M/S OIL & NATURAL GAS CORP. LTD (IDGPT) PHASE, PANVEL V. THE ITO WD 3/TDS,

ITA 980/MUM/2004

• Counselvise Citation: 98019914 RSA 2004
• Duration Of Justice: 7 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 10-02-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 13-02-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P N DEVDASANDR PER R K
• Assessee Lawyers: P J PARDIWALAMS VASANTI PATEL
• Keywords: Salary income; Retrospective amendment; Non-deduction of tax; TDS; Set aside
• Section: 234B; 201(1); 201; 192; 64

Judgement Text

1 ITA NO.980/MUM/2004 IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI C MUMBAI C MUMBAI C MUMBAI C BENCH BENCH BENCH BENCH MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI R V EASWAR, R V EASWAR, R V EASWAR, R V EASWAR, PRESIDENT & PRESIDENT & PRESIDENT & PRESIDENT & SHRI R K PANDA, AM SHRI R K PANDA, AM SHRI R K PANDA, AM SHRI R K PANDA, AM ITA NO. ITA NO. ITA NO. ITA NO. 980/MUM/2004 980/MUM/2004 980/MUM/2004 980/MUM/2004 (ASST YEAR (ASST YEAR (ASST YEAR (ASST YEAR 2002 2002 2002 2002- -- -03 0303 03) )) ) OIL & NATURAL GAS CORPN LTD(IOGPT) PHASE II, RAIGAD DIST PANVEL 410 221 VS THE INCOME TAX OFFICER WARD 3 TDS PANVEL ( (( (APPELLANT APPELLANT APPELLANT APPELLANT) )) ) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO. PAN NO. PAN NO. PAN NO.AAACO1598A AAACO1598A AAACO1598A AAACO1598A A SSESSEE BY SHRI P J PARDIWALA/MS VASANTI PATEL REVENUE BY SHRI P N DEVDASAN/DR PER R K PANDA, AM PER R K PANDA, AM PER R K PANDA, AM PER R K PANDA, AM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 11.12.2003 OF CIT(A)-I, THANE RELATING TO ASSESSMEN T YEAR 2002-03. 2 THIS APPEAL WAS EARLIER DISMISSED BY THE TRIBUNAL FOR NON PROSECUTION. SUBSEQUENTLY, THE TRIBUNAL VIDE ORDER DATED 11.6.20 10 RECALLED ITS EARLIER ORDER. HENCE, THIS IS A RECALLED MATTER. 3 ALTHOUGH A NUMBER OF GROUNDS HAVE BEEN TAKEN, THE SE RELATE TO THE ORDER OF THE CIT(A) IN CONFIRMING THE ORDER PASSED BY TH E ASSESSING OFFICER IN TREATING THE ASSESSEE AS ASSESSEE IN DEFAULT FOR SHORT DED UCTION/NO DEDUCTION OF TAX ON THE AMOUNT OF VALUE OF PERQUISITES TO THE EMPLOYEES AND THEREBY LEVYING DEMAND U/S 201(1) AMOUNTING TO RS. 28,05,580/- AND LEVY OF INTEREST U/S 201(1A) AMOUNTING TO RS. 4,20,867/- OF THE I T ACT. 3.1 FACTS OF THE CASE, IN BRIEF, ARE THAT DURING TH E COURSE OF VERIFICATION OF ARTDS, THE ASSESSING OFFICER NOTED THAT VALUATION O F PERQUISITES U/S 17(2) WAS 2 ITA NO.980/MUM/2004 NOT DONE AND NO TAX WAS DEDUCTED AT SOURCE ON THE A MOUNT OF VALUE OF PERQUISITES PROVIDED TO THE EMPLOYEES. IN ORDER TO BRING PERQUISITES TO THE TDS PURVIEW, A SURVEY ACTION WAS CARRIED OUT DURING WHI CH IT WAS OBSERVED THAT THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE IN RESPECT OF PERQUISITES PROVIDED TO THE EMPLOYEES. ON BEING QUESTIONED BY THE ASSESSING OFFICER, IT WAS SUBMITTED THAT IN VIEW OF THE CHENNAI & MUMBAI HIGH COURTS S TAY ORDER, VALUATION OF PERQUISITES PROVIDED TO THE EMPLOYEES WERE VALUED A T RS. NIL AND HENCE, NO TAX WAS DEDUCTED AT SOURCE. ON GOING THROUGH THE ORDE R, THE ASSESSING OFFICER NOTED THAT THE PETITION WAS FILED AGAINST THE NOTI FICATION ISSUED BY CBDT VIDE SO NO.940(E) DATED 25.9.2001 AMENDING PROVISIONS OF S ECTION 17(2) OF THE I T ACT, 1961 AND ALSO RULE 3 OF THE I T RULES, 1962. THE HO NBLE HIGH COURT HAS GRANTED INTERIM INJUNCTION RESTRAINING THE PETITIONER I.E. ONGC FROM EFFECTING ANY RECOVERY FROM THE SALARY OF THE MEMBERS OF THE PETI TIONERS. TAKING SHELTER OF THE COURTS ORDER, THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE ON THE PERQUISITES. THE ASSESSING OFFICER NOTED THAT BY VIRTUE OF INCOM E TAX (TWENTY SECOND) AMENDMENT RULES, 2001, THE RULE 3 OF THE I T RULES, 1962 HAS BEEN DULY AMENDED W.E.F 1.4.2001 THEREFORE, THE ASSESSEE WAS REQUIRED TO MAKE THE VALUATION OF PERQUISITE AND DEDUCT THE TAX AT SOURC E THERE FROM AS PRESCRIBED BY THE RELEVANT AMENDED I T ACT, 1961. HOWEVER, THE AS SESSEE HAS FAILED TO DO SO. FURTHER, THE HONBLE HIGH COURT HAS NOT GRANTED A NY INJUNCTION RESTRAINING THE ONGC FROM ENFORCING THE AMENDED I T RULES WHEREIN T HE IMPUGNED NOTIFICATION WAS RATIFIED BY THE PARLIAMENT AND 22 ND AMENDMENT TO I T RULES WAS ENACTED. HE, THEREFORE, ASKED THE ASSESSEE TO FURNISH THE DE TAILS OF PERQUISITES PROVIDED TO THE EMPLOYEES DURING THE YEAR 2001-02 AND THE VALUA TION THEREOF. 3.2 THE ASSESSEE FURNISHED THE DETAILS AS CALLED FO R BY THE ASSESSING OFFICER AND STATED THE BASIS OF VALUATION OF PERQUISITES AS UNDER: 3 ITA NO.980/MUM/2004 I) RESIDENTIAL ACCOMMODATION- 10% OF SALARY RENT RECOVERY II) CONVEYANCE REIMBURSEMENT RS. 27 35/ (VARIABLE) 800/- III) CAR ADVANCE INT .RATE 10% - 5.5% IV) HOUSE BUILDING ADVANCE INT. RATE 10% TO 5.5/6/8% V) SCOOTER ADVANCE INT.RATE 10% - 5.5% VI) COMPUTER ADVANCE IN T.RATE 1.3% - 7.5% VII) FURNISHING ADVANCE I NT RATE 13% VIII) HOLIDAY HOME AS PER ACTUAL 3.3 ON GOING THROUGH THE SUBMISSIONS, THE ASSESSIN G OFFICER NOTED THAT AN AMOUNT OF RS. 91,73,186/- ON ACCOUNT OF VALUE OF PE RQUISITES REMAINED TO BE TAKEN INTO CONSIDERATION WHILE WORKING THE TAX DEDU CTIBLE AT SOURCE. HE, THEREFORE, HELD THAT PERQUISITES TO THE TUNE OF RS. 91.73,186/- REMAINED TO BE TAXED AND ON THIS AMOUNT NO TAX HAS BEEN DEDUCTED B Y THE ASSESSEE. HE THEREFORE, PASSED ORDER U/S 201/201(1A) TO COVER UP THE SHORT DEDUCTION OF TAX TO THAT EXTENT AND DETERMINED THE SHORT DEDUCTION OF T AX AT RS. 28,05,580/- AND INTEREST U/S 201(1A) AT RS. 4,20,867/- BOTH TOTALLI NG TO RS. 32,26,447/-. 3.4 IN APPEAL, THE CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER. WHILE DOING SO, HE NOTED THAT WITH THE AMENDMENT IN THE FINANCE ACT, 2001, VALUATION OF PERQUISITE U/S 17(2) R.W.R 3 BECAME THE LAW OF T HE LAND. THE ASSESSEE WAS SUPPOSED TO DEDUCT TAX AS PER VALUATION PROVIDED UN DER RULE 3 OF THE I T RULES, 1962. THESE RULES WERE WIDELY PUBLICISED IN VARIOUS NEWSPAPERS AND TRADE JOURNALS. THE ASSESSEE IS HAVING WELL ESTABLISHED TAXATION DIVISION TO DEAL WITH SUCH NEW RULES. FURTHER, COPY OF THE ORDER OF THE HONBLE MADRAS HIGH COURT IS DATED 1.3.2002. SIMILARLY, ORDER OF THE HONBLE BOM BAY HIGH COURT IS DATED 27.3.2002 GRANTING INJUNCTION. HE NOTED THAT THE AS SESSEE IN THE INSTANT CASE, 4 ITA NO.980/MUM/2004 BEING AT PANVEL, IS COVERED BY THE DECISION OF THE HONBLE MUMBAI HIGH COURT DATED 27.3.2002. ACCOUNTING PERIOD OF THE ASSESSEE IS FROM 1.4.2001 TO 31.3.2002. THE RULE 3 WAS NOTIFIED ON 25.9.2001 A ND THERE WAS NO INJUNCTION ORDER OF THE HONBLE BOMBAY HIGH COURT ON THAT DATE AND INJUNCTION OF BOMBAY HIGH COURT IS DATED IS 27.3.2002. SINCE THE SALARY PERTAINING TO FY 2001-02 WERE ALREADY DISBURSED BEFORE THE OPERATION OF INJUNCTIO N ORDER AND SINCE THE ASSESSEE HAS NOT DEDUCTED TDS IN SPITE OF CLEAR CUT WORDING OF RULE 3 OF IT RULES, 1962, THEREFORE, IN THE ABSENCE OF ANY STA Y ORDER OR INJUNCTION BY THE HONBLE BOMBAY HIGH COURT, THE ASSESSEE WAS DUTY BOUND TO DEDUCT THE TDS ON THE VALUE OF PERQUISITE. SINCE THE ASSESSEE HAS FA ILED TO DEDUCT THE TDS; THEREFORE, THE ASSESSEE IS AN ASSESSEE IN DEFAULT AS PER PROVISIONS OF SEC. 201(1) OF THE I T ACT. HE ACCORDINGLY, UPHELD THE ORDER OF THE ASSESSING OFFICER IN LEVYING DEMAND OF RS. 28,05,580 U/S 201(1) AND INTE REST OF RS. 4,20,867/- U/S 201(1A) BOTH TOTALLING TO RS. 32,26,447/- 4 AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSE SSEE IS IN APPEAL HERE BEFORE US. 5 THE LD COUNSEL FOR THE ASSESSEE REFERRING TO PAGE 56 OF THE PAPER BOOK SUBMITTED THAT THE EMPLOYEES UNION HAVE FILED A WR IT PETITION ON 22.1.1996 WHICH WAS ADMITTED BY THE HONBLE BOMBAY HIGH COURT , REFERRING TO PAGES 60 & 61 OF THE PAPER BOOK, HE DREW THE ATTENTION OF THE BENCH TO THE NATURE OF THE QUESTIONS BEFORE THE HONBLE HIGH COURT. 5 ITA NO.980/MUM/2004 5.1 REFERRING TO PAGES 83 & 84 OF THE PAPER BOOK HE DREW THE ATTENTION OF THE BENCH TO THE PRAYER BEFORE THE HONBLE HIGH COURT. REFERRING TO PAGE 47 OF THE PAPER BOOK, HE DREW THE ATTENTION OF THE BENCH TO T HE INTERIM ORDER DATED 20.2.1996 PASSED BY THE HONBLE HIGH COURT WHEREIN THE INTERIM RELIEF IN TERMS OF PRAYER (E) WAS GRANTED. 5.2 REFERRING TO PAGE 85 OF THE PAPER BOOK, HE DREW THE ATTENTION OF THE BENCH TO CLAUSE E OF THE PRAYER, WHICH HAS BEEN A LLOWED BY THE HONBLE HIGH COURT AND WHICH READS AS UNDER: THAT PENDING THE HEARING AND FINAL DISPOSAL OF THI S WRIT PETITION THE RESPONDENTS, THEIR SERVANTS AND AGENTS BE RESTRAINE D BY AN ORDER AND INJUNCTION FROM ADDING THE DIFFERENCE BETWEEN 10% O F THE SALARY OF ANY ORGANISATION OFFICER AND THE DEDUCTIONS ACTUALLY MA DE FROM THE SALARY INCOME OF SUCH OFFICERS ON ACCOUNT OF BEING PROVIDE D WITH A RESIDENTIAL ACCOMMODATION BY THE RESPONDENT ORGANISATION AS VAL UE OF PERQUISITE TO THE OTHER SALARY INCOME OF SUCH ORGANISATION OFFICE R ASSESSEE; 5.3 HE SUBMITTED THAT THERE WAS AN AMENDMENT TO CLA USE (2) OF SECTION 17 AND SUB.SEC (.2C) OF SEC. 192 WHICH CAME INTO FORCE FROM 1.4.2001 RELEVANT TO ASSESSMENT YEAR 2002-03. HE SUBMITTED THAT THERE IS NO CHANGE TO SEC. 17(2)(II). 5.4 REFERRING TO THE DECISION OF THE HONBLE SUPREM E COURT IN THE CASE OF ARUN KUMAR & BROS & OTHERS VS UNION OF INDIA & ORS., REP ORTED IN 286 ITR 89(SC), HE DREW THE ATTENTION OF THE BENCH TO PARA 64 OF THE O RDER WHICH READS AS UNDER: 64. WE ARE, HOWEVER, NOT INCLINED TO ENTER INTO LA RGER QUESTION AS IN OUR VIEW, IT IS NOT NECESSARY IN THE LIGHT OF STATUTORY PROVISION RELATING TO CONCESSION IN THE MATTER OF RENT RESPECTING ANY ACCOMMODATION IN S. 17(2)(II) OF THE ACT. WE A RE OF THE VIEW THAT R. 3 WOULD APPLY ONLY TO THOSE CASES WHERE CO NCESSION HAS BEEN SHOWN BY AN EMPLOYER IN FAVOUR OF AN EMPLOYEE IN THE MATTER OF RENT RESPECTING ACCOMMODATION. THUS, WHER EAS CHARGING PROVISION IS FOUND IN THE ACT OF PARLIAM ENT [S. 17(2)(II)], 6 ITA NO.980/MUM/2004 MACHINERY COMPONENT IS IN THE SUBORDINATE LEGISLA TION (R. 3). THE LATTER WILL APPLY ONLY AFTER LIABILITY IS CREAT ED UNDER THE FORMER. UNLESS THE LIABILITY ARISES UNDER S. 17(2)( II) OF THE ACT, R. 3 HAS NO APPLICATION AND THE METHOD OF VALUATION FOR CALCULATING CONCESSIONAL BENEFITS CANNOT BE RESORTED TO. 5.5 REFERRING TO PAGE 103 OF THE PAPER BOOK, HE SUB MITTED THAT THE HONBLE BOMBAY HIGH COURT VIDE WRIT PETITION NO.925 OF 20 02 IN THE CASE OF PETROLEUM EMPLOYEES UNION & OTHERS VS UNION OF INDIA ORDER DA TED 27.3.2002 HAD GRANTED INTERIM RELIEF. REFERRING TO PAGE 105 OF THE PAPER BOOK, HE SUBMITTED THAT VIDE ORDER DATED 6.3.2002 THE HONBLE HIGH COURT HAD GR ANTED INTERIM STAY ON THE OPERATION OF THE PROVISIONS OF SEC. 17(2)(VI) OF TH E ACT; THEREFORE, THERE IS NO DOUBT ABOUT THE BONAFIDE OF THE ASSESSEE IN NOT DED UCTING TAX AT SOURCE ON ACCOUNT OF SUCH PERQUISITES. 5.6 REFERRING TO THE DECISION OF THE JURISDICTIONA L HIGH COURT IN THE CASE OF CIT VS NICHOLAS PIRAMAL INDIA LTD REPORTED IN 299 ITR 3 56 (BOM) HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISION HAS HE LD THAT WHEN THE ASSESSEE, ON THE BASIS OF DECLARATIONS AS ALSO THE AFFIDAVITS FILED BY ITS EMPLOYEES REGARDING THE ACTUAL EXPENDITURE INCURRED BY THEM A GAINST THE CHILDRENS EDUCATION ALLOWANCE AND LTA DEDUCTED TAX ON THE EST IMATED INCOME, THE ASSESSEE HAS NOT BLINDLY ACCEPTED THE DECLARATIONS BUT HAS FAIRLY ESTIMATED THE INCOME FOR DEDUCTING TAX U/S192. WHEN THE TAX WAS N OT DEDUCTED ONLY ON THAT PART OF THE ALLOWANCE WHICH IS EXEMPT WHILE TAX HAS BEEN DULY DEDUCTED AND PAID ON THE REMAINING PORTION, THE ASSESSEE HAS ACTED BO NAFIDELY; THEREFORE, THE ASSESSEE CANNOT BE TREATED AS AN ASSESSEE IN DEFAUL T. HE SUBMITTED THAT SINCE THE ASSESSEE IN THE INSTANT CASE WITH BONAFIDE BELI EF HAS NOT DEDUCTED THE TAX AT 7 ITA NO.980/MUM/2004 SOURCE ON THE PERQUISITE VALUE AND SINCE HIS ACTIO N IS NOT MALAFIDE, THEREFORE, THE ASSESSEE CANNOT BE TREATED AS AN ASSESSEE IN DE FAULT AND THEREBY LIABLE TO PROVISIONS OF SEC. 201(1) /201(1A). 5.7 REFERRING TO PAGES 122 TO 126 OF THE PAPER BOO K, HE DREW THE ATTENTION OF THE BENCH TO THE NEWS PAPER REPORTS; ACCORDING TO W HICH THE INTERIM STAY HAS BEEN GRANTED FOR NON DEDUCTION OF TAX AT SOURCE ON PERQUISITE VALUE AND ALLOWANCES AS REQUIRED BY THE IT ACT AND NOTIFICAT ION WHICH WAS ISSUED BY CBDT DURING SEP 2001. HE SUBMITTED THAT DUE TO PREVAILIN G UNCERTAINTY THE ASSESSEE OBTAINED OPINION FROM A RENOWNED LAWYER SHRI S E DA STUR, WHO HAS OPINED THAT IN VIEW OF THE STAY GRANTED BY THE HONBLE HIGH COURT THE QUESTION OF DEDUCTING TAX AT SOURCE AS PER THE NEW RULES DOES NOT ARISE. 5.8 SO FAR AS NON DEDUCTION OF TAX AT SOURCE ON CON VEYANCE ALLOWANCE IS CONCERNED, HE DREW THE ATTENTION OF THE BENCH TO TH E DECISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN CASE OF CIT VS ONGC, SURAT , A COPY OF WHICH IS PLACED AT PAGE 137 OF THE PAPER BOOK AND THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS ONGC REPORTED IN 125 TAXMAN 69 8 AND SUBMITTED THAT NO TAX WAS DEDUCTIBLE ON CONVEYANCE ALLOWANCE. 5.9 REFERRING TO THE DECISION OF THE HONBLE SUPREM E COURT IN THE CASE OF CIT VS L&T & ORS. REPORTED IN 313 ITR 1(SC), HE SUBMIT TED THAT THE EMPLOYER IS NOT UNDER ANY STATUTORY OBLIGATION UNDER THE INCOME TAX ACT, 1961 OR THE RULES, TO COLLECT EVIDENCE TO SHOW THAT THE EMPLOYEE HAD ACT UALLY UTILIZED THE AMOUNT 8 ITA NO.980/MUM/2004 PAID TOWARDS LEAVE TRAVEL CONCESSION OR CONVEYANCE ALLOWANCE U/S 10(5). NOR IS THERE ANY CIRCULAR OF THE CBDT REQUIRING THE EMPLOY ER U/S 192 TO COLLECT AND EXAMINE THE EVIDENCE SUPPORTING THE DECLARATION SUB MITTED BY THE EMPLOYEE. SINCE IN THE INSTANT CASE, THE EMPLOYER HAS ACTED O N THE BASIS OF DECLARATION GIVEN BY THE EMPLOYEES; THEREFORE, THERE WAS NO OBL IGATION ON THE PART OF THE EMPLOYER TO DEDUCT THE TAX AT SOURCES. 5.10 THE LD COUNSEL FOR THE ASSESSEE FILED A COPY O F THE ORDER OF THE VISHAKHAPTNAM BENCH OF THE TRIBUNAL IN THE CASE OF ONGC, RAJAHMUNDRY VS ITO VIDE ITA NO. 703/VSP/2004 ORDER DATED 31.10.2008 FO R ASSESSMENT YEAR 2003-04 AND SUBMITTED THAT UNDER IDENTICAL CIRCUMSTANCES TH E TRIBUNAL HAD HELD THAT THE ASSESSEE IS NOT IN DEFAULT AND CANNOT BE TREATED AS AN ASSESSEE IN DEFAULT. 5.11 REFERRING TO THE DECISION OF THE NAGPUR BENCH OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT (TDS) VS WESTERN COALFIELD S LTD VIDE ITA NO.93 OF 2008 (COPY FILED) HE SUBMITTED THAT THE HONBLE HIGH CO URT HAS ANALYSED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ARUN KUMAR (SUPRA) AND HAS HELD THAT EVEN AFTER THE SUBSTITUTION OF RULE 3 WITH EFFECT F ROM 1.4.2001, IN THE ABSENCE OF ANY SPECIFIC PROVISION UNDER THE ACT, IT WAS OPEN T O THE ASSESSEE NOT TO DEDUCT TAX AT SOURCES RELATING TO THE ACCOMMODATION GIVEN TO THE EMPLOYEES ON THE GROUND THAT NO CONCESSION IN RENT HAS BEEN GIVEN TO THE EMPLOYEES. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) BE SET ASIDE AND THE DEMAND RAISED BY THE ASSESSING OFFICER BE DELETED. 9 ITA NO.980/MUM/2004 6 THE LD DR ON THE OTHER HAND WHILE SUPPORTING THE O RDER OF THE CIT(A) SUBMITTED THAT WHEN THE SURVEY WAS CONDUCTED ON 4 .12.2002 NOTHING PREVENTED THE EMPLOYER TO DEDUCT TAX AT SOURCE TILL THE INJUNCTION IS GRANTED BY THE HONBLE BOMBAY HIGH COURT. SINCE THE ASSESSEE IS A PUBLIC SECTOR UNDERTAKING AND SINCE LAW WAS VERY CLEAR; THEREFORE , THERE WAS NO NEED TO TAKE ANY OPINION FROM ANY COUNSEL. SINCE THE ASSESSEE H AS FAILED TO DEDUCT THE TAX AT SOURCE AS PER STATUTORY LAW, THE CIT(A) WAS JUSTIFI ED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN CHARGING TAX FOR THE SHORT DE DUCTION AND INTEREST U/S 201(1)/201((1A) RESPECTIVELY OF THE ACT. ACCORDING LY, HE SUBMITTED THAT THE ORDER OF THE LD CIT(A) SHOULD BE UPHELD. 7 WE HAVE CONSIDERED THE RIVAL ARGUMENTS BY BOTH TH E SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS D ECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSING OFFICER, RELYING ON THE AMENDMENT TO RULE 3 OF INCOME TAX RULE 1962 BY THE INCOME TAX (TWENTY SECOND) AMENDMENT RULES 2001 W.E.F 1.4.2001, HELD T HAT THE ASSESSEE HAS NOT VALUED THE PERQUISITES FOR DEDUCTION OF TAX AT SO URCE. HE, THEREFORE, WAS OF THE OPINION THAT THE ASSESSEE HAS NOT DEDUCTED THE TAX AT SOURCE AMOUNTING TO RS. 91,73,186/- ON ACCOUNT OF VALUATION OF PERQUISITE. HE, ACCORDINGLY TREATED THE ASSESSEE AS AN ASSESSEE-IN DEFAULT AND LEVIED TAX U /S 201 AT RS. 28,05,580/- AND INTEREST U/S 201(1A) AT RS. 4,20,867/-. WE FIND, T HE CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER ON THE GROUND THAT THE ORDER OF THE HONBLE MADRAS HIGH COURT IS DATED 1.3.2002. SIMILARLY, THE ORDER OF T HE HONLBLE BOMBAY HIGH COURT IS DATED 27.3.2002 GRANTING INJUNCTION AND THE RULE 3 WAS NOTIFIED ON 25.9.2001. THERE WAS NO INJUNCTION ORDER OF THE HONBLE MADRAS HIGH COURT ON THAT DATE. 10 ITA NO.980/MUM/2004 THEREFORE, THE INJUNCTION ORDER BECAME EFFECTIVE FR OM 27.3.2002. SINCE THE SALARY PERTAINS TO FY 2001-02, THEREFORE, IN ABSENC E OF ANY STAY ORDER OR INJUNCTION BY THE HONBLE BOMBAY HIGH COURT, THE AS SESSEE WAS DUTY BOUND TO DEDUCT TAX ON THE VALUE OF THE PERQUISITE. IT IS THE SUBMISSION OF THE LD COUNSEL FOR THE ASSESSEE THAT DUE TO PREVAILING UNCERTAINTY , THE ASSESSEE HAD OBTAINED LEGAL OPINION AND IN A BONAFIDE MANNER MADE A FAIR ESTIMATE OF TAX TO BE DEDUCTED AND ACCORDINGLY DIDNT DEDUCT THE TAX AT S OURCE ON THAT PORTION OF THE ALLOWANCE WHICH ACCORDING TO IT IS EXEMPT. HIS INTE NTION WAS NOT MALAFIDE AND THEREFORE, THE ASSESSEE SHOULD NOT BE TREATED AS AN ASSESSEE-IN DEFAULT. 8 WE FIND MERIT IN THE ABOVE SUBMISSION OF THE LD C OUNSEL FOR THE ASSESSEE. ADMITTEDLY, THE EMPLOYEES UNION FILED A WRIT PETIT ION BEFORE THE JURISDICTIONAL HIGH COURT IN THE YEAR 1996. THERE IS ALSO NO DISPU TE TO THE FACT THAT THERE WAS AMENDMENT TO THE PROVISIONS OF SEC. 17(2((VI) BY F INANCE ACT 2001; ACCORDING TO WHICH NEW RULE 3 WAS INTRODUCED IN THE INCOME TAX R ULES THROUGH NOTIFICATION NO. SO NO.940(E) DATED 25.9.2001 W.E.F 1.4.2001. TH ERE IS ALSO NO DISPUTE TO THE FACT THAT AS PER THE NEW RULE 3, THE PERQUISITE WAS TO BE VALUED ON THE BASIS OF ACTUAL COST TO THE EMPLOYER. THERE IS ALSO NO DISPU TE TO THE FACT THAT AGAINST INSERTION OF THE NEW RULE 3, VARIOUS EMPLOYEES WERE AGITATED AND FILED WRIT PETITIONS IN DIFFERENT HIGH COURTS. THERE IS ALSO N O DISPUTE TO THE FACT THAT VARIOUS HIGH COURTS (CHENNAI AND MUMBAI) HAVE GRANTED INTER IM STAY, ALTHOUGH SUBSEQUENT TO THE NOTIFICATION AND BEFORE THE END O F THE FINANCIAL YEAR. UNDER THESE CIRCUMSTANCES, IT IS TO BE SEEN AS TO WHETHER THE ASSESSEE HAS TO BE TREATED AS AN ASSESSEE IN DEFAULT FOR NOT DEDUCTING TAX AT SOURCE ON THE PERQUISITES VALUE. 11 ITA NO.980/MUM/2004 9 WE FIND, THE VISHAKHAPTNAM BENCH OF THE TRIBUNAL IN THE CASE OF ONGC RAJAHMUNDRY (SUPRA) WHILE DISCUSSING AN IDENTICAL I SSUE AT PAGES 13 TO 16 OF ITS ORDER HAS HELD AS UNDER: 13 THE MAIN ISSUE ARSING FOR CONSIDERATION IN THESE MATTERS, RELATES TO NON-DEDUCTION OF TAX AT SOURCE U/S 192 I N RESPECT OF PERQUISITE/AMENITIES PROVIDED TO ITS EMPLOYEES BY T HE ASSESSEE. IT IS AN ADMITTED FACT THAT THE ASSOCIATION OF SCIENTIFIC AND TECHNICAL OFFICERS OF ONGC OF INDIA FILED A WRIT PETITION, BE ING WP NO.6962 OF 2002 BEFORE THE MADRAS HIGH COURT CHALLENGING THE C ONSTITUTIONAL VALIDITY OF S. 17(2)(VI) OF THE ACT, AS INSERTED BY THE FINANCE ACT, 2001 AND ALSO RULE 3 OF THE I T RULES, 1962, AS SUBSTITU TED BY THE INCOME TAX (SECOND AMENDMENT)RULES 2001. THE MADRAS HIGH C OURT BY ITS ORDER DATED 8.3.2002 GRANTED INTERIM STAY ON THE OP ERATION OF THE ABOVE PROVISIONS. WE FIND THAT S.17(2)(VI) OF THE A CT WAS INTRODUCED BY FINANCE ACT, 2001 WITH EFFECT FROM 1.4.2002. IT WAS NOTIFIED BY THE GOVT OF INDIA IN SO NO.940(5) DATED 25.9.2001. THE MADRAS HIGH COURT GRANTED INTERIM STAY ON THE OPERATION OF THES E PROVISIONS ON 8.3.2002. SO, AS ON 1.4.2002, THE PROVISIONS OF S. 17(2)(VI) ARE NOT IN OPERATION IN VIEW OF THE INTERIM ORDER OF THE MADRA S HIGH COURT. AS RIGHTLY SUBMITTED BY THE LD COUNSEL FOR THE ASSESSE E, DEDUCTION OF TAX IN RESPECT OF PERQUISITES/AMENITIES, AS PROVIDED U /S 192 OF THE ACT READ WITH S. 17(2)(VI)WOULD DEFINITELY AMOUNT TO VI OLATION OF THE ORDERS OF THE MADRAS HIGH COURT DATED 8.3.2002 AND THE ASSESSEE HAS TO FACE PENAL CONSEQUENCES FOR CONTEMPT OF COUR T. THEREFORE, IN OUR OPINION, IT IS THE BOUNDEN DUTY OF THE ASSESSE E TO OBEY THE ORDER OF THE MADRAS HIGH COURT DATED 8.3.2002 WITH REGARD TO DEDUCTION OF TAX ON THE PERQUISITES/AMENITIES GIVEN TO THE EMPLO YEES. WE FIND FROM THE ORDERS OF THE LOWER AUTHORITIES THAT ONE O F THE GROUNDS FOR REJECTION OF THE PLEA OF THE ASSESSEE FOR NON DEDUC TION OF TAX AT SOURCE ON THE VALUE OF PERQUISITES/AMENITIES IS THA T INTERIM STAY WAS GRANTED BY MADRAS HIGH COURT AND NOT BY ANDHRA PRAD ESH HIGH COURT AND THEREFORE, THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX U/S 192 OF THE ACT. ADMITTEDLY, THE ASSESSEE-CORPORATION WAS O NE OF THE RESPONDENTS BEFORE THE MADRAS HIGH COURT AND THERE FORE, THE INTERIM STAY GRANTED BY THE MADRAS HIGH COURT IS BI NDING ON THE ASSESSEE- CORPORATION WHEREVER THEY HAVE BRANCH OF FICES. THEREFORE, THE LOWER AUTHORITIES ARE NOT JUSTIFIED IN SAYING T HAT THE INTERIM STAY IS GRANTED BY THE MADRAS HIGH COURT ONLY AND NOT BY THE A.P HIGH COURT. IN OUR OPINION, IN VIEW OF THE INTERIM STAY GRANTED BY THE MADRAS HIGH COURT, ASSESSEE WAS NOT EXPECTED TO DED UCT ANY TAX DURING PERIOD OF OPERATION OF THE STAY, I.E. FROM 8 .3.2002 TO 12 ITA NO.980/MUM/2004 30.4.2003. SO, DURING THAT PERIOD, ASSESSEE CANNOT BE TREATED AS AN ASSESSEE-IN DEFAULT. 14 THE NEXT QUESTION ARISING FOR CONSIDERATION IS W HETHER IT IS DUTY ON THE ASSESSEE TO DEDUCT TAX U/S 192 FOR THE FINANCIAL YEAR 2002-03, AFTER THE INTERIM STAY WAS VACATED BY THE MADRAS HIGH COURT ON 30.4.2003. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SEC. 192 OF THE ACT. S. 192(1) MAKES IT OBLIGATORY FOR ANY PERSON RESPONSIBLE FOR PAYING ANY INCOME CHARGEABLE UNDER THE HEAD SALARIES TO DEDUCT INCOME TAX ON THE AMOUNT PAYAB LE AT THE AVERAGE RATE OF INCOME TAX COMPUTED ON THE BASIS OF THE RATES PRESCRIBED FOR THE FINANCIAL YEAR IN WHICH THE PAYM ENT IS MADE ON THE ESTIMATED INCOME OF THE ASSESSEE UNDER THE HEAD SA LARY FOR THAT FINANCIAL YEAR. THE LANGUAGE OF S. 192 IS VERY CLEA R THAT THE ASSESSEE HAS TO DEDUCT TAX ON THE ESTIMATED INCOME OF THE EM PLOYEE UNDER THE HEAD SALARY FOR THAT FINANCIAL YEAR IN WHICH PAYMENT WAS MADE. FOR THE FINANCIAL YEAR 2002-03, THE PAYMENTS HAVE A LREADY BEEN MADE BEFORE 31.3.2003, ON WHICH DATE, THE INTERIM S TAY OF THE MADRAS HIGH COURT WAS IN OPERATION. IT IS NOT THE C ASE OF THE REVENUE THAT ANY PART OF ARREARS RELATED TO FINANCIAL YEAR 2002-03 I.E. RELEVANT TO ASSESSMENT YEAR 2003-04, WAS PENDING TO BE PAID BY THE ASSESSEE TO ITS EMPLOYEES. IN THESE CIRCUMSTANCES, STRICTLY SPEAKING, AS CONTENDED BY THE LD COUNSEL FOR THE ASSESSEE, THE P ROVISIONS OF S. 192(1) OF THE ACT DO NOT MAKE IT OBLIGATORY FOR THE ASSESSEE TO DEDUCT IN THE SUBSEQUENT ASSESSMENT YEAR. 15 WE HAVE ALSO CAREFULLY GONE THROUGH THE JUDGMENT S OF VARIOUS HIGH COURTS REFERRED TO BY THE LD COUNSEL F OR THE ASSESSEE. ALL THE HIGH COURTS SAY THAT THE EMPLOYER HAS TO ESTIMA TE THE INCOME OF THE YEAR FAIRLY AND HONESTLY AND DEDUCT TAX THEREON . ONCE THE INCOME OF THE EMPLOYEES UNDER THE HEAD SALARY WAS ESTIMA TED HONESTLY AND FAIRLY, MERELY BECAUSE THERE WAS SHORT DEDUCTION OF TAX, THE PROVISIONS OF S.201 ARE NOT ATTRACTED. THE ANDHRA P RADESH HIGH COURT IN THE CASE OF P V RAJAGOPAL (SUPRA) EXAMINED THIS ISSUE ELABORATELY AND FOUND THAT THE EMPLOYEE, WHO IS IN RECEIPT OF O THER INCOME, MAY SEND TO THE EMPLOYER A VERIFIED STATEMENT TO TAKE T HAT ALSO INTO ACCOUNT FOR DEDUCTION OF TAX AT SOURCE. IN DOING S O, THE EMPLOYEE WILL BE TAKING A GREAT RESPONSIBILITY BECAUSE IF THE INC OME IS OTHERWISE TAXABLE, HE WILL BE LIABLE TO PAY LARGER ADVANCE TA X AND FOR DEFAULT OR DEFERMENT, SUCH ADVANCE TAX WILL BE LIABLE TO PAY I NTEREST UNDER SECTIONS 234B AND234C. THE A P HIGH COURT FURTHER O BSERVED THAT DEDUCTION OF TAX AT SOURCE IS NOT ON ANY ADJUDICATE D FIGURE, BUT ON AN ESTIMATED FIGURE OF SALARY INCOME. IN THE CASE BEFO RE US, THE ASSESSEE ESTIMATED THE SALARY INCOME OF ITS EMPLOYE ES EXCLUDING THE VALUE OF PERQUISITE/AMENITIES, IN VIEW OF THE OPERA TION OF THE INTERIM STAY GRANTED BY THE MADRAS HIGH COURT. THEREFORE, T HE ASSESSEE HAS FAIRLY AND HONESTLY ESTIMATED THE INCOME. IT IS NOT THE CASE OF THE 13 ITA NO.980/MUM/2004 REVENUE THAT THE ESTIMATION OF THE ASSESSEE IS NOT FAIR OR HONEST. WHEN THE ASSESSEE ESTIMATED THE INCOME FAIRLY AND H ONESTLY IN COMPLIANCE WITH THE ORDER OF THE MADRAS HIGH COURT, WE CANNOT SAY THAT THE ASSESSEE HAS COMMITTED A DEFAULT IN DEDUCT ING TAX. IN OUR OPINION, THE ASSESSEE HAS ESTIMATED THE INCOME HONE STLY AND FAIRLY AND ALSO COMPLIED WITH THE INTERIM ORDER OF THE MAD RAS HIGH COURT. SO, THE ASSESSEE CANNOT BE TREATED AS AN ASSESSEE I N DEFAULT FOR THE ASSESSMENT YEAR 2003-04. 16 ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE LOWE R AUTHORITIES AND HOLD THAT THE ASSESSEE IS NOT IN DEFAULT FOR TH E ASSESSMENT YEAR UNDER CONSIDERATION. 10 WE FIND NAGAR BENCH OF JURISDICTIONAL HIGH COUR T IN THE CASE OF WESTERN COALFIELDS LD (SUPRA) AT PARAS 10 & 11 HAS OBSERVED AS UNDER: 10. ACCORDING TO SHRI PARCHURE, LD COUNSEL FOR THE REVENUE, THE DETERMINATION OF CONCESSION IN THE MATTER OF RENT IS INBUILT IN RULE 3 OF THE INCOME TAX RULES, 1962 AS INTRODUCED WITH EFFECT FROM 1.4.2001. SINCE VALIDITY OF RULE 3 INTRODUCED WITH EFFECT FROM 1.4.2001 HAS BEEN UPHELD BY THE APEX COURT IN ARUN KUMARS CASE (SUPRA) AND THE SAME HAS BEEN FORTIFIED BY THE RETR OSPECTIVE INSERTION OF EXPLANATION TO SEC. 17(2)(II) OF THE A CT, THE ASSESSEE WAS OBLIGED TO DEDUCT TAX AT SOURCE AND FAILURE TO DO S O MADE THE ASSESSEE LIABLE FOR CONSEQUENCES SET OUT U/S 201 OF THE ACT. 11. WE SEE NO MERIT IN THE ABOVE CONTENTIONS. THE A PEX COURT IN ARUN KUMARS CASE (SUPRA) WHILE UPHOLDING THE VALID ITY OF RULE 3 HAS HELD THAT IN THE ABSENCE OF ANY DEEMING FICTION I N THE ACT, IT IS OPEN TO THE ASSESSEE TO CONTEND THAT THERE IS NO CO NCESSION IN THE MATTER OF ACCOMMODATION PROVIDED BY THE EMPLOYER TO THE EMPLOYEES AND THE CASE IS NOT COVERED BY SECTION 17 (2)(II) OF THE ACT. IN OTHER WORDS, EVEN AFTER THE SUBSTITUTION OF RULE 3 WITH EFFECT FROM 1.4.2001, IN THE ABSENCE OF ANY SPECIFIC PROVI SION UNDER THE ACT, IT WAS OPEN TO THE ASSESSEE NOT TO DEDUCT TAX AT SOURCE RELATING TO THE ACCOMMODATION GIVEN TO THE EMPLOYEES ON THE GROUND THAT NO CONCESSION IN RENT HAS BEEN GIVEN TO THE EMPLOYE ES. THIS CONTENTION OF THE ASSESSEE HAS BEEN IN FACT HELD BY THE APEX COURT IN THE CASE OF ARUN KUMAR (SUPRA). TO OVERCOME THE ABOVE DECISION, THE LAW HAS BEEN AMENDED BY FINANCE ACT, 2007 WITH RETROSPECTIVE EFFECT FROM 1.4.2002. THE RETROSPECTIVE AMENDMENT M ERELY TAKES AWAY THE ABOVE ARGUMENT, WHICH WAS AVAILABLE TO THE ASSESSEE. 14 ITA NO.980/MUM/2004 ONCE THE SALARY IS PAID BY THE EMPLOYER AFTER DEDUC TING TAX AT SOURCE AS PER THE LAW PREVAILING ON THE DATE OF PAY ING THE SALARY, THEN ANY SUBSEQUENT AMENDMENT IN LAW BROUGHT ABOUT RETROSPECTIVE CANNOT REQUIRE THE EMPLOYER TO DEDUCT TAX AT SOURCE FOR THE PAST PERIOD, BECAUSE THE SALARY FOR THAT PE RIOD HAS ALREADY BEEN PAID. CONSEQUENTLY, THE EMPLOYER CANNOT BE MAD E LIABLE FOR THE CONSEQUENCES SET OUT IN SEC. 201 OF THE ACT ON ACCOUNT OF THE RETROSPECTIVE AMENDMENT TO SEC. 17(2) OF THE ACT. 11 WE FIND THE JURISDICTIONAL HIGH COURT IN THE CAS E OF NICHOLAS PIRAMAL INDIA LTD (SUPRA) HAS HELD THAT WHEN AN ASSESSEE DID NOT DEDUCT TAX AT SOURCE ON THAT PART OF THE ALLOWANCE WHICH, ACCORDING TO IT IS EXE MPT AND ON THE BALANCE PORTION TAX HAS DULY BEEN DEDUCTED AND PAID TO THE CREDIT O F THE CENTRAL GOVERNMENT AND THE ASSESSEE DID ACT HONESTLY AND FAIRLY AND TH ERE WAS NO REASON FOR THE ASSESSEE TO RAISE ANY SUSPICION AND ACTED IN A BONA FIDE MANNER THAN IN THAT CASE THE ASSESSEE CANNOT BE TREATED AS AN ASSESSEE IN DEFAULT. IN VIEW OF THE ABOVE, THE ASSESSEE, IN OUR OPINION CANNOT BE TREA TED AS AN ASSESSEE IN DEFAULT FOR NON-DEDUCTION OF TAX AT SOURCE ON THE PERQUISIT E VALUE OF RENT FREE ACCOMMODATION PROVIDED TO THE EMPLOYEES. 12 SO FAR AS THE ISSUE RELATING TO DEDUCTION OF TAX ON CONVEYANCE ALLOWANCE IS CONCERNED, WE FIND THE HONBLE SUPREME COURT IN THE CASE OF L&T & ORS., (SUPRA) HAS HELD THAT THE EMPLOYER IS NOT UNDER ANY STATU TORY OBLIGATION UNDER THE INCOME TAX ACT, 1961 OR THE RULES, TO COLLECT EVIDE NCE TO SHOW THAT THE EMPLOYEE HAD ACTUALLY UTILIZED THE AMOUNT PAID TOWARDS LEAV E TRAVEL CONCESSION OR CONVEYANCE ALLOWANCE U/S 10(5). NOR IS THERE ANY CI RCULAR OF THE CBDT REQUIRING THE EMPLOYER U/S 192 TO COLLECT AND EXAMINE THE EVI DENCE SUPPORTING THE DECLARATION SUBMITTED BY THE EMPLOYEE. SINCE IN THE INSTANT CASE, THE EMPLOYER HAS ACTED ON THE BASIS OF DECLARATIONS GIVEN BY THE EMPLOYEES; THEREFORE, THERE 15 ITA NO.980/MUM/2004 WAS NO OBLIGATION ON THE PART OF THE EMPLOYER TO DE DUCT THE TAX AT SOURCES. THEREFORE, THE ACTION OF THE ASSESSEE IN NOT DEDUCT ING THE TAX AT SOURCE ON THE PORTION OF CONVEYANCE REIMBURSEMENT, IN OUR OPINION APPEARS TO BE BONAFIDE AND SHOULD NOT BE TREATED AS AN ASSESSEE IN DEFAULT. 12.1 IN VIEW OF THE ABOVE DISCUSSIONS, WE HOLD THAT THE ASSESSEE CANNOT BE TREATED AS AN ASSESSEE IN DEFAULT FOR SHORT DEDUCTI ON OF TAX ON ACCOUNT OF PERQUISITE VALUE ON RESIDENTIAL ACCOMMODATION PROVI DED TO THE EMPLOYEES AND CONVEYANCE REIMBURSEMENT. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE DEMA ND RAISED BY HIM U/S 201(1)/201(1A) OF THE ACT. THE GROUNDS RAISED BY TH E ASSESSEE ARE ACCORDINGLY ALLOWED. 13 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THE 8 TH DAY OF APRIL 2011. SD/- SD/- ( (( ( R V EASWAR ) R V EASWAR ) R V EASWAR ) R V EASWAR ) PRESIDENT ( (( ( R K PANDA R K PANDA R K PANDA R K PANDA ) )) ) ACCOUNTANT MEMBER PLACE: MUMBAI : DATED: 8 TH APRIL 2011 RAJ* 16 ITA NO.980/MUM/2004 COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI