2011 (5) TMI 1023 - AT - Income Tax

Summary

Issues Involved:
1. Liability to deduct tax at source (TDS) on perquisites due to retrospective amendment.
2. Interest liability under Section 201(1A) for delayed TDS payment.
3. Applicability of the Supreme Court judgment in Eli Lilly & Company India Private Limited.
4. Treatment of the assessee as an assessee-in-default due to retrospective amendment.
5. Additional liability due to short deduction of tax at source.

Detailed Analysis:

1. Liability to Deduct Tax at Source (TDS) on Perquisites Due to Retrospective Amendment:
The assessee, a Government of India Undertaking providing telecommunication services, was required to deduct higher TDS on perquisites provided in the form of residential accommodation to its employees due to an amendment to Section 17(2) by the Finance Act, 2007, with retrospective effect from April 1, 2002. The assessee argued that at the time of salary payment, there was no requirement to deduct TDS for perquisites as Rule 3 was not applicable. The lower authorities, however, did not accept this plea, asserting that the retrospective amendment necessitated the deduction. The Tribunal found merit in the assessee's argument, stating that if there was no perquisite at the time of salary payment, there would be no liability to deduct tax. The Tribunal restored the issue to the Commissioner of Income Tax (Appeals) to decide whether the assessee was liable for TDS under Section 192 on the perquisite for concessional rent.

2. Interest Liability Under Section 201(1A) for Delayed TDS Payment:
The Tribunal noted that the assessee had correctly deducted TDS as per the existing provisions at the time of salary payment. The retrospective amendment in 2007, which deemed the difference between the actual sum charged and the specified rate as a taxable perquisite, could not impose a liability on the employer to deduct tax from a back date. The Tribunal referenced the ITAT Nagpur Bench decision in the case of Canara Bank and Western Coal Field Limited, which held that the employer could not be held responsible for not deducting tax at source retrospectively. The Tribunal concluded that the assessee acted in accordance with the law as it existed at the time of TDS deduction and could not be charged with interest under Section 201(1A) for a liability arising from a retrospective amendment.

3. Applicability of the Supreme Court Judgment in Eli Lilly & Company India Private Limited:
The lower authorities had relied on the Supreme Court judgment in Eli Lilly & Company India Private Limited to hold the assessee in default under Section 201(1A). The Tribunal distinguished the facts of the present case from Eli Lilly, noting that the Supreme Court's decision dealt with withholding tax already deducted but paid belatedly, whereas the present case involved a retrospective amendment creating a new liability. The Tribunal found the reliance on Eli Lilly misplaced and not applicable to the facts of the instant case.

4. Treatment of the Assessee as an Assessee-in-Default Due to Retrospective Amendment:
The Tribunal emphasized that treating the assessee as an assessee-in-default due to a retrospective amendment would be akin to imposing a penal liability, which generally should not have retrospective operation. The Tribunal cited the principle that the law as it stood on the date of TDS deduction determines the liability. The Tribunal concluded that the assessee could not be treated as an assessee-in-default retrospectively and that interest under Section 201(1A) could not be charged on a liability arising from a retrospective amendment.

5. Additional Liability Due to Short Deduction of Tax at Source:
The Tribunal noted that the Commissioner of Income Tax (Appeals) had not decided on the issue of additional liability due to short deduction of tax at source, as the assessee had already paid the amount of TDS required by the retrospective amendment. The Tribunal directed the Commissioner of Income Tax (Appeals) to decide this issue in light of the Tribunal's discussion, emphasizing that tax should be collected only as provided under the Act and that the authorities must ensure only legitimate taxes are collected.

Conclusion:
The Tribunal allowed the appeals of the assessee, setting aside the lower authorities' actions and directing the Commissioner of Income Tax (Appeals) to reconsider the issues in accordance with the Tribunal's findings. The Tribunal's decision emphasized the principles of fairness and the limitations of retrospective amendments in imposing new liabilities on taxpayers.