Case Law Details
There is no dispute that the employer has entered into agreements with the employees and thereby has taken over an obligation to pay income tax payable by the employees. If the employer was not obliged to pay such income tax, the same would have been payable by the employees in question. Such payment, as has been provided in Section 10 (10CC) is notwithstanding anything contained in Section 200 of the Companies Act, 1956. Therefore, the payment of tax to the Income Tax Department on account of salaries/remunerations of the employees not by way of monetary payment to the employees concerned, but for or on their account to the Income Tax Department and the same being one of the perquisites included in Clause (2) of Section 17 of the Act, such payment was to be excluded from the income of the employees. The same, having been directed to be done by the Tribunal, while we answer the question as above in favour of the assessee, refuse to interfere with the judgments and orders of the Tribunal assailed in these appeals.
IN THE HIGH COURT OF UTTARAKHAND AT NAINITAL
IT APPEAL NOS. 10 TO 15, 25 TO 29, 32, 33, 35 & 36 OF 2010 & 22 OF 2011
Director, Income Tax (International Taxation)
Versus
Sedco Forex International Drilling Inc & Others
Date: July 30, 2012
Barin Ghosh, C. J. (Oral)
Considering the averments made in Delay Condonation Application No. 5865 of 2010 in preferring the Income Tax Appeal No. 27 of 2010 and being satisfied that sufficient grounds have been made out for delay, we allow the said application.
2. By consent of the parties, Income Tax Appeal Nos. 25 of 2010, 26 of 2010, 28 of 2010, 29 of 2010 and 22 of 2011 are treated on the day’s list.
3. In Income Tax Appeal No. 22 of 2011, since the respondents are present, we have proceeded, as if, service has been effected upon the respondents.
4. The sole question involved in these appeals is:-
“whether the tax paid by the employer on the salaries/ remunerations of the employees would constitute non-monetary benefits and, as such, the same would be exempted under Section 10 (10CC) of the Income Tax Act?”
5. The facts, to which there is no dispute, are that the employer paid salaries/remunerations to its employees. In addition to that, the employer paid to the Income Tax Department, the amount of tax payable by the employees on the salaries /remunerations that the employees received. The department contended that the employees are obliged to pay tax on the amount of such income tax paid by the employer on account of the employees to the Income Tax Department. The employees contended that the same being perquisite within the meaning of Section 17(2) of the Income Tax Act (hereinafter referred to as the Act), the same is exempted in view of Section 10 (10CC) of the Act. This dispute went before the Tribunal. The Tribunal dealt with the issue by looking into Section 10 (10CC) of the Act, Section 17(2) of the Act and a Full Bench Judgment of the Tribunal, rendered in the case of RBF Rig Corporation LIC (RBFRC) versus Asstt. CIT, Dehradun, reported in (2007) 297 ITR 228. There is no dispute that in RBF Rig Corporation case, a substantial question of law was decided. Despite decision of such an important question of law, the Income Tax Department did not take the matter higher up. However, by presenting these appeals, the department has questioned, in fact, the validity of the law declared by the Tribunal in RBF Rig Corporation case.
6. Section 200 of the Companies Act, 1956 prohibits companies from paying to any officer or employee thereof any remuneration free of income tax. Tax free remuneration is one thing and payment of remuneration as well as tax payable thereon is another thing.
7. In that background, Section 10 (10CC) of the Income Tax Act, 1956 provides that in the case of an employee, being an individual deriving income in the nature of a perquisite not provided for by way of monetary payment, within the meaning of clause (2) of Section 17 of the Act, the tax on such income actually paid by his employer, at the option of the employer, on behalf of such employee, notwithstanding anything contained in Section 200 of the Companies Act, 1956 shall be excluded in computing total income of a previous year of such an employee. Therefore, despite prohibition contemplated in the Companies Act for payment of tax free remuneration to an employee, Section 10(10CC) of the Act has provided that notwithstanding anything contained in the Companies Act, an employee shall be entitled to exclude his income by way of remuneration/salary provided the same is not a monetary payment to him and is also provided as perquisite in clause (2) of Section 17 of the Act and thereby has acknowledged that remuneration plus tax payable thereon is permissible..
8. Tax paid on account of the employee is certainly a monetary payment, but the only difference is that the same is not paid to the employee, but on his account to the Income Tax Department. The only question is, whether such a payment has been considered as perquisite in clause (2) of Section 17 of the Act. Section 17 (2) provides as follows :-
“Perquisite includes . . . . . any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee ”
9. According to Section 17(2) of the Act, perquisite includes many a things, including the one mentioned above. It includes value of rent-free accommodation, the value of any concession in the matter of rent, value of any benefit or amenity granted or provided free of cost, any sum payable by the employer on account of provident fund or on account of superannuation fund or towards the value of any other benefits, etc. Therefore, one of the perquisites, as mentioned in Section 17 (2) of the Act is any sum paid by the employer in respect of any of the obligation, which but for such payment, would have been payable by the assessee, i.e. the employee.
10. There is no dispute that the employer has entered into agreements with the employees and thereby has taken over an obligation to pay income tax payable by the employees. If the employer was not obliged to pay such income tax, the same would have been payable by the employees in question. Such payment, as has been provided in Section 10 (10CC) is notwithstanding anything contained in Section 200 of the Companies Act, 1956. Therefore, the payment of tax to the Income Tax Department on account of salaries/remunerations of the employees not by way of monetary payment to the employees concerned, but for or on their account to the Income Tax Department and the same being one of the perquisites included in Clause (2) of Section 17 of the Act, such payment was to be excluded from the income of the employees. The same, having been directed to be done by the Tribunal, while we answer the question as above in favour of the assessee, refuse to interfere with the judgments and orders of the Tribunal assailed in these appeals.
11. Learned counsel for the appellant submitted that the State Government has exempted the Income Tax Department from paying fees on appeals.
Add-on (KEY POINTS):
For an analytic study, to be focused on following:
S 10(10CC) is a provision for exemption; S 17(2)(iv) is a provision for taxing.
A ) S 10 (10)(CC) inserted wef 1-4-2003; while S 17 (2) (iv) already there for long. Both on statute, and in force, requiring to be given effect.
B ) S 17 (2) (iv) – in terms, beyond any doubt, envisages monetary payment, and by employer to, if not exclusively , also to a third party ; which, would, admittedly, cover within its ambit, tax on tax-free salary paid by employer to government.
S 10(10CC) is a provision for exemption; S 17(2)(iv) is a provision for taxing.
The legislature, in its wisdom, has inserted S. 10(10CC), fully knowing /being conscious of the fact that by virtue of S 17(2)(iv) a monetary payment made to a anyone else , also other than taxpayer, will be taxed. Had it really been the intention to tax exempt such payment, that would have been achieved by simply deleting S 17(2)(iv), without having to insert a new provision i.e. S. 10(10CC). In the alternative, in section 10(10CC) itself it could have been simply but clearly provided that a monetary payment made to one other than taxpayer, notwithstanding anything contained in section 17(2)(iv) be tax exempt. But, not done either. That can only mean the intention of S 10(10CC) was not to make a monetary payment made to other than to taxpayer (e.g. government as in the case herein) non-taxable.
Even otherwise, to say that a monetary payment, if made to a third party, will cease to remain so, but instead should be regarded as a ‘non-monetary payment’ is, bereft of any logic or sane reasoning. Besides, doing so is obviously offending the language itself; so also its grammar.
For the connotation of – ‘non-monetary’, for its ordinary meaning so also its legal meaning, attention is invited to the dictionaries; also to the material galore available in public domain. Incidentally, in section 10(10CC) the words actually used are , – ‘not provided by way of monetary payment’ NOT ‘non-monetary’; the former expression, it could be validly urged, has more clarity, hence is in favour of the Revenue.
For completeness of the discussion of the discussion herein, two crucial well established principles of ‘harmonious interpretation’ as enunciated by courts, need a special mention:
(a) One provision of the Act cannot be so construed as to defeat another provision of the Act; and
(b) the several provisions in the Act must be read together and as parts one larger scheme.
To fit the context herein, one is left with an irresistible temptation to sadly recall, with due respect to the so called law offices and courts, the saying, – law is an ass.
Also, more aptly, often quoted famous jurist, Oliver Wendell Holmes:
“Life and language are alike sacred. Homicide and verbicide – that is, violent treatment of a word with fatal results to its legitimate meaning, which is its life- are alike forbidden.”
Verbicide
www. sovereignfellowship.com/tos/13.1/
Be that as it should, it is, of course a matter of deep regret that Last not but not least, with similar experiences in the past, especially with wisdom gathered in hindsight, – reference being to a similar difficulty faced with in interpretation of a related provision because of user of a like clumsy expression i.e. ‘whether encashable or not’,- the legislature has failed once again to take the precaution of clearly spelling out what was intended by use of the expression in doubt. Historically, the income tax regime has experienced with no let-up or improvement as desired so as to render the law simple and controversy-proof.
By the way, in the DTC Bill, it appears, for taxing ‘income from employment’, no such exemption is going to be available as now u/s 10 (10CC).
What treatment to the item of dispute was, on the one side, being given by employers /employees and on the other, being accepted by the Revenue, under the FBT regime , though short-lived, is worthwhile looking into.
Offhand>
The view the HC has taken, in favour of the assessee, to say the least with due respect to the court, makes for a clean departure from the common understanding of the law; more so, so far as known, always acted upon accordingly both by employers for TDS, so also by employees for tax returns. Further, if one is not mistaken, according to a straight reading of the law, in such cases, grossing up of income on a tax-on -tax basis has been invariably conceded, with no quarrel.
Besides, the possible adverse tax implication of the prohibition in section 200 of the Companies Act , to the employer, if it is read with the Explanation under section 37 (1), has not been raised hence not gone into by the HC.
The matter is most likely to be contested further, by the Revenue, and there is no choice left but to wait for further developments.
Over to experts for possible contrary views, if any.