Tax paid by employer on behalf of employee is a non-monetary perquisite subject to single grossing up

The Income-tax Appellate Tribunal, Delhi held that the tax paid by employer on the behalf of employees should be considered as a non-monetary perquisite in the hands of the employees for the purpose of claiming an exemption under section 10(10CC) of the Income-tax Act, 1961 (‘the Act’).

 Facts of the case

• M/s Triton Holdings Limited (‘the employer’) paid income-tax on the behalf of its employees on the salary payment to them (‘tax perquisite’).
• In the return of income filed by the employees, the tax perquisite was considered as a non-monetary perquisite and accordingly, an exemption was claimed u/s 10(10CC) of the Act in respect of the same.

 Issue before the Tribunal

Whether tax perquisite should be subject to multiple grossing up or should it be considered as a non-monetary perquisite for the purpose of claiming exemption u/s 10(10CC) of the Act?

The Assessee’s contentions

• The assessee placed reliance on the special bench ruling of the Delhi Tribunal in the case of RBF Rig Corporation Vs ACIT, Order dated 30/11/2007, ITA No. 1810/ Del/ 2006 wherein it was held that tax borne by employer constituted non-monetary benefit in the hands of the employee and the same cannot be subject to multiple stage grossing up.
• The assessee contented that it is necessary for the lower authorities to loyally accept the decision of the higher authorities in the judicial system. This was also based on various judicial pronouncements to this effect.
• In the instant case, the CIT(A) did not follow the decision of the said Special Bench ruling of the Delhi Tribunal which was the higher authority. This has caused undue hardship to the assessee in form of unnecessary litigation and cost of appeals which should be refunded.

The Assessing officer’s (AO) decision

In view of the overriding provisions of the Act, the tax perquisite should be added to the income of the employees subject to multiple stage grossing up. Therefore, no exemption can be claimed u/s 10(10CC) of the Act in respect of the same.

 Commissioner of Income-tax (Appeals) [CIT(A)] decision

• The perquisites which require to be valued as per the Rule 3 of the Income-tax Rules, 1962 are only eligible for claiming an exemption u/s 10(10CC) of the Act.
• The tax perquisite does not need valuation as it is describable in monetary terms. Therefore, the same cannot be considered as a non-monetary perquisite eligible for claiming an exemption u/s 10(10CC) of the Act.

The Tribunal decision

• The Tribunal while placing reliance on the said Special Bench ruling held that the tax perquisite would constitute non-monetary perquisite in the hands of the employees. Accordingly, an exemption u/s 10(10CC) of the Act can be claimed in respect of the same.
• It is necessary for the lower judiciary authorities to accept the decision of the higher authorities; Hence the CIT(A) being subordinate to the Tribunal was bound to follow the order of the Special Bench of the Tribunal.
• In the instant case, the CIT(A) had no intention to harass the assessee or cause any monetary loss to them. Therefore, the appeal fees cannot be refunded to the assessee.

Summary:- This ruling reiterates the principle pronounced in the case of RBF Rig Corporation that the tax paid by the employer on behalf of employees on salary payments should be considered as a non-monetary perquisite in the hands of the employees. The same should be subject to single stage grossing up i.e. to be added only once in the salary of the employee.

NF