Income Tax Appellate Tribunal - Delhi
Shriram Pistons & Rings Ltd. vs Income-Tax Officer on 27 May, 1999
Equivalent citations: [2000]73ITD30(DELHI)
ORDER
Mehta
1. In these two appeals directed against the orders passed by the CIT(A), common issues have been raised the first of which is the determination of the value of perquisite on account of gas, electricity and water in respect of certain employees of the company whether actual amount spent by the company or at 6.25% of the salary of the employees as prescribed under rule 3(d)(ii) of the Income-tax Rules.
2. On perusal of the returns filed in form No. 24 for both the years, the ITO, TDS Ward noted that in respect of certain employees the value of the aforesaid perquisites was taken at 6.25% of the salary without there being any evidence on record that the accommodation provided was used to some extent for official purposes as well. On being asked the appellant replied that some of the senior executives were required to maintain an office portion at their residence and which was used for holding conferences, meetings etc. with employees and business associates. This reply was found to be vague and as already stated rejected in the absence of evidence and the actual amount spent was treated as perquisite for inclusion in the salary income for purposes of TDS. It was also noted by the ITO that in the case of Mr. Deepak C. Shriram, Rs. 1000 p.m. was being paid towards electricity expenses and in respect of another employee i.e. Shri P. L. Dhingra, a reimbursement of Rs. 7,939 had been made on the same account for the financial year 1987-88.
3. On further appeals the CIT(A) upheld the view taken by the ITO primarily on the ground that there was no evidence to hold that any part of the expenditure on gas, electricity, and water could be attributed for official purposes vis-a-vis use of residential accommodation provided by the company for such purpose to some extent.
4. Before us the ld. counsel for the assessee reiterated the arguments advanced before the tax authorities. He placed on record copy of the order of the Tribunal dated 23-12-91 for assessment year 82-83 in I.T.A. Nos. 3195 & 3196(Del)/88 in the case of Shri Deepak C. Shriram, one of the employees and stated to be a "working director" in the order of the Tribunal. According to the ld. counsel, the Tribunal had accepted the partial user of the residence provided to him for "official purposes" and in this view of the matter, perquisite value on account of water, gas and electricity was required to be taken at 6.25% of the salary paid and not as per the actual expenditure incurred. The ld. counsel further argued that such type of adjustment/addition was not warranted in an order passed under section 201 of the Income-tax Act, 1961 and the appropriate place was the assessment of the employee concerned. Reliance was placed on the decision of the Ahmedabad Bench-A of the Tribunal in i.e., Oil & Natural Gas Corpn. Ltd. v. ITO [1998] 97 Taxman 236.
5. Ld. D.R., on the other hand, supported the orders passed by the tax authorities. According to her, there was no evidence to show that any portion of the residence provided to the senior employees was being used for "official purposes".
6. We have examined rival contentions and are of the view that the department has a strong case in the absence of any evidence being adduced that a part of residence provided to the senior employees (Mr. Deepak C. Shriram excluded for this observation) was being used for official purposes.
In their cases actual expenditure is to be included. In the case of Mr. Deepak C. Shriram the Tribunal in asst. years 82-83 and 83-84, supra has held that part of the residence provided to him was being used for official purposes and perquisite value of certain items was to be considered accordingly. However, the present appeals are for much later years and it would be necessary to consider whether the facts are identical for the various years. It is for the appellant to lead evidence in this respect and for which purpose we restore the matter back to the ITO. No doubt there are some observations at the bottom of page 2 of the order of the Tribunal relied upon but these are not highlighted by the ld. counsel and nor has he provided us with facts and figures pertaining to various years.
7. The second common issue pertains to the "short deposit" of tax at source for both the financial Years in question. Following facts were noted by the ITO in financial year 87-88 :-
"5. From the details of tax deducted and paid it is found that from the salary, paid to employees in the month of March, employer company deducted tax amounting to Rs. 36,139 whereas only a rum of Rs. 32,049 was remitted to Govt. A/c. On being asked it has been stated that in case of certain employees tax was excess deducted and deposited to the extent of Rs. 4,090 in the earlier months. Therefore, a sum of Rs. 4,090 out of Rs. 36,139 deducted from the employees in the month of March was refunded to employees in whose case tax was excess deducted in the earlier months and balance Rs. 32,049 was remitted to Govt. A/c. This action of the employer company is not permissible under the Act. In case where tax has been excess deducted is to be refunded by the assessing officer in the individual case. The employer company is not empowered to refund the amount of tax deducted from the Salaries. Accordingly, the employer company is treated in default to the extent of Rs. 4,090.
After considering the facts stated above, taxable salary for the purpose of deducting tax at source is worked out as per Annexure-A forming part of this order."
8. For the financial year 88-89, the facts were identical i.e., in the month of January, 1989, tax deducted at source was Rs. 34,800 out of which Rs. 30,100 was deposited and the balance of Rs. 4,700 was paid to one Mr. A. K. Taneja in whose case tax was excess deducted and deposited in the earlier months. Similarly, in March, 89 TDS was Rs. 12,435 out of which Rs. 263 was deposited in Govt. A/c and the balance of Rs. 12,172 was "refunded" to five employees in whose cases there was excess deduction in earlier months. According to the ITO, tax once deducted could not be refunded and it had to be remitted to Govt. account and in case there had been excess deduction in any case then the employee could claim refund only in his own assessment by filing a return. He accordingly held the appellant to be an assessee in default to the extent of Rs. 4,090 for financial year 87-88 the corresponding figure for F.Y. 88-89 being Rs. 16,875.
9. Before the CIT(A) it was contended on behalf of the appellant that section 192(3) authorised such adjustment to be made during a financial year whenever it was found that there had been excess/short deduction. This plea was rejected by the CIT(A) the speaking order being for F.Y. 88-89 which was followed in F.Y. 87-88 observing as under :-
"5.1 I have considered the facts of the case and arguments of the learned counsel. Under section 192(3) the employer is authorised to adjust the tax deducted in excess in earlier months from the tax to be deducted further in the subsequent months of the financial year. Therefore the appellant employer can calculate the tax payable in a particular month and can adjust the excess tax made in earlier months or short deduction made in earlier months for reducing or increasing the tax to be deducted in the subsequent months. However, the Act does not give any power to the employer to refund the already deducted tax to the employees by depositing lesser amount to the Govt. account. As per the facts mentioned by the Assessing Officer in the order the appellant employer has done exactly the same. It is not a case of adjustment in respect of the excess deduction made in earlier months towards the tax to be finally deducted in subsequent months but it is a case of depositing less amount to the Govt. account by making actual deduction of tax at source from the salaries and then refunding the balance amount to the employees which is not permissible by the Act. Therefore the Assessing Officer has rightly treated the appellant company (employer) as an assessee deemed to be in default in respect of the amount of Rs. 16,875 wrongly refunded to the employees."
10. The ld. counsel for the assessee at the out set contended that provisions of section 192(3) of the Income-tax Act were required to be interpreted in this case. According to him the company had a work force of 1000 and odd employees out of which only 30 Senior Executives were liable for TDS. It was his argument that the adjustment at the end of each financial year could be an overall one taking into account the total deduction and total deposit of TDS rather than making an adjustment employeewise. As per ld. counsel, there was no reported decision on this issue as per his knowledge although he did cite one of the Hon'ble Andhra Pradesh High Court in the case of P. V. Rajgopal v. Union of India [1998] 233 ITR 678/99 Taxman 475 for the proposition that a shortfall in deduction is not hit by provisions of section 201 and which would apply only if there was no deduction at all or where after deducting the employer fails to remit it to the Government. In concluding his arguments ld. counsel urged that the appellant be not treated as an assessee in default for alleged "shortfall" in tax deposited and alternatively no penalty or penal interest be levied even if both the issues are decided against the company as there was a bonafide belief about the understanding of the "legal position".
11. The ld. DR, on the other hand, vehemently supported the orders passed by the tax authorities. It was contended that the refund to some employees after deducting from others was not a valid act in the eyes of law and refund could be granted only by the ITO in the individual assessment. It was also urged that levy of penal interest be maintained and the alternative plea of ld. counsel rejected.
12. We have examined the submissions of both sides and also considered the two decisions cited at the Bar by the ld. counsel. Before we proceed to deal with the provisions of section 192(3) and which we are asked to do in this case we would like to refer to certain other relevant sections as follows :-
Section 192(1) casts a duty/liability on the employer to deduct tax on the "estimated income of the assessee" under the head "salary" for the financial year.
Section 192(2) prescribes the procedure for TDS where "an assessee" is employed simultaneously under more than one employer or holds more than one employment successively during the same financial year.
Section 192(2A) speaks of certain categories of employees who may avail of the relief under section 89(1) and casting a duty on them to furnish relevant details to the employer who in turn shall take the same into account for making the deduction on account of tax.
Section 192(2B) deals with situations where an assessee/employee in addition to salary income has income chargeable under other head/heads and he may send details thereof to the employer including TDS if any and the employer has to take such income/incomes and TDS into account for calculating TDS. Loss, however, is to be excluded other than under the head "income from house property" (w.e.f. 1-8-98) and the TDS deductible is not to fall below the figure computed in respect of income under the head "salary" in case the other income and TDS thereon was to be ignored.
Coming now to section 192(3), which is to be interpreted in the present appeals, the same reads as under :-
"Section 192(3) :- The person responsible for making the payment referred to in sub-section (1) or sub-section (2) or sub-section (2A) or sub-section (2B) may, at the time of making any deduction, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year."
Ld. counsel wants us to hold by reading the above that the shortfall/excess can be adjusted on an overall basis i.e., the total deducted for all employees, total liability for all employees and the balance if shortfall to be recovered and if excess to be refunded. We are afraid that this interpretation is quite illogical as section 192(3) is not to be read in isolation with the, other sub-sections of section 192 which we have discussed earlier. The crucial word used is "the assessee" i.e., the employee in these sub-sections and one cannot appreciate that when one comes to 192(3) "the assessee" becomes a group of assessee i.e., all the employees taken together. In our opinion, the adjustment either of increasing or decreasing the TDS is to be made with reference to the estimated income of "the assessee" i.e., an employee and not all of them taken together deducting from some and refunding to others. Section 192(3) starts with a reference to "the person responsible for making the payment referred to in sub-section (1) or sub-section (2) or sub-section (2A) or sub-section (2B)" and on harmonious construction the same relates to adjustment in the case of the individual employee and not an adjustment collectively by taking all the employees together.
13. The interpretation canvassed by ld. counsel is not substantiated by the following sections :-
Section 198 - TDS is income received in the hands of "an assessee".
Section 199 - Credit for TDS is to be given to the person on whose behalf it is made and deposited to Govt. account on production of a certificate under section 203.
Coming to another provision now i.e., section 200 of the Income-tax Act which stipulates that a person deducting TDS on various amounts paid out is obliged by law to deposit the amount so deducted within the period prescribed into Govt. A/c. In other words, the amount so deducted cannot be retained by the employer or used in his business as on deduction it becomes the money of the Government and up to the date of its deposit the employer holds it as a custodian on behalf of the Govt. as is the position of amounts deducted on account of provident fund etc. from the employees. All such statutory deductions are held on behalf of the Govt. till deposited. Under these circumstances a refund to one employee after collecting TDS from another on estimate salary income is not in order and clearly outside the legal mandate. The decision of the Hon'ble Andhra Pradesh High Court relied upon does not deal with such a situation and it in fact supports the revenue's case as would be apparent from observations at page 694 as follows :-
"This section has two limbs, one is where the employer does not deduct tax and the second where after deducting tax, the employer fails to remit it to the Government. There is nothing in this section to treat the employer as the defaulter where there is a shortfall in the deduction. The Department assumes that where the deduction is not as required by or under the Act, there is a default. But the fact is that this expression "as required by or under this Act" grammatically refers only to the duty to pay the tax that is deducted and cannot refer to the duty to deduct the tax. Since this is a penal section, it has to be strictly construed and it cannot be assumed that there is a duty to deduct the tax strictly in accordance with the computation under the Act and if there is any shortfall due to any difference of opinion as to the taxability of any item the employer can be declared to be an assessee in default."
Their Lordships have held that the expression "as required by or under this Act" refers only to the duty to pay the tax that is deducted and cannot refer to the duty to deduct the tax. In the present case, the company after deducting TDS from certain employees did not deposit the same in the Govt. account as provided by section 200 but refunded the same to certain other employees in whose cases there had been excess deduction in earlier months. As rightly argued by revenue the individual employees were required to claim refunds in their own assessments on the excess TDS. A situation apparently has emerged that the company has given TDS certificates to certain employees showing a particular amount deducted at source whereas apart of the same has not gone to the Govt. account but "refunded" to certain other employees. In the case of the refundees the TDS certificate would show the correct amount after adjusting the refunds although the deduction is more and which is adjusted in the cases of refunders. In other words, the company has assumed the role of the ITO and granted "refunds" to some of the employees in whose cases there was excess TDS.
14. Under these circumstances and on an interpretation of the legal provisions, we in the final analysis uphold the action of the CIT(A) in treating the company as an "assessee in default" for the two financial years under appeal.
15. Dealing with the decision of the Ahmedabad Bench of the Tribunal, in the case of Oil & Natural Gas Corpn. Ltd., (supra) the same is distinguishable, as the issue was entirely different. It does not lay down any proposition of law to the effect that the ITO of TDS Circle cannot make any changes vis-a-vis the estimated income of an employee. In case this was to be treated as the position of law, then section 201 would become redundant. All that the Tribunal says is that while making the estimate of salary income of an employee, the employer is expected to act honestly and fairly and in case it was found that the estimate made by the employer was incorrect, this fact alone would not lead to the conclusion that the employer had not acted honestly and fairly. Further, unless such inference could reasonably be raised against an employer, no fault could be found with him. In the present case, the assessee took a stand before the ITO about the valuation of certain perquisites but which on verification was not found to be correct and no evidence was adduced. As already noted by us, the past position is not indicated by the ld. counsel except in the case of Mr. Deepak C. Shriram in whose case the matter has been sent back to the ITO there being no information about others.
16. In our opinion, the ITO, TDS, in an order under section 201(1) can set right items falling for consideration under the head "salary" in case he finds that the stand of the employer is apparently inconsistent with the provisions of law.
17. On the alternative submission, proviso to section 201(1) speaks of penalty u/s. 221 and sub-section (1A) to section 201 speaks of penal interest on the shortfall in TDS from the date on which such tax was deductible up to the date on which it was actually paid. The words used are "shall be liable to pay". As far as penalty under section 221(1) is concerned, we are not dealing with the same in the present appeals and the assessee may seek relief in those proceedings. The interest under section 201(1A) is mandatory in nature and is attracted as soon as the company is treated as an assessee in default for any violation of TDS provisions. Interest is charged for keeping back Govt. monies and the question of pleading a reasonable cause or bona fide belief is excluded but which can be done in the penalty provisions under section 221(1) as per proviso to section 201(1).
18. In the result, the appeals are treated as partly allowed for statistical purposes.