2010 (10) TMI 1126 - HC - Income Tax

Demand u/s 201 - TDS on the value of perquisites covered under Section 17(2)(ii) of the Act as amended by the Finance Act, 2007 - assessee is a Government of India Undertaking and is a subsidiary Company of Coal India Ltd. engaged in the business of mining - Although the assessee had deducted tax at source while paying salary to the employees, the assessee had not deducted tax on the perquisite value of the accommodation provided to the employees as according to the assessee, no concession in the matter of accommodation within the meaning of Section 17(2)(ii) was given to the employees. HELD THAT - The Apex Court in Arun Kumar's case 2006 (9) TMI 115 - SUPREME COURT while upholding the validity of Rule 3 has held that in the absence of any deeming fiction in the Act, it is open to the assessee to contend that there is no concession in the matter of accommodation provided by the employer to the employees and the case is not covered by Section 17(2)(ii) of the Act. Even after the substitution of Rule 3 with effect from 1/4/2001, in the absence of any specific provision under the Act, it was open to the assessee not to deduct tax at source relating to the accommodation given to the employees on the ground that no concession in rent has been given to the employees. This contention of the assessee has been in fact upheld by the Apex Court in the case of Arun Kumar (supra). To overcome the above decision, the law has been amended by Finance Act, 2007 with retrospective effect from 1/4/2002. The retrospective amendment merely takes away the above argument, which was available to the assessee. Once the salary is paid by the employer after deducting tax at source as per the law prevailing on the date of paying the salary, then any subsequent amendment in law brought about retrospectively cannot require the employer to deduct tax at source for the past period, because the salary for that period has already been paid. Consequently, the employer cannot be made liable for the consequences set out in Section 201 of the Act on account of the retrospective amendment to Section 17(2) of the Act. Moreover, as held by the Tribunal, the Legislature while retrospectively amending Section 17(2)(ii) of the Act has not chosen to amend Section 192 or Section 201 of the Act. Therefore, the employer assessee is not hit by the retrospective insertion of Explanation to Section 17(2) of the Act. Thus the decision of the Tribunal that the assessee was not obliged to deduct tax at source and accordingly not liable to the consequences set out in Section 201 of the Act does not suffer from any infirmity. Decided in favour of assessee.

Summary

Issues:
Whether the Income Tax Appellate Tribunal was justified in setting aside the orders passed by the Assessing Officer under Section 201 of the Income Tax Act, 1961?

Analysis:
The primary issue in this case revolved around the justification of the Income Tax Appellate Tribunal in setting aside the orders passed by the Assessing Officer under Section 201 of the Income Tax Act, 1961. The Assessing Officer had held that the respondent assessee was liable to deduct tax at source on the value of perquisites covered under Section 17(2)(ii) of the Act. The Assessing Officer further declared the assessee as an assessee in default due to the failure to deduct tax at source, leading to short deduction of tax and interest under Section 201(1) and (1A) of the Act.

The respondent assessee, a Government of India Undertaking, provided accommodation to its employees during assessment years 2005-06 and 2006-07 without deducting tax on the perquisite value of the accommodation. The Assessing Officer invoked the retrospective amendment to Section 17(2)(ii) of the Act by the Finance Act, 2007, to demand tax on the concessional accommodation provided to employees from financial year 2001-02. The assessee contended that there was no concession in rent and that the employer could not be declared as an assessee in default for past assessment years as the salaries had already been paid after deducting tax at source.

The Assessing Officer treated the assessee as an assessee in default and demanded tax and interest under Section 201(1) and Section 201(1-A) of the Act. The Commissioner of Income Tax (Appeals) upheld this decision, leading to further appeal by the assessee. The Income Tax Appellate Tribunal, in a common order, upheld the contentions of the assessee and allowed the appeals, prompting the revenue to file the present appeals.

The counsel for the revenue argued that the assessee was obliged to deduct tax at source due to the retrospective insertion of Explanation to Section 17(2)(ii) of the Act. However, the Court disagreed, stating that in the absence of a deeming fiction in the Act, the assessee could contend that there was no concession in the matter of accommodation, as upheld by the Apex Court in a previous case. The retrospective amendment merely removed this argument available to the assessee, but it could not require the employer to deduct tax at source for past periods where salaries had already been paid after deducting tax at source as per the prevailing law.

The Court clarified that the employer was not hit by the retrospective insertion of Explanation to Section 17(2) of the Act, as the Legislature did not amend Section 192 or Section 201 of the Act. The decision of the Tribunal that the assessee was not obliged to deduct tax at source and not liable for the consequences under Section 201 of the Act was upheld. The Court dismissed all the appeals, emphasizing that the employer could not be made liable for past deductions due to retrospective amendments.

In conclusion, the Court found no merit in the appeals and dismissed them without any order as to costs.