2000 (6) TMI 795 - AT - Income Tax

Summary

Issues Involved:
1. Short deduction of tax at source from salaries.
2. Exemption of leave travel allowance (LTA) without verifying actual expenditure.
3. Reimbursement of drivers' salary and its valuation as a perquisite.
4. Applicability of section 201 for short deduction of tax.
5. Jurisdiction to recover tax from the employer under section 201.

Summary:

1. Short deduction of tax at source from salaries:
The assessee, a public limited company, was found to have short deducted tax at source from the salaries of its employees for the financial year 1992-93. The Income-tax Officer (ITO) raised a demand of Rs. 2,49,305 u/s 201 of the Income-tax Act, 1961, for this shortfall.

2. Exemption of leave travel allowance (LTA) without verifying actual expenditure:
During a survey u/s 133A, it was observed that the assessee allowed LTA exemption without verifying the actual incurrence of expenditure as required by section 10(5) read with rule 2B of the Income-tax Rules, 1962. The Commissioner (Appeals) held that the company failed to make a fair and honest estimate of the employees' income by not physically verifying the travel tickets.

3. Reimbursement of drivers' salary and its valuation as a perquisite:
The assessee reimbursed drivers' salaries to some employees but did not value this reimbursement as a perquisite. The Commissioner (Appeals) ruled that rule 3(c)(ii) was not applicable since the company reimbursed rather than directly paid the drivers' salaries.

4. Applicability of section 201 for short deduction of tax:
The Tribunal accepted the assessee's argument that section 201 does not apply to cases of short deduction of tax, citing the Andhra Pradesh High Court decision in P.V. Rajagopal v. Union of India, which stated that section 201 is penal and should be strictly construed. The section applies only when no tax is deducted or when deducted tax is not remitted to the government.

5. Jurisdiction to recover tax from the employer under section 201:
The Tribunal held that u/s 191, the primary obligation to pay tax remains with the employee, and section 201 does not authorize the recovery of tax from the employer if tax is not deducted. The Tribunal emphasized that the provisions of Chapter XVII are machinery provisions for the collection and recovery of tax and do not transfer the primary charge of tax from the recipient to the payer of income.

Conclusion:
The Tribunal quashed the order passed by the ITO u/s 201(1) and (1A) as being bad in law and without jurisdiction. The appeal of the assessee was allowed.