Income Tax Appellate Tribunal - Chandigarh
Assistant Commissioner Of Income-Tax vs Smt. Satinder Kaur (Legal ... on 28 February, 2002
Equivalent citations: [2002]83ITD363(CHD), [2002]258ITR58(CHD)
ORDER
Vimal Gandhi, Vice-President
1. This appeal by the Revenue for the assessment year 1992-93 is directed against the order of the Commissioner of Income-tax (Appeals) cancelling penalty of Rs. 60,215 levied under Section 271(1)(c) of the Income-tax Act, 1961.
2. The assessee is dead and his legal representatives have been brought on record as per order of the Bench, dated February 13, 2002.
3. In the period relevant to the assessment year 1992-93, the assessee was a managing director of Upper India Steel Mfg. and Engineering Co. Ltd. The above company spent a sum of Rs. 6,27,107 on medical treatment of the assessee by taking him to America. Out of the above amount, a sum of Rs. 1,55,362 was treated as perquisite and part of salary subjected to deduction of tax at source. Thus, a sum of Rs. 1,33,600 was deducted by the company from the amount of salary paid to the assessee. In the return submitted by the assessee, the salary income was disclosed at Rs. 1,33,200. The perks in the shape of medical reimbursement were claimed to be exempt with a note.
4. The Assessing Officer during the course of assessment proceedings, asked the assessee to clarify how perks allowed to the assessee in respect of medical treatment were claimed as exempt. In his reply, dated April 12, 1994, the assessee submitted as under :
"Please refer to your above mentioned questionnaires dated June 25, 1993, and in this regard I have to state as under :
That as per Section 17(2)(vi)(1) of the Income-tax Act, the travelling expenses of employee and his one attendant is not allowable expenditure and it will be treated as perquisite in the case of employee whose total income exceeds Rs. 1 lakh but the Income-tax Appellate Tribunal, Jaipur Bench, held that the expenses incurred for the treatment of the managing director cannot be treated as perquisite in the hands of the managing director. I am also enclosing the Reserve Bank of India's permit for issuing foreign exchange and also the copy of the application submitted to the Reserve Bank of India for the expenses incurred."
5. During the course of assessment, the assessee also produced certificate from Upper India Steel Mfg. and Engg. Co. Ltd. relating to medical expenses incurred on the assessee and tax deducted at source. The said certificate is to be following effect :
"To whom it may concern This is to certify that an amount of Rs. 6,27,107 (rupees six lakhs twenty seven thousand one hundred and seven only) was spent in connection with the medical treatment of S. Indermohan Singh Grewal out of India as detailed below (for the financial year 1991-92) :
Rs.
Rs.
(1) Air fare of S. Indermohan Singh Grewal, managing director 32,510 (2) Air fare of one attendant 32,510 (3) Air fare of doctor 32,510 (4) Fee paid to doctor 10,000 1,07,530 Foreign exchange :
51,000 US $ purchased 10,63,807 Less: 21,400 US $ returned 5,44,230 5,19,577 5,19,577 6,27,107 It is further certified that an amount of Rs. 1,55,362 was treated as taxable perks in the case of S. Indermohan Singh Grewal.
(1) Air fare and doctor fee 1,07,530 (2) Expenditure on attendant stay 47,832 1,55,362 For Upper India Steel Mfg. and Engg. Co. Ltd., (Sd.) R. K. Saigal, Secretary."
6. The Assessing Officer did not accept that the entire expenditure incurred on medical treatment of the assessee abroad as exempt. In the assessment order, the Assessing Officer referred to the decision of the Income-tax Appellate Tribunal, Jaipur Bench, and held that the same related to the assessment year 1984-85. He further observed that from the assessment year 1992-93, Section 17 of the Income-tax Act was amended and it was provided that the expenditure incurred by the employer on medical treatment of the employee and travelling and stay of one attendant was to be treated as perquisite. In the view of the Assessing Officer, the expenditure incurred in excess of "limit" laid down in the proviso (vi) to Clause (2) of Section 17 is to be treated as perquisite. The following expenditure with which I am concerned in this penalty matter were brought to tax as perquisite and as income falling under Section 17 of the Income-tax Act :
Rs.
(1) Air fare of S. Indermohan Singh Grewal, managing director 32,510 (2) Air fare of one attendant 32,510 (3) Air fare of doctor 32310 (4) Fee paid to doctor 10,000 1,07,530
7. The above referred to addition is not shown to have been challenged in further appeal. The Assessing Officer also initiated penalty proceedings under Section 271(1)(c) of the Income-tax Act. He rejected the assessee's contention that the above expenditure was bona fidely taken as exempt as medical expenses and not as taxable perquisites. The Assessing Officer in the penalty order emphasised that even after the employer company had treated these expenses as taxable for the purposes of tax deducted at source, the assessee failed to return them as income. The Assessing Officer also referred to the amendment made in Clause (2) of Section 17 under which "expenditure incurred by the employer on medical treatment of the employee whose gross income exceeds Rs. 1 lakh was liable to be taxed as perquisite". Such expenditure are not covered by the proviso to Clause (vi) of Section 17(2) of the Income-tax Act. The Assessing Officer held that the assessee had deliberately not shown the above mentioned perquisite in the income and was liable to pay penalty under Section 271(1)(c) of the Income-tax Act. The Assessing Officer imposed penalty of Rs. 60,215 which represented 100 per cent. of tax sought to be evaded.
8. The assessee impugned above levy in appeal before the Commissioner of Income-tax (Appeals) who, after examining the facts and circumstances of the case, held that the assessee had acted bona fidely and, therefore, no penalty in this case was exigible even under Explanation 1 to Section 271(1)(c) of the Income-tax Act. The penalty imposed was accordingly cancelled. The Revenue has come up in appeal.
9. I have heard both the parties. The learned departmental representative Smt. Rachna Singh, submitted that the assessee was fully aware of expenditure incurred by the employer on air travelling of assessee, his attendant and his doctor, yet treated them as exempt. This was in spite of the fact that the employer had treated the above expenditure as perquisites in the light of the amendment made under Section 17(2)(vi) with effect from April 1, 1992. The above items were subjected to deduction of tax at source and were thus part of salary. It is not the assessee's case that he had no knowledge of deduction of tax at source on items treated as perquisite by the Assessing Officer. Only the above items out of total amount of Rs. 6,27,107 spent on medical treatment of the assessee abroad were items of income under the amended law. Having regard to the fact that the employer company, controlled by the assessee treated the above items as perquisites and as the assessee's income, there was no justification to claim them as exempt in the income-tax return. The decision of the Income-tax Appellate Tribunal, Jaipur Bench, in the case of Asha Golacha pertaining to the assessment year 1984-85 had no application to the assessment year 1992-93 particularly when legal position had changed on account of amendment. It is, therefore, clear that the assessee through a deliberate act did not pay tax on items of perquisites which clearly was income of the assessee. Thus, all the conditions of application of Section 271(1)(c) are fully satisfied in this case and the learned Commissioner of Income-tax (Appeals) cancelled the penalty by taking an erroneous view of the matter.
10. Learned counsel for the assessee, on the other hand, reiterated that these items were bona fidely claimed to be exempt in the light of the decision of the Tribunal and different courts. Otherwise, the assessee had already paid tax on those items. On account of the assessee's bona fide belief that these items were not taxable, a question was raised in the return and in assessment proceedings. No evasion of tax was involved in this case. The tax stood paid and the assessee was entitled to refund. The assessee had placed all relevant facts on record and co-operated with the Revenue. Learned counsel relied on written submission dated February 13, 2002, and upon the case law cited in his reply to the notice dated November 17, 1994, under Section 271(1)(c) of the Income-tax Act.
11. I have heard both the parties. There is no dispute that the expenditure incurred by the employer on medical treatment of the employee outside India were exempt in the assessment year 1992-93. The following items of expenditure incurred by the employer were exempt as per the proviso to Clause (vi) of Section 17(2) :
(1) Medical treatment of the employee, or any member of the family of such employee, outside India ;
(2) Travel and stay abroad of the employee or any member of the family of such employee for medical treatment;
(3) Travel and stay abroad of one attendant who accompanies the patient in connection with such treatment.
12. With effect from April 1, 1992, i.e., in the assessment year 1992-93, the above exemptions were subjected to the following conditions :
"Subject to the condition that the expenditure on travel referred to in Sub-clauses (2) and (3) of this clause shall be excluded from perquisite only in the case of an employee whose gross total income, as computed before including therein the said expenditure, does not exceed one lakh rupees and subject to such further conditions and limits in relation to such expenditure as the Board may, having regard to the guidelines, if any, issued by the Reserve Bank of India in this behalf, prescribe."
13. The salary limit of Rs. 1 lakh was enhanced to Rs. 2 lakhs in the next year, i.e., with effect from April 1, 1993.
14. It appears that the employer company taking note of the above amended provisions treated Rs. 1,55,362 as perquisite value of medical treatment provided to the assessee and as income of the assessee for the purposes of deduction of tax at source and, accordingly, tax at source was deducted.
15. On perusal of salary certificate of Form No. 16, I find that the gross salary was taken at Rs. 3,00,562 including Rs. 1,55,362 as taxable perks without giving any detail. Even otherwise, it is quite clear from the record that the details of this perquisite value of Rs. 1,55,362 was not available on record and, therefore, the Assessing Officer during the course of assessment called for and certificate dated April 11, 1994, was produced before the Assessing Officer. Any observation made by the Commissioner of Income-tax (Appeals) to the contrary are incorrect and not borne from the record.
16. On the basis of the above evidence, I am to determine whether the assessee is liable to be penalised under Section 271(1)(c) of the Income-tax Act. In my considered opinion, no penalty is exigible in this case. The assessee had throughout claimed that he acted bona fidely under the belief that expenditure incurred by his employer on his medical treatment outside India was exempt. Such a belief could have been formed on the basis of the decision of the Income-tax Appellate Tribunal in the case of Smt. Asha Golacha, supra. In the said case, the Tribunal had held that reimbursement of medical expenses incurred abroad was not a perquisite under Section 17(2) of the Income-tax Act. The Bench had considered various clauses of Section 17(2) to reach the above conclusion. The assessee on the basis of the above decision claimed that medical expenses incurred by the assessee were not liable to tax. A copy of the said decision was annexed with the return. It was also stated that the medical expenses incurred by the assessee's employer were being treated as exempt and not included in the returned income. This position was taken after tax was duly deducted from the assessee and a sum of Rs. 1,55,362 was treated as value of perquisite in the shape of medical treatment provided by the employer. On the facts and in the circumstances of the case, nothing has been concealed by the assessee. A bona fide claim is made on a reasonable ground. The assessee furnished all particular material for his assessment. Once the claim was disallowed, the assessee gracefully accepted the order by not filing any appeal. In the above circumstances, no penalty, in my view, is exigible. No material has been brought on record to show that any attempt of concealment or furnishing of inaccurate particulars was made by the assessee. The ratio of two decisions, one of the Supreme Court and the other of the Allahabad High Court quoted by the Commissioner of Income-tax (Appeals) in the impugned order are fully applicable on the facts of the case.
17. The Revenue authorities for holding that it is a fit case for levy of penalty under Section 271(1)(c) mainly relied upon the fact that the company had deducted tax at source treating the disputed items as "perquisite". In my considered opinion, the fact of deduction of tax at source by the employer is not conclusive to establish the concealment of income or furnishing of inaccurate particulars of such income as envisaged under Section 271(1)(c) of the Income-tax Act. It is a matter of common knowledge that people responsible for tax deduction at source are controlled by audit and adopt inflexible and irrational approach, where even most reasonable submissions are not accepted. A gentleman prefers to suffer tax rather than argue with these people. It is not conclusive that persons deducting tax at source had treated certain items of expenditure as perquisite and as part of taxable salary and, therefore, the assessee be taken to have concealed income. There is no material on record to show that the details of Rs. 1,55,362 was made available to the assessee. The evidence on record shows that such details were asked for and placed on record only in April, 1994, during the course of assessment proceedings. At any rate, there is demonstrative evidence to show that perquisite value was only Rs. 1,07,530 against Rs. 1,55,362 taken by the employer. Therefore, on facts of the case, the assessee was fully justified in contesting the value taken for purposes of tax deducted at source. He even succeeded in getting part relief from the Assessing Officer. Having regard to the bona fide conduct of the assessee, no penalty under Section 271(1)(c), in my view, is exigible.
18. I have already held that the assessee was not fully aware of the details comprising value of perquisites at Rs. 1,55,362 for the medical treatment provided by the employer. Assuming for the sake of argument that the assessee was aware of these details as also of the amendment made with effect from April 1, 1992, even then there is no case for levy of penalty. I have already narrated the circumstances which justify the assessee's right to contest deduction of tax at source. It has been noted that the assessee succeeded in establishing that wrong deduction of tax at source was made by his employer. The provisions of the Income-tax Act are accepted to be complicated and can be interpreted in more than one way. The conditions which were introduced in the proviso to Clause (vi) of Section 17(2) with effect from April 1, 1992, and which have been reproduced above after the figure of "one lakh" proceeds and states "subject to such further conditions . . . and guidlines issued by the Reserve Bank of India". It is reasonable to interpret that the conditions imposed are subject to permission of the Reserve Bank of India. In other words, if expenditures are incurred with the approval of the Reserve Bank of India, then those expenditures would not be treated as perquisites. There are several similar provisions under the Income-tax Act. In this connection, the assessee's letter dated April 11, 1994, is relevant. In the said letter, the assessee has referred to the Reserve Bank of India's permission for incurring expenses in question. The assessee has also taken into account the decision of the Income-tax Appellate Tribunal, Jaipur Bench, whose ratio has been noted earlier. In the above backdrop, the assessee bona fidely contested the claim. There is no doubt that the Assessing Officer added Rs. 1,07,530 as taxable perquisites in the quantum assessments. However, the addition can be reconsidered afresh for penalty proceedings which are admittedly distinct and separate from the assessment proceedings. The medical treatment of the employee or any member of family of such employee outside India is exempt and in this case the medical treatment of the assessee required that a doctor should accompany the assessee abroad. It can be reasonably argued that "air fare and fees paid to the doctor" is covered by the provision exempting "expenditure incurred on medical treatment outside India". The services of the doctor were considered necessary for medical treatment of employee outside India. It is directly covered under Sub-clause of the proviso to Clause (vi) of Section 17(2) of the Income-tax Act. Thus, on a reasonable and possible view of the matter, there is scope to allow benefit of Rs. 42,510 to the assessee. This lends support to the claim that the TDS deduction was bona fidely contested and for good reasons. Simply for raising above bona fide contest, no penalty under Section 271(1)(c) is exigible. In the case of Cement Marketing Co. of India Ltd. v. CST (Assistant) [1980] 124 ITR 15, their Lordships of the Supreme Court held as under (page 18) :
"Where the assessee does not include a particular item in the taxable turnover under a bona fide belief that he is not liable so to include it, it would not be right to condemn the return as a 'false' return inviting imposition of penalty."
19. I, therefore, do not see any scope to hold that it is a case in which penalty under Section 271(1)(c) should have been levied. The penalty imposed has rightly been cancelled by the Commissioner of Income-tax (Appeals) and I uphold his order.
20. In the result, the Revenue's appeal is dismissed.