SUMMARY OF CASE LAW
Where all the employees of the assessee-company were posted for a continuous period of 28 days on Rigs, which was more than the minimum period of 15 days stipulated in rule 6DD(j) and they were not maintaining any bank account there, the payments by way of salary made to them by the assessee in cash in excess of Rs. 20,000 were duly covered by the exceptions provided in rule 6DD(j) and the same were not liable to be disallowed under section 40A(3) of the Income-tax Act, 1961.
CASE LAW DETAILS
Decided by: ITAT, `C’ BENCH, MUMBAI, In The case of: DCIT v.OCS Services (India) Pvt. Ltd., Appeal No.: ITA NO. 7715/MUM/2007, Decided on: MAY 7, 2009
8. We have heard the arguments of both the sides and also perused the relevant material on record. It is observed that there is no dispute about the fact that the payments in question were made by the assessee company in cash in excess of Rs.20,000/- towards service charges to the crew. The dispute, however, is that whether the said payments were covered by the exceptions prescribed in Rule 6DD(j) having regard to all the relevant facts of the assessee’ case. The provisions of the said rule read as under: -
“Rule 6DD No disallowance under sub-section (3) of Section 40A shall be made where any payment in a sum exceeding twenty thousand rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft in the cases and circumstances specified hereunder namely –
(a) where the payment is made to -
(iii) …. (xviii)
(j) Where the payment is made by an assessee by way of salary to his employee after deducting the income tax from salary in accordance with the provisions of Sec. 192 of the Income Tax Act, 1961 and when such employee …
(A) is temporarily posted for a continuous period of fifteen days or more in a place other than his normal place of duty or on a ship; and
(B) does not maintain any account in any bank at such place or ship;”
9. The conditions to be satisfied for application of Rule 6DD(j) thus are as under: -
(i) the payment in cash by way of salary to its employees should be made by an assessee after deducting income tax from salary in accordance with the provisions of section 192;
(ii) such employee should be temporarily posted for a continuous period of 15 days or more at a place other than his normal place of duty or on a ship;
(iii) such employee does not maintain any account in any bank at such place or ship.
10. In the present case, the payments in question were made by the assessee company to its employees by way of salary undisputedly after deducting income tax at source in accordance with the provisions of section 192. Further, having regard to the nature of business of the assessee company as well as the nature of work assigned to the concerned employees, we are of the view that the rigs of the clients cannot be considered as the normal place of work of the assessee company. Moreover as held by the Tribunal in the case of Sedco Forex International Drilling Inc. & Ors. (supra) relied upon by the learned CIT(A) in his impugned order, Oil Rigs having regard to its very nature has to be treated as in the nature of ship and even if the purposive construction of the term “ship” is to be seen in the present context, we are of the view that the Rig can appropriately be treated as ship keeping in view the decision of the Hon’ble Calcutta High Court in the case of Giridharilal Goenka vs. CIT 179 ITR 122 wherein it was held that the A.O. is to take a pragmatic vie of the matter in order to strike a balance between the direction of law and the hardships to the assessee while invoking the provisions of section 40A(3) to make a disallowance. As far as the other conditions stipulated in Rule 6DD(j) are concerned, there is no dispute that all the employees in the present case were posted for a continuous period of 28 days on Rigs, which was more than the minimum period of 15 days stipulated in Rule 6DD(j) and they were not maintaining any bank there. As such, considering all the facts of the case, we are of the view that the payments in question made by the assessee company in cash in excess of Rs.20,000/- were duly covered by the exceptions provided in Rule 6DD(j) and this being so, the same were not liable to be disallowed under section 40A(3). In that view of the matter, we uphold the impugned order of the learned CIT(A) deleting the disallowance made by the A.O. under section 40A(3) and dismiss this appeal of the Revenue.