IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C : NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI C.L. SETHI, JUDICIAL MEMBER I.T.A. NO.4525/DEL/2011 ASSESSMENT YEAR : 2008-09 ASSTT. DIRECTOR OF INCOME-TAX, M/S. HALLIBURTO N OFFSHORE SERVICES INC. INTERNATIONAL TAXATION, VS. AS AGENT OF M R. TULLER PATRICK, DEHRADUN. C/O NANGIA &CO., 75/7 RAJPUR ROA D, DEHRADUN. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N.K. CHAND, SR. DR. RESPONDENT BY : SHRI AMIT ARORA, AR. O R D E R PER C.L. SETHI, JUDICIAL MEMEBR : THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AG AINST THE ORDER DATED 21.07.2011 PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IN THE MATTER OF AN ASSESSMENT MADE BY TH E ASSESSING OFFICER UNDER SEC. 143(3) OF THE INCOME-TAX ACT, 1961 (THE ACT) FOR THE ASSESSMENT YEAR 2008-09. 2. IN THIS APPEAL, THE MAIN GROUND INVOLVED IS WH ETHER TAX PAID BY THE EMPLOYER ON THE INCOME OF THE EMPLOYEE ASSESSEE IS ENTITLED TO EXEMPTION U/S 10(10CC) OF THE INCOME TAX ACT, 1961. IT MAY B E MENTIONED THAT FOUR 2 GROUNDS HAVE BEEN TAKEN IN THIS APPEAL AND THE QUES TION FRAMED ABOVE REPRESENTS THE GIST OF THE GROUNDS. HOWEVER, FOR TH E SAKE OF COMPLETENESS, THE GROUNDS TAKEN IN THIS APPEAL ARE REPRODUCED BEL OW:- 1. ON FACTS AND CIRCUMSTANCES OF THE CASE, WHETHER IN THE CASE OF THE EMPLOYEE RECEIVING A `TAX FREE SALARY, AS PER AGREEMENT, THE TAXES PAID BY THE EMPLOYER CONSTITUTED A MONETARY P AYMENT THAT WAS PART AND PARCEL OF SALARY. 2. ON FACTS AND CIRCUMSTANCES OF THE CASE, WHETHER THE LD CIT(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 DEEPWATER DRILLING INC. FOR ASSESSMENT YEA R 2008-09 WAS PART AND PARCEL SALARY OF MR. PISANO PASQUALE, AGEN T AND THEREFORE THIS PAYMENT ON BEHALF OF THE ASSESSEE CO NSTITUTED A MONETARY PAYMENT FALLING OUTSIDE THE PURVIEW OF SEC TION 10(10CC) OF THE INCOME TAX ACT. 3. ON FACTS AND CIRCUMSTANCES OF THE CASE, WHETHER THE LD CIT(A) HAS ERRED IN FOLLOW THE DECISION OF THE SPECIAL BEN CH OF ITAT, WHICH IS PERVERSE AND DISREGARDED THE CLEAR CUT PRO VISIONS OF SECTION 17(2) READ WITH SECTION 10(10CC) AND CORROB ORATED BY SECTION 195A R.W.S. 198 IF THE I.T. ACT, 1961 AND A GAINST WHICH DEPARTMENT IS IN APPEAL BEFORE THE HON'BLE HIGH COU RT OF UTTRAKHAND. 4. THE APPELLANT PRAYS FOR LEAVE TO ADD, AMEND, MOD IFY OR ALTER ANY GROUNDS OF APPEAL AT THE TIME OF BEFORE THE HEARING OF THE APPEAL. 3. IN GROUND NO.2 OF THE MEMO OF APPEAL, THE NAME O F THE COMPANY HAS BEEN WRONGLY MENTIONED AS M/S.TRANSOCEAN OFFSHORE D EEPWATER DRILLING INC., WHEREAS IT IS HALLBURTON OFFSHORE SERVICES IN C. AND THE NAME OF 3 AGENT/ASSESSEE HAS ALSO BEEN MENTIONED WRONGLY AS M R. PISANO PASQUALE INSTEAD OF PRESENT ASSESSEE MR. TULLER PATRICK. 4. IN THE RETURN, IT WAS CLAIMED BY THE ASSESSEE AS AN EMPLOYEE THAT WHERE THE EMPLOYER HAS PAID TAX ON THE SALARY OF TH E EMPLOYEE, THE TAX ON SUCH SALARY AS PERQUISITE IS EXEMPT U/S 10(10CC) OF THE ACT, WHICH WOULD MEAN NO MULTIPLE GROSS OF THE TAX WOULD BE REQUIRED WHILE COMPUTING TAX PERQUISITES PROVIDED TO THE EMPLOYEE. HOWEVER, THE ASSESSING OFFICER DID NOT ALLOW THE CLAIM OF THE ASSESSEE TAX PAYERS BY H OLDING THAT THE TAX BORNE BY THE EMPLOYER WAS A MONETARY PERQUISITE, HENCE, F URTHER TAX THEREON SHOULD ALSO BE ADDED TO THE SALARY BY MULTIPLE STAG E GROSSING UP PROCESS. IT WAS THE CONTENTION OF THE ASSESSING OFFICER THAT SI NCE AS PER THE TERMS OF THE EMPLOYMENT, TAX HAS TO BE BORNE BY THE EMPLOYER, AL L TAXES CONCLUDED BY MULTIPLE STAGE GROSSING UP ARE TO BE BORNE BY THE E MPLOYER RESULTING INTO FURTHER TAX PERQUISITE. THE ASSESSING OFFICER HAD MADE REFERENCE TO THE PROVISIONS OF SECTION 192, 198, 195A TO DENY THE CL AIM OF THE ASSESSEE THAT NO TAX WAS PAYABLE ON THE TAX PAID BY THE EMPLOYER TO THE ACT WHICH WAS A NON MONETARY PERQUISITE. THE ASSESSING OFFICER REPR ODUCED THE PROVISIONS OF SECTION 10(10CC), 192(1A) AND 195A OF THE ACT TO HOLD THAT THE TAX LIABILITY IN RESPECT OF EXPATRIATE EMPLOYEE BORNE B Y THE COMPANY IS REQUIRED TO BE GROSSED UP AND THE TAX PERQUISITE AGAINST WHI CH EXEMPTION HAS BEEN 4 CLAIMED IS NOT ELIGIBLE FOR EXEMPTION UNDER THE PRO VISIONS OF SECTION 10(10CC) OF THE ACT. THE ASSESSING OFFICER FURTHER HELD THAT THE PERQUISITES WHICH NEED TO BE VALUED UNDER RULE 3, AND NOT TAX P ERQUISITES, ARE COVERED BY SECTION 10(10CC) OF THE ACT. THIS WAY THE TAX P ERQUISITE WAS ADDED TO THE INCOME OF THE ASSESSEE. 5. THE ASSESSEE IMPUGNED THE ACTION OF THE ASSESSIN G OFFICER IN APPEAL BEFORE THE LD CIT(A). 6. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE ASSESSING OFFICERS ORDER AND RELYING UPON THE DECISION OF TH E 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.) (SPE CIAL BENCH) HAS HELD THAT THE TAX BORNE BY THE EMPLOYER ON BEHALF OF THE EMPLOYEE WOULD CONSTITUTE A NON MONETARY PAYMENT, AND AS SUCH THE SAME IS EXEMPTED U/S 10(10CC) OF THE ACT. 7. HENCE, THE DEPARTMENT IS IN FURTHER APPEAL BEFOR E US. 8. IN THE GROUNDS OF APPEAL, THE DEPARTMENT HAS STA TED THAT THE DECISION OF THE SPECIAL BENCH IS NOT TO BE FOLLOWED BECAUSE THE AFORESAID DECISION HAS DISREGARDED THE CLEAR CUT PROVISIONS OF SECTION 17( 2) AND SECTION 10(10CC) CORROBORATED BY SECTION 195A READ WITH SECTION 198 OF THE ACT, AGAINST 5 WHICH THE DEPARTMENT IS IN APPEAL BEFORE THE HON'BL E HIGH COURT OF UTTRAKHAND. 9. THE LEARNED DR HAS REITERATED THE REASONS GIVEN BY THE ASSESSING OFFICER IN INCLUDING THE TAX PAID BY THE EMPLOYER F OR AND ON BEHALF OF THE EMPLOYEE IN THE TOTAL INCOME AFTER DENYING THE ASSE SSEES CLAIM OF EXEMPTION U/S 10(10CC) OF THE ACT. 10. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, SUBMITTED THAT WHATEVER ISSUES HAS BEEN RAISED BY THE ASSESSI NG OFFICER HAS BEEN CONSIDERED AND DEALT WITH BY THE SPECIAL BENCH OF T HE TRIBUNAL IN THE ABOVE REFERRED CASE, AND, AS SUCH, THE CASE IS FULLY COVE RED BY THE AFORESAID DECISION. 11. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL ON RECORD. THE ISSUE INVOLVED IS AS TO WHETHER THE ASSESSEE IS ENT ITLED TO EXEMPTION IN RESPECT OF TAX PAID BY THE EMPLOYER ON THE INCOME O F THE ASSESSEE EMPLOYEE U/S 10(10CC) OF THE ACT. WE, THEREFORE, FI ND IT APPROPRIATE TO REPRODUCE THE PROVISIONS CONTAINED IN SECTION 10(10 CC) OF THE ACT. SECTION 10(10CC): IN THE CASE OF AN EMPLOYEE BEIN G AN INDIVIDUAL DERIVING INCOME IN THE NATURE OF A PERQU ISITE, 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 EMPLOYER, AT THE OPTION OF THE EMPLOYER, ON BEHALF OF SUCH EMPLOYEE, NOTWITHSTANDING ANYTHING CONTAINED I N SECTION 200 OF THE COMPANIES ACT, 1956. 6 12. AFTER CONSIDERING THE PROVISIONS CONTAINED IN S ECTION 17(2)(IV), 10(10CC), 192(1A) AS WELL AS 195A, THE SPECIAL BENC H OF ITAT HAD HELD AND OBSERVED AS UNDER:-- 16. IT IS CLEAR FROM ABOVE THAT TAXES PAID BY EMPL OYER ON BEHALF OF THE EMPLOYEE WERE TREATED AS A PERQUISITE COVERED BY SUB CLAUSE (IV) OF CLAUSE (2) OF SECTION 17 OF THE I.T. ACT AND THEREFORE INCLUDIBLE IN THE SALARY,. THERE IS NO DI SPUTE THAT PAYMENT OF TAXES MADE BY THE EMPLOYER ON BEHALF OF THE EMPLOYEE IS A PERQUISITE AND PART OF THE INCOME ASS ESSABLE UNDER THE HEAD SALARY IF CLAUSE 10(10CC) WAS NOT BR OUGHT TO THE STATUTE BOOK. IT IS ALSO A BENEFIT OR AMENITY E NJOYED BY THE EMPLOYEE BUT IT IS NOT A MONETARY PAYMENT TO THE EM PLOYEE. IT IS A PAYMENT BY THE EMPLOYER WHICH DISCHARGE ON OBLIGA TION OF THE EMPLOYEE WHICH OTHERWISE WOULD HAVE BEEN DISCHA RGED BY THE EMPLOYEE. SUCH PAYMENTS OF TAXES, THEREFORE ARE FULLY COVERED BY ABOVE SUB CLAUSE (IV). 17. THE DECISION OF CIT V. AMERICA COUNTING CORPORA TION 123 ITR 513, NOTED ABOVE ALSO SUPPORTS THE VIEW THAT TA XES PAID ON BEHALF OF 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 THAT A BENEFIT OR PERQUISITE WAS LIABLE TO BE CHARGED TO TAX. 17.1. IT IS NOT MONEY WHICH IS PAID TO THE ASSESSEE WHEN TAXES ARE PAID ON HIS BEHALF. IT IS DISCHARGE OF HIS OBLI GATION. 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 MONETARY ALLOWANCE BUT DEFINITELY IT IS NOT A MONET ARY PAYMENT TO THE ASSESSEE. WHAT IS EXCLUDED IN THE CLAUSE IS THE PERQUISITE IS IN THE SHAPE OF A MONETARY PAYMENT TO THE ASSESS EE. IF IT IS A PAYMENT TO A THIRD PERSON LIKE PAYMENT OF TAXES TO THE GOVT., THEN SUCH PAYMENT OF TAXES CANNOT BE EXCLUDED U/S 1 0(10CC). THE CIRCULAR OF THE BOARD AND PROVISION OF SUB SECT ION (1A) OF SECTION 192, SECTION 40(A)(V), 195A FULLY SUPPORT T HE CLAIM OF THE ASSESSEE. WE, THEREFORE, HOLD THAT THE TAXES PA ID BY THE EMPLOYER ON BEHALF OF THE EMPLOYEE IS A PERQUISITE WITHIN THE 7 MEANING OF SECTION 17(2) OF THE INCOME TAX ACT, 196 1, 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, TAXES PAID BY THE EMPLOYER CAN BE ADDED ONLY ONCE IN THE SALARY OF TH E 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 THE LEARNED COUNSEL FOR THE ASSESSEE AND THE INT ERVENERS. THE QUESTION REFERRED TO US IS ANSWERED IN FAVOUR OF TH E ASSESSEE. THE APPEALS OF THE ASSESSEE AND INTERVENES ARE ALLO WED ON THIS ISSUE. 13. ON PERUSAL OF THE AFORESAID ORDER OF THE HON'BL E SPECIAL BENCH OF THE TRIBUNAL, IT IS SEEN THAT THE SPECIAL BENCH HAS TAK EN A VIEW THAT THE TAXES PAID BY THE EMPLOYER ON BEHALF OF THE ASSESSEE IS N OT A MONETARY PAYMENT BUT IT IS DISCHARGE OF HIS OBLIGATION, AND THE PAYM ENT FULLY FITS IN THE JACKET OF SECTION 17(2)(IV) OF THE ACT, AND IT MAY BE A MO NETARY GAIN OR MONETARY BENEFITS OR A MONETARY ALLOWANCE BUT DEFINITELY IT IS NOT A MONETARY PAYMENT TO THE ASSESSEE. IT HAS BEEN HELD BY THE SPECIAL BE NCH THAT THAT THE TAXES PAID BY THE EMPLOYER ON BEHALF OF THE EMPLOYEE IS A PERQ UISITE WITHIN THE MEANING OF SECTION 17(2) OF THE ACT, WHICH IS NOT P ROVIDED BY WAY OF MONETARY PAYMENT AND, THEREFORE, THERE IS NO REASON NOT TO EXCLUDE SUCH PAYMENT OF TAX FROM THE TOTAL INCOME OF THE ASSESSE E U/S 10(10CC) OF THE ACT. IN OTHER WORDS, TAXES PAID BY THE EMPLOYER CA N BE ADDED ONLY ONCE IN THE SALARY OF THE EMPLOYEE, AND THEREAFTER, TAX ON SUCH PERQUISITE IS NOT BE ADDED AGAIN. 8 14. RESPECTFULLY FOLLOWING THE AFORESAID DECISION O F SPECIAL BENCH OF THE TRIBUNAL WHICH IS BINDING ON US AS ON TODAY, WE UPH ELD THE ORDER OF THE LEARNED CIT(A) IN ACCEPTING THE ASSESSEES CLAIM TH AT PAYMENT OF TAX ON BEHALF OF THE ASSESSEE-EMPLOYEE BY THE EMPLOYER IS NOT LIABLE TO BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEES EMPLOYEE AS I T IS EXEMPTED U/S 10(10CC) OF THE ACT. 15. THE ABOVE VIEW TAKEN BY US AFTER FOLLOWING THE DECISION OF SPECIAL BENCH IN THE CASE OF RPF RIG CORPORATION LLC V. ACI T (SUPRA) HAS ALSO BEEN TAKEN BY THE CO-ORDINATE BENCH OF ITAT, DELHI BENCH G IN THE CASE OF TRANSOCEAN OFFSHORE DEEPWATER DRILLING INC,. V. DDI T, INTERNATIONAL TAXATION, DEHRADUN VIDE ORDER DATED 13 TH AUGUST, 2009 REPORTED IN (2009) 34 ITD 323 (DEL.). 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 17. ORDER PRONOUNCED IN THE OPEN COURT ON THE 12TH DAY OF DECEMBER, 2011. SD/- SD/- (G.D. AGRAWAL) (C.L. SETHI) VICE PRESIDENT JUDICIAL MEMBER DATED: 12 TH DECEMBER, 2011. COPY OF THE ORDER FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A), NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. BY ORDER *MG DY. REGISTRAR, ITAT.