No TDS default for non-deduction of TDS on accommodation perquisites if concession not established

IN THE ITAT DELHI BENCH ‘H’

Superintendent (DDO)

V/s.

Income-tax Officer (TDS)

IT APPEAL NOS. 4804 to 4806, 4812 to 4819 and 4826 to 4832 (DELHI) OF 2011

[ASSESSMENT YEARS 2006-07 TO 2009-10]

JULY 27, 2012

ORDER

This is a bunch of nineteen appeals filed at the instance of the assessees against the common order of the Ld.CIT(Appeals) dated 24.08.2011 passed for assessment years 2006-07 to 2009-10. In response to the notice of hearing, no one has come present on behalf of the assessee. With the assistance of learned DR, we have gone through the record carefully and proceed to decide the appeals ex parte.

2. The facts on all vital points are common in the case of all the assessees. For the facility of reference, we are taking up the facts from ITA No.4804/Del/2011 in the case of the Principal Campus School, Chaudhary Charan Singh Hisar Agriculture University, Hisar. The brief facts of the case are that a survey operation under sec. 133A(1)(i) of the Income-tax Act, 1961 was carried out on the offices of all the appellants on different dates. The Principal of Campus School was surveyed on 9th September, 2008. The Office of Superintendent C/o Registrar was surveyed on 7th October, 2009. The Office of Superintendent (DDO) University Library was surveyed on 05.011.2009. According to the ITO(TDS), Hisar, the survey team has verified the TDS record and directed the appellants to submit these TDS records for scrutiny. The record was produced before the ITO. On an analysis of the record, he formed an opinion that university has provided accommodation to its employees for which it charges license fees but did not deduct the TDS on the value of perquisite of the rent free accommodation as per the procedure provided in Rule 3 of the Income-tax Rules, 1962. We find that almost verbatim finding has been recorded by the Assessing Officer except variation in the dates and quantum, in the impugned order in all these appeals. For the facility of reference, the finding recorded in the case of principles campus school is being noted here. It reads as under:

“5. From the perusal of TDS records supplied by the PR/DDO, it is noticed that the DDO has not added the value of perquisites on account of residential accommodation provided to the employees as mentioned in Annexure-A. But as per sec. 17(2) of Income-tax Act, 1961 read with Rule 3 of the Income-tax Rules, 1962 the DDO was required to add value of perquisites in the salary income of the employees to whom residential accommodation provided during the year under consideration which the DDO has failed to do so”.

3. Learned Assessing Officer thereafter reproduced the table appended with Rule 3 and recorded a finding how to compute the perquisite. According to the Assessing Officer, as per sub-rule (1)(a)(iii), 7.5% of the salary is to be treated as perquisite value of the accommodation provided by the employer to its employees and the DDO ought to have deducted the TDS on such perquisite’s value. In the opinion of the Assessing Officer, the appellants have failed to deduct the TDS while making payments of salary to the employees. Assessing Officer computed the perquisite value, tax payable on such amount and the interest for non-payment of such amount in government’s account within the due date in the annexure annexed with each order. In the case of Principal Campus School, learned Assessing Officer has worked out the tax at Rs.16,562 interest under sec. 201(1A) at Rs.5588 and raised a demand of Rs.22,150 under sec. 201(1) and 201(1A) of the Act. Similar demands have been raised in the cases of other appellants.

4. Dissatisfied with the demands, the appellants filed appeals before the learned first appellate authority. They have contended that the learned ITO(TDS) has erred in treating the university employees in the category of “others” instead of treating them as a State Government employees. According to the appellants, there is no violation of provisions of sec. 17(2) of the Income-tax Act, 1961, in the instant case, as the university employees are State Government servants and cannot be classified under the category of “others”. It was also contended that university falls within the ambit of “state” as per article 12 of the Constitution of India. It is established under an Act of Parliament and its employees got salaries from out of the 100% budgetary support from the State Government. It follows the State Government Rules regarding all its financial matters as well as service rules. The major amount of the budget comes from the state funds and is totally regulated and controlled by the Government of Haryana. It was also contended that similar issue has arisen before the ITAT in ITA No.1214/Del/1996 in the case of CIT, Panchkula v. Different Colleges of CCS HAU. Hisar. Similarly, in the case of Financial Officer, Maharishi Dayanand University, Rohtak v. ITO, Rohtak in ITA No.4676/Del/2005. The ITAT has considered an identical issue in ITA No.4676/Del/2005 and held that the assessee could not be treated as an assessee in default in terms of section 201 and 201(1A) of the Act. Learned first appellate authority has gone through the contentions of the assessee, however, did not concur with the submissions of the assessee. According to the learned first appellate authority, assessee failed to place on record complete text of the ITAT’s order in the case of Maharishi Dayanand University. As far as status of the assessee being of a state under article 12 of the Constitution of India is concerned, Learned CIT(Appeals) has observed that expression “state” mentioned in Part III of the Constitution of India under the fundamental rights is with regard to nation as a state and it is for the purpose of fundamental rights. It has no relevance to the tax matters as specified in the Income-tax Act, 1961. Thus, according to the Learned CIT(Appeals), The employees of the assessee cannot be treated as State Government employees or Central Government employees. The University is an autonomous body which is run by Board of Governor/Senate. The administration is controlled by the Vice-Chancellor. It may be getting entire budgetary support from the State Government but that does not mean that it is a state and its employees are government employees.

5. Learned DR relied upon the orders of ITO(TDS), as well as the order of the Learned CIT(Appeals). He pointed out that employees of the University cannot be treated at par with the State Government employees and they are rightly being treated in the category of others. Sub-rule (3) of Income-tax Rules provides the mechanism of valuation of perquisite and Assessing Officer has rightly valued it and has rightly treated the assessee in default.

6. We have heard the rival contentions and gone through the record carefully. Before adverting to the contentions raised by the assessee before the learned first appellate authority as well as reasons assigned by the learned revenue authorities below. It may be appropriate if we refer to the relevant provisions of the act, the rules and the important decisions on the points. Section 17 of the Act defines “salary”, “perquisite” and “profits” in lieu of “salary”. For the purpose of the controversy in hand, the relevant part of the section 17 reads as under:

“17. For the purposes of sections 15 and 16 and of this section,-

(2) ‘perquisite’ includes-

 (i)  the value of rent-free accommodation provided to the assessee by his employer,

(ii)  the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer…;

Explanation:- (1) For the purpose of this sub-clause, concession in the matter of rent shall deem to have been provided if:-

(1) The accommodation is owned by the employer, the value of the accommodation determined at the specified rate in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the rent recoverable from or payable by the assessee;

7. Rule 3 has been amended w.e.f. 2001. In the order of the ITAT relied upon by the assessee before the Learned CIT(Appeals), which we would refer in the later part of this order, the ITAT considered the rule prior to amendment effected in 2001. Therefore, we deem it appropriate to take cognizance of the amended rules as well as the Rule 3 prior to amendment in 2001. It reads as under:

“3. Valuation of perquisites.- For the purpose of computing the income chargeable under the head ‘Salaries’ the value of the perquisites (not provided for by way of monetary payment to the assessee) mentioned below shall be determined in accordance with the following clauses, namely:-

(a)  The value of rent-free residential accommodation shall be determined on the basis provided hereunder, namely:-

(i)  where the accommodation is provided-

(A)  by Government to a person holding an office or post in connection with the affairs of the Union or of a State;

(B)  by a body or undertaking under the control of Government to any officer of Government whose services have been lent to that body or undertaking (the accommodation itself having been allotted to it by Government), an amount equal to-

(1) if the accommodation is unfurnished, the rent which has been or would have been determined as payable by such person or officer in accordance with the rules framed by Government for allotment of residences to its officers;

(2) if the accommodation is furnished, an amount calculated in accordance with sub-clause (i)(1) plus 10 per cent per annum, of the original cost of the furniture (including television sets, radio sets, refrigerators, other household appliances and air-conditioning plant or equipment) or if such furniture is hired from a third party, the actual hire charges payable therefor;

Provided that-

(1) where the fair rental value of the ‘accommodation is in excess of 20 per cent of the assessee’s salary, the value of perquisite shall be taken to be 10 per cent of the salary increased by a sum equal to the amount by which the fair rental value exceeds 20 per cent of the salary; so, however, that the Assessing Officer may, having regard to the nature of the accommodation, determine the sum by which 10 per cent of the salary is to be increased, as a percentage (not exceeding 100 per cent) of the amount by which the fair rental value exceeds 20 per cent of the salary;

(2) where the assessee claims, and the Assessing Officer is satisfied that the sum arrived at on the basis provided above exceeds the fair rental value of the accommodation, the value of the perquisite to the assessee shall be limited to such fair rental value;

(b)  The value of residential accommodation provided at a concessional rent shall be determined as the sum by which the value computed in accordance with clause (a), as if the accommodation were provided free of rent, exceeds the rent actually payable by the assessee for the period of his occupation during the relevant previous year.”

28. By the Income-tax (Twenty-second Amendment) Rules, 2001, Rule 3 was amended and the relevant part reads thus-“

[Valuation of perquisites

3. For the purpose of computing the income chargeable under the head “Salaries”, the value of perquisites provided by the employer directly or indirectly to the assessee (hereinafter referred to as employee) or to any member of his household by reason of his employment shall be determined in accordance with the following sub-rules, namely:-

(1) The value of residential accommodation provided by the employer during the previous year shall be determined on the basis provided in the Table below (See page 1.36) :

TABLE I

Provided that nothing contained in this sub-rule shall apply to any accommodation provided to an employee working at a mining site or an on-shore oil exploration site or a project execution site, or a dam site or a power generation site or an offshore site-

 (i)  which, being of a temporary nature and having plinth area not exceeding 800 square feet, is located not less than eight kilometres away from the local limits of any municipality or a cantonment board; or

 (ii)  which is located in a remote area:

Provided further that where on account of his transfer from one place to another, the employee is provided with accommodation at the new place of posting while retaining the accommodation at the other place, the value of perquisite shall be determined with reference to only one such accommodation which has the lower value with reference to the Table above for a period not exceeding 90 days and thereafter the value of perquisite shall be charged for both such accommodations in accordance with the Table.

Explanation.—For the purposes of this sub-rule, where the accommodation is provided by the Central Government or any State Government to an employee who is serving on deputation with any body or undertaking under the control of such Government,—

 (i)  the employer of such an employee shall be deemed to be that body or undertaking where the employee is serving on deputation; and

(ii)  the value of perquisite of such an accommodation shall be the amount calculated in accordance with Sl. No. (2)(a) of Table I, as if the accommodation is owned by the employer”.

8. The assessee has relied upon the orders of the ITAT in ITA No. 4676/Del/2005 in the case of Financial Officer, Maharishi Dayanand University, Rohtak v. ITO, Ward 2, Rohtak. The Maharishi Dayanand University is an university situated within the Haryana State and its employees are at par with that of the employees of Chaudhary Charan Singh Hisar Agriculture University, Hisar. The ITAT in ITA No. 4676/Del/05 has observed that this issue was earlier decided by the ITAT in ITA No.4113/Del/2004 and ITA No. 4185/Del/04 in assessment year 2000-01. The ITAT in ITA No. 4113/Del/ has made reference to the decision of the ITAT, Chandigarh Bench in the case of a similar university, namely, Kurukshetra University v. ITO (TDS), Ambala, (ITA Nos. 64 & 65/Chd/1997). In this case, ITAT has made analysis of similar situation and the ITAT, Delhi has reproduced the analysis made by the ITAT, Chandigarh. The observations of the ITAT read as under:

“We have carefully considered the rival submissions, perused the orders of tax authorities and gone through the citations given above. Section 15 charges any salary due or paid by an employer to income tax under the head ‘salaries’ Section 17 defines salary to include perquisite. As per section 17(2), “perquisite” is to include (ii) the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer. Rule 3 provide for valuation of perquisites. According to sub rule (a), the value of the unfurnished accommodation provided to a Government employee is taken as the rent which would be payable by the Government employees in accordance with the rules framed by the Government. In case of others, it is taken as 10 % of the salary. Sub rule (b) states the value of residential accommodation provided at a concessional rent shall be determined as the sum by which the value computed in accordance with clause (1), as if the accommodation provided free of rent exceeds the rent actually payable by the assessee for the period his occupation during the relevant previous year. From perusal of these rules, it is clear that these indicate the difference in treatment between the Government servant and others. In the case of Govt. servants, the rent free accommodation in valued at the standard rent. Consequently, it accommodation is provided at standard rent, there will be no perquisite because the actual rent paid will not be less than the value at the rent free accommodation both being standard rents. In the case of other employees rent free, accommodation is being taken at 10% A.O. presumed that that difference rent paid and 10% of salary is the value of perquisite enjoyed by employee. Sub rule (b0 is applicable when the accommodation is provided as a concessional rent. Therefore, the A.O should have first established that the accommodation has been provided by the assessee to its employees at a concessional rent. Only then the difference between actual rent recovered and 10% of salary can be added. From the order passed by the A.O, it is clear that there is no material before him that rent of the accommodation allotted was more than rent recovered. The employer who is a non profit institution University when allotted accommodation to its employees, it is very difficult to say that any concession has been given to the employees in providing accommodation. The employees were put in University campus so that they can conveniently be available. Only if an employee pay less than what the other employees would have paid for similar accommodation. In our view, there can be any concession. When all the employees are treated alike and the rent is being charged by the University in accordance with the rules framed, there cannot be any concession. Looking to the facts of the case, in our considered opinion, the case is fully covered by the ratio of the decision in the case of Officers Association. Bhilai Steel Plant (supra) where it was even pointed out that of rule 3 were to be construed as deeming the difference between the actual rent paid and 10 % of the salary as receipt of concession it will go beyond the rule making power u/s 295(2) and be invalid. Following the ratio of the said decision, we are of the firm view that no addition can be made by the A.O. TDS in income of the employees while scrutinizing Form 24 filed by the assessee for the purpose of TDS u/s 192. Our aforesaid view is supported by the decision in the case of Steel Executive Association v. Rashtriya Ispat Nigam Ltd. 241 ITR 20 (A.P). The orders passed by the A.O u/s 201(1)/201(1A) are, therefore, quashed”

9. The rules prior to 2001 were based on fair rental value of the accommodation and, therefore, Assessing Officer was required to determine the fair market value of accommodation before arriving at a conclusion that the employer has given any perquisite to the employees. This concept of fair rental value of the accommodation has been given the goby, in view of practical difficulties realized by the revenue and the new set off of amended rules 2001 has been provided in place of fair rental, market rent, standard rent and reasonable rent. The ITO(TDS) in the present case has applied Rule 3(1) Sr. No. 2(ii) of the table extracted supra. It came to our notice that vires this rule was challenged by the employees of TATA Iron & Steel Co. Ltd. before the Hon’ble Jharkhand High Court at Ranchi and similarly Coal Mines Association of India has also challenged the constitution validity of this rule before the Hon’ble Calcutta High Court . The dispute ultimately traveled up to the Hon’ble Supreme Court in the case of Arun Kumar v. Union of India reported in 286 ITR 89. An apprehension was raised before the Hon’ble High Court that in the amended rule, the concept of fair rental value on the basis of the normal rent or on the basis of market rent available in the locality or on the basis of the municipal valuation is no more available. The old Rule 3 provides a mechanism that in case where the assessee claimed, and Assessing Officer was satisfied that there was no concession given by the employer which can be termed as a perquisite then assessee was not liable to pay tax. It was pointed out that the amended rule has taken away the right of the assessee to claim that there was no concession as envisaged by section 17(2)(ii) of the Act and hence Rule 3 had no application. According to the applicants, this amended rule took away the power of the Assessing Officer to held that there was no concession even if he is satisfied about the absence of concession. On these premises, it was contended that this rule is discriminatory, arbitrary and ultra-vires of Article 14 of the Constitution. Hon’ble Supreme Court has upheld the validity of the Rule but observed that computation of perquisite value as per Rule 3 would come in picture once it is held that there is a concession in the matter of rent in respect of any accommodation provided by an employer to his employer. Hon’ble Supreme Court has laid down the implication of the rules and the observations of the Hon’ble Supreme Court available on page 121 of the journal are worth to note. They read as under:

“78. From the above decisions, it is clear that existence of ‘jurisdictional fact’ is sine qua non for the exercise of power. If the jurisdictional fact exists, the authority can proceed with the case and take an appropriate decision in accordance with law. Once the authority has jurisdiction in the matter on existence of ‘jurisdictional fact’, it can decide the ‘fact in issue’ or ‘adjudicatory fact’. A wrong decision on ‘fact in issue’ or on ‘adjudicatory fact’ would not make the decision of the authority without jurisdiction or vulnerable provided essential or fundamental fact as to existence of jurisdiction is present.

79. In our opinion, the submission of Mr. Salve is well founded and deserves to be accepted that “concession” under clause (ii) of subsection (2) of section 17 of the Act is a ‘jurisdictional fact’. It is only when there is a ‘concession’ in the matter of rent respecting any accommodation provided by an employer to his employee that the mode, method or manner as to how such concession can be computed arises. In other words, concession is a ‘jurisdictional fact’; method of fixation of amount is fact in issue’ or ‘adjudicatory fact’. If the assessee contends that there is no ‘concession’, the authority has to decide the said question and record a finding as to whether there is ‘concession’ and the case is covered by section 17(2)(ii) of the Act. Only thereafter the authority may proceed to calculate the liability of the assessee under the Rules. In our considered opinion, therefore, in spite of the legal position that Rule 3 is intra vires, valid and is not inconsistent with the provisions of the parent Act under section 17(2)(ii) of the Act, it is still open to the assessee to contend that there is no ‘concession’ in the matter of accommodation provided by the employer to the employee and hence the case did not fall within the mischief of section 17(2)(ii) of the Act.

80. There is yet another aspect of the matter which is important and having a bearing on the question. We have extracted section 17(2)(ii) in the earlier part of the judgment. It does not contain any ‘deeming clause’ that once it is established that an employee is paying rent less than 10 per cent of his salary in cities having population of four lakhs or 7.5 per cent in other cities, it should be deemed to be a ‘concession’ within the meaning of the Act and such employee must be deemed to receive a ‘concession’ in the form of ‘perquisite’ in the payment of rent. An employer may provide residential accommodation to his employees for several reasons. It is also possible that for making available staff quarters colonies accommodations, State Governments or Central Government may provide land to Public Sector Undertakings/ Companies/Corporations at a concessional rate imposing appropriate conditions including amount of rent, if any, to be recovered by the employer. Mr. Salve also invited our attention to certain decisions wherein it had been held that residential facility provided by the employer to the employee was not held ‘perquisite’ within the meaning of Income Tax Laws.”

10. If we read the findings of the ITAT in the case of Financial Officer, Maharishi Dayanand University, Rohtak, extracted supra, along with the finding of the Assessing Officer in the light of the law propounded by the Hon’ble Supreme Court, supra, then, it would reveal that Assessing Officer has nowhere held in the impugned order that any concession was given by the employer to its employees and they have provided the accommodation on a concessional rates. Assessing Officer straightway applied Rule 3 without first establishing the case that the appellants have provided any concession in the shape of accommodation to its employees. In other words, learned Assessing Officer has put the cart before the horse which is not the right course The assessees cannot be treated in default without factually establishing that they have extended any concession to their employees. Learned revenue authorities have not looked into the dispute with this angle. Learned CIT(Appeals) has not commented upon the order of the ITAT in a case of similar University, namely, Maharishi Dayanand University on the ground that complete text of the order was not placed on his file. In view of the above discussion, we allow all the appeals of the assessees and held that they are not in default under sec. 201(1) and 201(1A) of the Income-tax Act, 1961.

NF