National Institute of Technology (NIT) V. Income Tax Officer (TDS), Agartala

WP(C)/1345/2019

AI Insights

The case revolves around the National Institute of Technology (NIT) challenging an order from the Income Tax Officer (TDS), Agartala, regarding the deduction of tax at source for accommodation provided to its employees. NIT argued that as a statutory body receiving 100% funding from the central government, it should not be classified under the same provisions as private employers for tax deduction purposes. The Income Tax Officer contended that NIT did not fall under the category of 'State' as per the applicable tax rules, leading to the requirement of tax deduction on any concessions provided in rent. The High Court of Tripura dismissed NIT's petition, affirming the need for compliance with tax deduction norms.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 799983 (HC-TRIPURA)
• Appeal Type: Others
• Pronouncement Date: 12-01-2021
• Assessment Year: misc
• Laws Referred To: National Institutes of Technology, Science, Education and Research Act, 2007, Income Tax Act, 1961, Income Tax Rules, 1962
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: B MAJUMDER
• Assessee Lawyers: S MAHAJAN
• Keywords: Accommodation; Income Tax Officer; License Fees; Perquisites; TDS; National Institute of Technology
• Section: 192; 17; 3(1); 17(2)

Judgement Text

" Page 1 of 6 HIGH COURT OF TRIPURA AGARTALA WP(C)No.1345/2019 For Petitioner(s) : Mr. S.Mahajan, Adv. For Respondent(s) : Mr. B.Majumder, Adv. HON’BLE THE CHIEF JUSTICE MR. AKIL KURESHI HON’BLE MR. JUSTICE S.G.CHATTOPADHYAY Judgement & Order(Oral) 12.01.2021 (Akil Kureshi, C.J.) This petition is filed by the National Institute of Technology (NIT for short) to challenge the order dated 05.09.2019 passed by the Income Tax Officer (TDS), Agartala. [2] Brief facts are as under: The petitioner is an educational institution constituted under the National Institutes of Technology, Science, Education and Research Act, 2007. The petitioner is engaged in imparting higher education in engineering, technology, management, science, arts etc. and also encourages research in such fields. The petitioner receives 100% assistance from the central government and has been declared as an institution of national importance. To its employees the petitioner institution provides accommodation in terms laid down in NITA Residential Rules, 2009(hereinafter to be referred to as Residential Rules). The question of deducting tax at source in the context of such accommodation provided by the petitioner to its employees is at the center of this petition. Page 2 of 6 [3] The starting point of this issue was a communication dated 03.03.2015 by the Income Tax Officer(TDS) to the Registrar of the NIT enquiring from him whether by computing tax liability of an employee of the university, the provisions of Section 17 of the Income Tax Act, 1961 (the Act, for short) and Rule 3 (1) of Income Tax Rules, 1962(the Rules, for short) have been complied with or not. In response to the said letter the petitioner conveyed to the Income Tax Officer that the NIT has framed the Residential Rules with the approval of the Board of Governor under which all teaching and non teaching staff are provided residential quarters by charging license fees according to the living area of the residential accommodation and commensurate with the pay band of an employee concerned. In view of such accommodation being provided by the employer the employees do not receive HRA. It is also pointed out that for contractual employees the license fees are charged under the a different structure. In view of the collection of the license fees from the employees, regular as well as contractual for providing accommodation, there is no question of providing any perquisites to the employees on which tax should be deducted at source. The Income Tax officer (TDS), however, reiterated that the perquisites for accommodation is to be computed in terms of Section 17 of the Act read with Rule 3(1) of the said Rules, failure to comply with this statutory provisions would expose the authority to appropriate proceedings under the Act. He sent a reminder on 09.04.2015 to the Registrar. It appears that pursuant to such correspondence the petitioner deposited certain amount with the Income Tax Officer by way of TDS. Page 3 of 6 [4] On 16.03.2018, the Registrar of the NIT made a written representation with the Income Tax Officer (TDS) and contended that the provisions of Section 17 (2) of the Act are not applicable to the employees of NIT and therefore, the petitioner was not liable to deduct tax at source and deposit it with the Income Tax Authority in terms of Section 192 of the Act. [5] The Income Tax Officer(TDS) by the impugned order dated 05.09.2019 turned down the representation of the petitioner for exemption from deducting tax at source primarily observing that the university does not fall under the category of the State. Since the condition in Sl.No.1 at Table 1 in Rule 3 is not satisfied in the case of NIT, its case would fall under Sl.No.2 and therefore, the request of the institute cannot be accepted. The petitioner thereupon, has challenged the order of the Income Tax Officer. [6] Appearing for the petitioner, learned counsel Shri Mahajan vehemently contended that the petitioner is an educational institution set up under the statute by the Central Government, receives 100% financial assistance from the Union of India and it is engaged in imparting higher education and encouraging research in various educational fields. The institution is thus state within Article 12 of the Constitution of India and therefore, in terms of Section 17 and sub-rule (1) of Rule 3 of said Rules, the value of the accommodation would be the license fees charged and there would be no question of providing any perquisite to the employees. [7] On the other hand learned counsel appearing for the revenue contends that the Income Tax Officer has taken into account Page 4 of 6 all aspects of the matter and passed a reasoned speaking order which calls for no interference. [8] Section 17 of the Act defines the terms salary, perquisite and profits in lieu of salary. Sub-section (2) of Section 17, defines the term perquisite as to include the value of rent- free accommodation provided to the assessee by his employer; and the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer. Undoubtedly, since the petitioner does not provide rent free accommodation to its employees, the present case does not fall under clause (i) of sub-section (2) of Section 17 of the Act. However, if there is any concession in the matter of rent respecting the accommodation provided by the petitioner to its employees, the case would be covered under sub-clause (ii) of sub-section (2). This question has to be ascertained as provided in rule 3 of the said Rules which pertains to value of perquisites. It provides that for the purpose of computing the income chargeable under the head of salary, the value of perquisites provided by the employer directly or indirectly to the assessee or to any member of his household by the reason of its employment shall be determined in accordance with the sub-rules contained in the said Rule. Sub-rule(1) of Rule 3 pertains to residential accommodation provided by the employer and in which case the valuation of perquisites would be decided as provided in the table below sub-rule1. This table has 3 items. At Sl. No.1 it is the accommodation provided by the Central or State government to its employees. Sl.no.2 pertains to cases where accommodation is provided by any other employers (i.e. an employer other than the Central or the State Government). Sl. No.3 refers to a case where the accommodation is provided by the employer mentioned in sl.no.1 or Page 5 of 6 sl.no.2 in a hotel. We are not concerned with this sl. No. and may, therefore, revert back to the sl.no.1 and 2 of the table. In clear terms sl.no.1 refers to a case where the employer is either the Central Government or the State Government. All other cases would fall under Sl.No.2. There is a vast difference between the Central and the State Government and a body or corporation or an organization which for the purpose of Article 12 of the Constitution is categorized as a State. These agencies are often referred to a state instrumentalities but are neither state nor the central government per se. We are prepared to proceed on the basis of the assertion of the counsel for the petitioner that NIT is a state of India within the meaning of Article 12 of the Constitution. This, however, still would not bring NIT within the fold of Sl.No.1 in table below sub-rule(1) of Rule 3 of the said Rules. Sl.No.1 would be applicable only in a case where the employer is either the Central or the State Government. All other cases would fall under Sl.No.2. This distinction is significant because in cases falling under Sl.No.1, where the accommodation is unfurnished, license as determined by the Central or State Government in respect of such accommodation as reduced by the rent paid by the employee would be considered as a perquisite. In other words, if the employee bears full license fees fixed by the employer government, there would be no question of any perquisite. Whereas in cases falling under sl.No.2 of the table, there are detailed provisions how such accommodation should be valued and any amount charged from the employee which falls short of such valuation, would be treated as perquisite on which tax would be deducted at source by the employer and deposited with the Income Tax Authority. Page 6 of 6 [9] The Income Tax Officer in the impugned order had observed that the petitioner NIT is not the state within the meaning of Article 12 of the Constitution, which does not appear to be quite correct. However, even if the NIT would be treated as state within the meaning of Article 12, it cannot escape the liability to deduct tax at source on the differential valuation of the rent as assessed under sub- rule(1) of Rule 3 and that collected from the employee concerned by way of license fee. [10] Learned counsel of the writ petitioner, however, submitted that under mistaken belief the petitioner had taken into account full value of the computation of rent for the purpose of computing perquisites at the time of deducting of tax at source, ignoring that component which the employee was anyway paying by way of license fees under the Rules. This is a factual aspect into which we cannot go into in the present writ petition. The respondents had not demanded any quantified amount so that we can direct the department to correct the error, if any. If the petitioner had made an error in computation, it is either by the petitioner to approach the authority for rectification if time is available or for the concerned employees to seek refund of excess deduction of taxes from the salaries. Subject to these observations, this petition is dismissed. (S.G.CHATTOPADHYAY), J (AKIL KURESHI), CJ Saikat Sarma "