Section 201 read with section 192 of the Income-tax Act, 1961 – Deduction of tax at source

Last updated: 25 September 2007

Court :
IN THE ITAT MUMBAI BENCH ‘H’

Brief :
Section 201 read with section 192 of the Income-tax Act, 1961 – Deduction of tax at source – Consequence of failure to deduct or pay – Assessment years 1998-99 to 2002-03 – Assessee paid to some of its employees vehicle expenses reimbursements on basis of monthly self declarations, which were not supported by any bill or voucher for undertaking outdoor official duties – Assessee made such payments without deduction of tax at source – Assessing Officer held that entire payment of vehicle reimbursement was part of salary for purpose of determination of tax liability under section 192 and, accordingly, raised tax demand under section 201(1) and interest liability under section 201(1A) against assessee – Prior to 1-10-2001, there was no requirement to maintain detailed record of tours for official purposes and after 1-10-2001 assessee had voluntarily started adding full amount of vehicle reimbursement less Rs. 1200 per month per employee in salary of employees for section 192 – Whether in view of judgment of Gujarat High Court in case of CIT v. ONGC Ltd. [2002] 254 ITR 121/125 Taxman 698, which was squarely applicable to instant case, tax demand raised against assessee under section 201(1) was not justified and required to be deleted – Held, yes – Whether since there would be no tax demand under section 201(1) against assessee, issue with regard to interest liability under section 201(1A) did not survive – Held, yes FACTS The Authorised Officer carried out a survey under section 133A at the office premises of the assessee and in the course of survey statements of various employees were recorded, in which they had stated that they were paid vehicle expenses reimbursements on the basis of monthly self declarations which were not supported by any bill or voucher for undertaking outdoor official duties. Some of the officers had also admitted that they rarely used their vehicles for any outdoor official assignment or for coming from residence to office and even in cases where they occasionally used their vehicles for any outdoor official assignments, no records, whatsoever, of such assignments were maintained by them or by their supervisory officers. The Assessing Officer having noticed that the assessee had made such payments without deduction of tax at source issued show cause notice to the assessee. The assessee in reply submitted that the vehicle reimbursement was not an allowance but reimbursement of actual expenses incurred by the concerned officer on the use of his vehicle for outdoor official assignments, and that once the assessee had acted honestly and fairly and had arrived at an estimated income of the employees for the purpose of TDS, it could not be treated as a defaulter for any short deduction of tax at source. The Assessing Officer did not accept the submissions of the assessee and held that entire payment of vehicle reimbursement was part of salary for the purpose of determination of tax liability under section 192 and, accordingly, raised tax demand under section 201(1) and interest liability under section 201(1A) against the assessee. On appeal, the Commissioner(Appeals) held that entire amount paid by the assessee on account of maintenance/repairs was to be treated as perquisite as per section 17(2)(iv), because it was the obligation of the employees to maintain the vehicles, since they were owners of the vehicles. The Commissioner(Appeals) further regarding petrol expenses held that 50 per cent of the petrol expenses be considered as spent for official duties and, hence, could not be added in salary of employees and out of balance 50 per cent deduction should be allowed to the extent of Rs. 800 per month per employee for 8 months in the previous year i.e. from 1-8-1997, when rule 2BB(10) was inserted and, accordingly, considered a certain amount for the purpose of computing taxable salary under section 192(1). He further held that levy of interest under section 201(1A) was mandatory and compensatory in nature but directed the Assessing Officer to recompute the interest in view of relief granted by him. On cross-appeals to the Tribunal:

Citation :
BSES LTD. v. Deputy Commissioner of Income-tax K.C. SINGHAL, JUDICIAL MEMBER And A.K. GARODIA, ACCOUNTANT MEMBER IT APPEAL NOS. 6067 TO 6071 AND 6491 TO 6495 (MUM.) OF 2003 [ASSESSMENT YEARS 1998-99 TO 2002-03]

HELD The assessee had framed a detailed scheme for reimbursement of vehicle expenses after considering various factors, such as, category of the officers, their place of residence and place of work, attendance, etc. Each employee had to submit monthly declaration, based on which, payments were made as per scheme. In addition to that, each employee was supposed to submit an annual declaration to the effect that amount claimed had been fully spent, to avail income tax exemption. Further in each monthly declaration submitted by the employees, it had been certified that expenses incurred on the maintenance and running of the vehicles for official purposes during the above period was not less than the amount claimed. There was no requirement during the relevant period to maintain detailed record of tours for official purposes as required from 1-10-2001. After this date, the assessee had voluntarily started adding full amount of vehicle reimbursement less Rs. 1200 per month per employee in the salary of the employees for section 192. This showed the bona fide of the assessee. If it was held that the assessee was under bona fide belief that vehicle reimbursement was not includible in salary for the purpose of section 192, the assessee could not be declared assessee in default even if there was some short deduction on account of wrong estimate. However, the Commissioner(Appeals) had held that the amount paid by the assessee employer to the employees on account of other than petrol expenses was covered by section 17(2)(iv). As per item No. 2 of Table II under sub-rule (2) of rule 3 of the Income-tax Rules, it is provided that where the employee owns the car and actual running and maintenance charges (including remuneration of the Chauffeur, if any) are met or reimbursed by the employer, and the car is used wholly for official purposes, then there will be no value of perquisites. In view of this, it could not be said that maintenance of car was the obligation of the assessee, if the car was used for official purposes also and, hence, the Commissioner (Appeals) was not correct in holding that entire expenses reimbursed other than petrol was to be added in salary income of the employees, although it was held by him that 50 per cent of petrol expenses was to be considered as used for official purposes, meaning thereby that he also agreed that the vehicles were used for official purposes also. Now the question would arise as to whether only 50 per cent of the expenses should be considered as expenses incurred for official purposes or it should be nil or full. The judgment of the Gujarat High Court in the case of CIT v. ONGC Ltd. [2002] 254 ITR 121/125 Taxman 698 was squarely applicable to the instant case. In that case, payments made to employees as per scheme called conveyance maintenance reimbursement of expenditure were not taken into account for the purpose of TDS and it was held by the High court that even if the employee is found in course of his assessment that the amount is not exempt in his hands, there would be no impact on the estimate of income tax payable on the income of the employee at the time when such amount is paid. Hence, following this judgment, the issue regarding liability of assessee under section 201(1) required to be decided in favour of the assessee. No doubt, the liability of interest under section 201(1A) is mandatory, but the Assessing Officer had to recalculate interest after giving relief and since there would be no demand under section 201 (1), there would be no interest also under section 201(1A) as a consequence. Hence, the impugned demand raised against the assessee under section 201(1) and 201(1A) was liable to be deleted. [Para 6]