2009 (8) TMI 844 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement to exemption u/s 10(10CC) of the Income-tax Act, 1961.
2. Applicability of section 10(10CC) to perquisites valued as per Rule 3 of the Income-tax Rules, 1962.
3. Applicability of exemption u/s 10(10CC) to perquisites u/s 17(2)(iv).
4. Relevance of the Tribunal's decision in RBF RIG Corpn. v. Asstt. CIT.

Summary:

Issue 1: Entitlement to exemption u/s 10(10CC) of the Income-tax Act, 1961
The assessees argued that the tax paid by the employer on behalf of the employee is a non-monetary perquisite and thus exempt u/s 10(10CC). The Assessing Officer disagreed, adding the tax paid by the employer to the income of the assessees. The CIT(A) upheld the AO's decision, stating that section 10(10CC) applies only to perquisites requiring valuation under Rule 3, not to tax perquisites. The Tribunal reversed this decision, holding that tax borne by the employer on perquisites constitutes a non-monetary benefit and is exempt u/s 10(10CC).

Issue 2: Applicability of section 10(10CC) to perquisites valued as per Rule 3 of the Income-tax Rules, 1962
The CIT(A) interpreted section 10(10CC) as applicable only to perquisites requiring valuation under Rule 3. The Tribunal disagreed, stating that the legislative intent behind section 10(10CC) was to exempt tax paid by the employer on behalf of the employee, irrespective of the valuation method.

Issue 3: Applicability of exemption u/s 10(10CC) to perquisites u/s 17(2)(iv)
The CIT(A) held that section 10(10CC) does not apply to perquisites u/s 17(2)(iv). The Tribunal, referencing the Special Bench decision in RBF RIG Corpn., concluded that tax paid by the employer is a non-monetary perquisite under section 17(2)(iv) and thus exempt u/s 10(10CC).

Issue 4: Relevance of the Tribunal's decision in RBF RIG Corpn. v. Asstt. CIT
The assessees contended that the CIT(A) erred by not following the Tribunal's decision in RBF RIG Corpn., which held that tax paid by the employer is a non-monetary benefit and exempt u/s 10(10CC). The Tribunal agreed, emphasizing the necessity for lower authorities to follow higher appellate decisions to maintain judicial propriety and avoid unnecessary litigation.

Conclusion:
The Tribunal allowed the appeals, directing the AO to modify the assessments to reflect the exemption u/s 10(10CC) for tax paid by the employer on behalf of the employees. The Tribunal did not award costs against the revenue, finding no evidence of mala fide intent by the CIT(A).