Income Tax Appellate Tribunal - Bangalore
Ito (Tds), Ltu, Bangalore vs M/S Kptcl , Mysore on 4 January, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH : BANGALORE
BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT
AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER
M.P. Nos. APPLICANT VS. RESPONDENT
[in ITA Nos.]
MP 175/Bang/2018 M/s. Karnataka Power
[in ITA 2223/Bang/2017] Transmission
Corporation Ltd.
(KPTCL),
Davangere
MP 176/Bang/2018 KPTCL, Davangere.
[in ITA 2224/Bang/2017] The Income Tax
MP 177/Bang/2018 Officer (OSD)(TDS), KPTCL, Bijapur.
[in ITA 2225/Bang/2017] Large Tax Payer Unit
MP 178/Bang/2018 (LTU), KPTCL, Bijapur.
[in ITA 2226/Bang/2017] Bangalore.
MP 179/Bang/2018 KPTCL, Haveri.
[in ITA 2227/Bang/2017]
MP 180/Bang/2018 KPTCL, Haveri.
[in ITA 2228/Bang/2017]
MP 181/Bang/2018 KPTCL, Haveri.
[in ITA 2229/Bang/2017]
MP 182/Bang/2018 KPTCL, Haveri.
[in ITA 2230/Bang/2017]
MP 183/Bang/2018 KPTCL, Shimoga.
[in ITA 2231/Bang/2017]
MP 184/Bang/2018 KPTCL, Shimoga.
[in ITA 2232/Bang/2017
MP 185/Bang/2018 KPTCL, Mysore.
[in ITA 2233/Bang/2017
MP 186/Bang/2018 KPTCL, Mysore.
[in ITA 2234/Bang/2017
MP 187/Bang/2018 KPTCL, Tumkur.
[in ITA 2235/Bang/2017
MP 188/Bang/2018 KPTCL, Tumkur.
[in ITA 2236/Bang/2017
MP 189/Bang/2018 KPTCL, Bangalore.
[in ITA 2237/Bang/2017
MP Nos. 175 to 252/Bang/2018
Page 2 of 23
MP 190/Bang/2018 KPTCL, Bangalore.
[in ITA 2238/Bang/2017
MP 191/Bang/2018 KPTCL, Bangalore.
[in ITA 2239/Bang/2017 The Income Tax
MP 192/Bang/2018 Officer (OSD)(TDS), VS. KPTCL, Bangalore.
[in ITA 2240/Bang/2017
Large Tax Payer Unit
MP 193/Bang/2018 (LTU), KPTCL, Hassan.
[in ITA 2241/Bang/2017
Bangalore.
MP 194/Bang/2018 KPTCL, Hassan.
[in ITA 2242/Bang/2017
MP 195/Bang/2018 KPTCL, Munirabad.
[in ITA 2243/Bang/2017
MP 196/Bang/2018 KPTCL, Munirabad.
[in ITA 2244/Bang/2017
MP 197/Bang/2018 KPTCL, Davangere.
[in ITA 2245/Bang/2017
MP 198/Bang/2018 KPTCL, Davangere.
[in ITA 2246/Bang/2017
MP 199/Bang/2018 KPTCL, Kalburgi.
[in ITA 2247/Bang/2017
MP 200/Bang/2018 KPTCL, Kalburgi.
[in ITA 2248/Bang/2017
MP 201/Bang/2018 KPTCL, Hassan.
[in ITA 2249/Bang/2017
MP 202/Bang/2018 KPTCL, Hassan.
[in ITA 2250/Bang/2017
MP 203/Bang/2018 KPTCL, Bangalore.
[in ITA 2251/Bang/2017
MP 204/Bang/2018 KPTCL, Bangalore.
[in ITA 2252/Bang/2017
MP 205/Bang/2018 KPTCL, Bangalore.
[in ITA 2253/Bang/2017
MP 206/Bang/2018 KPTCL, Bangalore.
[in ITA 2254/Bang/2017
MP 207/Bang/2018 KPTCL, Bangalore.
[in ITA 2255/Bang/2017
MP 208/Bang/2018 KPTCL, Bangalore.
[in ITA 2256/Bang/2017
MP 209/Bang/2018 KPTCL, Bagalkot.
[in ITA 2257/Bang/2017
MP 210/Bang/2018 KPTCL, Bagalkot.
[in ITA 2258/Bang/2017
MP Nos. 175 to 252/Bang/2018
Page 3 of 23
MP 211/Bang/2018 KPTCL, Kalburgi.
[in ITA 2259/Bang/2017
MP 212/Bang/2018 KPTCL, Kalburgi.
[in ITA 2260/Bang/2017 The Income Tax
MP 213/Bang/2018 Officer (OSD)(TDS), VS. KPTCL, Hubli.
[in ITA 2261/Bang/2017
Large Tax Payer Unit
MP 214/Bang/2018 (LTU), KPTCL, Hubli.
[in ITA 2262/Bang/2017
Bangalore.
MP 215/Bang/2018 KPTCL,
[in ITA 2263/Bang/2017 Doddaballapura.
MP 216/Bang/2018 KPTCL,
[in ITA 2264/Bang/2017 Dodaballapura.
MP 217/Bang/2018 KPTCL, Hassan.
[in ITA 2265/Bang/2017
MP 218/Bang/2018 KPTCL, Hassan.
[in ITA 2266/Bang/2017
MP 219/Bang/2018 KPTCL, Mangalore.
[in ITA 2267/Bang/2017
MP 220/Bang/2018 KPTCL, Mangalore.
[in ITA 2268/Bang/2017
MP 221/Bang/2018 KPTCL, Hubli.
[in ITA 2269/Bang/2017
MP 222/Bang/2018 KPTCL, Hubli.
[in ITA 2270/Bang/2017
MP 223/Bang/2018 KPTCL, Belgaum.
[in ITA 2271/Bang/2017
MP 224/Bang/2018 KPTCL, Belgaum.
[in ITA 2272/Bang/2017
MP 225/Bang/2018 KPTCL, Bangalore.
[in ITA 2273/Bang/2017
MP 226/Bang/2018 KPTCL, Bangalore.
[in ITA 2274/Bang/2017
MP 227/Bang/2018 KPTCL, Talaguppa.
[in ITA 2275/Bang/2017
MP 228/Bang/2018 KPTCL, Talaguppa.
[in ITA 2276/Bang/2017
MP 229/Bang/2018 KPTCL,
[in ITA 2277/Bang/2017 Holenarsipura.
MP 230/Bang/2018 KPTCL,
[in ITA 2278/Bang/2017 Holenarsipura.
MP 231/Bang/2018 KPTCL, Bangalore.
[in ITA 2279/Bang/2017
MP Nos. 175 to 252/Bang/2018
Page 4 of 23
MP 232/Bang/2018 KPTCL, Bangalore.
[in ITA 2280/Bang/2017
MP 233/Bang/2018 KPTCL, Lingasugur.
[in ITA 2281/Bang/2017
MP 234/Bang/2018 The Income Tax KPTCL, Lingasugur.
[in ITA 2282/Bang/2017
Officer (OSD)(TDS), VS.
MP 235/Bang/2018 Large Tax Payer Unit KPTCL, Bagalkot.
[in ITA 2283/Bang/2017
(LTU),
MP 236/Bang/2018 KPTCL, Bagalkot.
[in ITA 2284/Bang/2017
Bangalore.
MP 237/Bang/2018 KPTCL, Mysore.
[in ITA 2285/Bang/2017
MP 238/Bang/2018 KPTCL, Mysore.
[in ITA 2286/Bang/2017
MP 239/Bang/2018 KPTCL, Bagalkot.
[in ITA 2287/Bang/2017
MP 240/Bang/2018 KPTCL, Bagalkot.
[in ITA 2288/Bang/2017
MP 241/Bang/2018 KPTCL, Davangere.
[in ITA 2289/Bang/2017
MP 242/Bang/2018 KPTCL, Davangere.
[in ITA 2290/Bang/2017
MP 243/Bang/2018 KPTCL, Bangalore.
[in ITA 2291/Bang/2017
MP 244/Bang/2018 KPTCL, Bangalore.
[in ITA 2292/Bang/2017
MP 245/Bang/2018 KPTCL, Mysore.
[in ITA 2293/Bang/2017
MP 246/Bang/2018 KPTCL, Mysore.
[in ITA 2294/Bang/2017
MP 247/Bang/2018 KPTCL, Shivamogga.
[in ITA 2295/Bang/2017
MP 248/Bang/2018 KPTCL, Shivamogga.
[in ITA 2296/Bang/2017
MP 249/Bang/2018 KPTCL, Kalbugri.
[in ITA 2297/Bang/2017
MP 250/Bang/2018 KPTCL, Kalburgi.
[in ITA 2298/Bang/2017
MP 251/Bang/2018 KPTCL, Mysore.
[in ITA 2299/Bang/2017
MP 252/Bang/2018 KPTCL, Mysore.
[in ITA 2300/Bang/2017
ASSESSMENT YEAR: 2013-14
MP Nos. 175 to 252/Bang/2018
Page 5 of 23
Applicant by : Shri K.V. Aravind, Standing Counsel
Respondent by : S/Shri Tata Krishna & Ravishankar, Advocates.
Date of hearing : 28.12.2018
Date of Pronouncement : 04.01.2019
ORDER
Per N V Vasudevan, Vice President These are Miscellaneous Petitions (MPs) filed by the Revenue u/s.254(2) of the Income Tax Act, 1961 ["the Act"] on the allegation that the order dated 02.05.2018 passed by the Tribunal in the aforesaid appeals suffers from mistakes apparent from record. The Revenue has prayed for the following reliefs in these MPs:-
"i) The Miscellaneous petition be kindly accepted;
ii) The Hon'ble Tribunal's conclusion in para 22 that circumstances explained by the Ld. Counsel for KPTCL and the action of the revenue in not questioning KPTCL's action in the past several years after its formation etc. were definitely factors which weighed with KPTCL when it made estimate of its employees' income under the head "salaries"
and the conclusion drawn therefore requires reconsideration.
iii) The conclusion of Hon'ble Tribunal's that the assessee has discharged its obligation u/s 192 and hence proceedings u/s 201(1) & 201(1A) of the Act deserves to be quashed is incorrect and the Ground 10 should be adjudicated afresh.
iv) The appellate order of the Tribunal suffers from various mistakes which are apparent on record, and hence, the order passed has to be recalled.
v) The Revenue should be heard on all Grounds before disposing them on merits."
MP Nos. 175 to 252/Bang/2018 Page 6 of 23
2. The issue involved in the appeals was as to whether M/s Karnataka Power Transmission Corporation Ltd. [hereinafter referred to as KPTCL or Assessee], can be considered as "Assessee in Default" under the provisions of Section 201(1) of the Income Tax Act, 1961(Act) for not deducting tax at source and whether KPTCL is liable to pay interest on tax not deducted at source u/s.201(1A) of the Act? The issue arises for consideration on the following facts and circumstances. KPTCL paid cash equivalent to its employees at the time of their retirement.
3. Under Section 17(1)(va) "Salary" includes--(va) any payment received by an employee in respect of any period of leave not availed of by him. Under Section 192 of the Act, "Any person responsible for paying any income chargeable under the head "Salaries shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made on the estimated income of the assessee under this head for that financial year. KPTCL as an employer was bound to deduct tax at source on the salaries paid to its employees by including the payment received by an employee in respect of any leave period not availed by the employee.
4. Section 10(10AA) of the Act provides for certain exemption when payments are received by an employee in respect of leave period not availed by the employee. Section 10(10AA) of the Act provides for the following exemption viz., MP Nos. 175 to 252/Bang/2018 Page 7 of 23 "Section 10: Incomes not included in total income.
In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included--
............................
(10AA) (i) any payment received by an employee of the Central Government or a State Government, as the cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement whether on superannuation or otherwise;
(ii) any payment of the nature referred to in sub-clause (i) received by an employee, other than an employee of the Central Government or a State Government, in respect of so much of the period of earned leave at his credit at the time of his retirement whether on superannuation or otherwise as does not exceed ten months, calculated on the basis of the average salary drawn by the employee during the period of ten months immediately preceding his retirement whether on superannuation or otherwise, subject to such limit as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to the limit applicable in this behalf to the employees of that Government:
5. It is not in dispute that the Specified Limit in the case of employee other than an employee of the Central Government or a State Government i.e., employee falling within clause (ii) of Sec.10AA is Rs. 3,00,000 in salary to employees who retire, whether on superannuation or otherwise, after 1.4.1998 vide Notification No. 123/2002 dated 31-5-2002.
6. As can be seen from the above provisions, if the employee to whom payment is made for unutilized leave period is an employee or Central or State Government then the entire payment so made is exempt and therefore an employee in such circumstances is not obliged to deduct tax at source on such payment. If, on the other hand, the person to whom such MP Nos. 175 to 252/Bang/2018 Page 8 of 23 payment is made is not a Central or State Government employee, then only Rs.3 lacs is exempt and the remaining sum is taxable and the employer has to deduct tax at source on payment in excess of Rs.3 lacs towards unutilized leave period.
7. Sec.10(10AA) does not define as to who is to be regarded as employee of Central or a State Government. The revenue's case is KPTCL is not State Government but a statutory corporation and therefore its employees cannot be regarded as employees of State Government.
8. KPTCL in the present group of cases did not deduct tax at source on payments made to its retirement employees towards unutilized leave period where such payment was made in excess of Rs.3 lacs. It is in this scenario that the Income Tax Authorities initiated proceedings against the Assessee u/s.201(1) & 201(1A) of the Act for treating KPTCL as an Assessee in default and also for levying interest on tax not paid to the credit of the Central Government for the period on which the tax deducted ought to have been remitted till such time they were actually remitted.
9. The plea of KPTCL was that its employees were employees of the State Government and therefore the entire payment to its employees towards unutilized leave period on retirement was exempt u/s.10(10AA)(i) of the Act. The revenue held that KPTCL was a statutory Corporation and therefore its employees were not employees of State Government and therefore KPTCL ought to have deducted tax at source on payment to employees towards unutilized leave period on retirement in excess of Rs.3 lacs which alone was exempt u/s.10(10AA)(ii) of the Act. In other words, the stand of the revenue was that the clause applicable for determining liability to deduct tax at source was Sec.10(10AA)(ii) and not Section 10(10AA)(i) of the Act.
MP Nos. 175 to 252/Bang/2018 Page 9 of 23
10. Both the AO and the CIT(A) rejected the plea of KPTCL and that is how KPTCL filed appeals before the Tribunal.
11. Before the Tribunal, the Five propositions were canvassed on behalf of KPTCL by the learned counsels for KPTCL challenging the orders of CIT(A) confirming the action of the AO in holding KPTCL to be an Assessee in default u/s.201(1) of the Act. They were:-
(i) Assumption of jurisdiction by the respondent in all these appeals is bad in law and hence the orders passed u/s.201(1) & 201(1A) of the Act are invalid.
(ii) The orders passed u/s.201(1) & 201(1A) of the Act are beyond the period of limitation and hence barred by time.
(iii) The payments in question for which KPTCL was treated as "Assessee in default" for not deducting tax at source were not in the nature of income within the meaning of Sec.17(1)(va) of the Act and therefore there was no obligation on the part of the Assessee to deduct tax at source;
(iv) The provisions of Sec.10(10AA)(i) of the Act are applicable in the case of the Assessee as the employees of KPTCL are to be regarded as employees of State Government;
(v) The provisions of Sec.201(1) & 201(1A) of the Act are not attracted in the present case because the non deduction of tax at source by KPTCL was under the bonafide belief that it was not obliged to deduct tax at source on payments in excess of Rs.3 lacs towards unutilized leave period as it believed that its employees were employees of State Government and therefore the applicable provisions will be only Sec.10(10AA)(i) of the Act.
12. The Tribunal heard the parties on proposition (iv) and (v) alone as there are decisions of ITAT Bangalore Bench on identical facts and identical issues. As far as proposition No. (iv) is concerned, the Tribunal noticed that the ITAT Bangalore Bench, in the case of Central Food MP Nos. 175 to 252/Bang/2018 Page 10 of 23 Technological Research Institute Vs. The ITO (TDS), Mysore, ITA No.1607 to 1611/Bang/2013 order dated 4.7.2014 has already taken a view on identical facts and circumstances of the case of the Assessee that employees of Statutory Corporations cannot be regarded as employees of the State or Central Government. In view of the aforesaid decision of the Tribunal, it was held that there was no merit in proposition No.(iv) canvassed by the parties before us.
13. The submission on behalf of the Assessee on proposition No.(v) was that u/s.192(1) of the Act the obligation of the employer is only to deduct tax on the estimated income of the Assessee under the head Salaries for that financial year. If the estimate is made bonafide and tax deducted on such bonafide estimate, then there can be no proceedings treating the person responsible for deducting tax at the time of payment, as "Assessee in default". The Assessee placed reliance on a decision of the ITAT Bangalore Bench in the case of Indian Institute of Science Vs. DCIT ITA No.1589/Bang/2014 for AY 2010-11 order dated 27.2.2015 on identical facts. In the aforesaid decision, the Tribunal took the view that the estimate of income under the head salary made by the Assessee on the belief that its employees were to be equated with State Government employees was a bonafide estimate and therefore the Assessee has discharged its obligation u/s.192 of the Act and hence proceedings u/s.201(1) & 201(1A) of the Act were to be quashed.
14. The Tribunal took note of the historical background under which KPTCL came into existence. The Tribunal noticed that prior to enactment of Electricity Act, 2003 (Central Act) supply of Electricity was governed by the Electricity (Supply) Act, 1948 (again a Central Act). As per Section 5(1) of the Electricity (Supply) Act, 1948, every State had to constitute a State Electricity Board (SEB) by notification in Official Gazette. Sec.12 of the MP Nos. 175 to 252/Bang/2018 Page 11 of 23 said Act stipulated that SEBs so constituted shall be a body corporate having perpetual succession and a common seal with power to acquire and hold property both movable and immovable and shall be capable of suing and be sued. That is how Mysore electricity Board came to be established on 1.10.1957 which was subsequently named as Karnataka State Electricity Board (KEB). Employees of State Government became employees of KEB.
15. In view of losses incurred by KEB, Government of Karnataka came out with general policy proposing fundamental and radical reforms in the power sector. Accordingly, Karnataka Electricity Reforms Act, 1999 (KERA) was enacted by the Karnataka State Legislature which advocated division of the functions of generation, transmission & Distribution of electricity and each function to be performed was entrusted to various statutory corporations. The function of generation of electricity was transferred to Visweshwaraiah Vidyuth Nigama Limited way back in 1970. By Section 14(3) of KERA, KPTCL was incorporated and the function of transmission and distribution of electricity was transferred to KPTCL. Subsequently the distribution function was given to four independent distribution companies in 2002 viz., BESCOM, MESCOM, HESCOM, GESCOM. Employees of KEB became employees of KPTCL.
16. The Tribunal took note of the fact that the Assessee after its inception till AY 2012-13 has been deducting TDS by considering its employees as employees of State Government in view of the historical background under which KPTCL came into existence. The revenue has accepted in the past the manner in which tax was deducted at source by KPTCL by considering the employees of KPTCL as employees of State Government. It was pointed out that it is only in AY 2012-13, that the revenue took the stand that employees of KPTCL were not to be regarded MP Nos. 175 to 252/Bang/2018 Page 12 of 23 as employees of State Government because employment under KPTCL cannot be equated with an office or post in connection with the affairs of such State. It was for the first time that the revenue took the stand that Statutory Corporations such as KPTCL were not to be regarded as State Government. It has also been contended that the Assessee has been filing return of TDS for AY 2013-14 in the status of Statutory body (State Govt.) in form No.27A.
17. The Tribunal also took note of the Tripartite Agreement dated 31.7.1999 under the provisions of Sub-Section 2 of Section 15 of the Karnataka Electricity Reform Ordinance, 1999 between the Government of Karnataka and KEB and KEB Employees Union, wherein on corporatization of the transmission and distribution business by forming KPTCL employees of erstwhile KEB expressed apprehension that their services will be privatized. KEB under the tripartite agreement allayed their fears and assured them that all that the employees will get as employees of KEB will continue to be available even after formation of KPTCL. The tribunal also took note of extent of control and protection that the employees of the restructured corporate entities of the erstwhile KEB were subject to or given by the State Government.
18. The Tribunal thereafter noticed that the issue of bonafide belief in the matter of estimating of income under the head "salaries" for the purpose of Secc.192 of the Act, was explained in a decision of ITAT Bangalore in the case of ACIT Vs. Infosys BPO Ltd. 150 ITD 132 (Bang) in the following manner:-
"26. It is no doubt true that TDS is to be made at the time of payment of salary and not on the basis of salary accrued. Sec.192(3) of the Act permits the employer to increase or reduce the amount of TDS for any excess or deficiency. We have already noticed that the fact that bills/evidence to substantiate MP Nos. 175 to 252/Bang/2018 Page 13 of 23 incurring of expenditure on medical treatment up to Rs.15,000/- and the availing of the LTC by the employees and the fulfilment of the conditions contemplated by Sec.10(5) of the Act for availing exemption by the employees so availing LTC, have not been disputed by the AO. Even assuming the case of the AO, that at the time of payment the Assessee ought to have deducted tax at source, is sustainable; the Assessee on a review of the taxes deducted during the earlier months of the previous year is entitled to give effect to the deductions permissible under proviso (iv) to Sec.17(2) or exemption u/s.10(5) of the Act in the later months of the previous year. What has to be seen is the taxes to be deducted on income under the head 'salaries' as on the last date of the previous year. The case of the AO is that LTC and Medical reimbursement should be paid at the time the expenditure is incurred or after the expenditure is incurred by way of reimbursement and not at an earlier point of time. If it is so paid, then, even though the payment would not form part of taxable salary of an employee, the employer has to deduct tax at source treating it as part of salary, is contrary to the provisions of Sec.192(3) of the Act and cannot be sustained. The reliance placed by the AO on the expression "actually incurred" found in Sec.10(5) of the Act and proviso (iv) to Sec.17(2) of the Act, in our view cannot be sustained. In any event, the interpretation of the word "actually paid" is not relevant while ascertaining the quantum of tax that has to be deducted at source u/s.192 of the Act. As far as the Assessee is concerned, his obligation is only to make an "estimate" of the income under the head "salaries" and such estimate has to be a bonafide estimate.
27. The primary liability of the payee to pay tax remains. Section 191 confirms this. In a situation of honest difference of opinion, it is not the deductor that is to be proceeded against but the payees of the sums. To reiterate, the payment towards medical expenditure and leave travel is made keeping in view the employee welfare. The exclusion in respect of payment towards medical expenditure and leave travel is considered after verifying the details and evidence furnished by the employees. No exemption is granted in the absence of details and/or evidence. The exemption in respect of medical expenditure is restricted to expenditure actually incurred by the employees, or Rs. 15,000/- whichever is lower. The exemption is granted even if the MP Nos. 175 to 252/Bang/2018 Page 14 of 23 payment precedes the incurrence of expenditure. The requirements/conditions of section 10(5) and proviso to section 17(2) are meticulously followed before extending the deduction/exemption to an employee. No tax can be recovered from the employer on account of short deduction of tax at source under section 192 if a bona fide estimate of salary taxable in the hands of the employee is made by the employer, is the ratio of the following decisions.
CIT vs. Nicholas Piramal India Ltd (2008) 299 ITR 0356 (BOMBAY);
CIT v. Semiconductor Complex Ltd [2007] 292 ITR 636 (P&H) CIT vs. HCL Info System Ltd. [2006] 282 ITR 263 (Del) CIT v Oil and Natural Gas Corporation Ltd [2002] 254 ITR 121 (Guj) ITO v Gujarat Narmada Valley Fertilizers Co. Ltd [2001] 247 ITR 305 (Guj) CIT v Nestle India Ltd (2000) 243 ITR 0435 (DEL) Gwalior Rayon Silk Co. Ltd. v. CIT [1983] 140 ITR 832 (MP) ITO v G. D. Goenka Public School (No. 2) [2008] 306 ITR (AT) 78 (Del) Usha Martin Industries Ltd. V. ACIT (2004) 086 TTJ 0574 (KOL) Nestle India Ltd. v. ACIT (1997) 61 ITD 444 (Del) Indian Airlines Ltd. v ACIT (1996) 59 ITD 353 (Mum)"
19. The Tribunal thereafter proceeded to hold as follows:-
"19. We have considered the rival submissions. In our view, the plea of the Assessee that it made a bona fide estimate of employee's salary by valuing the perquisites in the form of residential accommodation provided to the employees by valuing the same as if employees were employees of Central Govt. has to be accepted. In this regard, it is clear from the records that the position with regard to the assessee not being a Central govt. was brought to its notice by the department only in the proceedings initiated in 2013. Even thereafter, the Assessee has been taking a stand that its employees or employees of Central Govt. As held in several decision referred to by the ld.counsel for the Assessee, the obligation of the Assessee is only to make a bonafide estimate MP Nos. 175 to 252/Bang/2018 Page 15 of 23 of the salary. In our view, in the facts and circumstance of the present case, assessee has made such an estimate. The Assessee's obligation u/s.192 is therefore properly discharged and hence proceedings u/s.201(1) & 201(1A) of the Act have to be quashed and are hereby quashed."
20. The Tribunal, following the aforesaid decision, held that the circumstances explained by the learned counsel for KPTCL regarding the manner of formation of KPTCL and the action of the revenue in not questioning KPTCL's action in the past several years after its formation and the manner of exercise of control and affording protecting to employees of KPTCL by the State Government were definitely factors which weighed with KPTCL when it made estimate of its employees income under the head "Salaries" and concluded that there was every reason for the Assessee to think that its estimate of employee's income under the head "Salaries" was correct as the belief it entertained was that its employees were to be regarded as employees of State Government and that its employees are entitled to exemption of the entire sum of unutilized leave encashment u/s.10(10AA)(i) of the Act. The Tribunal accordingly quashed the orders u/s.201(1) & 201(1A) of the Act.
21. In these MPs., the grievance of the revenue is that the order of the Tribunal suffers from following mistakes apparent from record:-
21.1 In paragraph-17 of the MPs it has been alleged that the DR was not given opportunity to rebut the following arguments of the learned counsel for the Assessee, in paragraph-16 of the order of the Tribunal.
"It was argued that under clause (va) to Sec.17(1) of the Act it is only "any payment received by an employee in respect of any period of leave not availed of by him". It was submitted that on retirement the employer employee relationship between KPTCL and the retiring employee ceases and any payment made thereafter cannot be strictly termed as "Salary". Our attention MP Nos. 175 to 252/Bang/2018 Page 16 of 23 was drawn to Finance Act, 2018 which inserted Sec.56(2)(xi) w.e.f. 1.4.2018 to avoid a possible plea that may be taken in such cases by holding that any payment post retirement will also be chargeable to tax under income from other sources, if it is not chargeable under the head income from salaries."
We have considered the aforesaid allegation in the MPs and are of the view that the same is incorrect. The learned DR was heard on the arguments advanced by the learned counsel for the Assessee. If the learned DR does not choose to address arguments in rebuttal to the arguments of the learned counsel for the Assessee, it cannot be said that the Tribunal did not give opportunity to the revenue. In any event, the conclusions of the Tribunal are not based on the arguments of the learned counsel for the Assessee as we have explained in the earlier paragraphs 3 to 19 of this order. We therefore hold that there is no merit in the allegations contained in paragraph-17 of the MPs.
21.2 In Paragraph-18 of the MPs, it has been alleged that the learned DR was not allowed to argue on contention of the learned counsel for the Assessee regarding obligation of the payer of salary to deduct tax at source only on an estimate. There is a reference to a decision of the Hon'ble Karnataka High Court in the case of Patil Vijayakumar Vs. Union of India 151 ITR 48 (Karn.) in paragraph-18 of the MPs. The learned counsel for the Revenue even in the arguments advanced in these MPs could not point out the relevance of the aforesaid decision to the issue that was decided by the Tribunal, viz., whether the estimate made by the Assessee of the income under the head salaries of its employees was bonafide or not. We may also mention that the revenue's contention that the Assessee is not a state has been accepted by the Tribunal and the decision tribunal proceeded only on the basis that it was not a state and therefore the Assessee ought to have deducted tax at source on payment of leave salary MP Nos. 175 to 252/Bang/2018 Page 17 of 23 at the time of retirement was exempt only upto Rs.3 lacs and for payments above Rs.3 lacs, the Assessee was obliged to deduct tax at source.
21.3 In Paragraph-19 of the MPs it has been alleged that the contentions of the revenue regarding absence of bonafide belief by the Assessee at the time of estimation of salary income was not take note of by the Tribunal in its order. The contentions alleged to have been made in this regard are set out in paragraph-19 of the MPs. These contentions were made only in the context of the stand of the revenue that employees of the Assessee cannot be regarded as employees of State Government and therefore the leave salary on retirement was not fully exempt but was exempt only upto Rs.3 lacs. This argument, as we have already mentioned has been accepted by the Tribunal that the Assessee is not a State. Therefore there is no merit in the contention in paragraph-19 of the MPs. The contentions in rebuttal to the contentions of bonafide belief as contained in the written synopsis filed on behalf of the revenue has been extracted by the Tribunal in paragraph- 18 of its order and the same have been dealt with in paragraph-23 of its order.
21.4 In paragraph-20 of the MPs, it has been alleged by the revenue that the revenue had relied on the decision of the Hon'ble Supreme Court in the case of CIT Vs. Eli Lilly & Co.(India) Pvt.Ltd. (2009) 178 Taxman 505(SC) wherein the Hon'ble Supreme Court cancelled penalty u/s.271C of the Act for non-deduction of tax at source on the ground that the estimate of salary for the purpose of deduction of tax at source by the Assessee in that case was bonafide and therefore no penalty should be levied but nevertheless observed that the Assessee was liable to proceeded against u/s.201(1) & 201(1A) of the Act. It is the plea of the Assessee that by implication, the Hon'ble Supreme Court has held that bonafide belief for non-deduction of tax at source cannot be a defence to MP Nos. 175 to 252/Bang/2018 Page 18 of 23 an action u/s.201(1) & 201(1A) of the Act. We are of the view that the said decision was rendered in the context of Sec.271C penalty for failure to deduct tax at source. The defence to such an action was bonafide belief of the Assessee that it was not liable to deduct tax at source on home salary paid to expatriate employees outside India. The Hon'ble Supreme Court observed on the scope of Sec.201(1) & 201(1A) of the Act in para-34 of its judgment and only observed that liability u/s.201(1) is in the nature of vicarious liability. From these observations it cannot be inferred that the Hon'ble Supreme Court has held that in an action u/s.201(1) of the Act, the payer cannot plead bonafide estimate of income under the head salaries as a defence. On the other hand, the Tribunal in its order at paragraph 20 referred to several decisions wherein it has been held that estimate of income under the salary, if it is bonafide, then the payer cannot be treated as an "Assessee in default". We are therefore of the view that there is no merit in allegations in paragraph-24 of the MPs. Besides the above, there is also an allegation that the Learned DR was prevented from assisting the Hon'ble Bench by differentiating the cases relied by the Assessee on the contention of the Assessee that it was a state. As we have already said, the Tribunal has already accepted the contention of the revenue that the Assessee is not a State. The allegations in paragraph-24 that the learned DR was prevented from arguing is, therefore, not correct for the reason the argument was accepted by the Tribunal.
21.5 In paragraph-25 of the MPs it has been contended that decisions cited by the learned DR were referred to in the order of the Tribunal but was dealt with by way of passing remark. The allegations are not true. In paragraph-23 & 24, the Tribunal has held that the decisions cited by learned DR were not relevant. It is not open for a party to content in a MP u/s.254(2) of the Act, that the Tribunal ought to have dealt with or written the order in a particular manner. The further allegations in MP Nos. 175 to 252/Bang/2018 Page 19 of 23 paragraph-26 of the MPs that failure to consider a decision cited by the parties gives rise to a mistake apparent on the face of the record, therefore does not require any further elaboration.
22. Now we shall deal with the specific arguments made by the learned counsel for the Revenue before us in these miscellaneous petitions. The learned standing counsel for the Department submitted that the Tribunal erred in concluding that the estimate made by the Assessee of income of its employees under the head salaries was bonafide. According to him, the employees of the Assessee were not employees of State and therefore the leave encashment salary was exempt only upto Rs.3 lacs. To the extent of payment of leave encashment above Rs.3 lacs by the Assessee to its employees the same was not exempt and ought to have been considered while estimating income of the Assessee. In this regard, he drew our attention to a decision of the Hon'ble Karnataka High Court in the case of Karnataka Electricity Board ILR 2006 KAR 3384 = 2007(1) Kar LJ 147, wherein the question was whether the benefit of free power can be denied to the future employees KPTCL when such benefit was available to erstwhile employees of KEB who became employees of Statutory corporation KPTCL by law passed by State Legislature. The contention was that there was discrimination between employees who continued in service in the erstwhile KEB and those who would become employees of KPTCL in future. The Hon'ble Court held that there was no such discrimination as the two set of employees formed a distinct class and therefore could be treated differently and that there was no violation of Article 14 of the Constitution. It is the contention of the learned standing counsel that in the light of this decision rendered as early as 26.7.2006 in the case relating to the Assessee would show that the Assessee must be having sufficient knowledge that its employees cannot be equated with employees of State Government and therefore the plea of bonafide belief MP Nos. 175 to 252/Bang/2018 Page 20 of 23 while estimating income of employee ought not to have been accepted by the Tribunal.
23. We are unable to accept the contention of the learned DR for the reason that, firstly in the MP u/s.254(2) of the Act, it is not open to the parties to advance new arguments that were not addressed when the appeal was originally heard. The power of the Tribunal u/s. 254(2) of the Act is only to rectify mistakes apparent on the face of the record. The Tribunal does not have power to review its own orders. Secondly, the decision cited by the learned counsel for the Assessee shows that the benefit of free supply of power was given to erstwhile employees of KEB who became employees of KPTCL on its creation. Therefore, they were also considered as eligible for all benefits that employee of the State enjoyed and that such concession was withdrawn only for future employees of KPTCL. Therefore, the belief of the Assessee that its employees were to be regarded as employees of State cannot be said to be not bonafide, at least to the extent of erstwhile employees of KEB. Thirdly, the decision was rendered in the context of discrimination under Article 14 of the Constitution and cannot be applied to a case where bonafide belief is used as defence to an action to proceedings u/s.201(1) & 201(1A) of the Act. Such defence deserves to be looked at from different perspective. The liability of the employees for payment of taxes is primary liability and the liability of KPTCL is only vicarious liability and recovery of taxes through Tax deduction at source is only a mode of collection of taxes. The revenue always has the option and the right to collect taxes from employees concerned. In that view of the matter, the argument advanced in this regard is held to be not acceptable.
MP Nos. 175 to 252/Bang/2018 Page 21 of 23
24. The next contention of the learned standing counsel for the Department was that there was no basis for formation of such bonafide belief by KPTCL, especially in the light of the decision of the Hon'ble Karnataka High Court referred to in paragraph-21 of this order. He relied on decisions of the Hon'ble Supreme Court in the case of ITO Vs. TechSpan India (P) Ltd. (2018) 92 taxmann.com 361 (SC) and DGIT(Inv.) Vs. Spacewood Furnishers (P) Ltd. 374 ITR 595(SC).
25. In the first decision, the question arose in the context of validity of initiation of proceedings u/s.147 of the Act and the Court had to examine as to whether the reassessment proceedings u/s.147 of the Act. The Hon'ble Court held that for challenging the validity of initiation of reassessment proceeding on change of opinion, it has to be verified whether in the assessment made earlier there was expression opinion either expressly or by implication. According to him, in the present case the Assessee has set out the basis on which they formed belief that its employees were to be regarded as employees of State.
26. In the second decision, the question arose in the context of recording of satisfaction before issue of warrant of authorization u/s.132 of the Act for search and seizure proceedings. The Hon'ble Court observed that there must be application of mind to the material and thereafter bonafide and honest opinion has to be formed. According to him in the present case, the Assessee did not have any material based on which he formed bonafide belief that its employees are employees of State.
27. We have considered the above submission and are of the view that the same is without any merit. The above are cases where challenge to the action by authorities who were vested with power to take particular action invading the right of privacy or for initiating proceedings for levy of tax. It may not be appropriate to read the observations of the Hon'ble MP Nos. 175 to 252/Bang/2018 Page 22 of 23 Court in the context of the present case. The obligation of the Assessee u/s.192 is only to make bonafide estimate of income of his employee under the head salaries. Such obligation cannot be tested on the parameters laid down on exercise of power by authorities under the Act exercising powers u/s.132 or u/s.147 of the Act. Apart from the above, we have already set out the circumstances under which belief was formed by the Assessee while deducting tax at source on salary paid to its employees. The correctness of such conclusion cannot be reviewed u/s.254(2) of the Act.
28. The power of the Tribunal under section 254(2) is confined to rectifying any mistake apparent from the record. The Tribunal does not have inherent power of rectification or review or revision. Unless there is mistake apparent from the record in the sense of patent, obvious, clear error or mistake, the Tribunal cannot recall its previous order. If the error or mistake is one which could be established only by long-drawn arguments or by way of process of investigation and research, it is not a mistake apparent from the record. Unless there is manifest errors which are obvious, clear and self-evident, the Tribunal cannot recall its previous order in an attempt to rewrite the same. Failure of the Tribunal to consider an argument advanced by either party for arriving at a conclusion is not an error apparent on the record, although it may be an error of judgment. The Tribunal cannot in exercise of its power of rectification look into some other circumstances which would support or not support its conclusion. The Tribunal cannot redecide the matter and it has no power to review its order. A decision on debatable point of law is not a mistake apparent from the record.
MP Nos. 175 to 252/Bang/2018 Page 23 of 23
29. For the reasons given above, we find no merit in these MPs and accordingly the same are dismissed.
Pronounced in the open court on this 04th day of January, 2019.
Sd/- Sd/-
( JASON P. BOAZ ) ( N.V. VASUDEVAN)
Accountant Member VICE PRESIDENT
Bangalore,
Dated, the 04th January, 2019.
/ Desai Smurthy /
Copy to:
1. The Applicant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR, ITAT, Bangalore.
6. Guard file
By order
Assistant Registrar,
ITAT, Bangalore.