M/s KPTCL , Hubli V. ITO(OSD)(TDS)LTPU , Bangalore

ITA 2301/BANG/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1237 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 20-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K V ARVIND; DILIP STANDIN
• Keywords: Recovery proceedings; Search and seizure; Bonafide belief; Period of limitation; Non-deduction of tax; Difference of opinion; Change of opinion; Reassessment proceedings; TDS
• Section: 10(10AA); 201(1); 15; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI JASON P BOAZ, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER SL. NO. ITA NO. ASSESSMENT YEAR APPELLANT RESPONDENT 1-2 2301 & 2302/BANG/2017 PAN AABCK 7281 M 2014-15 M/S KARNATAKA POWER TRANSMISSION CORPORATION LTD. (KPCTL), HUBLI THE ITO (OSD), (TDS), LTU, BENGALURU. 3-4 2303 & 2304/BANG/2017 2014-15 M/S KPCTL, HASSAN 5-6 2305 & 2306/BANG/2017 2014-15 M/S KPTCL, TALGUPPA 7-8 2 3 0 7 & 23 0 8/BANG/2017 2014-15 M/S KPCTL, BANGALORE 9-10 2 3 0 9 & 23 1 0/BANG/2017 2014-15 M/S KPCTL, BANGALORE 11- 12 2311 & 2312/BANG/2017 2014-15 M/S KPCTL, BAGALKOT 13- 14 2313 & 2314/BANG/2017 2014-15 M/S KPCTL, BELGAUM 15- 16 2315 & 2316/BANG/2017 2014-15 M/S KPCTL, BELLARI 17- 18 2 3 1 7 & 2 3 1 8 /BANG/201 7 2014-15 M/S KPCTL, BANGALORE 19- 20 2319 & 2320/BANG/2017 2014-15 M/S KPCTL, BIJAPUR 21- 22 2321 & 2322/BANG/2017 2014-15 M/S KPCTL, BANGALORE 23- 24 2323TO 2324/BANG/2017 2014-15 M/S KPCTL, TUMKUR 25- 26 2325 & 2326/BANG/2017 2014-15 M/S KPCTL, BANGALORE 27- 28 2327 & 2328/BANG/2017 2014-15 M/S KPCTL, MYSORE 29- 30 2329 & 2330/BANG/2017 2014-15 M/S KPCTL, HASSAN 31- 32 2331 & 2332/BANG/2017 2014-15 M/S KPCTL, MUNIRABAD 33- 34 2333 & 2334/BANG/2017 2014-15 M/S KPCTL, SHIMOGA 35- 36 2335 & 2336/BANG/2017 2014-15 M/S KPCTL, TUMKUR ITA NO.2301 TO 2340/B/2017 PAGE 2 OF 21 37- 38 2337 & 2338/BANG/2017 2014-15 M/S KPCTL, KARKALA 39- 40 2339 & 2340/BANG/2017 2014-15 M/S KPCTL, TUMKUR PAN AABCK 7281 M APPELLANT BY : SHRI V CHANDRASHEKHAR, ADVOCATE SHRI TATA KRISHNA, ADVOCATE RESPONDENT BY : SHRI K.V ARVIND, ADVOCATE AND SHRI DILIP, ADVOCATE (STANDING COUNSELS) DATE OF HEARING : 16.05.2019 DATE OF PRONOUNCEMENT : 04.06.2019 O R D E R PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER : THE ASSESSEE M/S KARNATAKA POWER TRANSMISSION CORP ORATION LTD.(HEREINAFTER REFERRED TO AS KPTCL OR ASSESSEE) HAS FILED APPEALS AGAINST DIFFERENT ORDERS OF CIT(APPEALS) AND THE ON LY DISPUTED ISSUE IN APPEALS, WHETHER KPTCL CAN BE CONSIDERED AS ASSES SEE IN DEFAULT UNDER THE PROVISIONS OF SECTION 201(1) OF THE INCOM E TAX ACT, 1961 [THE ACT] FOR NOT DEDUCTING TAX AT SOURCE; AND, WHETHER KPTCL IS LIABLE TO PAY INTEREST ON TAX NOT DEDUCTED AT SOURCE U/S.201(1A) OF THE ACT? 2. THE ISSUES ARE TO BE DECIDED AS TO WHETHER THE ASSESSEE CAN BE HELD TO BE AN ASSESSEE IN DEFAULT U/S.201(1) OF T HE ACT AND THE BRIEF FACTS OF THE CASE ARE SAME. KPTCL PAID CASH EQUIVALENT OF UNUTILIZED LEAVE AT THE TIME OF THEIR RETIREMENT TO ITS EMPLOYEES. UN DER SECTION 17(1)(VA) SALARY INCLUDES (VA) ANY PAYMENT RECEIVED BY AN EMPLOYEE IN RESPECT OF ANY PERIOD OF LEAVE NOT AVAILED OF BY HI M. UNDER SECTION 192 OF THE ACT, ANY PERSON RESPONSIBLE FOR PAYING ANY INCOME CHARGEABLE UNDER THE HEAD SALARIES SHALL, AT THE TIME OF PAY MENT, DEDUCT INCOME- ITA NO.2301 TO 2340/B/2017 PAGE 3 OF 21 TAX ON THE AMOUNT PAYABLE AT THE AVERAGE RATE OF IN COME-TAX COMPUTED ON THE BASIS OF THE RATES IN FORCE FOR THE FINANCIAL Y EAR IN WHICH THE PAYMENT IS MADE ON THE ESTIMATED INCOME OF THE ASSESSEE UNDER THIS HEAD FOR THAT FINANCIAL YEAR. KPTCL, AS AN EMPLOYER, WAS BOUND T O DEDUCT TAX AT SOURCE ON THE SALARIES PAID TO ITS EMPLOYEES BY INCLUDING THE PAYMENT RECEIVED BY AN EMPLOYEE IN RESPECT OF ANY LEAVE PERIOD NOT AVAI LED BY THE EMPLOYEE. SECTION 201(1) & (1A) OF THE ACT LAYS DOWN CONSEQUE NCES IF TAX IS NOT DEDUCTED AT SOURCE WHEN THERE IS A REQUIREMENT TO D EDUCT TAX AT SOURCE LAID DOWN UNDER ANY PROVISIONS OF THE ACT AN D IT READS THUS:- SECTION-201: CONSEQUENCES FOR FAILURE TO DEDUCT OR PAY . (1) WHERE ANY PERSON, INCLUDING THE PRINCIPAL OFFIC ER OF A COMPANY, (A) WHO IS REQUIRED TO DEDUCT ANY SUM IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT; OR (B) REFERRED TO IN SUB-SECTION (1A) OF SECTION 192, BEING AN EMPLOYER, DOES NOT DEDUCT, OR DOES NOT PAY, OR AFTER SO DEDUC TING FAILS TO PAY, THE WHOLE OR ANY PART OF THE TAX, AS REQUIRED BY OR UNDER THIS ACT, THEN, SUCH PERSON, SHALL, WITHOUT PREJUDI CE TO ANY OTHER CONSEQUENCES WHICH HE MAY INCUR, BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH TAX: .. (1A) WITHOUT PREJUDICE TO THE PROVISIONS OF SUB-SEC TION (1), IF ANY SUCH PERSON, PRINCIPAL OFFICER OR COMPANY AS IS REF ERRED TO IN THAT SUB-SECTION DOES NOT DEDUCT THE WHOLE OR ANY PART O F THE TAX OR AFTER DEDUCTING FAILS TO PAY THE TAX AS REQUIRED BY OR UNDER THIS ACT, HE OR IT SHALL BE LIABLE TO PAY SIMPLE INTERES T, (I) AT ONE PER CENT FOR EVERY MONTH OR PART OF A MO NTH ON THE AMOUNT OF SUCH TAX FROM THE DATE ON WHICH SUCH TAX WAS DEDUCTIBLE TO THE DATE ON WHICH SUCH TAX IS DEDUCTE D; AND ITA NO.2301 TO 2340/B/2017 PAGE 4 OF 21 (II) AT ONE AND ONE-HALF PER CENT FOR EVERY MONTH O R PART OF A MONTH ON THE AMOUNT OF SUCH TAX FROM THE DATE ON WH ICH SUCH TAX WAS DEDUCTED TO THE DATE ON WHICH SUCH TAX IS A CTUALLY PAID, AND SUCH INTEREST SHALL BE PAID BEFORE FURNISHING T HE STATEMENT IN ACCORDANCE WITH THE PROVISIONS OF SUB-SECTION (3 ) OF SECTION 200:] .. 3. SECTION 10(10AA) OF THE ACT PROVIDES FOR CERTAIN EXEMPTION WHEN PAYMENTS ARE RECEIVED BY AN EMPLOYEE IN RESPECT OF LEAVE PERIOD NOT AVAILED BY THE EMPLOYEE. SECTION 10(10AA) OF THE ACT PROVIDES FOR THE FOLLOWING EXEMPTION VIZ.,:- SECTION 10: INCOMES NOT INCLUDED IN TOTAL INCOME. IN COMPUTING THE TOTAL INCOME OF A PREVIOUS YEAR OF ANY PERSON, ANY INCOME FALLING WITHIN ANY OF THE FOLLOWING CLAU SES SHALL NOT BE INCLUDED . (10AA) (I) ANY PAYMENT RECEIVED BY AN EMPLOYEE OF THE CENT RAL GOVERNMENT OR A STATE GOVERNMENT, AS THE CASH EQUIV ALENT OF THE LEAVE SALARY IN RESPECT OF THE PERIOD OF EARNED LEAVE AT HIS CREDIT AT THE TIME OF HIS RETIREMENT WHETHER ON SUP ERANNUATION OR OTHERWISE; (II) ANY PAYMENT OF THE NATURE REFERRED TO IN SUB-C LAUSE (I) RECEIVED BY AN EMPLOYEE, OTHER THAN AN EMPLOYEE OF THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT, IN RESPECT OF SO MUCH OF THE PERIOD OF EARNED LEAVE AT HIS CREDIT AT THE TIM E OF HIS RETIREMENT WHETHER ON SUPERANNUATION OR OTHERWISE A S DOES NOT EXCEED TEN MONTHS, CALCULATED ON THE BASIS OF THE A VERAGE SALARY DRAWN BY THE EMPLOYEE DURING THE PERIOD OF T EN MONTHS IMMEDIATELY PRECEDING HIS RETIREMENT WHETHER ON SUPERANNUATION OR OTHERWISE, SUBJECT TO SUCH LIMIT AS THE CENTRAL GOVERNMENT MAY, BY NOTIFICATION IN THE OFFICIAL GAZ ETTE, SPECIFY IN THIS BEHALF HAVING REGARD TO THE LIMIT APPLICABL E IN THIS BEHALF TO THE EMPLOYEES OF THAT GOVERNMENT: ITA NO.2301 TO 2340/B/2017 PAGE 5 OF 21 4. IT IS NOT IN DISPUTE THAT THE SPECIFIED LIMIT IN THE CASE OF EMPLOYEE OTHER THAN AN EMPLOYEE OF THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT I.E., EMPLOYEE FALLING WITHIN CLAUSE (II) OF SEC.10 AA IS RS. 3,00,000 IN SALARY TO EMPLOYEES WHO RETIRE, WHETHER ON SUPERANNUATION OR OTHERWISE, AFTER 1.4.1998 VIDE NOTIFICATION NO. 123/2002 DATED 31-5- 2002. 5. AS CAN BE SEEN FROM THE ABOVE PROVISIONS, IF THE EMPLOYEE TO WHOM PAYMENT IS MADE FOR UNUTILIZED LEAVE PERIOD IS AN E MPLOYEE OF CENTRAL OR STATE GOVERNMENT, THEN THE ENTIRE PAYMENT SO MADE I S EXEMPT AND THEREFORE, AN EMPLOYEE IN SUCH CIRCUMSTANCES IS NOT OBLIGED TO DEDUCT TAX AT SOURCE ON SUCH PAYMENT. IF, ON THE OTHER HAND, THE PERSON TO WHOM SUCH PAYMENT IS MADE IS NOT A CENTRAL OR STATE GOVE RNMENT EMPLOYEE, THEN ONLY RS.3 LACS IS EXEMPT AND THE REMAINING SUM IS TAXABLE AND THE EMPLOYER HAS TO DEDUCT TAX AT SOURCE ON PAYMENT IN EXCESS OF RS.3 LACS TOWARDS UNUTILIZED LEAVE PERIOD. 6. SEC.10(10AA) DOES NOT DEFINE AS TO WHO IS TO BE REGARDED AS EMPLOYEE OF CENTRAL OR A STATE GOVERNMENT. THE REV ENUES CASE IS KPTCL IS NOT STATE GOVERNMENT, BUT A STATUTORY CORPORATIO N AND THEREFORE ITS EMPLOYEES CANNOT BE REGARDED AS EMPLOYEES OF STATE GOVERNMENT AND THEREFORE, THEY OUGHT TO HAVE DEDUCTED TAX AT SOURC E ON PAYMENTS ABOVE RS.3 LACS ON ACCOUNT OF EARNED LEAVE AT THE TIME OF RETIREMENT. 7. KPTCL, IN THE PRESENT GROUP OF CASES, DID NOT DE DUCT TAX AT SOURCE ON PAYMENTS MADE TO ITS RETIREMENT EMPLOYEES TOWARD S UNUTILIZED LEAVE PERIOD WHERE SUCH PAYMENT WAS MADE IN EXCESS OF RS. 3 LACS. IT IS IN THIS SCENARIO THAT THE INCOME-TAX AUTHORITIES INITIATED PROCEEDINGS AGAINST THE ASSESSEE U/S.201(1) & 201(1A) OF THE ACT FOR TREATI NG KPTCL AS AN ASSESSEE IN DEFAULT AND ALSO FOR LEVYING INTEREST O N TAX NOT PAID TO THE ITA NO.2301 TO 2340/B/2017 PAGE 6 OF 21 CREDIT OF THE CENTRAL GOVERNMENT FOR THE PERIOD ON WHICH THE TAX DEDUCTED OUGHT TO HAVE BEEN REMITTED TILL SUCH TIME THEY WER E ACTUALLY REMITTED. 8. THE PLEA OF KPTCL WAS THAT ITS EMPLOYEES WERE EM PLOYEES OF THE STATE GOVERNMENT AND THEREFORE THE ENTIRE PAYMENT T O ITS EMPLOYEES TOWARDS UNUTILIZED LEAVE PERIOD ON RETIREMENT WAS E XEMPT U/S.10(10AA)(I) OF THE ACT. THE REVENUE HELD THAT KPTCL WAS A STAT UTORY CORPORATION AND THEREFORE ITS EMPLOYEES WERE NOT EMPLOYEES OF STATE GOVERNMENT AND THEREFORE KPTCL OUGHT TO HAVE DEDUCTED TAX AT SOURC E ON PAYMENT TO EMPLOYEES TOWARDS UNUTILIZED LEAVE PERIOD ON RETIRE MENT IN EXCESS OF RS.3 LACS WHICH ALONE WAS EXEMPT U/S.10(10AA)(II) OF THE ACT. IN OTHER WORDS, THE STAND OF THE REVENUE WAS THAT THE CLAUSE APPLIC ABLE FOR DETERMINING LIABILITY TO DEDUCT TAX AT SOURCE WAS SEC.10(10AA)( II) AND NOT SECTION 10(10AA)(I) OF THE ACT. 9. BOTH THE AO AND THE CIT(A) REJECTED THE PLEA OF KPTCL AND THAT IS HOW KPTCL IS IN APPEAL BEFORE THE TRIBUNAL. THE APP ELLANTS IN THESE APPEALS ARE THE VARIOUS DIVISIONS OF KPTCL SITUATE AT VARIOUS DISTRICTS IN THE STATE OF KARNATAKA. 10. FIVE PROPOSITIONS WERE CANVASSED ON BEHALF OF K PTCL BY THE LEARNED COUNSELS FOR KPTCL CHALLENGING THE ORDERS O F CIT(A) CONFIRMING THE ACTION OF THE AO IN HOLDING KPTCL TO BE AN ASSE SSEE IN DEFAULT U/S.201(1) OF THE ACT. THEY ARE:- (I) ASSUMPTION OF JURISDICTION BY THE RESPONDENT IN ALL THESE APPEALS IS BAD IN LAW AND HENCE THE ORDERS PASSED U/S.201(1) & 201(1A) OF THE ACT ARE INVALID. (II) THE ORDERS PASSED U/S.201(1) & 201(1A) OF THE ACT ARE BEYOND THE PERIOD OF LIMITATION AND HENCE BARRE D BY TIME. ITA NO.2301 TO 2340/B/2017 PAGE 7 OF 21 (III) THE PAYMENTS IN QUESTION FOR WHICH KPTCL WAS TREATED AS ASSESSEE IN DEFAULT FOR NOT DEDUCTING TAX AT SOURCE WERE NOT IN THE NATURE OF INCOME WITH IN THE MEANING OF SEC.17(1)(VA) OF THE ACT AND THEREFORE THERE WAS NO OBLIGATION ON THE PART OF TH E ASSESSEE TO DEDUCT TAX AT SOURCE; (IV) THE PROVISIONS OF SEC.10(10AA)(I) OF THE ACT A RE APPLICABLE IN THE CASE OF THE ASSESSEE AS THE EMPLOYEES OF KPTCL ARE TO BE REGARDED AS EMPLOYEES OF STATE GOVERNMENT; (V) THE PROVISIONS OF SEC.201(1) & 201(1A) OF THE A CT ARE NOT ATTRACTED IN THE PRESENT CASE BECAUSE THE NON DEDUCTION OF TAX AT SOURCE BY KPTCL WAS UNDER THE BONAFIDE BELIEF THAT IT WAS NOT OBLIGED TO DEDU CT TAX AT SOURCE ON PAYMENTS IN EXCESS OF RS.3 LACS TOWARDS UNUTILIZED LEAVE PERIOD AS IT BELIEVED THAT ITS EMPLOYEES WERE EMPLOYEES OF STATE GOVERNMENT AND THEREFORE THE APPLICABLE PROVISIONS WILL BE ONL Y SEC.10(10AA)(I) OF THE ACT. 11. WE FIND THAT THE IDENTICAL ISSUE IN THE CASE OF KPTCL, THE APPELLANT, IN ALL THESE APPEALS CAME UP FOR CONSIDERATION BEFO RE THIS TRIBUNAL IN ITA NO.2223/BANG/2017 TO 2300/BANG/2017 AND THIS TRIBU NAL BY ITS ORDER DATED 2.5.2018 ALLOWED THE APPEALS OF KPTCL HOLDING AS FOLLOWS:- 11. WE HAVE HEARD THE PARTIES ON PROPOSITION (IV) AND (V) ALONE AS THERE ARE DECISIONS OF ITAT BANGALORE BENCH ON I DENTICAL FACTS AND IDENTICAL ISSUES. AS FAR AS PROPOSITION NO. (IV) IS CONCERNED, IT WAS SUBMITTED BY THE LEARNED DR THAT THIS TRIBUNAL IN THE CASE OF CENTRAL FOOD TECHNOLOGICAL RESEARCH INSTITUTE VS. THE ITO (TDS), MYSORE, ITA NO.1607 TO 1611/BANG/201 3 ORDER DATED 4.7.2014 THIS TRIBUNAL HAS ALREADY TAKEN A VI EW ON IDENTICAL FACTS AND CIRCUMSTANCES OF THE CASE OF TH E ASSESSEE THAT EMPLOYEES OF STATUTORY CORPORATIONS CANNOT BE REGARDED AS EMPLOYEES OF THE STATE OR CENTRAL GOVERNMENT. IN V IEW OF THE AFORESAID DECISION OF THE TRIBUNAL, WE HOLD THAT TH ERE IS NO MERIT IN PROPOSITION NO.(IV) CANVASSED BY THE PARTIES BEF ORE US. 12. AS FAR AS PROPOSITION NO.(V) SET OUT ABOVE, WE HAVE HEARD THE RIVAL SUBMISSIONS. BEFORE THE TRIBUNAL SUBMISS IONS WERE MADE ON BEHALF OF KPTCL BY THE LEARNED COUNSEL FOR KPTCL ITA NO.2301 TO 2340/B/2017 PAGE 8 OF 21 POINTING OUT THE HISTORICAL BACKGROUND UNDER WHICH KPTCL CAME INTO EXISTENCE. PRIOR TO ENACTMENT OF ELECTRICITY ACT, 2003 (CENTRAL ACT) SUPPLY OF ELECTRICITY WAS GOVERNED BY THE ELECTRICITY (SUPPLY) ACT, 1948 (AGAIN A CENTRAL ACT). AS PER S ECTION 5(1) OF THE ELECTRICITY (SUPPLY) ACT, 1948, EVERY STATE HAD TO CONSTITUTE A STATE ELECTRICITY BOARD (SEB) BY NOTIFICATION IN OF FICIAL GAZETTE. SEC.12 OF THE SAID ACT STIPULATED THAT SEBS SO CONS TITUTED SHALL BE A BODY CORPORATE HAVING PERPETUAL SUCCESSION AND A COMMON SEAL WITH POWER TO ACQUIRE AND HOLD PROPERTY BOTH MOVABLE AND IMMOVABLE AND SHALL BE CAPABLE OF SUING AND BE SUED. THAT IS HOW MYSORE ELECTRICITY BOARD CAME TO BE ESTABLISHED ON 1.10.1957 WHICH WAS SUBSEQUENTLY NAM ED AS KARNATAKA STATE ELECTRICITY BOARD (KEB). EMPLOYEES OF STATE GOVERNMENT BECAME EMPLOYEES OF KEB. 13. IN VIEW OF LOSSES INCURRED BY KEB, GOVERNMEN T OF KARNATAKA CAME OUT WITH GENERAL POLICY PROPOSING FU NDAMENTAL AND RADICAL REFORMS IN THE POWER SECTOR. ACCORDING LY, KARNATAKA ELECTRICITY REFORMS ACT, 1999 (KERA) WAS ENACTED BY THE KARNATAKA STATE LEGISLATURE WHICH ADVOCATED DIVISIO N OF THE FUNCTIONS OF GENERATION, TRANSMISSION & DISTRIBUTIO N OF ELECTRICITY AND EACH FUNCTION TO BE PERFORMED WAS ENTRUSTED TO VARIOUS STATUTORY CORPORATIONS. THE FUNCTION OF GENERATION OF ELECTRICITY WAS TRANSFERRED TO VISWESHWARAIAH VIDYUTH NIGAMA LI MITED WAY BACK IN 1970. BY SECTION 14(3) OF KERA, KPTCL WAS INCORPORATED AND THE FUNCTION OF TRANSMISSION AND D ISTRIBUTION OF ELECTRICITY WAS TRANSFERRED TO KPTCL. SUBSEQUENTLY THE DISTRIBUTION FUNCTION WAS GIVEN TO FOUR INDEPENDENT DISTRIBUTION COMPANIES IN 2002 VIZ., BESCOM, MESCOM, HESCOM, GESCOM. EMPLOYEES OF KEB BECAME EMPLOYEES OF KPTCL. 14. IT IS THE PLEA OF KPTCL THAT AFTER ITS INCEP TION TILL AY 2012- 13 IT HAS BEEN DEDUCTING TDS BY CONSIDERING ITS EMP LOYEES AS EMPLOYEES OF STATE GOVERNMENT IN VIEW OF THE HISTOR ICAL BACKGROUND UNDER WHICH KPTCL CAME INTO EXISTENCE. THE REVENUE HAS ACCEPTED IN THE PAST THE MANNER IN WHIC H TAX WAS DEDUCTED AT SOURCE BY KPTCL BY CONSIDERING THE EMPL OYEES OF KPTCL AS EMPLOYEES OF STATE GOVERNMENT. IT WAS POI NTED OUT THAT IT IS ONLY IN AY 2012-13, THAT THE REVENUE TOO K THE STAND THAT EMPLOYEES OF KPTCL WERE NOT TO BE REGARDED AS EMPLO YEES OF STATE GOVERNMENT BECAUSE EMPLOYMENT UNDER KPTCL CAN NOT BE EQUATED WITH AN OFFICE OR POST IN CONNECTION WIT H THE AFFAIRS OF SUCH STATE. IT WAS FOR THE FIRST TIME THAT THE REV ENUE TOOK THE ITA NO.2301 TO 2340/B/2017 PAGE 9 OF 21 STAND THAT STATUTORY CORPORATIONS SUCH AS KPTCL WER E NOT TO BE REGARDED AS STATE GOVERNMENT. IT HAS ALSO BEEN CON TENDED THAT THE ASSESSEE HAS BEEN FILING RETURN OF TDS FOR AY 2 013-14 IN THE STATUS OF STATUTORY BODY (STATE GOVT.) IN FORM NO.27A. 15. THE LEARNED COUNSEL FOR KPTCL DREW OUR ATTEN TION TO THE TRIPARTITE AGREEMENT DATED 31.7.1999 UNDER THE PROV ISIONS OF SUB-SECTION 2 OF SECTION 15 OF THE KARNATAKA ELECTR ICITY REFORM ORDINANCE, 1999 BETWEEN THE GOVERNMENT OF KARNATAKA AND KEB AND KEB EMPLOYEES UNION, WHEREIN ON CORPORATIZA TION OF THE TRANSMISSION AND DISTRIBUTION BUSINESS BY FORMI NG KPTCL EMPLOYEES OF ERSTWHILE KEB EXPRESSED APPREHENSION T HAT THEIR SERVICES WILL BE PRIVATIZED. KEB UNDER THE TRIPART ITE AGREEMENT ALLAYED THEIR FEARS AND ASSURED THEM THAT ALL THAT THE EMPLOYEES WILL GET AS EMPLOYEES OF KEB WILL CONTINUE TO BE AV AILABLE EVEN AFTER FORMATION OF KPTCL. ATTENTION WAS DRAWN TO S OME OF THE DOCUMENTS IN THE PAPER BOOK FILED REGARDING THE EXT ENT OF CONTROL AND PROTECTION THAT THE EMPLOYEES OF THE RESTRUCTUR ED CORPORATE ENTITIES OF THE ERSTWHILE KEB WERE SUBJECT TO OR GI VEN BY THE STATE GOVERNMENT. 16. THE LEARNED COUNSEL FOR KPTCL ALSO SUBMITTED THAT THE ISSUE WHETHER THE ASSESSEE WAS OBLIGED TO DEDUCT TA X AT SOURCE ON UNUTILIZED LEAVE ON RETIREMENT U/S.192 OF THE AC T WHICH CASTS OBLIGATION ON AN EMPLOYER TO DEDUCT TAX AT SOURCE O N SALARIES PAID. IT WAS ARGUED THAT UNDER CLAUSE (VA) TO SEC. 17(1) OF THE ACT IT IS ONLY ANY PAYMENT RECEIVED BY AN EMPLOYEE IN RESPECT OF ANY PERIOD OF LEAVE NOT AVAILED OF BY HI M. IT WAS SUBMITTED THAT ON RETIREMENT THE EMPLOYER EMPLOYEE RELATIONSHIP BETWEEN KPTCL AND THE RETIRING EMPLOYEE CEASES AND ANY PAYMENT MADE THEREAFTER CANNOT BE STRICTLY TERMED A S SALARY. OUR ATTENTION WAS DRAWN TO FINANCE ACT, 2018 WHICH INSERTED SEC.56(2)(XI) W.E.F. 1.4.2018 TO AVOID A POSSIBLE P LEA THAT MAY BE TAKEN IN SUCH CASES BY HOLDING THAT ANY PAYMENT POST RETIREMENT WILL ALSO BE CHARGEABLE TO TAX UNDER INC OME FROM OTHER SOURCES, IF IT IS NOT CHARGEABLE UNDER THE HE AD INCOME FROM SALARIES. TO HIGHLIGHT THE LEGAL POSITION THAT DEE MING PROVISIONS SHOULD RECEIVE STRICT CONSTRUCTION IN FISCAL STATUT E, THE LEARNED COUNSEL REFERRED TO THE DECISION OF THE HONBLE SUP REME COURT IN THE CASE OF V.M.SALG AOCAR & BROS.(P) LTD. VS. CIT 243 ITR 383(SC). ITA NO.2301 TO 2340/B/2017 PAGE 10 OF 21 17. THE LEARNED COUNSEL FOR THE ASSESSEE POINTING OUT THE ABOVE CIRCUMSTANCES SUBMITTED THAT U/S.192(1) OF TH E ACT THE OBLIGATION OF THE EMPLOYER IS ONLY TO DEDUCT TAX ON THE ESTIMATED INCOME OF THE ASSESSEE UNDER THE HEAD SALARIES FOR THAT FINANCIAL YEAR. IF THE ESTIMATE IS MADE BONAFIDE A ND TAX DEDUCTED ON SUCH BONAFIDE ESTIMATE THEN THERE CAN B E NO PROCEEDINGS TREATING THE PERSON RESPONSIBLE FOR DED UCTING TAX AT THE TIME OF PAYMENT, AS ASSESSEE IN DEFAULT. THE LEARNED COUNSEL FOR KPTCL PLACED RELIANCE ON A DECISION OF THE ITAT BANGALORE BENCH IN THE CASE OF INDIAN INSTITUTE OF SCIENCE VS. DCIT ITA NO.1589/BANG/2014 FOR AY 2010-11 ORDER DAT ED 27.2.2015 ON IDENTICAL FACTS. IN THE AFORESAID DE CISION, THE TRIBUNAL TOOK THE VIEW THAT THE ESTIMATE OF INCOME UNDER THE HEAD SALARY MADE BY THE ASSESSEE ON THE BELIEF THAT ITS EMPLOYEES WERE TO BE EQUATED WITH STATE GOVERNMENT EMPLOYEES WAS A BONAFIDE ESTIMATE AND THEREFORE THE ASSESSEE HAS DISCHARGED ITS OBLIGATION U/S.192 OF THE ACT AN D HENCE PROCEEDINGS U/S.201(1)( & 201(1A) OF THE ACT WERE T O BE QUASHED. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. KO TAK SECURITIES LTD. 340 ITR 333 (BOMBAY) WHEREIN THE HO NBLE BOMBAY HIGH COURT TOOK THE VIEW THAT WHEN THE QUEST ION WHETHER THERE WAS AN OBLIGATION TO DEDUCT TAX AT SO URCE OR NOT ON A PARTICULAR PAYMENT, IS HIGHLY DEBATABLE THEN T HE ASSESSEE CANNOT BE HELD TO BE A DEFAULTER FOR NOT DEDUCTING TAX AT SOURCE AND CONSEQUENTLY NO DISALLOWANCE U/S.40(A)(IA) OF T HE ACT FOR NON DEDUCTION OF TAX AT SOURCE SHOULD BE MADE. 18. THE LEARNED DR SUBMITTED THAT NO ATTEMPT WHAT SOEVER WAS MADE BY KPTCL TO SHOW THAT THE ESTIMATE OF INCO ME UNDER THE HEAD SALARIES MADE BY IT WAS BONAFIDE. ACCORDI NG TO HIM THERE IS ALWAYS AN OPTION U/S.197 OF THE ACT FOR TH E ASSESSEE TO APPROACH THE AO TO CLARIFY DOUBTS REGARDING THE COR RECT RATE OF TAX OR THE INCOME ON WHICH TAX HAS TO BE DEDUCTED. WE OBSERVE THAT SEC.197 OF THE ACT IS ONLY WITH REGARD TO RATE OF TAX OR NON DEDUCTION OF TAX AT SOURCE AND PROBABLY NOT APPLICA BLE TO RESOLVE THE QUESTION WHETHER AN ITEM OF INCOME IS TAXABLE O R NOT TAXABLE. ACCORDING TO HIM KPTCL SHOULD HAVE OBTAINED ESTIMAT E FROM THE EMPLOYEES AND ONLY THEN THEIR ACTION CAN BE SAI D TO BE BONAFIDE. THE LEARNED DR FURTHER PLACED RELIANCE O N THE FOLLOWING DECISIONS. ITA NO.2301 TO 2340/B/2017 PAGE 11 OF 21 (I) SBI VS. ACIT ITA NO.1395 TO 1412, 1424 TO 1426, 1456 TO 1458/BANG/2018 ORDER DATED 6.4.2018. (II) SYNDICATE BANK VS. ACIT ITA NO.1398 TO 1403 AN D 1435 TO 1477/BANG/2016 DATED 6.4.2017. (III) CIFCO FINANCE LTD. VS. ITO (2007) 13 SOT 376 (MUM) (IV) ERNAKULAM DISTRICT CO-OPERATIVE BANK VS. ACIT (2005) 142 TAXMAN 98 (KERALA) (V) CIT(TDS) VS. DIRECTOR, DPS (2011) 14 TAXMAN.COM 45 (P & H) (VI) DRAWING & DISBURSING OFFICER VS. ACIT 115 ITD 411 (ALL) 19. IT WAS SUBMITTED ON IDENTICAL FACTS SUCH AS THE ASSESSEE THE ITAT BANGALORE BENCH CONFIRMED ORDERS U/S.201(1 ) OF THE ACT IN THE CASE OF CENTRAL FOOD TECHNOLOGICAL RESEARCH INSTITUTE (SUPRA) AND CSIR NATIONAL AEROSPACE LABORATORIES VS . ACIT ITA NO.453 TO 456/BANG.2014 ORDER DATED 27.8.2014. 20. WE HAVE VERY CAREFULLY CONSIDERED THE RIVAL SU BMISSIONS. WE ARE OF THE VIEW THAT THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE ARE IDENTICAL TO THE CASE OF INDIAN INSTITUTE OF SCIENCE(SUPRA) DECIDED BY THE ITAT BANGALORE BENCH. IN THE SAID C ASE THE DEDUCTION OF TAX AT SOURCE WAS U/S.192 OF THE ACT. THE QUESTION WAS VALUATION OF PERQUISITES IN THE FORM OF RENT FR EE ACCOMMODATION PROVIDED TO EMPLOYEES OF A STATUTORY CORPORATION SU CH AS THE ASSESSEE. THE ASSESSEE IN THAT CASE TOOK SIMILAR P LEA OF BONAFIDE BELIEF AS RAISED BY KPTCL IN THE PRESENT PROCEEDING S. THE TRIBUNAL CONSIDERED THE SUBMISSIONS AND FIRSTLY FOU ND THAT THE LAW ON THE ISSUE OF BONAFIDE BELIEF IN THE MATTER OF ES TIMATING OF INCOME UNDER THE HEAD SALARIES FOR THE PURPOSE OF SECC.1 92 OF THE ACT, WAS EXPLAINED IN A DECISION OF ITAT BANGALORE IN TH E CASE OF ACIT VS. INFOSYS BPO LTD. 150 ITD 132 (BANG) IN THE FOLL OWING MANNER:- 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 S ALARY ACCRUED. SEC.192(3) OF THE ACT PERMITS THE EMPLOYER TO INCREASE OR REDUCE THE AMOUNT OF TDS FOR ANY EXCESS OR DEFICIENCY. WE HAVE ALREADY NOTICED THAT THE FACT THAT BILLS/EVIDENCE TO SUBSTANTIATE INCURRING OF EXPENDI TURE ON MEDICAL TREATMENT UP TO RS.15,000/- AND THE AVAILIN G OF THE LTC BY THE EMPLOYEES AND THE FULFILMENT OF THE ITA NO.2301 TO 2340/B/2017 PAGE 12 OF 21 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 TH E CASE OF THE AO, THAT AT THE TIME OF PAYMENT THE ASS ESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE, IS SUSTAINABL E; THE ASSESSEE ON A REVIEW OF THE TAXES DEDUCTED DURING T HE 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 I S THE TAXES 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 REIMBURSEMEN T SHOULD BE PAID AT THE TIME THE EXPENDITURE IS INCUR RED OR AFTER THE EXPENDITURE IS INCURRED BY WAY OF REIMBURSEMENT AND NOT AT AN EARLIER POINT OF TIME. IF IT IS SO PAID, THEN, EVEN THOUGH THE PAYMENT WOULD NOT FO RM PART OF TAXABLE SALARY OF AN EMPLOYEE, THE EMPLOYER HAS TO DEDUCT TAX AT SOURCE TREATING IT AS PART OF SALA RY, IS CONTRARY TO THE PROVISIONS OF SEC.192(3) OF THE ACT AND CANNOT BE SUSTAINED. THE RELIANCE PLACED BY THE A O ON THE EXPRESSION ACTUALLY INCURRED 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 INTERPRETATION OF THE WORD ACTUALLY PAID IS NOT R ELEVANT WHILE ASCERTAINING THE QUANTUM OF TAX THAT HAS TO B E DEDUCTED AT SOURCE U/S.192 OF THE ACT. AS FAR AS T HE ASSESSEE IS CONCERNED, HIS OBLIGATION IS ONLY TO MA KE AN ESTIMATE OF THE INCOME UNDER THE HEAD SALARIES 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 PROCEEDED AGAINST BUT THE PAYEES OF THE SUMS. TO REITERATE, THE PAYMENT TOWARDS MEDICAL EXPENDITURE AND LEAVE TRAVEL IS MADE KEEPING IN VIEW THE EMPLOYEE WELFARE. THE EXCLUSION IN RESPECT OF PAYMENT TOWARD S MEDICAL EXPENDITURE AND LEAVE TRAVEL IS CONSIDERED AFTER VERIFYING THE DETAILS AND EVIDENCE FURNISHED BY THE EMPLOYEES. NO EXEMPTION IS GRANTED IN THE ABSENCE O F DETAILS AND/OR EVIDENCE. THE EXEMPTION IN RESPECT O F MEDICAL EXPENDITURE IS RESTRICTED TO EXPENDITURE AC TUALLY ITA NO.2301 TO 2340/B/2017 PAGE 13 OF 21 INCURRED BY THE EMPLOYEES, OR RS. 15,000/- WHICHEVE R IS LOWER. THE EXEMPTION IS GRANTED EVEN IF 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 EXTE NDING THE DEDUCTION/EXEMPTION TO AN EMPLOYEE. NO TAX CAN BE RECOVERED FROM THE EMPLOYER ON ACCOUNT OF SHORT DEDUCTION OF TAX AT SOURCE UNDER SECTION 192 IF A B ONA FIDE ESTIMATE OF SALARY TAXABLE IN THE HANDS OF THE EMPLOYEE IS MADE BY THE EMPLOYER, IS THE RATIO OF T HE 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) 20. THE TRIBUNAL THEREAFTER PROCEEDED TO HOLD AS F OLLOWS:- 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 PERQUI SITES IN THE FORM OF RESIDENTIAL ACCOMMODATION PROVIDED T O THE EMPLOYEES BY VALUING THE SAME AS IF EMPLOYEES WERE EMPLOYEES OF CENTRAL GOVT. HAS TO BE ACCEPTED. IN THIS REGARD, IT IS CLEAR FROM THE RECORDS THAT THE POSIT ION WITH REGARD TO THE ASSESSEE NOT BEING A CENTRAL GOVT. WA S BROUGHT TO ITS NOTICE BY THE DEPARTMENT ONLY IN THE PROCEEDINGS INITIATED IN 2013. EVEN THEREAFTER, TH E ITA NO.2301 TO 2340/B/2017 PAGE 14 OF 21 ASSESSEE HAS BEEN TAKING A STAND THAT ITS EMPLOYEES OR EMPLOYEES OF CENTRAL GOVT. AS HELD IN SEVERAL DECI SION REFERRED TO BY THE LD. COUNSEL FOR THE ASSESSEE, TH E OBLIGATION OF THE ASSESSEE IS ONLY TO MAKE A BONAFI DE ESTIMATE OF THE SALARY. IN OUR VIEW, IN THE FACTS AND CIRCUMSTANCE OF THE PRESENT CASE, ASSESSEE HAS MADE SUCH AN ESTIMATE. THE ASSESSEES OBLIGATION U/S.19 2 IS THEREFORE PROPERLY DISCHARGED AND HENCE PROCEEDINGS U/S.201(1) & 201(1A) OF THE ACT HAVE TO BE QUASHED AND ARE HEREBY QUASHED. 22. WE ARE OF THE VIEW THAT THE CIRCUMSTANCES EXPL AINED BY THE LEARNED COUNSEL FOR KPTCL REGARDING THE MANN ER OF FORMATION OF KPTCL AND THE ACTION OF THE REVENUE IN NOT QUESTIONING KPTCLS ACTION IN THE PAST SEVERAL YEARS AFTER ITS FORMATION AND THE MANNER OF EXERCISE OF C ONTROL AND AFFORDING PROTECTING TO EMPLOYEES OF KPTCL BY T HE STATE GOVERNMENT WERE DEFINITELY FACTORS WHICH WEIG HED WITH KPTCL WHEN IT MADE ESTIMATE OF ITS EMPLOYEES INCOME UNDER THE HEAD SALARIES. THERE IS NO REAS ON FOR THEM TO THINK THAT ITS ESTIMATE OF EMPLOYEES INCOM E UNDER THE HEAD SALARIES WAS INCORRECT AS THE BELI EF IT ENTERTAINED WAS THAT ITS EMPLOYEES WERE TO BE REGAR DED AS EMPLOYEES OF STATE GOVERNMENT AND THAT ITS EMPLOYEES ARE ENTITLED TO EXEMPTION OF THE ENTIRE S UM OF UNUTILIZED LEAVE ENCASHMENT U/S.10(10AA)(I) OF THE ACT. 23. WITH REGARD TO THE DECISIONS CITED BY THE LEAR NED DR IN THE CASE OF CENTRAL FOOD TECHNOLOGICAL RESEARCH INSTITUTE(SUPRA) AND CSIR NATIONAL AEROSPACE LABORATORIES (SUPRA) RENDERED BY THE ITAT BANGALORE BENCHES, THE SAID DECISIONS ARE IDENTICAL TO THE CA SE OF THE ASSESSEE BUT IN THOSE DECISIONS THE ISSUE OF BO NFIDE ESTIMATE WHILE DEDUCTING TAX AT SOURCE WAS NEVER CONSIDERED NOR RAISED BY THE PARTIES. THEREFORE TH AT DECISION WILL HELP THE PLEA OF THE REVENUE ONLY TO THE EXTENT TO HOLD THAT THE EMPLOYEES OF KPTCL CANNOT B E REGARDED AS EMPLOYEES OF STATE GOVERNMENT. 24. WITH REGARD TO THE OTHER DECISIONS CITED BY TH E LEARNED DR, THOSE ARE CASES IN WHICH THE PERSON OBL IGED ITA NO.2301 TO 2340/B/2017 PAGE 15 OF 21 TO DEDUCT TAX AT SOURCE WERE AT NO POINT OF TIME INSTRUMENTALITY OF STATE. THEY WERE EITHER PRIVATE PARTIES OR BANKS. THOSE DECISIONS ARE THEREFORE NEITHER RE LEVANT NOR GERMANE TO THE ISSUE UNDER CONSIDERATION IN THE SE APPEALS. 25. FOR THE REASONS GIVEN ABOVE, WE HOLD THAT KPTC L HAS DISCHARGED ITS OBLIGATION U/S.192 AND HENCE PROCEEDINGS U/S.201(1) & 201(1A) OF THE ACT DESERVE S TO BE QUASHED AND ARE HEREBY QUASHED. ALL THE APPEALS OF KPTCL ARE ALLOWED. 26. IN THE RESULT, ALL THE APPEALS OF THE ASS ESSEE ARE ALLOWED. 12. WE FIND THE FACTS AND CIRCUMSTANCES IN THESE A PPEALS ARE SIMILAR AND THE PROCEEDINGS IN THESE APPEALS AND THE APPEAL S ALREADY DECIDED BY THE TRIBUNAL STARTED SIMULTANEOUSLY AS EVIDENCED BY THE CHART FILED BY THE LEARNED COUNSEL FOR THE ASSESSEE, WHICH IS PLACED O N RECORD. THE LEARNED STANDING COUNSEL FOR THE REVENUE, HOWEVER, SUBMITTE D THAT THE FOLLOWING CONTENTIONS WHICH WERE NOT PUT FORTH IN THE APPEALS DECIDED BY THE TRIBUNAL AND THE CONTENTIONS IN THE MISCELLANEOUS APPLICATIO N SEEKING RECTIFICATION OF THE EARLIER ORDER OF THE TRIBUNAL (COPIES OF WHICH WERE FILED BEFORE US), MAY BE CONSIDERED. SIMILAR SUBMISSIONS WERE ALREADY CO NSIDERED BY THIS TRIBUNAL IN MP NO.175/BANG/2018 TO 252/BANG/2018 IN ITA NO.2223/BANG/2017 TO 2300/BANG/2017 BY ORDER DATED 4.1.2019. WE SHALL NOW DEAL WITH THE CONTENTIONS OF THE REVENUE. 13. THE LEARNED DR OF THE REVENUE SUBMITTED THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. ELI LILLY & CO.(INDIA) PVT. LTD. (2009) 178 TAXMAN 505(SC) WHILE CANCELLING PENALTY U/S.271C OF THE ACT FOR N ON- DEDUCTION OF TAX AT SOURCE ON THE GROUND THAT THE E STIMATE OF SALARY FOR THE PURPOSE OF DEDUCTION OF TAX AT SOURCE BY THE ASSESS EE IN THAT CASE WAS ITA NO.2301 TO 2340/B/2017 PAGE 16 OF 21 BONAFIDE AND THEREFORE NO PENALTY SHOULD BE LEVIED, NEVERTH ELESS OBSERVED THAT THE ASSESSEE WAS LIABLE TO PROCEEDED AGAINST U /S.201(1) & 201(1A) OF THE ACT. IT IS THE PLEA OF THE LEARNED DR THAT BY IMPLICATION, THE HONBLE SUPREME COURT HAS HELD THAT BONAFIDE BELIEF FOR NON-DEDUCTION OF TAX AT SOURCE CANNOT BE A DEFENCE TO AN ACTION U/S.201(1) & 201(1A) OF THE ACT. WE ARE OF THE VIEW THAT THE SAID DECISION WAS RENDE RED IN THE CONTEXT OF SEC.271C PENALTY FOR FAILURE TO DEDUCT TAX AT SOURC E. THE DEFENCE TO SUCH AN ACTION WAS BONAFIDE BELIEF OF THE ASSESSEE THAT IT WAS NOT LIABLE TO DEDUCT TAX AT SOURCE ON HOME SALARY PAID TO EXPATRI ATE EMPLOYEES OUTSIDE INDIA. THE HONBLE SUPREME COURT OBSERVED ON THE S COPE OF SEC.201(1) & 201(1A) OF THE ACT IN PARA-34 OF ITS JUDGMENT THAT LIABILITY U/S.201(1) IS IN THE NATURE OF VICARIOUS LIABILITY. FROM THESE OBSERVAT IONS IT CANNOT BE INFERRED THAT THE HONBLE SUPREME COURT HAS HELD THAT IN AN ACTION U/S.201(1) OF THE ACT, THE PAYER CANNOT PLEAD BONAFIDE ESTIMATE OF IN COME UNDER THE HEAD SALARIES AS A DEFENCE. 14. THE LEARNED DR FURTHER SUBMITTED THAT SEC.192 O F THE ACT DOES NOT USE THE EXPRESSION BONAFIDE AT ALL AND TO INCORPO RATE THE CONCEPT OF BONAFIDE IN PROCEEDINGS U/S.201(1) OF THE ACT IS IT SELF NOT PERMISSIBLE. IN THIS REGARD HE DREW OUR ATTENTION TO DECISION OF HO NBLE SUPREME COURT IN THE CASE OF CIT VS. CALCUTTA KNITWEAR 362 ITR 673 (SC) WHEREIN THE HONBLE SUPREME COURT HAS HELD THAT IT IS NOT PERMI SSIBLE TO READ INTO A SECTION WORDS WHICH ARE NOT PRESENT IN THE SECTION. 15. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARN ED DR AND ARE OF THE VIEW THAT SEC.192 OF THE ACT USES THE WORD EST IMATE AND THEREFORE THE STATUTORY INTENTION IS THAT IT SHOULD BE AN APPROXI MATION. IT IS IN THAT VIEW THAT THE CONCEPT OF BONAFIDE ESTIMATE WAS PROFOUNDE D IN THE SEVERAL DECISIONS WHICH ARE REFERRED TO IN THE EARLIER OF T HE TRIBUNAL IN THE CASE OF ITA NO.2301 TO 2340/B/2017 PAGE 17 OF 21 KPTCL WHICH WE HAVE EXTRACTED IN THE EARLIER PARAGR APH-10 OF THIS ORDER. THIS CONTENTION THEREFORE IS DEVOID OF ANY MERIT. 16. THE LEARNED DR MENTIONED THAT THE TRIBUNAL ERRE D IN CONCLUDING THAT THE ESTIMATE MADE BY THE ASSESSEE OF INCOME OF ITS EMPLOYEES UNDER THE HEAD SALARIES WAS BONAFIDE . ACCORDING TO HIM, THE EMPLOYEES OF THE ASSESSEE WERE NOT EMPLOYEES OF STATE AND THEREFORE THE LEAVE ENCASHMENT SALARY WAS EXEMPT ONLY UPTO RS.3 LACS. TO THE EXTENT OF PAYMENT OF LEAVE ENCASHMENT ABOVE RS.3 LACS BY THE ASSESSEE TO ITS EMPLOYEES THE SAME WAS NOT EXEMPT AND OUGHT TO HAVE BEEN CONSIDERED WHILE ESTIMATING INCOME OF THE ASSESSEE. IN THIS R EGARD, HE DREW OUR ATTENTION TO A DECISION OF THE HONBLE KARNATAKA HI GH COURT IN THE CASE OF KARNATAKA ELECTRICITY BOARD ILR 2006 KAR 3384 = 200 7(1) KAR LJ 147 , WHEREIN THE QUESTION WAS WHETHER THE BENEFIT OF FRE E POWER CAN BE DENIED TO THE FUTURE EMPLOYEES KPTCL WHEN SUCH BENEFIT WAS AVAILABLE TO ERSTWHILE EMPLOYEES OF KEB WHO BECAME EMPLOYEES OF STATUTORY CORPORATION KPTCL BY LAW PASSED BY STATE LEGISLATUR E. THE CONTENTION WAS THAT THERE WAS DISCRIMINATION BETWEEN EMPLOYEES WHO CONTINUED IN SERVICE IN THE ERSTWHILE KEB AND THOSE WHO WOULD BE COME EMPLOYEES OF KPTCL IN FUTURE. THE HONBLE COURT HELD THAT THERE WAS NO SUCH DISCRIMINATION AS THE TWO SET OF EMPLOYEES FORMED A DISTINCT CLASS AND THEREFORE COULD BE TREATED DIFFERENTLY AND THAT THE RE WAS NO VIOLATION OF ARTICLE 14 OF THE CONSTITUTION. IT IS THE CONTENTI ON OF THE LEARNED STANDING COUNSEL THAT IN THE LIGHT OF THIS DECISION RENDERED AS EARLY AS 26.7.2006 IN THE CASE RELATING TO THE ASSESSEE WOULD SHOW THAT T HE ASSESSEE MUST BE HAVING SUFFICIENT KNOWLEDGE THAT ITS EMPLOYEES CANN OT BE EQUATED WITH EMPLOYEES OF STATE GOVERNMENT AND THEREFORE THE PLE A OF BONAFIDE BELIEF WHILE ESTIMATING INCOME OF EMPLOYEE OUGHT NOT TO HA VE BEEN ACCEPTED BY THE TRIBUNAL. ITA NO.2301 TO 2340/B/2017 PAGE 18 OF 21 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE DECISION CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE SHOWS THAT THE BENEFIT OF FREE SUPPLY OF POWER WAS GIVEN TO ERSTWHILE EMPLOYEES OF KEB WH O BECAME EMPLOYEES OF KPTCL ON ITS CREATION. THEREFORE, THE Y WERE ALSO CONSIDERED AS ELIGIBLE FOR ALL BENEFITS THAT EMPLOYEE OF THE S TATE ENJOYED AND THAT SUCH CONCESSION WAS WITHDRAWN ONLY FOR FUTURE EMPLOYEES OF KPTCL. THEREFORE, THE BELIEF OF THE ASSESSEE THAT ITS EMPLOYEES WERE TO BE REGARDED AS EMPLOYEES OF STATE CANNOT BE SAID TO BE NOT BONAFIDE , AT LEAST TO THE EXTENT OF ERSTWHILE EMPLOYEES OF KEB. THE DECISION WAS RE NDERED IN THE CONTEXT OF DISCRIMINATION UNDER ARTICLE 14 OF THE CONSTITUT ION AND CANNOT BE APPLIED TO A CASE WHERE BONAFIDE BELIEF IS USED AS DEFENCE TO AN ACTION TO PROCEEDINGS U/S.201(1) & 201(1A) OF THE ACT. SUCH DEFENCE DESERVES TO BE LOOKED AT FROM DIFFERENT PERSPECTIVE. THE LIABILIT Y OF THE EMPLOYEES FOR PAYMENT OF TAXES IS PRIMARY LIABILITY AND THE LIABI LITY OF KPTCL IS ONLY VICARIOUS LIABILITY AND RECOVERY OF TAXES THROUGH T AX DEDUCTION AT SOURCE IS ONLY A MODE OF COLLECTION OF TAXES. THE REVENUE AL WAYS HAS THE OPTION AND THE RIGHT TO COLLECT TAXES FROM EMPLOYEES CONCERNED . IN THAT VIEW OF THE MATTER, THE ARGUMENT ADVANCED IN THIS REGARD IS HEL D TO BE NOT ACCEPTABLE. 18. THE LD DR CONTENDED THAT THERE WAS NO BASIS FO R FORMATION OF SUCH BONAFIDE BELIEF BY KPTCL, ESPECIALLY IN THE LIGHT OF THE DE CISION OF THE HONBLE KARNATAKA HIGH COURT REFERRED TO IN PARAGRA PH-21 OF THIS ORDER. HE RELIED ON DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF ITO VS. TECHSPAN INDIA (P) LTD. (2018) 92 TAXMANN.COM 361 ( SC) AND DGIT(INV.) VS. SPACEWOOD FURNISHERS (P) LTD. 374 ITR 595(SC) . IN THE FIRST DECISION, THE QUESTION AROSE IN THE CONTEXT OF VALIDITY OF IN ITIATION OF PROCEEDINGS U/S.147 OF THE ACT AND THE COURT HAD TO EXAMINE AS TO WHETHER THE REASSESSMENT PROCEEDINGS U/S.147 OF THE ACT. THE H ONBLE COURT HELD THAT FOR CHALLENGING THE VALIDITY OF INITIATION OF REASS ESSMENT PROCEEDING ON ITA NO.2301 TO 2340/B/2017 PAGE 19 OF 21 CHANGE OF OPINION, IT HAS TO BE VERIFIED WHETHER IN THE ASSESSMENT MADE EARLIER THERE WAS EXPRESSION OPINION EITHER EXPRESS LY OR BY IMPLICATION. ACCORDING TO HIM, IN THE PRESENT CASE THE ASSESSEE HAS SET OUT THE BASIS ON WHICH THEY FORMED BELIEF THAT ITS EMPLOYEES WERE TO BE REGARDED AS EMPLOYEES OF STATE. IN THE SECOND DECISION, THE QU ESTION AROSE IN THE CONTEXT OF RECORDING OF SATISFACTION BEFORE ISSUE O F WARRANT OF AUTHORIZATION U/S.132 OF THE ACT FOR SEARCH AND SEIZURE PROCEEDIN GS. THE HONBLE COURT OBSERVED THAT THERE MUST BE APPLICATION OF MIND TO THE MATERIAL AND THEREAFTER BONAFIDE AND HONEST OPINION HAS TO BE FO RMED. ACCORDING TO HIM IN THE PRESENT CASE, THE ASSESSEE DID NOT HAVE ANY MATERIAL BASED ON WHICH HE FORMED BONAFIDE BELIEF THAT ITS EMPLOYEES ARE EMPLOYEES OF STATE. 19. WE HAVE CONSIDERED THE DR SUBMISSIONS AND ARE OF THE VIEW THAT THE SAME IS WITHOUT ANY MERIT. THE ABOVE ARE THE C ASES WHERE CHALLENGE TO THE ACTION BY AUTHORITIES WHO WERE VESTED WITH P OWER TO TAKE PARTICULAR ACTION INVADING THE RIGHT OF PRIVACY OR FOR INITIAT ING PROCEEDINGS FOR LEVY OF TAX. IT MAY NOT BE APPROPRIATE TO READ THE OBSERVA TIONS OF THE HONBLE COURT IN THE CONTEXT OF THE PRESENT CASE. THE OBLIG ATION OF THE ASSESSEE U/S.192 IS ONLY TO MAKE BONAFIDE ESTIMATE OF INCOME OF HIS EMPLOYEE UNDER THE HEAD SALARIES. SUCH OBLIGATION CANNOT BE TESTE D ON THE PARAMETERS LAID DOWN ON EXERCISE OF POWER BY AUTHORITIES UNDER THE ACT EXERCISING POWERS U/S.132 OR U/S.147 OF THE ACT. APART FROM THE ABOV E, WE HAVE ALREADY SET OUT THE CIRCUMSTANCES UNDER WHICH BELIEF WAS FORMED BY THE ASSESSEE WHILE DEDUCTING TAX AT SOURCE ON SALARY PAID TO ITS EMPLOYEES IN THE EARLIER ORDER OF THE TRIBUNAL WHICH IS EXTRACTED IN PARAGRA PH-11 OF THIS ORDER. WE ARE OF THE VIEW THAT SAID CONCLUSIONS WILL HOLD GOO D FOR THE PRESENT APPEALS ALSO, AS THE FACTS AND CIRCUMSTANCES ARE SAME IN TH ESE APPEALS AND THE APPEALS ALREADY DECIDED BY THE TRIBUNAL. ITA NO.2301 TO 2340/B/2017 PAGE 20 OF 21 20. FOR THE REASONS GIVEN ABOVE AND RESPECTFULLY FO LLOWING THE DECISION OF THE TRIBUNAL REFERRED TO PARAGRAPH-11 OF THIS OR DER, WE HOLD THAT KPTCL HAS DISCHARGED ITS OBLIGATION U/S.192 AND HENCE PRO CEEDINGS U/S.201(1) & 201(1A) OF THE ACT DESERVES TO BE QUASHED AND ARE H EREBY QUASHED. ALL THE APPEALS OF KPTCL ARE ALLOWED. 21. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 4 TH DAY OF JUNE , 2019. SD/- SD/- (PAVAN KUMAR GADALE) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT M EMBER BANGALORE, DATED, THE 4 TH JUNE , 2019 . /VMS / COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASS ISTANT REGISTRAR, ITAT, BANGALORE. ITA NO.2301 TO 2340/B/2017 PAGE 21 OF 21 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR.P.S .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE.. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. ..