2005 (8) TMI 574 - AT - Income Tax

Issues Involved:
1. Collection of deficit tax under section 201.
2. Interest under section 201(1A) on non-deduction of tax at source.
3. Taxability of conveyance allowance as perquisite under section 17(2).
4. Delay in passing the order under section 201/201(1A).
5. Employer's liability for tax deduction at source (TDS) on conveyance allowance.
6. Penalty under section 221.

Issue-wise Detailed Analysis:

1. Collection of Deficit Tax under Section 201:
The Assessing Officer (AO) considered conveyance allowance as a taxable perquisite under section 17(2) and held the employer liable for non-deduction of tax at source. The AO ordered the collection of deficit tax of Rs. 4,60,832 under section 201(1). The CIT(A) partially upheld this decision, allowing relief for Rs. 2.96 lakhs paid to workers but confirming the liability for Rs. 18.22 lakhs paid to staff members.

2. Interest under Section 201(1A) on Non-Deduction of Tax at Source:
Interest of Rs. 3,96,864 was charged under section 201(1A) for failure to deduct tax on conveyance allowance. The Tribunal noted that interest under section 201(1A) is mandatory and compensatory, not penal, and can only be levied if the employer is declared as an assessee in default.

3. Taxability of Conveyance Allowance as Perquisite under Section 17(2):
The AO and CIT(A) held that conveyance allowance paid for commuting between residence and place of work is taxable. The CIT(A) relied on various judgments, including Dr. Reddy's Laboratories Ltd. and LIC Class-I Officers (Bombay) Association v. LIC of India, which supported the view that such allowances are not exempt under section 10(14).

4. Delay in Passing the Order under Section 201/201(1A):
The assessee argued that the order under section 201/201(1A) was passed beyond the period of four years, citing decisions like Traco Cable Ltd. v. CIT and Bal Krishna Das v. CIT. However, the CIT(A) did not agree, noting that section 231, which provided for a time limit, was withdrawn w.e.f 1-4-1989 and thus did not apply to the assessment year 1996-97.

5. Employer's Liability for TDS on Conveyance Allowance:
The Tribunal observed that the employer's estimate of income for TDS purposes should be honest and fair. If there are two views on the taxability of an item, the employer can adopt the view favorable to the employee without being declared in default. The Tribunal cited cases like CIT v. Nestle India Ltd. and CIT v. Oil & Natural Gas Corp. Ltd. to support the view that bona fide belief and honest estimation by the employer should not lead to default.

6. Penalty under Section 221:
The Tribunal noted that a specific written order declaring the employer as deemed to be in default is necessary for levying penalty under section 221 and charging interest under section 201(1A). In this case, no such specific order was passed. The Tribunal emphasized that penalty and interest can only follow after a clear declaration of default.

Conclusion:
The Tribunal concluded that the employer-assessee cannot be declared as an assessee deemed to be in default for holding an honest opinion that conveyance allowance is not taxable. Consequently, interest under section 201(1A) and the demand for deficient TDS were not sustainable. The appeals of the assessee were allowed, and the appeals of the revenue were dismissed.

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