Income Tax Appellate Tribunal - Delhi
Joint Cit, Special Range-30 vs Pramod Bhasin on 20 January, 2006
Equivalent citations: [2006]8SOT72(DELHI)
ORDER
H.L. Karwa, Judicial Member.
This is an appeal by the revenue and is directed against the order of Commissioner (Appeals)-XXV, New Delhi dated 10-2-2000 relating to assessment year 1996-97. The only effective ground raised by the revenue in this appeal reads as under :
"On the facts and circumstances of the case and in law, the learned Commissioner (Appeals) erred in deleting the addition made by the assessing officer as perquisite; on account of expenses on Pension Plan (Rs. 99,382) paid by the employer on behalf of the employee."
2. Briefly stated, the facts of the case are that the assessee is a foreign national working as Managing Director of GE Capital Services India. The assessee filed the return of his income on 28-6- 1996 declaring total income of Rs. 1,70,14,850 comprising of income from salary of Rs. 1,71,39,570, income from capital gains of Rs. 1,24,720 and income from other sources of Rs. 15,241. During the assessment proceedings, the assessing officer required the assessee to show cause why the contribution of employer to pension fund, insurance fund and other schemes should not be taxed as perquisites under section 17(2) of the Act. The assessee vide letter dated 22-12-1998 filed a detailed reply. In this regard, the assessee submitted that GE Capital, as a policy contributes to GE Expatriate Pension Plan which is in the nature of a social security plan. An employee, who has continuously served for more than 5 years, becomes eligible to the benefit of pension fund contribution made by GE. It was also submitted that the pension is receivable only after the retirement subject to vesting in the plan. The contribution to these funds has been claimed as exempt from taxation. The assessing officer did not find any merit in the above submissions of the assessee and took the view that the contribution made by the employer towards pension plan is a perquisite under section 17(2)(v) of the Act. The assessing officer has relied on the decision of Patna High Court in the case of CIT v. J.G. Keshwani (1993) 202 ITR 391, where premium paid to buy the deferred annuity policy was held to be the part of the salary income. The assessing officer has further held that the contribution of the employer to the pension fund and insurance plan are payments made to un-recognized funds "since based outside India" and is essentially a payment to effect a contract for an annuity for the employee. He further held that the payment to insurance plan is essentially to effect an assurance on the life of the assessee and the same is covered under section 17(2)(v) of the Act. According to the assessing officer, as the group insurance plan is not approved by the Central Government under section 36(1)(ib), no exemption referred to in clause (iii) of proviso to section 17(2) will be available and the payments will be covered as perquisite under section 17(2)(v) of the Act.
3. Aggrieved by the order of assessing officer, the assessee carried the matter in appeal before the Commissioner (Appeals). Before the Commissioner (Appeals), it was argued on behalf of the assessee that section 15 of the Act provides that salary is taxable on due or receipt basis, whichever is earlier and the same is the charging section for determining taxability under the head "Salary". It was also submitted by the assessee that in order to attract liability under section 15 of the Act, the employee should have some vested interest in the amounts paid by the employer. Mere contingency of getting some benefit from the payments made by the employer would not justify if being taxed under this provision. Accordingly, it was submitted by the assessee before the Commissioner (Appeals) that the benefit in money for which the pension is being made liable to tax, should be vested in the person, who is being charged under this section. It was also submitted that a reading of section 17(2) of the Act in conjunction with section 15 of the Act makes it clear that a benefit may be termed a "perquisite" only if, a right is conferred on the employee to receive the same from the employer. In short, the contingent payments (to which the employee has no right till the occurrence of the contingency) cannot be termed as "perquisite" under the Act. Reliance was placed on the judgment of Honble Supreme Court in the case of CIT v. L.W. Russel (1964) 53 ITR 91.
4. It was also submitted by the assessee before the Commissioner (Appeals) that the provisions of sections 15 and 17 of the Act when read together do not in any way detract from the fact that deferred/contingent benefits (to the extent not due) are not liable to be charged under the head "Income from salary". It was specifically argued by the assessee before the Commissioner (Appeals) that the provisions of section 17(2)(v) of the Act seek to tax any sum paid in order to effect a contract for "annuity" on the assessee. The assessee also submitted before the Commissioner (Appeals) that a reading of section 17(2) alongwith section 15 would make it clear that in order that a benefit or payment may be termed as perquisite, a right is conferred on an employee in respect of that perquisite to receive it from his employer. One cannot be said to allow a perquisite to an employee if the employee has no right to the same. It was specifically pleaded before the Commissioner (Appeals) by the assessee that it cannot apply to contingent payment to which the assessee has no right till the contingency occurs. Thus, the employee must have a vested right therein.
5. The assessee also submitted before the Commissioner (Appeals) that the reliance placed by the assessing officer on the judgment of Honble Patna High Court is misplaced as the facts of the case were entirely different. It was submitted by the assessee before the Commissioner (Appeals) that as per the pension plan of GR, an employee becomes eligible for the pension plan only upon a completion of 5 years with the organization. Thus, the benefit is contingent in nature and a benefit, which is dependent on occurrence of a contingency, cannot be taxed.
6. After considering the assessees submissions, the learned Commissioner (Appeals) vide para 5.5 of the impugned order held that the assessing officer was not justified in adding an amount of Rs. 99,382 as employers contribution to pension plan as perquisite in the hands of the assessee under section 17(2)(v) of the Act and he accordingly deleted the same. The learned Commissioner (Appeals) observed that in the instant case, since the pension funds have been established outside India, the same could not be considered as a recognized or approved fund for the purpose of Income Tax Act. According to him, the contributions thus made by the employer would be regarded as contribution to unrecognized or non-approved fund in the Indian tax laws. He further observed that in the case of contribution to unrecognized provident fund, the employees contribution is taxable in the hands of employee concerned on the receipt basis in accordance with the provisions of clause (ii) of sub-section (3) of section 17 of the Act. He further observed that the assessee does not get vested right at the time of contribution to the fund by the employer. The amount standing to the credit of the pension fund account would continue to remain invested till the assessee becomes entitled to receive the same. According to him, the amount will become taxable only at the time when the assessee is conferred with the vesting right to receive the same under the pension plan. The learned Commissioner (Appeals) has also relied on the decision of Honble Supreme Court in the case of L. W. Russel (supra) wherein the Honble Supreme Court held that one cannot be said to allow a perquisite to an employee if the employee has no right to the same. It cannot apply to contingent payments to which the employee has no right till the contingency occurs. The employee must have a vested right therein. The Commissioner (Appeals) has also relied on the decision of the Honble Delhi High Court in the case of CIT v. Mehar Singh Sampuran Singh Chawla (1973) 90 ITR 219 (Del) wherein it has been held that the contribution made by the employee towards a fund established for the welfare of the employees would not be deemed to be a perquisite in the hands of the employees concerned as they do not acquire a vested right in the sum contributed by the employer. The learned Commissioner (Appeals) has also held that the reliance placed by the assessing officer on the judgment of the Patna High Court in the case of J.G. Keshwani (supra) is misplaced as the facts of that case were entirely different. He observed that in the Patna High Court case, the assessee was holding the employment as the director of the company and in terms of the compensation package, he was entitled to receive commission as a percentage of the net profits computed in the manner laid down under the Companys Act subject to a maximum ceiling. Subsequently, the terms of the appointment of the assessee were varied and the company instead of paying commission decided to purchase deferred policies from the Life Insurance Corporation on the life of assessee as per the annuity plan, the annuity payment would commence from the date of retirement. The assessing officer had held that the arrangement was merely a change in the mode of payment of the commission to the assessee. According to Commissioner (Appeals), the Honble High Court observed that the amount contributed towards annuity plan had already accrued to the assessee in the year under consideration. It was merely that instead of paying the amount as commission, the same was contributed by the company for acquiring the annuity plan for the employee. The Commissioner (Appeals) observed that "The Honble Court, it appears, was guided by the fact that the sum contributed by the company towards annuity plan was already due to the employee concerned and merely, a changed method of payment was being introduced through the annuity. It was a colourable device adopted at the instance of the assessee, who is deemed to have derived a vested interest in the amount so contributed by the company". The Commissioner (Appeals) also observed that the assessee has in the present case no vested interest in the amount and, therefore, the judgment of Honble Supreme Court in L.W. Russels case (supra) will still be applicable.
In view of the above, the learned Commissioner (Appeals) deleted the addition of Rs. 99,382.
7. Before us, Shri Ram Mohan Singh, the learned Department Representative strongly supported the order of the assessing officer. He further relied on the decision of Honble Patna High Court in the case of CIT v. J.G. Keshivani ( 1993) 202 ITR 391.
8. Shri V.S. Rastogi, while appearing for the assessee reiterated the submissions made before the lower authorities. He further relied on the following decisions :
1. CIT v. L.W. Russel (1964) 53 ITR 91 (SC);
2. CIT v. Lala Shri Dhar (1972) 84 ITR 192 (Delhi);
3. CIT v. G. Hyatt (1971) 80 ITR 177 (SC);
4. Gallotti Raoul v. Assistant Commissioner (1997) 61 ITD 453 (Mum.);
5. Yoshio Kubo v. Dy. CIT (IT Appeal No. 1551 (Delhi) of 2001 for assessment year 1998-99, order dated 30-4-2003);
6. CIT v. J.N. Vas (1999) 240 ITR 101 (Mum.);
7. Assistant Commissioner v. Dr. Jan Nuyten (2000) 112 Taxman 238 (Cal.) (Mag.);
8. Jt. CIT v. Thomas William Raffel (IT Appeal No. 2374 (Delhi) of 2002, for assessment year 1996-97, order dated April, 2005);
9. Jt. CIT v. Anil Kumar Misra (IT Appeal No. 2378 (Delhi) of 2000, for assessment year 1996-97 order dated 3-6-2005).
9. We have considered the rival submissions and have also carefully gone through the material available on record. In this case, the assessee vide letter dated 22-12-1998, addressed to the assessing officer, explained the precise nature of the contribution to the GE Expatriate Pension Plan (GEPP) as under :
"GEPP is in the nature of Social Security Plan. The employer contributes to the plan to provide for target pension to the employee after his retirement. The employee benefit changes according to the increase in salary, service years and age. if any employee leaves the organization before he becomes entitled to the pension, then the contributions made by the employer on his behalf are forfeited unless the employee has been vested in the plan and then these contributions accrue to the benefit of the existing employees. In order to become vested in the plan, the employee must complete 5 years of continuous service within the GE System (means GE, its affiliates and/or correspondent companies) including at least one year of expatriate service.
As per the terms of the plan, the employee is entitled to receive the benefit from the plan only after the retirement subject to vesting in the plan as stated above. Normal retirement age is 65. If employee retires earlier and he fulfils certain other conditions, he would be entitled to receive pension but at a reduced amount. This reduced amount is again dependent on the age when he retires. Further, the employee also has the option to take retirement and draw retirement benefits as late as at the age of 70 which is termed as late retirement. The amount receivable at the time of retirement is also not certain as it changes according to the increase in salaries, increase in number of service years and also increase in age at which the assessee attains retirement. In case an employee becomes totally and permanently disabled before he attains the age of 60 while working as an expatriate, he can elect for disability retirement after he reaches the age of 60 but before the age of 65. In case of death of an employee, beneficiaries get the benefit out of the plan.
It may be appreciated that the contributions made by the employer to GEPP do not vest in the employee and he does not have any right in the contribution made by the employer at the point of time when the contribution is made."
10. The learned counsel for the assessee submitted that the normal retirement age is 65 years and that there are only certain exceptional circumstances, as indicated in para captioned "Earlier Retirement" in GEPP document. When an employee can receive the pension earlier even then the age can never be below 55 years. He has also brought to our notice that there is no question of a person receiving his pension under GEPP before he retires from the company. According to him, the question of "vesting" is really significant only for those, who leave the services of the company, because in their case, they would be entitled to pension under the scheme only if they have completed 5 years of service in the company. He also submitted that the assessing officer is not correct when he says that "the contribution to the pension fund is essentially a payment to effect a contract for an annuity for the employee". According to the learned counsel for the assessee, in the instant case, the employee has no right to receive the payments after 5 years of service. He further pointed out that pension as calculated in accordance with the provisions of GEPP would become payable to the assessee only when he retires. Section 15 of the Income Tax Act reads as under :
"15. The following income shall be chargeable to income-tax under the head Salaries
(a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not;
(b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him;
(c) Any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income tax for any previous year."
Section 17(2)(v) of the Income Tax Act provides as under :
"For the purposes of sections 15 and 16 and of this section (1) :
(2) perquisite includes
(i) to (iv)**
(v) any sum payable by the employer, whether directly or through a fund, other than a recognized provident fund or an approved superannuation fund or a Deposit-linked Insurance Fund established under section 3G of the Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948 (46 of 1948), or, as the case may be, section 6C of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952), to effect, an assurance on the life of the assessee or to effect a contract for an annuity."
Section 15 provides that salary is taxable on due or receipt basis, whichever is earlier and the same is the charging section for determining taxability under the head "Salary". In our view, the perquisite paid or payable may be in cash or kind or in money or moneys worth. Section 17(2) of the Act gives an inclusive definition of perquisite a reading of section 17(2) along with section 15 would make it clear in order that a benefit may be termed as a "perquisite" only if a right is conferred on an employee in respect of that perquisite to receive it from his employer. One cannot be said to allow a perquisite to an employee if the employee has no right to the same. In our opinion, it cannot apply to contingent payment to which the employee has no right till the contingency occurs.
11. In the case of Yoshio Kubo (supra), the issue before the Tribunal was that the assessing officer taxed the employers contribution to pension fund as "perquisite" in the hands of assessee under section 17(2) of the Income Tax Act and the Commissioner (Appeals) confirmed the same. The ITAT Delhi Bench A relying on the decision of the Honble Supreme Court in the case of L.W. Russel (supra) held as under :
"4.5 We have considered the rival submissions and perused the record carefully and also gone through the case law referred to by the learned counsel for the assessee and have also gone through the order of the assessing officer which is a detailed one. So far as welfare pension scheme is concerned, the assessing officer as discussed in detail on the material furnished by the learned counsel for the assessee before him. Admittedly, the assessee or any other employee who is registered with the pension fund authority can get the benefit of the scheme only after attaining the age of 65 years and after putting in 25 years of service. The other contingencies are also there but broad feature which is not in dispute is that benefit of the scheme will accrue to the assessee or any other employee upon attaining the age of 65 years. The view of the Honble Supreme Court in the case of CIT v. L.W. Russel (supra) is quite specific. Their Lordships have concluded that assessee is having only contingent interest in the pension scheme for employee and the same will be available after completing the service tenure and upon attaining the age of superannuation and until and employee attains the age of superannuation he does not acquire any vested right in the employers share of contribution towards the premium. Their Lordships further concluded that at best he was having a contingent right therein and the same will not be taxable. The learned DR was not able to point out as to what is the material difference in between section 7(1) of Income Tax Act, 1922 and the provisions of sections 15 to 17 of Income Tax Act, 1961 on this point. Fact remains that assessee was not going to get any benefit under the welfare pension scheme till he attains the age of 65 years or in the case of death. Both these eventualities alone will be making assessee or his survivors as the case may be, entitled to get the benefit. Before these eventualities the assessee is not getting any vested right and the assessee/ employee at the most have contingent right and in the absence of any vested right to receive the amount, the same cannot be made taxable under section 17(2)(v) of the Act. The view taken by the assessing officer and the Commissioner (Appeals) is contrary to the view of the Honble Supreme Court referred to above and thus not sustainable. It is concluded that amount of employers contribution towards welfare pension scheme was not perquisite under section 17(2)(v) of the Act."
12. In the case of Thomas William Raffel (supra), ITAT Delhi Bench A held that the amount of employers contribution made to the pension fund cannot be considered as a perquisite under section 17(2)(v) of the Act for the year under consideration.
13. In the case of Anil Kumar Misra (supra), ITAT, Delhi Bench A held that the amount of employers contribution made to the pension fund cannot be considered as a "perquisite" under section 17(2)(v) of the Act for the year under consideration.
14. At this stage, we may state here that the learned Commissioner (Appeals) was fully justified in holding that the decision of Honble Patna High Court in J.G. Keshwanis case (supra) relied on by the assessing officer is not applicable to the facts of the present case. In the said case, the assessee was the executive director of company. The assessee in addition to his monthly payment was also entitled to receive a commission @ 0.2 per cent of the profits of the company. Subsequently, it was agreed that in lieu of the commission, the company would contribute every year towards purchase of deferred annuity policy from the LIC on his life. During the previous year pertaining to each of the assessment years 1972-73, 1973-74, 1974-75 and 1975-76, the company had spent Rs. 20,000 in purchasing deferred annuity policies from the LIC. In the said case, the terms of remuneration of the assessee in regard to payment to commission were varied, ostensibly with a view to defer payment of tax. In that case, therefore, the court took the view that the purchase of annuity was covered by the provisions of section 17(2)(v) of the Act. In the instant case, it is clear that no sum was paid or payable by the employer to effect an assurance on the life of the assessee or to effect a contract of annuity. We, therefore, are of the opinion that section 17(2)(v) can have no application whatsoever to the facts of the case. As we have already stated hereinabove that the benefit is contingent in nature depending upon fulfilment of certain conditions. We may also observe here that nothing is due to the assessee at the time of contributions are made. There is no vesting of right at the time of contribution and the benefit, if at all, is deferred to the happening of the contingency in future. In our view, the ratio laid down by the Honble Supreme Court in the case of L.W. Russel (supra) is squarely applicable to the facts of the present case. The Honble Supreme Court has held (Head note) as under :
"Held, (i) that until an employee attained the age of superannuation he did not acquire any vested right in the employers share of the contributions towards the premiums; at best he had a contingent right therein;
(ii) that the expression perquisites which are allowed to him by a or are due to him, whether paid or no, from, or are paid by or on behalf of.... a companyin section 7(1) of the Indian Income Tax Act, 1922, applied only to such sums in regard to which there was an obligation on the part of the employer to pay and a vested right on the part of the employee to claim; it could not apply to contingent payments to which the employee had no right till the contingency occurred. The employers contribution towards the premiums were not perquisites allowed to the employee by the employer or amounts due to him from the employer within the meaning of section 7(1) read with clause (v) of the Explanation thereof."
In view of the decision of the Honble Supreme Court in the case of L.W. Russel (supra), it can be safely held that in the instant case, assessee is having only contingent interest in the pension scheme for employee and the same will be available after fulfilling certain conditions mentioned in the GEPP.
In view of the above discussions, we are of the considered opinion that the learned Commissioner (Appeals) was fully justified in deleting the addition made by the assessing officer as perquisite on account of expenses of pension plan paid by the employer on behalf of the employee. We, therefore, do not see any merit in this appeal and accordingly, dismiss the same.
15. In the result, the appeal of the revenue is dismissed.