ADIT, Dehradun V. M/s. Transocean Offshore Deepwater Drilling Inc., Mumbai

ITA 4428/DEL/2011

• Counselvise Citation: 442820114 RSA 2011
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2008-2009
• Appeal Filed On: 04-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Assessee Lawyers: ASHUTOSH JAIN
• Section: 28; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH H NEW DELHI) BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER AND SHRI B.K. HALDAR, ACCOUNTANT MEMBER I.T.A. NO.4428,4429,4430,4431 & 4446/DEL/2011 ASSESSMENT YEAR : 2008-09, ADIT, TRANSOCEAN OFFSHORE DEEPWATER INTERNATIONAL TAXATION, DRILLING INC. AS AGENT OF DEHRADUN. V. MR. HULMEN RUSSELJAMES, MR. PISANO PASQUALE, MR. HUTCHERSON EDWAR LE. MR. WILSON NORMAN GEORGE & MR. WATKIN TOM DON, C/O NANGIA &CO. RAJPUR ROAD, DEHRADUN. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N.K. CHAND, SR. DR. RESPONDENT BY : SHRI ASHUTOSH JAIN, C.A. ORDER PER BENCH: ALL THESE APPEALS INVOLVE A COMMON GROUND WHETHER TAX P AID BY THE EMPLOYER ON THE INCOME OF THE EMPLOYEE ASSESSEE IS ENTITLED TO EXEMPTIO N U/S 10(10CC) OF THE INCOME TAX ACT, 1961. IT MAY BE MENTIONED THAT FOU R GROUNDS HAVE BEEN TAKEN IN EACH OF THE APPEALS AND THE QUESTION FRAMED ABOVE REPRESEN TS THE GIST OF THE GROUND. HOWEVER, FOR THE SAKE OF COMPLETENESS, THE GROUNDS TAKEN IN THE APPEALS IN ITA NO4428 TO 4431 & 446/DEL/11 2 THE CASE OF M/S TRANSOCEAN OFFSHORE DEEPWATER DRILLING INC . AS AGENT OF M/S PISANO PASQUALE IN (I.T.A. NO.4429/DEL/2011) ARE REPROD UCED BELOW:- 1. ON FACTS AND CIRCUMSTANCES OF THE CASE, WHETHER IN THE CA SE OF THE EMPLOYEE RECEIVING A TAX FREE SALARY AS PER AGREEMENT, THE TAXES PAI D BY THE EMPLOYER CONSTITUTED A MONETARY PAYMENT THAT WAS PART AND PARCEL OF SALARY. 2. ON FACTS AND CIRCUMSTANCES OF THE CASE, WHETHER THE LD C IT(A) HAD ERRED IN ALLOWING EXEMPTION U/S 10(10CC) WHERE THE FACTS CLEARLY ESTABLISH THAT THE TAX PAID BY THE COMPANY M/S TRANSOCEAN OFFSHORE DEEPWAT ER DRILLING INC. FOR ASSESSMENT YEAR 2008-09 WAS PART AND PARCEL SALARY OF MR. PISANO PASQUALE, AGENT AND THEREFORE THIS PAYMENT ON BEHALF OF TH E ASSESSEE CONSTITUTED A MONETARY PAYMENT FALLING OUTSIDE THE PURV IEW OF SECTION 10(10CC) OF THE INCOME TAX ACT, 1961. 3. ON FACTS AND CIRCUMSTANCES OF THE CASE, WHETHER THE LD CI T(A) HAS ERRED IN FOLLOW THE DECISION OF THE SPECIAL BENCH OF ITAT WHICH IS PERVERSE AND DISREGARDED THE CLEAR CUT PROVISIONS OF SECTION 17(2) REA D WITH SECTION 10(10CC) AND CORROBORATED BY SECTION 195A R.W.S. 198 IF THE I.T. ACT, 1961 AND AGAINST WHICH DEPARTMENT IS IN APPEAL BEFORE THE HON 'BLE HIGH COURT OF UTTRAKHAND. 4. THE APPELLANT PRAYS FOR LEAVE TO ADD, AMEND, MODIFY OR A LTER ANY GROUNDS OF APPEAL AT THE TIME OF BEFORE THE HEARING OF THE APPEAL. 2. IN THE RETURN, IT WAS CLAIMED BY THE ASSESSEE AS AN EMPL OYEE THAT WHERE THE EMPLOYER HAS PAID TAX ON THE SALARY OF THE EMPLOYEE, THE TA X ON SUCH SALARY AS PERQUISITE IS EXEMPT U/S 10(10CC) OF THE ACT, WHICH WOUL D MEAN NO MULTIPLE GROSS OF THE TAX WOULD BE REQUIRED WHILE COMPUTING TAX PERQUISI TES PROVIDED TO THE EMPLOYEE. HOWEVER, THE ASSESSING OFFICER DID NOT ALLOW THE C LAIM OF THE ASSESSEE ITA NO4428 TO 4431 & 446/DEL/11 3 TAX PAYERS BY HOLDING THAT THE TAX BORNE BY THE EMPLOY ER WAS A MONETARY PERQUISITE, HENCE, FURTHER TAX THEREON SHOULD ALSO BE ADDED TO THE SALARY BY MULTIPLE STAGE GROSSING UP PROCESS. IT WAS THE CONTENTION OF THE ASSESSING OFFICER THAT SINCE AS PER THE TERMS OF THE EMPLOMENT, TAX HAS TO BE BORNE BY T HE EMPLOYER, ALL TAXES CONCLUDED BY MULTIPLE STAGE GROSSING UP ARE TO BE BORNE BY THE EMPLOYER RESULTING INTO FURTHER TAX PERQUISITE. THE ASSESSING OFFICER HAD M ADE REFERENCE TO THE PROVISIONS OF SECTION 192, 198, 195A TO DENY THE CLAIM OF THE ASSESSEE THAT NO TAX WAS PAYABLE ON THE TAX PAID BY THE EMPLOYER TO THE ACT WH ICH WAS A NON MONETARY PERQUISITE. THE ASSESSING OFFICER REPRODUCED THE PROVISIONS OF SECTION 10(10CC), 192(1A) AND 195A OF THE ACT TO HOLD THAT THE TAX LI ABILITY IN RESPECT OF EXPATRIATE EMPLOYEE BORNE BY THE COMPANY IS REQUIRED TO BE GROSSED UP A ND THE TAX PERQUISITE AGAINST WHICH EXEMPTION HAS BEEN CLAIMED IS NOT ELIGIBLE FOR EXEMPTION UNDER THE PROVISIONS OF SECTION 10(10CC) OF THE ACT. TH E ASSESSING OFFICER FURTHER HELD THAT THE PERQUISITES WHICH NEED TO BE VALUED UNDER RULE 3, AND NOT TAX PERQUISITES, ARE COVERED BY SECTION 10(10CC) OF THE ACT. THIS WAY THE TAX PERQUISITE WAS ADDED TO THE INCOME OF THE ASSESSEE. ON THE SAME LINE, A DDITIONS HAVE BEEN MADE IN ALL THESE CASES OF THE ABOVE ASSESSEES. 3. THE ASSESSEE IMPUGNED THE ACTION OF THE ASSESSING OFFICER IN APPEAL BEFORE THE LD CIT(A). 4. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICERS ORDER AND RELYING UPON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL, DELHI BENCH F, NEW DELHI IN THE CASE OF RBF RIGS CORPORATION , LLC V. ACIT 109 REPORTED IN 109 ITD 141 (DEL.) (SPECIAL BENCH) HAS HELD THAT THE T AX BORNE BY THE EMPLOYER ON BEHALF OF THE EMPLOYEE WOULD CONSTITUTE A NON MONETARY BENE FIT, AND AS SUCH THE SAME IS EXEMPTED U/S 10(10CC) OF THE ACT. ITA NO4428 TO 4431 & 446/DEL/11 4 5. HENCE, THE DEPARTMENT IS IN FURTHER APPEAL BEFORE US. 6. IN THE GROUNDS OF APPEAL, THE DEPARTMENT HAS STATED T HAT THE DECISION OF THE SPECIAL BENCH IS NOT TO BE FOLLOWED BECAUSE THE AFORESAID DEC ISION HAS DISREGARDED THE CLEAR CUT PROVISIONS OF SECTION 17(2) AND SECTION 1 0(10CC) CORROBORATED BY SECTION 195A READ WITH SECTION 198 OF THE ACT, AGAINST WHICH THE DEPARTMENT IS IN APPEAL BEFORE THE HON'BLE HIGH COURT OF UTTRAKHAND. 7. THE LD DR HAS REITERATED THE REASONS GIVEN BY THE ASSESSI NG OFFICER IN INCLUDING THE TAX PAID BY THE EMPLOYER FOR AND ON BEHALF OF THE EMPLOYEE IN THE TOTAL INCOME OF THE AFTER DENYING THE ASSESSEES CLAIM OF EXEMPTION U/S 10(10CC) OF THE ACT. 8. THE LD COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, SUBM ITTED THAT WHATEVER ISSUES HAS BEEN RAISED BY THE ASSESSING OFFICER HAS BEEN CO NSIDERED AND DEALT WITH BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE ABOVE REFERRED CA SE, AND, AS SUCH, THE CASE IS FULLY COVERED BY THE AFORESAID DECISION. 9. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERIAL ON RECO RD. THE ISSUE INVOLVED IS AS TO WHETHER THE ASSESSEE IS ENTITLED TO EXEMPTIO N IN RESPECT OF TAX PAID BY THE EMPLOYER ON THE INCOME OF THE ASSESSEE EMPLOYEE U/S 10 (10CC) OF THE ACT. WE, THEREFORE, FIND IT APPROPRIATE TO REPRODUCE THE PROVISI ONS CONTAINED IN SECTION 10(10CC) OF THE ACT. SECTION 10(10CC): IN THE CASE OF AN EMPLOYEE BEING AN IN DIVIDUAL DERIVING INCOME IN THE NATURE OF A PERQUISITE, NOT PROVIDED FOR BY WAY OF MONETARY ITA NO4428 TO 4431 & 446/DEL/11 5 PAYMENT, WITHIN THE MEANING OF CLAUSE (2) OF SECTION 17, THE TAX ON SUCH INCOME ACTUALLY PAID BY HIS EMPLOYER, AT THE OPTION OF THE EMPLOYER, ON BEHALF OF SUCH EMPLOYEE, NOTWITHSTANDING ANYTHING CONT AINED IN SECTION 200 OF THE COMPANIES ACT, 1956. 10. AFTER CONSIDERING THE PROVISIONS CONTAINED IN SECTIO N 17(2)(IV), 10(10CC), 192(1A) AS WELL AS 195A, THE SPECIAL BENCH OF ITAT HAD H ELD AND OBSERVED AS UNDER:-- 16. IT IS CLEAR FROM ABOVE THAT TAXES PAID BY EMPLOYER ON BEHALF OF THE EMPLOYEE WERE TREATED AS A PERQUISITE COVERED BY SUB CLAUSE (I V) OF CLAUSE (2) OF SECTION 17 OF THE I.T. ACT AND THEREFORE INCLUDI BLE 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 U NDER THE HEAD SALARY IF CLAUSE 10(10CC) WAS NOT BROUGHT TO THE STAT UTE BOOK. IT IS ALSO A BENEFIT OR AMENITY ENJOYED BY THE EMPLOYEE BUT IT IS NOT A MONETARY PAYMENT TO THE EMPLOYEE. IT IS A PAYMENT BY THE EMPLOYER WHICH D ISCHARGE ON OBLIGATION OF THE EMPLOYEE WHICH OTHERWISE WOULD HAVE BEEN D ISCHARGED BY THE EMPLOYEE. SUCH PAYMENTS OF TAXES, THEREFORE ARE FULLY COVER ED BY ABOVE SUB CLAUSE (IV). 17. THE DECISION OF CIT V. AMERICA COUNTING CORPORATI ON 123 ITR 513, NOTED ABOVE ALSO SUPPORTS THE VIEW THAT TAXES PAID ON BEHALF O F THE ASSESSEE IS A PERQUISITE OR A BENEFIT, BUT NOT INCOME FROM BUSINESS. IT COULD NOT BE TAXED EXCEPT UNDER CLAUSE (IV) OF SECTION 28 WHICH PROVIDED THA T A BENEFIT OR PERQUISITE WAS LIABLE TO BE CHARGED TO TAX. ITA NO4428 TO 4431 & 446/DEL/11 6 17.1. IT IS NOT MONEY WHICH IS PAID TO THE ASSESSEE WHEN TAXES ARE PAID ON HIS BEHALF. IT IS DISCHARGE OF HIS OBLIGATION. THE PAYMENT FULLY FITS IN THE JACKET OF SUB CLAUSE (IV) OF SECTION 17(2) OF THE ACT. IT MAY B E A MONETARY GAIN OR MONETARY BENEFIT OR A MONETARY ALLOWANCE BUT DEFINITELY I T IS NOT A MONETARY PAYMENT TO THE ASSESSEE. WHAT IS EXCLUDED IN THE CLAUSE IS T HE PERQUISITE IS IN THE SHAPE OF A MONETARY PAYMENT TO THE ASSESSEE. IF IT IS A PAYMENT TO A THIRD PERSON LIKE PAYMENT OF TAXES TO THE GOVT., THEN SUCH PAYM ENT OF TAXES CANNOT BE EXCLUDED U/S 10(10CC). THE CIRCULAR OF THE BOARD AND PROVISION OF SUB SECTION (1A) OF SECTION 192, SECTION 40(A)(V), 195A FU LLY SUPPORT THE CLAIM OF THE ASSESSEE. WE, THEREFORE, HOLD THAT THE TAXES PAID BY THE EM PLOYER ON BEHALF OF THE EMPLOYEE IS A PERQUISITE WITHIN THE MEANING OF SECTION 17(2) OF THE INCOME TAX ACT, 1961, WHICH IS NOT PROVIDED BY WAY OF MONETARY PAYMENT. THEREFORE, THERE IS NO REASON NOT TO EXCLUDE SUCH PAYMENT OF TAXES FROM THE TOTAL INCOME OF THE ASSESSEE. IN OTHER WORDS, TAX ES PAID BY THE EMPLOYER CAN BE ADDED ONLY ONCE IN THE SALARY OF THE EMPLO YEE. THEREAFTER, TAX ON SUCH PERQUISITE IS NOT TO BE ADDED AGAIN. WE, T HEREFORE, FIND SUBSTANCE IN THE CONTENTION ADVANCED ON BEHALF OF THE L EARNED COUNSEL FOR THE ASSESSEE AND THE INTERVENERS. THE QUESTION REFERRED TO US IS ANSWERED IN FAVOUR OF THE ASSESSEE. THE APPEALS OF THE ASSESSEE AND INTER VENES ARE ALLOWED ON THIS ISSUE. 11. ON PERUSAL OF THE AFORESAID ORDER OF THE HON'BLE SPECIA L BENCH OF THE TRIBUNAL, IT IS SEEN THAT THE SPECIAL BENCH HAS TAKEN A VI EW THAT THE TAXES PAID BY THE EMPLOYER ON BEHALF OF THE ASSESSEE IS NOT A MONETARY PAY MENT BUT IT IS DISCHARGE OF HIS OBLIGATION, AND THE PAYMENT FULLY FIT S IN THE JACKET OF SECTION 17(2)(IV) OF THE ACT, AND IT MAY BE A MONETARY GAIN OR MONETARY B ENEFITS OR A MONETARY ALLOWANCE BUT DEFINITELY IT IS NOT A MONETARY PAYMENT TO THE ASSESSEE. IT HAS BEEN ITA NO4428 TO 4431 & 446/DEL/11 7 HELD BY THE SPECIAL BENCH THAT THAT THE TAXES PAID BY TH E EMPLOYER ON BEHALF OF THE EMPLOYEE IS A PERQUISITE WITHIN THE MEANING OF SECTION 17(2 ) OF THE ACT, WHICH IS NOT PROVIDED BY WAY OF MONETARY PAYMENT AND, THEREFORE, THERE IS NO REASON NOT TO EXCLUDE SUCH PAYMENT OR TAX FROM THE TOTAL INCOME OF TH E ASSESSEE U/S 10(10CC) OF THE ACT. 12. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF SPECI AL BENCH OF THE TRIBUNAL WHICH IS BINDING ON US AS ON TODAY, WE UPHELD THE ORDER OF THE LD CIT(A) IN ACCEPTING THE ASSESSEES CLAIM THAT PAYMENT OF TAX ON BEH ALF OF THE ASSESSEE- EMPLOYEE BY THE EMPLOYER IS NOT LIABLE TO BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEES EMPLOYEE AS IT IS EXEMPTED U/S 10(10CC) OF THE A CT. 13. THE ABOVE VIEW TAKEN BY US AFTER FOLLOWING THE DECIS ION OF SPECIAL BENCH IN THE CASE OF RPF RIG CORPORATION LLC V. ACIT (SUPRA) H AS ALSO BEEN TAKEN BY THE CO- ORDINATE BENCH OF ITAT, DELHI BENCH G IN THE CASE OF TR ANSOCEAN OFFSHORE DEEPWATER DRILLING INC,. V. DDIT, INTERNATIONAL TAXATIO N, DEHRADUN VIDE ORDER DATED 13 TH AUGUST, 2009 REPORTED IN (2009) 34 ITD 323 (DEL.). 14. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE DIS MISSED. 15. ORDER PRONOUNCED IN THE OPEN COURT ON THE 9TH DAY O F DECEMBER, 2011. SD/- SD/- (B.K. HALDAR) (C.L. SETH I) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 09.12.2011. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT ITA NO4428 TO 4431 & 446/DEL/11 8 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY. BY ORDER (ITAT, NEW DELHI).