Case Analysis of Commissioner Of Income Tax vs. Oil & Natural Gas Corporation Ltd

COMMISSIONER OF INCOME TAX VS. OIL AND NATURAL GAS CORPORATION LTD.

HIGH COURT OF GUJARAT
TAX APPEAL NO. 368 of 2016 & TAX APPEAL NO. 371 of 2016.

THE ISSUE

"Whether the Income Tax Appellate Tribunal was right in law in confirming the order of the Commissioner of Income Tax (Appeals) deleting the additions made by the Assessing Officer under section 201(1) of the Income Tax Act, 1961, and consequential interest charged by the Assessing Officer in relation to the assessee's payments to its employees under the head of uniform allowance?"

LEGAL PROVISIONS

SETION 10(14)(i) -of Income Tax Act, 1961-
Under Section 10 (14)(i), allowances are exempted to the extent of the amount received as allowance or amount spent on certain duties, whichever is the lower figure.

Allowances covered in this category are:
Daily Allowance: Daily allowance is given to employees to meet the daily charges incurred when on tour or for the duration of a transfer in the job. This type of allowance is granted when the employee is not in the usual place of duty.

Travel Allowance: Travel allowance covers costs related to travel while on tour or on transfer while on duty. This allowance also includes travel costs incurred while getting transferred to another location, including packaging or transport of personal objects.

Research/ Academic Allowance: Allowance granted for the purpose of encouraging academic and research related training, education or professional duties is termed as academic or research allowance.

Conveyance Allowance: Allowance for conveyance is granted to employees in case of expenses incurred while travelling for duties of office. However, the employer does not pay for travel from home to work as it is not considered as a duty of the office. This allowance comes under a different section called as ‘Transport allowance’ and is not exempt from tax.

Helper Allowance: Sometimes your employer allows you to appoint a helper for performing official duties of the office. In such cases, helper allowance is granted.

Uniform Allowance: Allowance when given for the purchase or maintenance of uniform, required to be worn while on duty is referred to as uniform allowance. This allowance can be opted for only when an office duty prescribes a specific uniform.

PLEASE NOTE THAT: Usually, it is not required to furnish details of the expenses incurred under this category of allowance unless the expense are disproportionate to the salary or unreasonable in reference to the duty performed by the employee. At most times, it is not required for you to keep a proof of documents and a simple declaration serves the purpose.

Rule 2BB of the Income Tax Rules prescribes the list of allowance which exempted under section 10(14)(i) of the Income Tax Act and section 10(14)(ii of the Income Tax Act.

Rule 2BB(1) lists down the prescribed allowances as

1. Allowance granted to meet the cost of travel on tour or transfer.
2. Daily allowance granted to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty.
3. Conveyance allowance granted to meet the expenses incurred on conveyance in the performance of duties of an office. However, free conveyance should not be provided by the employer.
4. Helper allowance granted to meet the expenses incurred on helper who is engaged for the performance of duties of an office.
5. Research allowance granted for encouraging the research, academic and training pursuits ineducational and research institutions.
6. Uniform allowance granted to meet the expenses incurred on purchase / maintenance of uniform for wear during the performance of duties of an office.

SECTION 17(2) of the Income Tax Act,1961

The following items fall under the category of perquisites according to Section 17(2).

• The value of rent-free accommodation provided by an employer to his employee.
• The value of any concession in the matter of rent respecting any accommodation provided by the employer to an employee.

• The value of any amenity granted free of cost or at a concessional rate in any of the following cases:

1. By a company to an employee who is a director.
2. By a company to an employee, who has a substantial interest in the company.
3. By an employer or a company to an employee to whom the two aforesaid provisions do not apply. Additionally, an employee whose income under the head ‘Salaries’ exceeds Rs. 50,000 excluding all the benefits and amenities.

• Any amount paid by the employer as a result of any obligation, which originally would have been payable by the assessee.
• Any amount payable by the employer, directly or through a fund (but not through a recognised provident fund, approved superannuation fund, or a deposit-linked insurance fund), to effect an assurance on the life of the employer or to effect a contract for an annuity.
• The value of any specified security or ' allotted/transferred directly or indirectly to an employee by the employer free of cost or at a concessional rate.
• The amount of contribution to an approved superannuation fund by the employer for the assessee, which exceeds Rs. 1,50,000.
• The value of any other fringe benefit as may be prescribed under Section 17(2)(viii).

SECTION 201 of the Income Tax Act,1961

Consequences of Non-Compliance to TDS under Section 201 of Income Tax Act, 1961 Where any person, including the principal officer of a company, who is required to deduct any sum in accordance with the provisions of this Act; or referred to in sub-section (1A) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax.

FACTS OF THE CASE

1. Briefly stated, the issue pertains to requirement of deducting tax at source by the assessee as an employer on the payments made to the employees under the heading of uniform allowance.

2. During the financial year 2008-09, a survey operation was carried out by the Revenue at the premises of ONGC, during which, certain materials were collected concerning Page 2 of 18 HC-NIC Page 2 of 18 Created On Sat Oct 22 03:26:55 IST 2016 lapses in uniform allowance and the employees not wearing such uniforms if so sponsored by the employer. For the assessment year 2010-11, the Assessing Officer confronted the assessee with the assessee not having deducted tax at source on such benefits given to the employees. During the financial year relevant to the said assessment year, according to the Assessing Officer, there was no uniform prescribed by the employer and that therefore the payment of allowances under the heading of uniform allowance would not fall within the exemption clause of section 10(14)(i) of the Income Tax Act, 1961 ('the Act' for short) read with Rule 2BB of Income Tax Rules, 1963, ('the Rules' for short).

3. On the basis of such materials on record, the Assessing Officer held that the employer had not prescribed any uniform and that the payment made to the employees as uniform allowances would not be covered by the exemption clause contained in section 10(14)(i) of the Act. He referred to the dictionary meaning of term 'uniform' as to conclude that unless there was a precise dress code with colour patterns, the same would not qualify as a uniform. He held that the assessee being liable to deduct tax at source, had Page 4 of 18 HC-NIC Page 4 of 18 Created On Sat Oct 22 03:26:55 IST 2016 failed to do so in terms of section 194 of the Act. He disallowed the expenditure incurred by the employer in paying such allowances.

4. The Assessing Officer noticed that section 10(14)(i) of the Act provides that any such special allowance or benefit, not being in the nature of a perquisite within the meaning of clause (2) of section 17, specially granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, as may be prescribed to the extent to which such expenses are actually incurred for that purpose.

5. According to the Assessing Officer, such allowances firstly become part of the salary and exempt to the extent of spending, but the assessee had not included these allowances as part of the salary and had not examined the aspect of actual expenditure and instead has done self-certification at the beginning of the financial year from all employees without verification of the claim to ascertain whether such expenditure had actually been incurred for the purpose.

6. The assessee contended that such reimbursement is exempt under rule 2BB (1)(f) of the Income Tax Rules, 1962 (hereinafter referred to as "the rules") read with section 10(14)(i) of the Act.

7. However, the Assessing Officer was of the view that such reimbursement was completely out of the provisions of rule 2BB of the rules read with section 10(14)(i) of the Act. He accordingly, treated reimbursement of Rs. 3,92,67,843/- for 752 employees as taxable whereon TDS was not deducted by the DDO in the financial year 2010 and held that the same is required to be taxed now.

THE CIT(APPEAL)

8. The Commissioner (Appeals) held that there exists a circular of the Board enabling non-deduction of tax from the reimbursement of allowances on the strength of certificate of utilisation from the employees. He further observed that in any case the matter was decided in favour of the assessee in its own case for earlier years. Following the said decisions, the Commissioner (Appeals) has held that there was no liability for deduction of tax from the payments made to employees as uniform allowance on the strength of the certificate given by the employees for utilisation of the same.

9. CIT (Appeal) , accordingly, held that the assessee cannot be said to be as assessee in default within the meaning of section 201(1) read with section 201(1A) of the Act and deleted the payment of Rs. 1,60,21,247/- raised under section 201(1) and 201(1A) of the Act.

THE TRIBUNAL

10. The Tribunal, after considering the submissions advanced on behalf of the respective parties, observed that the uniform given to an employee for using the same during his duty hours is presumed to be used for the purpose of employment only. When there was a circular of CBDT enabling the assessee for non-deduction of tax from the reimbursement of allowances on the basis of utilisation certificate of the employee, there was no liability on the part of the assessee for deduction of tax from payments made to the employees as uniform allowance.

11. The Tribunal was of the opinion that the conclusion drawn by the Commissioner (Appeals) is correct and accordingly dismissed the appeal.

HIGH COURT JUDGEMENT

12. This court is of the view that the impugned order passed by the Tribunal does not suffer from any legal infirmity warranting interference. The substantial question framed by this court while issuing notice is answered in the affirmative, that is, in favour of the assessee and against the revenue.

13. The Income Tax Appellate Tribunal was right in law in confirming the order of the Commissioner of Income-tax (Appeals) deleting the additions made by the Assessing Officer under section 201(1) of the Income Tax Act, 1961, and consequential interest charged by the Assessing Officer in relation to the assessee's payments to its employees under the head of uniform allowance.

14. The appeal, therefore, fails and is accordingly dismissed with no order as to costs.

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