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2011 (6) TMI 340 - HC - Income TaxRectification of mistake - whether the tax paid by the employer in respect of salary paid to the employees is salary under Rule 3 of the Income Tax Rules for the purpose of computing the value of perquisites in respect of rent free accommodation provided to the expatriate employees - Held that - The definition of the term salary in Rule 3 before 1.4.2001 makes it amply clear that there is no scope to exclude the tax from salary because it is pay and it is not specifically excluded by any of the exclusionary clauses mentioned therein - This becomes more clear when a conscious decision was made to amend the rule and a clause (d) was introduced for the purpose of excluding the value of perquisites specified in clause (2) of Section 17 - There is only one interpretation which can be placed on the term and the same is clear from its definition in Rule 3 as it existed for the relevant years - Therefore the mistake was apparent from record and flows from the plain reading of Rule 3 Explanation - Therefore of the opinion that it was a legal error apparent on record which could be corrected by the AO in exercise of his power under Section 154 of the Act - Accordingly questions of law framed are answered in favour of the Revenue.
Issues Involved:
1. Whether the tax paid by the employer in respect of salary paid to the employees is "salary" under Rule 3 of the Income Tax Rules for the purpose of computing the value of perquisites in respect of rent-free accommodation provided to expatriate employees. 2. The scope of powers of the Assessing Officer (AO) under Section 154 of the Income Tax Act for rectification of the order. Issue-wise Detailed Analysis: 1. Tax Paid by Employer as "Salary" for Perquisite Computation: The primary issue was whether the tax paid by the employer on behalf of the employees should be included in the "salary" for computing the value of perquisites, specifically rent-free accommodation, under Rule 3 of the Income Tax Rules, 1962. The Tribunal had initially quashed the AO's order for Financial Years 1995-96 to 1997-98, directing the AO to recompute the tax liability without including the tax paid by the employer in the gross salary. However, the AO issued a show cause notice and rectified the order under Section 154, including the tax element in the gross salary. The Tribunal and CIT (A) upheld the AO's view, stating that tax paid by the employer is part of the salary and not a perquisite. The Tribunal referred to the judgment in T.P.S. Scott and Ors. Vs. Commissioner of Income Tax [232 ITR 475], confirming that tax perquisite is part of gross salary. 2. Scope of AO's Powers under Section 154: The second issue was whether the AO had the jurisdiction to rectify the order under Section 154 of the Income Tax Act. The assessee argued that the original order had merged with the Tribunal's order, and thus, the AO could not invoke Section 154. The Tribunal rejected this contention, stating that the Tribunal had not adjudicated on the issue of including tax perquisite in the salary, and thus, the AO's order did not merge into the Tribunal's order. The Tribunal concluded that the AO was competent to rectify the order as it was a patent mistake of law. The Tribunal and CIT (A) held that the mistake was apparent from the record and did not require further investigation. Detailed Submissions and Legal Precedents: The assessee argued that the issue was debatable and not a patent mistake, citing various judgments including Balram (T.S.), ITO Vs. Volkart Brothers [82 ITR 50 (SC)] and Commissioner of Income Tax Vs. Hero Cycles Pvt. Ltd. [228 ITR 463]. The Revenue countered that the issue was settled by the judgments in Emil Webber Vs. Commissioner of Income Tax [200 ITR 483] and T.P.S. Scott and Others Vs. Commissioner of Income Tax [232 ITR 475], where it was held that tax paid by the employer is part of the gross salary. The Tribunal and the High Court agreed with the Revenue, stating that the issue was not debatable and was an apparent mistake of law. Conclusion: The High Court concluded that the AO was within his rights to rectify the order under Section 154, as the inclusion of tax paid by the employer in the salary for perquisite computation was a settled issue and not debatable. The appeals were dismissed, and the questions of law were answered in favor of the Revenue and against the assessee.
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