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Issues involved: Interpretation of tax treatment on employer-paid income tax as perquisite u/s 17(2) of the Income-tax Act, 1961.
Summary: The High Court of Karnataka addressed the issue of whether income tax paid by the employer on the employee's salary should be grossed up on a 'tax on tax basis' or a simple tax basis as per section 17(2) of the Income-tax Act, 1961. The case involved a foreign employee working as a technical advisor, with the employer bearing the income tax of Rs. 34,306. The Commissioner of Income-tax proposed to revise the assessment order, considering the tax paid by the employer as a perquisite. The Tribunal, relying on precedent, dismissed the appeal, leading to the reference of the legal question to the High Court. The Court noted that the tax amount paid by the employer constituted a perquisite received by the employee. The Court disagreed with the contention that adding the tax perquisite to the net salary would result in 'tax on tax,' emphasizing the need to calculate the actual income of the employee. The Court highlighted that the tax paid by the employer should be treated as a perquisite, added to the gross salary, and then the tax calculated after deductions. Referring to precedent and expert opinion, the Court affirmed that the tax paid by the employer is a perquisite to be included in the employee's salary for tax calculation purposes. In conclusion, the High Court ruled in favor of the Revenue and against the assessee, aligning with the interpretation that the tax paid by the employer is a perquisite to be added to the employee's gross salary for tax calculation. The Court's decision was based on legal principles and precedents, including the treatment of tax as a perquisite in similar cases.
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