Case Law Details

Case Name : Assistant Director of Income-tax V/s. M/s. Sun downer Offshore International Burmuda Ltd. (ITAT Delhi)
Appeal Number : ITA No. 4444 & 4445/D/2011
Date of Judgement/Order : 07/12/2011
Related Assessment Year : 2008- 09
Courts : All ITAT (4213) ITAT Delhi (925)

The decision of CIT Vs. America Counting Corporation 123 ITR 513, noted above also supports the view that taxes 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.

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 be a monetary gain or monetary benefit or a monetary allowance but definitely it is not a monetary payment to the assessee. What is excluded in the clause is the perquisite 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 government, then such payment of taxes cannot be excluded under clause 10(10CC). The circular of the Board and provision of sub-section (1A) of Section 192, section 40(a)(v), 195A fully support the claim of the assessee. We, therefore, hold that the taxes paid by the employer on behalf of the employee is a perquisite within the meaning of section 17(2) of the Income-tax Act, 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 the employee. Thereafter, tax on such perquisite is not to be added again. We, therefore, find substance in the contention advanced on behalf of the learned counsel for the assessee and /the interveners. The question referred to us is answered in favour of the assessee. The appeals of the assesses and interveners are “allowed” on this issue.”

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI
ITA No. 4444 & 4445/D/2011

Assessment Year: 2008- 09

Assistant Director of Income-tax, International Taxation

V/s.

M/s. Sun downer Offshore International Burmuda Ltd.

Date of pronouncement 07-12-2011

ORDER

A.N.Pahuja:- These two appeals filed on 4th October, 2011 by the Revenue against two separate orders dated 21-07-2011 of the ld. CIT(A)-II, Dehradun, raise the following similar grounds:-

1. “On facts and circumstances of the case, whether in the case of employee receiving a ‘tax-free’ salary, as per agreement, the taxes paid by employer constituted a monetary that was part and parcel of salary.

2. On facts and circumstances of the case, whether the learned CIT(A) has 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 year 2008-09 was part and parcel salary of Mr. Mark Pankhurst & Mr. Ralph Visser, Agent and therefore, this payment on behalf of the assessee constituted a monetary payment falling outside the purview of section 10(10CC) of the Income-tax Act.

3. On facts and circumstances of the case, whether in the learned CIT(A) has erred in follow the decision of Special Bench of ITAT, which is perverse and disregarded the clear cut provisions of section 17(2) read with section 10(10CC) and corroborated by section 195A r.w.s. 198 of the Incometax 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 alter any grounds of appeal at the time of before the hearing of the appeal.”

2. Facts, in brief, as per relevant orders are that these assessees viz. Mr. Mark Pankhurst and Mr. Ralph Visser employees of M/s Sun downer Offshore International Burmuda Ltd., filed respective returns declaring income of Rs. 76,93,900/- 11.09.2008 and Rs. 79,10,114/- on 21.07.2008 ..After being processed u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act), these returns were selected for scrutiny, with the service of a notice dated 26th February, 2009 u/s 143(2) of the Act. During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that these assessees claimed exemption u/s 10(10CC) of the Act in respect of tax paid by the employer on their salary. However, the AO was of the opinion that tax perquisite u/s 17(2)(iv) was not entitled for exemption u/s 10(10CC) of the Act. Though, the AO referred to decision of Special Bench in the case of RBF Rig Corporation LLC, agent of its various employees Vs. ACIT (2007), 113 TTJ 143, he did not follow the decision on the ground that tax perquisite was a monetary payment.

3. On appeal, the ld. CIT(A), following the aforesaid decision in RBF Rig Corpn. LLC (supra) allowed the claim of these assessees in the following terms:-

“4. Ground Nos. 2 to 4 pertain to a single issue on account of adding the taxes paid by the employer on behalf of the employee to the gross total income of the assessee and thereafter applying the relevant tax rate on this grossed up amount. It is seen that this issue is squarely covered by the decision of the ITAT, Special Bench, New Delhi in the case of RBF Rig Corporation LLC Vs. ACIT (109 ITD 141). The head note of this case may be reproduced as under:-

“Section 10(10CC) of the Income-tax Act, 1961 – perquisite, not provided by monetary payment – assessment year 2004-05 – Whether payment of tax on behalf of employee at option of employer is a non-monetary perquisite fully covered by sub-clause (iv) of clause (2) of section 17 and, thus, exempt under section 10(10CC) and is not liable to be included in total income of employee – Held, yes – Whether taxes paid by employer can be added only once in salary of employee and thereafter, tax on such perquisite is not to be added again – Held, yes”.

4.1 It is seen that in the body of the assessment order, the learned Assessing Officer has referred to the above mentioned Special Bench decision but tended to interpret the same to imply that such payment of taxes by the employer on behalf of the employee, is not covered u/s 10(10CC) of the Act. Till such time that a High Court overrules this decision of the Special Bench of the ITAT, this decision is binding on subordinate judicial authorities. Accordingly, the interpretation put forth by the learned Assessing Officer cannot be accepted and the appellant’s contention has to be upheld. Thus, the appellant deserves to succeed in respect of ground Nos. 2 to 4.”

4 The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A). At the outset, the learned DR pointed out that the learned CIT(A) allowed the relief following the decision of Special Bench Tribunal in the case of RBF Rig Corpn. LLC (supra).On the other hand, learned AR on behalf of these assessees supported the findings of learned CIT(A).

5. We have heard both the parties and gone through the facts of the case as also the aforesaid decision of the ITAT in RBF Rig Corporation LLC(supra) where in it was held 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 subclause (iv) of clause (2) of section 17 of the Income-tax Act and, therefore, includible 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 under the head “salary” if clause 10(10CC) was not brought on the Statute 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 discharges an obligation of the employee, which otherwise would have been discharged by the employee. Such payments of taxes, therefore, are fully covered by above sub clause (iv).

17. The decision of CIT Vs. America Counting Corporation 123 ITR 513, noted above also supports the view that taxes 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 obligation. 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 monetary payment to the assessee. What is excluded in the clause is the perquisite 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 government, then such payment of taxes cannot be excluded under clause 10(10CC). The circular of the Board and provision of sub-section (1A) of Section 192, section 40(a)(v), 195A fully support the claim of the assessee. We, therefore, hold that the taxes paid by the employer on behalf of the employee is a perquisite within the meaning of section 17(2) of the Income-tax Act, 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 the employee. Thereafter, tax on such perquisite is not to be added again. We, therefore, find substance in the contention advanced on behalf of the learned counsel for the assessee and /the interveners. The question referred to us is answered in favour of the assessee. The appeals of the assesses and interveners are “allowed” on this issue.”

5.1 Since the ld. CIT(A) merely following the aforesaid decision of the Special Bench while the ld. DR did not bring to our notice any contrary decision nor any other material so as to enable us to take a different view in the matter, we are not inclined to interfere. In view thereof, ground nos. 1to 3 in these two appeals are dismissed.

6. No additional ground having been raised before us in terms of residuary ground no. 4 in these two appeals, accordingly, this ground is also dismissed. 7. In result, both these appeals are dismissed.

Order pronounced in Open Court

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