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
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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.