Income Tax Appellate Tribunal - Delhi
Income-Tax Officer vs G.D. Goenka Public School on 14 February, 2008
ORDER
K.G. Bansal, Accountant Member
1. These five appeals of the revenue involve common grounds. In view thereof, the appeals were argued in a consolidated manner by the learned DR and the learned Counsel for the assessee. Therefore, we find it fit to pass a consolidated order. There are two common grounds in all the appeals. Ground No. 1 is to the effect that on the facts and in the circumstances of the case, the learned CIT(A) erred in canceling the order passed by the Assessing Officer Under Section 201(1) and Section 201(1A). Ground No. 2 states that on the facts and in the circumstances of the case, the learned CIT(A) erred in holding that the assessee was entitled to deduct Rs. 1,000/- per month per child of the teachers and staff members.
2. In the order, it is mentioned that survey operation was conducted in the premises of the school and the books of account maintained by it were examined. It was found that the assessee had been providing free education to the wards of teachers and other staff members of the school. While calculating the value of perquisite taxable in the hands of the teachers or the staff members, a deduction of Rs. Rs. 1,000/- per month per child was made from the amount of the educational facility provided free of cost. It was explained that the aforesaid deduction was made after consulting various books on the subject. The ITO, Ward 49(3), New Delhi (hereinafter called the Assessing Officer) considered the provision contained in Rule 3(5) of the Income-tax Rules, 1962. He came to the conclusion that in a situation where the value of the benefit of free education exceeded Rs. 1,000/- per month, the whole of the amount was to be treated as perquisite under the aforesaid rule. Therefore, reliance on Taxman's Direct Taxes Ready Reckoner by Vinod K. Singhania, on which reliance was place by the assessee, was not the authentic view in the matter. Therefore, he proceeded to calculate the amount of short deduction of tax on this ground for the aforesaid five financial years. The cumulative amount was calculated at Rs. 17,63,592/-. Thus, the assessee was treated as an assessee in default in respect of this amount. Interest of Rs. 7,08,480/- was found payable Under Section 201(1A). Thus, a total demand of Rs. 24,72,072/- was raised against the assessee.
3. The matter was agitated in appeal before the CIT(Appeals)-XXX, New Delhi. It was represented that the assessee had made the calculations about the value of the perquisite by relying upon the aforesaid ready reckoner and, thus, the assessee could not be faulted in this matter. It was further represented that what had to be calculated for arriving at the value of the perquisite was the cost incurred and the fees paid by other students could not be a valid measure of the perquisite. In calculating the cost, only direct and not indirect cost ought to have been taken into account. On the basis of this argument, it was pointed out that the cost for financial year 2000-01 was Rs. 950/- per month, for financial year 2001-02 it would be Rs. 1130/- per month, for financial year 2002-03, it would be Rs. 1168/- per month, for financial year 2003-04 it would be Rs. 1182/- per month and for financial year 2004-05 it would be Rs. 1,210/- per month. It was argued that since the tax was deducted on the amounts higher than the aforesaid amounts, there could be no additional liability fastened on the assessee. It was also represented that the CIT(A)-XXX had given a finding in the case of Delhi Public School, Vasant Kunj and Delhi Public School, R.K. Puram that the deduction of Rs. 1,000/- per month had to be allowed in working out the value of perquisite liable to be taxed in the hands of the teachers and other staff members. The learned CIT(A) considered the facts of the case and submissions before him. He was of the view that the "doctrine of purposive construction" had to be applied while interpreting the provisions contained in Rule 3(5). Therefore, the deduction of Rs. 1,000/- per month per child should be allowed in working out the taxable perquisites in the hands of the teachers and staff members. He was also of the view that the word "cost" is distinguishable from the word "price" and what had to be taken into account for the purpose of tax deduction at source was the cost and not the price. The Assessing Officer was directed to modify his order by taking the aforesaid two issues into consideration. The revenue is in appeal against this order.
4. Before us, the learned DR referred to the order of the Assessing Officer and pointed out that his finding was that where the amount exceeded Rs. 1,000/- per month, the entire amount had to be taken into account for valuing the perquisite of free education to the children of teachers and staff members. The assessee had worked out perquisite on the basis of the fees charged from other students. Therefore, it was argued that in terms of the provision contained in Rule 3(5), the Assessing Officer was right in working out the amount of short deduction of tax for various years, and consequently interest on the amounts for which the assessee was held to be an assessee in default for those years. On the other hand, the learned CIT(A), contrary to the rule, came to the conclusion that deduction of Rs. 1,000/- per month should be allowed from the cost for working out the perquisite. Coming to the issue of cost versus fee, it was pointed out that the assessee is a charitable institution, being run on no-profit-no-loss basis. In such circumstances, the cost would be nothing but the fees charged from the other students. Therefore, the order of the learned CIT(A) suffered from infirmity in this behalf also. In this connection, reliance was placed on the order of Hon'ble ITAT, Delhi Bench "H", New Delhi, in the case of ITO v. Director, Delhi Public School (2007) 18 SOT 453. the decision of the Tribunal in that case was that where the value of free education was less than Rs. 1,000/- per month per child, nothing could be taken as perquisite in the hands of the teachers or staff members. However, if it exceeded Rs. 1,000/- per child, then, the whole of the amount would become chargeable as perquisite in the hands of the teachers and staff members. It was further held that for working out the cost for the purpose of valuing the perquisite, all expenses in running the school, whether direct or indirect, will have to be taken into account, but the depreciation had to be excluded. It was also held that where any amount was recovered from the teachers or the staff members, the same would be deducted in arriving at the cost.
4.1 In reply, the learned Counsel for the assessee made submissions under three broad heads, namely, that -(i) the assessee had estimated the value of perquisite in a bona fide manner and, therefore, the provisions contained in Section 201(1) and consequently in Section 201(1A) were not applicable; (ii) the valuation of the perquisite has to be made in accordance with Rule 3(5) with reference to the cost and deduction of Rs. 1,000/- per child has to be granted; and (iii) long time has passed after the close of various financial years and, therefore, the assessment of employees would have been made. In such a situation, the Assessing Officer had no jurisdiction to pass order Under Section 201(1) and consequently Under Section 201 (1A) of the Act.
4.2 Coming to the issue of bona fide estimate of the perquisite a reference was made to page 10 of the paper book No. 1, containing discussion under the head "obligation of the deductor Under Section 192 of the Act and legal perspective". It is mentioned thereunder that Chapter XVII of the Act lays down only a mode of collection and recovery of tax. Section 192 under this chapter envisages what is commonly known as withholding tax to be retained by the employer from the salary of the employees. The intention and rationale of the provision is not to compute tax correctly but to facilitate recovery and collection of tax. What is required to be done under the provision is to estimate the income of the assessee under the head "salaries", compute tax on the estimated income and deduct such tax and deposit the same to the credit of the government. The aforesaid exercise involves valuation of various perquisites including the perquisite arising on account of free education facilities provided to the children of the employees. The tax to be deducted is merely an interim measure of an estimated amount subject to final determination of the tax in the hands of the employees on regular assessment. The interim measure of deduction of tax is without prejudice to the rights of the employees as well as the revenue to determine the exact amount of tax payable by them at the time of regular assessment. By its very nature, the estimated amount could not have been contemplated to be an exact amount and what is required is to deduct tax on the basis of a bona fide estimate. In this connection, reliance was placed on the decision of Hon'ble Madhya Pradesh High Court in the case of Gwalior Rayon Silk Co. Ltd. v. CIT . In that case, the Hon'ble Court pointed out that the provisions of Section 201 cast a duty on an employer to form an opinion about the tax liability of his employees in respect of salary income. The employer is expected to estimate the liability in a fair and honest manner. When the estimate is found to be incorrect, this fact alone without anything more, would not always lead to an inference that the employer did not act honestly and fairly. In that case, the ITO examined the annual returns filed by the employer in respect of tax deduction at source Under Section 192. He made some controversial addition and thereafter came to the conclusion that the tax was not properly deducted. The additions were made in respect of rent-free accommodation, furniture, exemption of leave travel concession and reduction in the standard deduction. He raised the demand against the assessee Under Section 201(1) and also levied interest Under Section 201(1A) on the assessee. The Hon'ble Court pointed out that neither the ITO nor the Tribunal found it as a matter of fact the estimate of the assessee was not honest and fair. The assessee had estimated the salaries of the employees, deducted tax thereon and paid the tax as required Under Section 200. Therefore, the employer could not be held to be an assessee in default in respect of tax. Consequently, the provisions of Section 201(1A) were also not attracted. Further, he relied on the decision of Hon'ble Delhi High Court, the jurisdictional High Court, in the case of CIT v. Nestle India Ltd. . In that case, while computing the income of the employees, the conveyance allowance granted to them was not taken into account. It was explained that the conveyance allowance was in the nature of reimbursement of the expenses incurred by the employees who were not provided with the company vehicles. Therefore, the same was exempt from tax under notification dated 7.9.1986. The Assessing Officer calculated the amount to be deducted at source by taking into account the conveyance allowance. Therefore, the assessee was treated as an assessee in default and, therefore, interest was also levied Under Section 201(1A). The Hon'ble Court referred to the finding of the Tribunal to the effect that the assessee had a good and sufficient reason for not deducting tax at source and these reasons were founded on the fact that it was under bona fide belief that conveyance allowance was not to be included in the salary. Being a question of fact, no question of law arose and rightly so because the conveyance allowance will be exempt Under Section 10(14). Therefore, the matter was decided in favour of the assessee and against the revenue. He also relied on the decision of Hon'ble Gujarat High Court in the case of CIT v. Oil & Natural Gas Corporation Ltd. . In that case, Special Allowance was being granted by the employer to the employees to meet expenses incurred in the course of performance of duties. The entire allowance was not taken into account for the purpose of tax deduction at source. The question before the Hon'ble Court was whether the allowance was exempt Under Section 10(14) of the Act. The Hon'ble Court pointed out that the fact that reimbursement is up to a maximum limit and not more does not detract from the fact that the expenses were being paid, as far as employer is concerned, towards reimbursing actual expenditure incurred by the employee in undertaking official journey up to the extent of amount actually reimbursed. It is another matter that the employee was not entitled to deduction of the full amount in his own assessment. Therefore, it was held that action could not have been taken against the employer Under Section 201(1) or 201(1 A). He also relied on the decision of Hon'ble Gujarat High Court in the case of ITO v. Gujarat Narmada Valley Fertilizers Co. Ltd. (2001) 247 ITR 305 In that case, on examination of the TDS return, it was found that certain payments were made to the employees from which tax was not deducted at source. The amounts were in the nature of vehicle allowance, cash canteen assistance, medical reimbursement, professional book allowance, gardening allowance, birthday gifts and safari allowance. The ITO treated the assessee to be an assessee in default and also levied interest Under Section 201(1A). The Tribunal gave a finding that the assessee made an honest and bona fide estimate and its taxability regarding the allowance. The court was of the view that ultimately payment of tax was the liability of the employees. No question of law arose out of the finding of the Tribunal. Therefore, it was also held that the Tribunal did not commit any error of law and no substantial question arose from the order of the Tribunal. He also relied on the decision of Hon'ble Kerala High Court in the case of CIT v. Kannan Devan Hill Produce Co. Ltd. . The finding of the court was that where an employer had been deducting tax at source and remitting it to the government but in doing so it did not include a certain amount in the total income for the purpose of computation of tax and consequently did not pay tax thereon, even then he cannot be held to be an assessee in default as the assessment in the case of the employee had been completed. On the basis of these judgments, the case of the learned Counsel was that what the assessee was required to do was to make an honest and fair guess of the income of the employees under the head "salaries", deduct tax thereon and remit the same to the credit of the government. This had been done, as was also required under circular No. 15 dated 12.12.2001 , where the method of valuation of free or concessional educational facilities has been furnished under the old rules. It was his contention that the same was done by the assessee in a bona fide manner. Therefore, the assessee could not have been treated as an assessee in default.
4.3 In regard to the aforesaid argument regarding the bona fide conduct of the assessee, the learned DR pointed out in the rejoinder that if there is a short deduction of tax, the assessee will be treated to be an assessee in default Under Section 201(1). The question of bona fide arises only in penalty and prosecution proceedings. However, Section 201(1) dealt merely with collection of tax by resorting to tax deduction at source and, therefore, such consideration will not come into play while interpreting the provisions contained in Section 201(1). It was also pointed out that the learned CIT(A) has not furnished his findings in the matter. Therefore, it was agitated that if the department's case was not to be accepted, the same may be restored to the file of the learned CIT(A).
5. We have considered the facts of the case and submissions in this regard. Section 192 of the Act provides that the employer, at the time of payment of salary, estimate the income of the employee and deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rate in force for the financial year in which the payment is made. Thus, this section casts an obligation on the employer to estimate the income under the head "salaries" and deduct tax at the average rate at the time of its payment. Section 200 casts further obligation that any person deducting any sum shall pay within the prescribed time the sum so deducted to the credit of the central government. Section 206 casts obligation on the aforesaid person to file the return of tax deducted at source in the prescribed format. The assessee had been deducting tax at source, depositing the same with the central government and filing the annual return for deduction of tax at source. The question is whether, the assessee fulfilled its obligation Under Section 192 regarding estimation of income and deducting tax thereon at the applicable rates. The case of the learned Counsel was that the issue regarding computation of perquisite was decided on the basis of the aforesaid ready reckoner, which pointed out that from the cost of free education a sum of Rs. 1,000/- per month per child may be deducted to arrive at the perquisite value of the free education supplied to the ward of the teacher or the staff member. Therefore, it could not be said that he failed to discharge his obligation regarding estimation of income and deduction of tax thereon at the applicable rates. For this proposition, a number of cases were cited. In the case of Nestle India Ltd. (supra), the employer did not deduct tax in respect of conveyance allowance paid to the employees who were not provided with the company vehicle. A finding was given that such payments were in the nature of reimbursements made to the employees in respect of actual expenditure incurred by them. The same might have been found to be incorrect, but, the fact remains that the tax was not deducted as it was held out that expenditure to the extent of conveyance allowance granted was incurred by the employees in the coarse of their employment. The court came to the conclusion that this fact by itself will not render the employer to be treated as an assessee in default for the purpose of Section 201(1) and Section 201(1A) of the Act, as two different views were possible in respect of the taxability of the amount. When we examine the facts of our case, we find that the assessee had deducted a sum of Rs. 1,000/- per child per month on the basis of the interpretation of the provisions given in the ready reckoner. To our mind, that interpretation may or may not have been correct, but the assessee had some basis on which the decision was taken not to deduct tax on the impugned amount of Rs. 1,000/- per month per child. Therefore, unless it is shown that there was some thing more than mere reliance on the ready reckoner, the assessee cannot be held to be an assessee in default in terms of the decision in the case of Nestle India Ltd. The decision in the case of Gwalior Rayon Silk Co. Ltd. (supra) is quite different as the Assessing Officer had made controversial addition to the income of the employees. In this case, the Assessing Officer has merely followed Rule 3(5) of the Income-tax Rules, 1962. Therefore, the ratio of that decision is not applicable to the facts of our case. In the case of Oil & Natural Gas Corporation Ltd. also, the question was regarding deducibility of tax on conveyance allowance and, therefore, the facts are similar to the facts in the case of Nestle India Ltd. In the case of Gujarat Narmada Valley Fertilizers Co. Ltd. , a number of allowances were given to the employees, which were valued by the employer albeit incorrectly. The facts of the case of Kanna Devan Hill Produce Co. Ltd. stand on a totally different footing, namely, that the employees' assessments had been completed and thereafter the assessee was held to be an assessee in default on the basis of the income computed in the hands of the employees. The court pointed out that once the tax has been recovered from the employees, there was no reason to take recourse to the employer to collect the same tax again. Thus, we are of the view that the facts of our case are covered by the decision of the jurisdictional High Court in the case of Nestle India Ltd.(supra). Before parting, it may also be mentioned that the Tribunal has taken somewhat different view in the matter. In the case of Director, Delhi Public School (supra), it was held that if the cost of the free educational facility to the employer exceeds Rs. 1,000/- per month per child, then, the whole of the cost to the employer will be perquisite in the hands of the employee and, therefore, the tax had to be deducted accordingly. Such was also the decision of the Tribunal in the case of Birla Vidya Niketan in ITA Nos. 2272 to 2281 (del)/2006 dated 23.3.2007, a copy of which was placed before us by the revenue. The assessee had also filed the order of the Tribunal in the case of Bal Bharti Public School, in ITA Nos. 2286 &2287(Del)/2006 dated 13.7.2007. The decision in that case proceeded on the footing that it was not a case of providing free educational facility. It was ordered that the Assessing Officer shall work out the cost to the employer and work our perquisite value after deducting a sum of Rs. 1,000/- per month per child. The facts of our case are somewhat different, as the assessee has been providing free educational facilities to the children of the teachers and staff members. Notwithstanding these orders of the Tribunal, it cannot be wished away that there could have been doubts in the mind of the assessee as to whether in its case deduction of Rs. 1,000/- per month per child should be allowed in valuing the perquisite of free educational facility. Therefore, its reliance on the ready reckoner was not completely misplaced and in any case such a reliance could not said to be not bona fide. Therefore, respectfully following the decision in the case of Nestle India Ltd., it is held that this case was not fit for passing an order Under Section 201(1) and consequently Under Section 201(1 A).
5.1 In the alternative, it was argued that the concept of cost is different from the fee. The case of the learned DR was that the assessee is a charitable institution, run on no-profit-no-loss basis and, therefore, cost and the fee will be more or less the same. We find that the learned CIT(A) has given cost in various years ranging between Rs. 950/- per month and Rs. 1210/- per month in various financial years. These costs were worked out by the assessee by taking into account only the direct cost. In the case of Director, Delhi Public School (supra), the Tribunal came to the conclusion that all direct and indirect costs, except the depreciation allowance, shall be taken into account for this purpose. Respectfully following this order, the Assessing Officer is directed to work out the cost in terms of that order.
5.2 The third argument of the learned Counsel was that the employer cannot be deemed to be in default if the employees have filed the returns of income and paid taxes accordingly. He was questioned whether any evidence was filed before the lower authorities about filing of the returns by the employees and payment of tax by them on the correct value of perquisites. He was not able to answer this question, but we find that no such evidence was filed before the lower authorities. However, his case was that the matters are old and nothing can be done by the Assessing Officer now. In this connection, reliance was placed on the decision of Kannan Devan Hill Produce Co. Ltd. (supra). As mentioned earlier, in that case, the employer was asked to pay further tax after completion of the assessment of the employee, during the course of which it was found that there had been some short deduction of tax at source. Such is not the case here. There is no evidence on record that the employees in respect of whom the perquisite value has been re-determined, have filed their returns of income and paid taxes on the perquisite value of free educational facility as determined by the Tribunal in the case of Director, Delhi Public School (supra). Therefore, we do not find any merit in the argument and, therefore, reject the same. Thus, the appeals of the revenue are required to be dismissed on the finding that the valuation of the perquisite by the assessee could not be said to be not bona fide for the purpose of deeming it to be an assessee in default Under Section 201(1) and consequently levying interest Under Section 201(1A).
6. In the result, the appeals are dismissed.
The order was pronounced in the open court on 14 February, 2008.