Income Tax Appellate Tribunal - Mumbai
Su-Raj Diamonds (India) Ltd. vs Income Tax Officer on 29 October, 2001
Equivalent citations: [2002]81ITD212(MUM)
JUDGMENT
S.V. Mehrotra, AM.
1. These appeals by the assessee are directed against the orders of the CIT (A)-XIX, Mumbai, both dt, 16th Feb., 1999, and pertain to the asst. yrs. 1995-96 and 1996-97.
2. The common grounds taken in these appeals are as under :
"1. On the facts and under the circumstances of the case and in law the learned C1T(A) erred in upholding the action of the ITO in treating the appellant as an assessee in default for short-deduction of tax deducted at source of Rs. 67,700 and Rs. 2,03,391 (for asst. yrs. 1995-96 and 1996-97) from salary under Section 201(1) r/w Section 192(1) on the ground that the interest on interest-free loans, foreign tour allowance to employees and value of provision of car to managing director for business purchase (sic-purpose) were includible in salary for the purpose of tax deduction at source under Section 192(1).
2. On the facts and under the circumstances of the case and in law the learned CIT(A) erred in not deleting the interest charged of Rs. 28,344 under Section 201(1 A). The appellant denies its liability to pay any such interest."
3. While processing the annual salary return in respect of tax deduction, action under Section 133A was initiated and the statements of managing director, Shri Atul Petho, company secretary Shri Shivprakash Singh and accountant Shri Hemant Bhoir, who looked after the salary and TDS matters of the company were recorded. The AO called for complete details of various payments made to directors and employees and supporting evidence justifying the same. From all the details the AO noticed the following facts :
1. The assessee-company provided interest-free loans to its employees;
2. The assessee-company had reimbursed travelling expenses to some of its employees on foreign travel. He has also pointed out that the assessee was not able to prove that these expenses were incurred on official duties;
3. The assessee-company was not considering the company car with driver provided to M.D. as perquisite to compute his salary for TDS purposes.
The AO considered the assessee's plea that it had not included interest-free loans to employees in view of the decision of the Karnataka High Court in CFT v. U.K. Vaidya (1995) 224 ITR 186 (Kar) and after taking into consideration the decision of Madras High Court in Addl CIT v. Late A.K. Lakshmi & Ors. (1978) 113 ITR 368 (Mad) treated the assessee in default in respect of the short-deduction of tax at source under Section 201(1). In regard to foreign tour expenses, the assessee's plea was that the assessee-company had paid actual hotel expenses incurred by the company's employees, directors and consultants and customers in respect of foreign travelling. The hotel expenses had been incurred wholly for the purposes of business. The assessee-company placed reliance on r. 2BB and submitted that these expenses are exempt to the extent that they were actually incurred. The AO observed that the assessee was not able to substantiate its claim that the allowance paid to its employees on foreign tours were, wholly, necessarily and exclusively for official purposes. The company secretary and accountant had stated during the survey proceedings that the assessee-company did not necessitate the production of evidence of actual expenditure from its employees for payment of such allowances. The AO examined the audit report and found that the amounts stated in column, 'Foreign currency' were in round figures. From this, he concluded that the allowance paid had no bearing on the actual expenses incurred by the assessee on foreign tour. Thus, he concluded that the assessee-company did not have any check nor insurance to ascertain that the expenses were wholly and necessarily incurred in the performance of the duties of the office and held that the allowance paid to the respective employees as part of their salary income and deemed the assessee to be the assessee in default under Section 201(1). In regard to the third item viz., company car provided to the managing director, he observed that the same was to be added to his salary income and, therefore, there was short-deduction to this extent also. The AO considering the provisions of Section 192(1) and Section 201(1) came to the conclusion that the employer failed to make fair, reasonable and honest estimate of salary income of the respective employees and, therefore, had not deducted due taxes from the salary of employees. He assessed short-deduction of tax amounting to Rs. 67,700 in the asst. yr. 1995-96 underSection 201(1) and also imposed interest under Section 201(1 A) of Rs. 28,344. In respect of asst. yr. 1996-97 a short-deduction of tax under Section 201(1) was computed at Rs- 23,391 and interest under Section 201 (1A) was computed at Rs. 52,122.
4. The learned C1T{A) dismissed the assessee's appeal inter alia, observing that the AO was justified in treating all the items as part of salary.
5. The learned counsel for the assessee submitted that it is not a case of no deduction of tax but short-deduction. He referred to Sub-section (1) of Section 192 and pointed that the assessee has to deduct the tax on the estimated income of the assessee under the head 'salary'. He also referred to Section 201(1) wherein the words used are 'does not deduct' whole or any part of the tax, and pointed out that when read with Section 192, it will be clear that the tax is to be deducted on estimated income of the assessee. He submitted that the estimate of the assessee-company was bona fide. The learned counsel for the assessee referred to notes on clauses to the amendment brought out in Section 201(1) contained at (2001) 248 ITR 71 (St) and also in (2001) 248 ITR 146 (St) Clause 68, also to (2001) 248 ITR 191 (St) which is the explanatory statement for introduction of amendment to Section 201 with retrospective effect, adding the words 'the whole or any part of the tax' and pointed out that this amendment does not suggest that the bona fide estimates of the income of the employees made by the assessee would be covered under this head- This is evident from Section 192 itself, wherein the word 'Estimate' is still there. The learned counsel for the assessee submitted that four employees in 1995-96, 5 employees in 1996-97 were granted interest-free loan. He also referred to the decision of the Hon'ble Andhra Pradesh High Court delivered on 21st April, 1998 in P.V. Rajagopal v. Union of India & Ors. (1998) 233 ITR 678 (AP), wherein the interest subsidy was not considered as perquisite on interest-free loans. He submitted that in the decision of the Hon'ble Calcutta High Court in CFT v. P.R.S. Obeioi (1990) 183 ITR 103 (Cal) delivered on 18th Sept., 1989 and was available to assessee at the time of making TDS, it was held that this interest was not a benefit or perquisite in the hands of the employee. In regard to foreign travel expenses, the learned counsel for the assessee submitted that the assessee was engaged in the business of export, so employees were sent to foreign countries. He also referred to the order of the CIT(A) for the asst. yr. 1996-97 that it was in the case of the assessee that the claims were accepted. The AO mainly relied on the tax audit report in this regard. In regard to car provided to managing director with driver was purely for official duties. He pointed out that in this regard the company had permission of the Central Government also and, therefore, at the-time of deduction of tax the company was under bona fide' belief that no tax was required to be deducted.
6. The learned Departmental Representative in regard to interest free loans to employees submitted that as there were conflicting decisions of the High Courts there could not be any bona fide belief with the assessee for not deducting the tax. In regard to foreign travel the learned Departmental Representative submitted that the assessee had not discharged the burden of foreign allowance being for business purposes. In regard to car provided to managing director, the learned Departmental Representative relied on the order of the AO- The learned counsel for the assessee in the rejoinder submitted that there was no disallowance in the company's assessment on foreign tour expenses.
7. We have considered the rival submissions and have perused the records of the case. By Clause 68 of the Finance Bill, 2001 [248 ITR p. 71 (St)]. an amendment has been brought into in Section 201 with retrospective effect by adding the words 'whole or any part of the tax' after the words 'does not deduct'. Similarly, in Sub-section (1A) in Section 201, similar amendment has been brought with retrospective effect. As per the notice to Clause 68 to the Finance Bill, 2001, it is clarified as under at (2001) 248 ITR 145 (St):
"It is proposed to clarify that provisions of ss. 201(1) and (1A) shall apply whether such person or such principal officer or such company fails to deduct the whole or any part of the tax."
In the memorandum explaining the provisions in the Finance Bill, 2001 [(2001) 248 JTR 191 (St)}, it is pointed out as under:
"The Bill seeks to clarify that the provisions of Sub-sections (1) and (1A) shall apply whether such person fails to deduct the whole or any part of the tax."
Thus, the object of amendment is to levy interest on specified persons if they fail to deduct either whole or any part of tax. The deduction of tax is to be with reference to provisions of Section 192 of the IT Act, 1961.
8. Section 192 requires the assessee to deduct tax with reference to the estimated income of the assessee. When there is any shortfall in the deduction of tax, then only Section 201(1) will come into play. Amendment to Section 201 and Section 201(1A) could not enlarge the scope of charging Section 192. The word 'estimate' is still there in Section 192 even after the amendment of Sections 201 and 201(1A). If the assessee made bona fide estimate of the income of its employees and excluded certain items from the purview of deduction of tax, then Section 201 cannot be invoked for treating the assessee in default, However, it is to be seen whether the assessee had made an honest and bona fide estimate of the income of its employees.
9. The word 'estimate' implies 'to form an approximate opinion', an opinion formed on the basis of imperfect or incomplete data. It is a calculation not professedly exact, But, in any case, it should be a carefully weighed judgment. The estimate should in any case be based on bona Me belief which implies accepting of something as true or actual acting in good faith. It is primarily a factual finding.
10. In regard to interest-free loans to employees the AO has mentioned in his order that there were conflicting judgments of Karnataka High Court and Madras High Court. The assessee had placed reliance on the Hon'ble Karnataka High Court for not deducting the tax which was passed on 11th June, 1992, The AO had placed reliance on the decision of the Hon'ble Madras High Court which was delivered on 24th Oct., 1977. Thus, the assessee relied on later judgment for not treating the interest amount as perquisite. This cannot be treated as unreasonable action on the part of the assessee. In regard to foreign travel expenses, the assessee's case from the very beginning was that the allowance were granted for business purposes. It is not disputed by the Department that in the company's assessment these expenses have been allowed as business expenditure. Merely because in the foreign currency the transaction was mentioned in the tax audit report in round figure, it cannot be concluded that these were not granted for business purposes. Under these circumstances, non-inclusion of allowances as part of perquisite was fully justified. In regard to third item viz., company car given to managing director, it is pointed out by the AO that the company car with driver was provided to the managing director for official and personal use, whereas the learned counsel for the assessee has pointed out that permission of the Central Government was granted in respect of this car. This permission is not before us. Therefore, it is not clear whether personal use of the car was contemplated in the said permission or not. If the personal use was contemplated then there is no justification for not including the same as benefit or perquisite in the salary of managing director. Therefore, we hold that the AO while giving effect to this order, examine the permission of the Central Government to the company and in case personal use of the car is contemplated in the said permission, treat the assessee in default to the extent the amount is not included for tax deducted at source.
11. The interest under Section 201(1 A) of the Act is consequential.
12. In the result, the appeals are partly allowed.