7.1 On bare reading of above provision, it is clear that any sum paid to discharge “any obligation” of the assessee would be a perquisite under the above clause. However, the important words in the provisions are, “in respect of any obligation” and “would have been payable by the assessee”. It is quite obvious that employer had obligation only to pay correct tax on assessee’s income. The employer could not deposit, in account of the Central Government, more than what would have been “payable by the assessee”. Any amount paid over and above what was “payable by the assessee”, cannot be taken as a perquisite under the above clause. Therefore, excess amount of tax deposited in the account of the Central Government, could not be treated as a perquisite in the hands of the assessee.
7.2 An important fact further to be noted is that amount was not paid by the employer to the taxpayer. It was paid to the Central Government, over and above the tax due on the salary. It is not for services rendered by the assessee nor for any benefit of the assessee. It can, therefore, neither be part of salary nor perquisite. Till the assessment is made, the amount could not be refunded to the assessee. If the Assessing Officer had acted on the request of the assessee and issued refund voucher in the name of the employer, in the light of CBDT Circular No. 707 dated 11th July, 1995, no controversy relating to the taxability of refund would have arisen. Only the employer was entitled to refund since the employer had deposited the amount in excess of amount due. It could not have been argued that any benefit has accrued to the assessee. However, as refund voucher was issued in the name of the assessee, the amount has been taken as a benefit and accordingly a taxable perquisite in the hands of the assessee.
8. In the light of legal position and facts of the present case, no doubt is left in our mind that excess amount of tax deposited with the Central Government by the employer, over and above the amount due, and refunded to the assessee, could not be treated either salary or taxable perquisite in the hands of the assessee. As already noted, the employer of the assessee under agreement with the assessee, as also under statutory obligation, was required to pay to the Central Government only tax on assessee’s income for services rendered. If inadvertently, on account of mis-calculation etc., amount in excess was paid to the Central Government, the excess amount could by no stretch of imagination, belong to the assessee. It would continue to belong to the employer, who had a legal right to take back the amount paid in excess. Therefore, if on the request of the assessee, the refund was issued in the name of the employer, there would have been no scope to raise any controversy on taxability of amount. The mere fact that as per the machinery of the Income-tax Act, the credit of the amount paid was given and excess amount was refunded to the assessee, in our considered opinion, would not make any material difference to the right of the employer to take back the amount. The assessee had no right to retain the amount of refund and interest but was obliged to return it to the rightful owner. It was just like excess payment of salary, which was not due or receivable from the employer by the employee. Thus as the amount was returnable to the employer, the same cannot be treated as taxable income in the hands of the assessee. It is the claim of the assessee that excess amount was in fact returned to the employer. A confirmation to the above effect has been placed on record. The Revenue authorities, in our considered opinion, are not justified in rejecting above confirmation without making verification from the employer. However, even if it is accepted that amount has not yet been returned, it would not make any material difference to the nature of the receipt or to the obligation to return the amount. Alternatively if it is held that excess amount also had the same character as amount “due” and “Payable”, then it was exempt u/s 10(5B) and could not be charged in the hands of the assessee.