO THE CASE DECIDED B Y THE TRIBUNAL REFERRED TO ABOVE AND THEREFORE THE GRIEVANCE OF THE ASSESSE E PROJECTED IN THIS APPEAL TO THE EXTENT ALREADY DECIDED BY THE TRIBUNA L IN THE AFORESAID CASE CANNOT BE ACCEPTED. 12. THE LD. COUNSEL FOR THE ASSESSEE FURTHER POINTE D OUT THAT THOUGH RULE 3 OF THE RULES HAS BEEN AMENDED FROM 1.4.2001, THE ASSESSEE HAS BEEN ENTERTAINING UNDER 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 UNDER RULE 3 OF THE I.T. RULES. IT WAS ALSO SUBM ITTED BY HIM THAT THE ASSESSEE BELIEVED THAT IT WAS A CENTRAL GOVT. AS TH E ENTIRE CONTROL AND RULES & REGULATIONS APPLICABLE TO THE EMPLOYEES OF CENTRAL GOVT. BEING APPLICABLE TO THE ASSESSEE ALSO, WHICH ALL LED TO T HE BELIEF THAT ASSESSEE WAS INSTRUMENTALITY OF CENTRAL GOVT. IT WAS FURTHE R 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 AMENDMENT O F LAW FROM A.YS. 2001-02 TO 2010-11 AND EVEN THEREAFTER. THE REVENU E 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 ITA NOS. 2163 TO 2170/BANG/2018 PAGE 12 OF 17 13. 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. 14. 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 ITA NOS. 2163 TO 2170/BANG/2018 PAGE 13 OF 17 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 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) ITA NOS. 2163 TO 2170/BANG/2018 PAGE 14 OF 17 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) 15. THE LD. COUNSEL FOR THE ASSESSEE ACCORDINGLY PR AYED THAT THE ORDERS U/S. 201(1) AND 201(1A) BE CANCELLED. 16. THE LD. DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. ACCORDING TO HIM, THE CONSTITUTIONAL VALIDITY OF RU LE 3 WAS CHALLENGED IN 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. THE LD. DR ALSO POINTED OUT THAT THE TRIBUNA L IN THE CASE OF KPTCL V. ITO IN ITA NOS.2223 TO 2300/BANG/2017, ORDER DATED 2.5.2018 , HAS ACCEPTED THE PLEA OF BONAFIDE ESTIMATE OF INCOME UNDER THE HEAD SALARIES ON THE BASIS OF FACTS PREVAILING IN THAT CASE, WHER E THE KPTCL WAS EARLIER PART OF THE STATE OF ERSTWHILE MYSORE AND AFTER FOR MATION OF STATUTORY CORPORATION, THE EMPLOYEES OF STATE GOVT. BECAME TH E EMPLOYEES OF THE CORPORATION AND ON THOSE FACTS THE TRIBUNAL CAME TO THE CONCLUSION THAT THE ASSESSEE CANNOT BE TREATED AS ASSESSEE IN DEFAULT. 17. THE LD.DR ALSO POINTED OUT THAT IN THE CASE OF INDIAN INSTITUTE OF SCIENCE V. DCIT IN ITA NO.1589/BANG/2014, ORDER DATED 27.02.2015, THE PLEA OF BONAFIDE BELIEF WAS PUT FORTH BY THE ASSESSEE BEFORE THE CIT(APPEALS). HE ALSO PLACED RELIANCE ON THE DECIS ION OF THE BANGALORE BENCH OF TRIBUNAL IN THE CASE OF NATIONAL DAIRY RESEARCH INSTITUTE V. ITA NOS. 2163 TO 2170/BANG/2018 PAGE 15 OF 17 ACIT(TDS) [2018] 94 TAXMANN.COM 19 (BENGALURU TRI B.) WHEREIN ON A SIMILAR PLEA OF BONAFIDE BELIEF, THE TRIBUNAL HELD AS FOLLOWS:- AS REGARDS, THE ALTERNATIVE CONTENTION OF THE APPE LLANT THAT TAX WAS NOT DEDUCTED AT SOURCE ON THE VALUE OF PERQUISI TE OF ACCOMMODATION IN TERMS OF CLAUSE (II) OF SUB-RULE ( 1) OF INCOME- TAX RULES ON ACCOUNT OF ENTERTAINING A BONA FIDE BE LIEF THAT THE EMPLOYEES OF THE TRUST ARE CENTRAL GOVERNMENT EMPLO YEES, THE TERM 'BONA FIDE BELIEF' HAS NOT BEEN DEFINED UNDER THE PROVISIONS OF THE INCOME-TAX ACT, 1961 BUT THE PROVISIONS OF S UB-SECTION (22) OF SECTION 3 OF GENERAL CLAUSES ACT, 1897 DEFI NES THE TERM 'BONA FIDE BELIEF' TO MEAN THAT A THING SHALL BE DE EMED TO BE DONE IN GOOD FAITH WHERE IT IS IN FACT DONE HONESTLY, WH ETHER IT IS DONE NEGLIGENTLY OR NOT. THUS, IF THE ELEMENT OF HONESTY IS PRESENT, THE REQUIREMENT OF GOOD FAITH IS SATISFIED. BUT THIS RE QUIRES TO BE JUDGED TAKING INTO CONSIDERATION THE FACTUAL SITUAT ION PREVAILING IN A PARTICULAR SITUATION. IN THE INSTANT CASE, NO FAC TUAL FOUNDATION IS LAID AS TO HOW THE APPELLANT HAS ENTERTAINED A BONA FIDE BELIEF THAT ITS EMPLOYEES CAN BE TREATED AS CENTRAL GOVERNMENT EMPLOYEES. THEREFORE, NO RELIEF CAN BE GRANTED BASED ON BALD A SSERTION WITHOUT ANY ACTUAL FOUNDATION. THERE IS NO MERIT IN THE ARGUMENT OF THE APPELLANT THAT THE APPELLANT HAD ENTERTAINED THE BONA FIDE BELIEF AND, THEREFORE, NO TAX WAS DEDUCTED. THIS AR GUMENT IS ALSO DISMISSED. 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. THE LD. C OUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF BANGALORE TRIBUN AL IN THE CASE OF INDIAN INSTITUTE OF SCIENCE (SUPRA) AND KPTCL (SUPRA) . 19. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT I S NO DOUBT TRUE THAT IN THE DECISION RENDERED BY THIS TRIBUNAL IN THE CASE OF INDIAN INSTITUTE OF ITA NOS. 2163 TO 2170/BANG/2018 PAGE 16 OF 17 SCIENCE (SUPRA) , THE PLEA OF BONAFIDE ESTIMATE WAS PUT FORTH BY THE ASSESSEE BEFORE THE CIT(APPEALS), BUT IN THE PRESEN T CASE NO SUCH PLEA WAS PUT FORTH BY THE ASSESSEE BEFORE THE CIT(APPEAL S). THE FACT, HOWEVER, REMAINS THAT THERE WAS CONFUSION WITH REGARD TO, WH ETHER STATUTORY CORPORATIONS SUCH AS THE ASSESSEE AND ITS EMPLOYEES COULD BE REGARDED AS EMPLOYEES OF CENTRAL GOVT. IN FACT, THE VERY FOUND ATION FOR SUCH BELIEF ENTERTAINED BY THE ASSESSEE IS FOUND IN RULE 3 OF T HE INCOME-TAX RULES, 1962 PRIOR TO ITS AMENDMENT W.E.F. 1.4.2001. IN TH E WRITTEN SUBMISSIONS FILED BEFORE THE TRIBUNAL, IT HAS BEEN CONTENDED BY THE ASSESSEE THAT ONLY IN THE SURVEY THAT WAS CONDUCTED IN 2014 BY THE REV ENUE, THAT THE ASSESSEE WAS PUT ON NOTICE THAT ITS BELIEF THAT ITS EMPLOYEE S WERE EMPLOYEES OF CENTRAL GOVT. WAS NOT CORRECT. UNDER THESE CIRCUMS TANCES, THE ESTIMATE MADE BY THE ASSESSEE U/S .192 OF THE ACT FOR THE AY 2011-12 TO 2013-14, WITH WHICH WE ARE CONCERNED IN THE PRESENT APPEALS, CANNOT BE SAID TO BE NOT BONAFIDE . WE ARE OF THE VIEW THAT THE FACTS OF THE CASE IN THE PRESENT APPEALS ARE IDENTICAL TO THE CASE DECIDED BY THE TR IBUNAL IN THE CASE OF INDIAN INSTITUTE OF SCIENCE (SUPRA) AS WELL AS NATIONAL DAIRY RESEARCH INSTITUTE (SUPRA) . THE OBLIGATION U/S. 192 OF THE ACT ON THE PART O F EMPLOYER TO DEDUCT TAX AT SOURCE ON PAYMENT OF SALARY IS ON THE BASIS OF RATES IN FORCE IN THE FINANCIAL YEAR IN WHICH THE PAYMENT IS MADE ON THE ESTIMATED INCOME OF ASSESSEE UNDER THE HEAD SALARY. THE LE GISLATURE HAS USED THE EXPRESSION ESTIMATED INCOME AND THEREFORE THE ESTIMATE IF IT IS A BONAFIDE ESTIMATE, COULD ABSOLVE THE ASSESSEE OF ITS OBLIGAT ION U/S. 192 OF THE ACT. WE ARE, THEREFORE, OF THE VIEW THAT IN THE FACTS AN D CIRCUMSTANCES OF THE PRESENT CASE, THE ASSESSEE HAS MADE A BONAFIDE ESTIMATE OF EMPLOYEES SALARY BY VALUING THE PERQUISITE IN THE FORM OF RES IDENTIAL ACCOMMODATION PROVIDED TO THE EMPLOYEES, AS IF THE EMPLOYEES WERE EMPLOYEES OF CENTRAL GOVT. THEREFORE, THE ASSESSEE CANNOT BE HELD TO BE ASSESSEE IN DEFAULT U/S. 201(1) AND CONSEQUENTLY, NOT LIABLE TO PAY INT EREST U/S. 201(1A) OF THE ITA NOS. 2163 TO 2170/BANG/2018 PAGE 17 OF 17 ACT. WE HOLD AND DIRECT ACCORDINGLY AND ALLOW THE APPEALS OF THE ASSESSEE. 20. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF AUGUST, 2019. SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 28 TH AUGUST, 2019. / D ESAI S MURTHY / COPY TO: 1. THE APP ELLANT 2. THE RESPONDE NT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.