Employer’s contribution towards overseas social security – not taxable : ITAT Delhi

Background:- Recently, the Income Tax Appellate Tribunal, New Delhi (ACIT Vs Harashima Naoki Tashio, ITA No. 4634/Del/) has held that the employer’s contribution towards the social security in the home country of the employee is not taxable in the hands of the employee as a perquisite.

Facts of the case

• Harashima Tashio (‘the employee’), a Japanese national, was working as a General Manager with an Indian company.
• The employee’s residential status for the financial year 2003-04 was that of a ‘resident but not ordinarily resident’
• In the return of income filed for the said financial year, the employee did not offer to tax the employer’s contribution towards social security, health insurance etc. in Japan.

Issue before the Tribunal:- Whether the employer’s contribution towards social security, health insurance, etc. in Japan was liable to tax in the hands of the employee?

The employee’s contention

• The employer’s contribution towards social security, health insurance, etc. was made under statutory provisions in Japan.
• The said contribution did not give any vested right to the employee in the year of contribution.
• The employee may or may not get any benefit depending upon happening or non-happening of an event which is beyond the control of the employee. It was only a contingent benefit to the employee.
• The issue in hand is fully covered in the favour of the employee in earlier decisions of the Tribunal wherein contribution towards social security made by the employer in the home country of the foreign national was held to be not taxable as a perquisite.
• Therefore, in the instant case, the amount contributed by the employer should not be treated as a taxable perquisite in the hands of the employee.

The Assessing officer’s (AO) decision:- The AO added the employer’s contribution towards social security, health insurance, etc. in Japan to the taxable income of the employee in India.

The Commissioner of Income Tax (Appeals) [CIT(A)] decision:- The CIT(A) on the basis of Tribunal earlier decisions on the similar matter deleted the addition made by the AO.

The tax department’s contention before the Tribunal:- The tax department contented that it should be granted time to go through the decisions relied by the employee and for that matter the case should be adjourned.

The Tribunal’s decision

• The issue in the instant case is clearly covered in favour of the employee as per four decisions relied by the assignee. The said decisions are binding on the Tribunal.
• The tax department’s request for grant of additional time to distinguish such decisions vis-à-vis the issue in the instant case or to point out some contrary view was not reasonable.
• In view of above, the employer’s contribution towards social security, health insurance, etc. in Japan is not liable to tax as a perquisite in the hands of the employee.

Note:- 1

• ACIT Vs Eric Matthew Gottesman (2007) 15 SOT 301 (Del)
• ACIT, Circle 47(1) Vs Hideki Ishihara in ITA No. 1906/Del/08
• ITO Vs Lukas Fole (2009) 124 TTJ (Pune) 965
• Gallotti Raoul Vs ACIT 61 ITD (Bom.) 453

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