2006 (10) TMI 257 - AT - Income Tax

Summary

Issues Involved:
1. Determination of tax liability under section 192 of the Income-tax Act for vehicle reimbursements.
2. Levy of interest under section 201(1A) of the Income-tax Act.
3. Treatment of maintenance/repairs and petrol expenses as perquisites under section 17(2)(iv).

Issue-wise Detailed Analysis:

1. Determination of Tax Liability under Section 192 for Vehicle Reimbursements:
The primary issue was whether the vehicle reimbursements made by the assessee to its employees should be considered part of the salary for the purpose of tax deduction at source (TDS) under section 192 of the Income-tax Act. The Assessing Officer (AO) held that the entire payment of vehicle reimbursement is part of the salary and raised a demand of Rs. 7,33,122 under section 201(1) and Rs. 6,34,199 as interest under section 201(1A).

The assessee contended that the reimbursements were for actual expenses incurred on the use of vehicles for official duties, supported by self-declarations from employees. The CIT(A) partially agreed, treating maintenance/repair expenses as perquisites under section 17(2)(iv) but allowing 50% of petrol expenses as spent for official duties.

The Tribunal found that the assessee had a detailed reimbursement scheme and that employees provided monthly and annual declarations certifying the expenses. The Tribunal held that the assessee had a bona fide belief that the reimbursements were not includible in salary for TDS purposes, supported by the judgment in the case of ONGC Ltd. The Tribunal concluded that the assessee could not be declared in default for any short deduction due to a wrong estimate.

2. Levy of Interest under Section 201(1A):
The CIT(A) upheld the levy of interest under section 201(1A), considering it mandatory and compensatory in nature. However, the Tribunal directed the AO to recompute the interest in view of the relief granted. Since the Tribunal decided that there was no demand under section 201(1), there would consequently be no interest liability under section 201(1A).

3. Treatment of Maintenance/Repairs and Petrol Expenses as Perquisites:
The CIT(A) had treated the entire amount paid for maintenance/repairs as perquisites under section 17(2)(iv), arguing that maintaining the vehicles was the employees' obligation. For petrol expenses, 50% was considered for official duties, and the rest was added to the salary after allowing a deduction as per rule 2BB(2)(10).

The Tribunal disagreed with the CIT(A) regarding maintenance/repair expenses, citing rule 3 of the Income-tax Rules, which states that if the car is used wholly for official purposes, there is no perquisite value. The Tribunal noted that the scheme required employees to certify that the expenses were incurred for official purposes, and thus, the entire reimbursement should not be added to the salary. The Tribunal also found that the facts were similar to the ONGC Ltd. case, where such reimbursements were not included in the salary for TDS purposes.

Conclusion:
The Tribunal allowed the assessee's appeal, ruling that the vehicle reimbursements should not be included in the salary for TDS purposes under section 192. Consequently, there was no liability under section 201(1) or interest under section 201(1A). The Tribunal dismissed the revenue's appeal, upholding the relief granted by the CIT(A) regarding the treatment of petrol expenses and deductions as per rule 2BB(2)(10). The decisions for the subsequent assessment years followed the same reasoning and outcomes.