Case Law Details
CA Isha Seth
Relevant Sections:
Section 17(2): Relevant clauses discussed in the judgment portion.
Section 264(1):(1) In the case of any order other than an order to which section 263 applies passed by an authority subordinate to him, the Principal Commissioner or Commissioner may, either of his own motion or on an application by the assessee for revision, call for the record of any proceeding under this Act in which any such order has been passed and may make such inquiry or cause such inquiry to be made and, subject to the provisions of this Act, may pass such order thereon, not being an order prejudicial to the assessee, as he thinks fit.[RELEVANT EXTRACT]
Brief Facts:
1. The appellant is employed as General Manager by ONGC. For the Assessment Year 2007-08, the appellant filed return of income declaring total income of Rs. 9,03,346/- on 29.06.2007.
2. The Assessing Officer issued notice u/s section 148 of the Income Tax Act, 1961 on the grounds that the employer i.e. ONGC had reimbursed certain expenses to its employees, which were neither reflected in the salary certificate issued by ONGC, nor TDS was deducted thereon. The expenses were in the nature of Conveyance Maintenance and Repair Expenditure (CMRE) and uniform allowance.
3. Subsequently, the AO completed assessment by passing order u/s 143(3) of the Income Tax Act, 1961 by levying tax @ 20% on CRME and 100% on the uniform reimbursement expense. Assessing Officer disallowed the same on appellant’s offer itself, for disallowance of such amounts.
Appellant’s Contentions:
a) The employer i.e. ONGC has paid fringe benefit u/s 115WA of the Act to the employee and thus, the employee was not bound to pay tax on the aforementioned expenses, as a part of his salary. Accordingly, a revision petition u/s 264 of the Act was filed before the Commissioner.
b) ONGC had treated the expenses as fringe benefits and had already paid the tax upon it accordingly. Taxing the same amount again would lead to double taxation.
c) The decision of Gujarat High Court in case of R. Koshti v. Commissioner of Income Tax, reported in [2005] 276 ITR 165, was relied upon, in which it was observed that regardless of fact that whether the revised return was filed or not, once an assessee is in position to show that he has been over-assessed under the provisions of the Act, even if such over-assessment is as a result of the assessee’s own mistake, the Commissioner of Income Tax has the power to correct such an assessment under section 264 of the Act.
d) During appeal to Gujarat High Court, it was further contended that the Revenue has not questioned ONGC, treating the aforesaid benefit as a fringe benefit. Attention was drawn to various CBDT circulars stating that tax under fringe benefit regime would exclude taxation under the normal provisions in the hands of the employees.
e) Various decisions rendered by Gujarat High Court itself in case of ONGC were also bought into consideration, stating that in relation to similar payments, the Court had held that ONGC was not required to deduct tax at source since the amount in question did not form salary of the employee.
Revenue’s Contentions:
a) The Commissioner rejected appellant’s revision petition on the mere ground that such additions have been done in other similar cases& the AO had merely followed the same.
b) During appeal to Gujarat High Court, it was further contended by the Revenue that the assessee himself had agreed for disallowance earlier before the Assessing Officer. The assessee, thus could not take a different plea before Commissioner.
c) In any of the case laws in relation to ONGC, relied upon by the appellant in point numbere) of the appellant’s contentions, it was contended that in no case was this examined by any Court that whether the perquisite in question was fringe benefit or not.
Gujarat High Court’s Judgment:
a) It has not been disputed by the Revenue that the tax has been paid by ONGC u/s 115WA of the Income Tax Act, 1961 on the expenditure mentioned above. Thus, even as per the Revenue, it was a fringe benefit for the purpose of section 115WA during the period FBT regime was in force. The immediate question arising out of the facts is thus that can the employee also be asked to pay tax on such amounts treating them as salary.
b) FBT Regime survived for short period of time. FBT provisions made two major departures from the normal tax provision. First, the payer of fringe benefits was held responsible to pay tax at flat rate of 30% of the value of benefit and second such tax would be paid by the employer even if otherwise not liable to pay tax on the basis of normal computation of his income. The FBT is therefore, referred to as a surrogate tax.
c) The term “perquisite” is defined by section 17(2) of the Income Tax Act, 1961 and the definition is inclusive in nature. The definition was as follows at various points in time:-
- Before introduction of FBT:“(vi) the value of any other fringe benefit or amenity as may be prescribed.”
- On introduction of FBT: “(vi) the value of any other fringe benefit oramenity (excluding the fringe benefits chargeableto tax under Chapter XIIH)as may be prescribed.”
- After dismantling of FBT regime:“(viii) the value of any other fringe benefit or amenity as may be prescribed.”
Thus, the statutory provisions were framed in a manner to avoid double taxation, both at employer’s and employee’s end.
d) Once a certain benefit is held to be a fringe benefit and the employer is taxed accordingly under chapter XIIH of the Act, the same benefit cannot be included in the income of the employee treating it as a perquisite. Thus, no TDS was required to be deducted by the employer in such case.
e) The same was held in various cases, i.e. in case of Commissioner of Income tax(TDS) v. Oil & Natural Gas Corporation (India) Ltd., [2013] 38 taxmann.com 187 (Gujarat); Commissioner of Income tax v. Oil &Natural Gas Corporation (India) Ltd., [2015] 61 taxmann.com 105 (Gujarat) and Commissioner of Income tax (TDS) v. Oil & Natural Gas Corporation (India) Ltd., [2015] 54 taxmann.com 381 (Gujarat).
f) As Revenue has accepted tax on fringe benefits in the instant case from the employer as correct, the same amount cannot be taxed in the hands of the employees which would be a clear case of double taxation.
g) In case of S. R. Koshti (supra), Division Bench of Gujarat High Court held that every assessment of tax even due to mistake of the assessee can be corrected in exercise of revisional powers by the Commissioner
h) Thus, the appeal of the assessee is allowed.
