2005 (9) TMI 496 - AT - Income Tax

Summary

Issues Involved:
1. Whether the tax perquisite should be grossed up on a single stage or multiple stage basis.

Detailed Analysis:

Issue 1: Whether the tax perquisite should be grossed up on a single stage or multiple stage basis.

The assessee filed 15 appeals against the orders of the Learned Commissioner of Income-tax (Appeals)-I, Dehradun for the Assessment Year 2003-04. The common ground in all appeals was that the CIT (Appeals) erred in upholding tax perquisite grossing up on a multiple stage basis instead of a single stage basis.

The assessee initially filed returns on 19-9-2003 based on multiple grossing up of tax as per section 195A, but revised the returns on 2-12-2003 to reflect single stage grossing up, citing the judgment of the Uttaranchal High Court in CIT v. ONGC. The Assessing Officer, however, held that this judgment was not applicable as it related to section 44BB, while the current cases involved salary income taxable under section 195A. The Assessing Officer included tax on tax in the salary income by applying multiple grossing up of tax.

Upon appeal, the CIT(A) upheld the Assessing Officer's decision, stating that the judgment in the ONGC case was not applicable. The assessee then brought the matter to the Tribunal, arguing that the issue was covered by several ITAT Delhi Bench decisions, which supported single stage grossing up. The assessee also highlighted that the employment agreement specified that the employer would pay the tax on the salary paid to the employees.

The Department's representative argued that the original returns were filed on the basis of multiple grossing up and that the revised returns were based on an inapplicable judgment. He further contended that the decisions of the Tribunal cited by the assessee were not relevant as they involved income exempt under section 10(6)(viia), unlike the present cases where the income was taxable under section 195A, which necessitates multiple grossing up of income.

The Tribunal noted that section 195A, introduced by the Finance Act, 1987, mandates that income should be increased to such an amount that, after tax deduction, the net amount payable under the agreement is achieved. The Tribunal referred to the case of Emil Webber v. CIT, where it was held that tax paid by an employer forms part of the salary income. The Tribunal also considered the Delhi High Court's decision in Frank Beaton v. CIT, which stated that the entire tax payable on the income of an employee should be borne by the employer, including tax on tax.

The Tribunal observed that the CIT(A) had not provided a reasoned order and that the decisions of the ITAT, Delhi Bench cited by the assessee were not considered. Therefore, the Tribunal set aside the CIT(A)'s orders and remanded the cases back to the CIT(A) for fresh consideration, directing that the decisions of the ITAT and the provisions of section 195A be taken into account. The Tribunal allowed the appeals for statistical purposes.

In conclusion, the Tribunal emphasized the need for a detailed examination of the applicable legal provisions and precedents, and remanded the cases for a fresh decision on whether the tax perquisite should be grossed up on a single stage or multiple stage basis.

This decision was announced in the open court on 30th September 2005.