2011 (4) TMI 880 - AT - Income Tax

Non deduction of TDS - perquisite/amenities provided to its employees by the assessee - levying demand u/s 201(1) and interest u/s 201(1A) - Held that - It is the bounden duty of the assessee to obey the order of the Madras High Court where the Association of Scientific and Technical Officers of ONGC of India filed a writ petition dated 8.3.2002 with regard to deduction of tax on the perquisites/amenities given to the employees - the assessee-corporation was one of the Respondents before the Madras High Court and therefore, the interim stay granted by the Madras High Court is binding on the assessee, thus in view of the interim stay granted by assessee was not expected to deduct any tax during period of operation of the stay, i.e. from 8.3.2002 to 30.4.2003. So, during that period, assessee cannot be treated as an assessee-in defaults Duty on the assessee to deduct tax u/s 192 for the financial year 2002-03, after the interim stay was vacated by the Madras High Court on 30.4.2003 - the provisions of s. 192(1) do not make it obligatory for the assessee to deduct in the subsequent assessment year - Once the income of the employees under the head salary was estimated honestly and fairly, merely because there was short deduction of tax, the provisions of s.201 are not attracted - the employer cannot be made liable for the consequences set out in sec. 201 on account of the retrospective amendment to sec. 17(2). As decided in CIT & ANR. VERSUS 1. M/S. LARSEN & TOUBRO LTD. 2. ASEA BROWN BOVERI LTD. 2009 (1) TMI 11 - SUPREME COURT employer is not under any statutory obligation under the income tax Act, 1961 or the Rules, to collect evidence to show that the employee had actually utilized the amount paid towards leave travel concession or conveyance allowance u/s 10(5). Nor is there any circular of the CBDT requiring the employer u/s 192 to collect and examine the evidence supporting the declaration submitted by the employee. Since in the instant case, the employer has acted on the basis of declarations given by the employees, therefore, there was no obligation on the part of the employer to deduct the tax at sources - Decided in the favour of assessee

Summary

Issues Involved:
1. Treatment of the assessee as 'assessee in default' for short deduction/no deduction of tax on the value of perquisites provided to employees.
2. Levy of demand under section 201(1) and interest under section 201(1A) of the Income Tax Act, 1961.

Detailed Analysis of the Judgment:

Issue 1: Treatment of the Assessee as 'Assessee in Default'
The primary issue was whether the assessee should be treated as 'assessee in default' for not deducting tax at source on the value of perquisites provided to employees. The Assessing Officer noted that the assessee had failed to deduct tax on perquisites valued at Rs. 91,73,186/-, leading to a tax shortfall of Rs. 28,05,580/- and interest of Rs. 4,20,867/-. The CIT(A) upheld this view, stating that the valuation of perquisites under section 17(2) read with Rule 3 of the Income Tax Rules, 1962, became law with the Finance Act, 2001, and the assessee was obligated to deduct tax accordingly.

The Tribunal, however, found merit in the assessee's argument that due to prevailing legal uncertainty and interim stays granted by various High Courts (Chennai and Mumbai), the assessee had acted in a bona fide manner by not deducting tax on the perquisites. The Tribunal referred to several judgments, including the Vishakhapatnam Bench in the case of ONGC Rajahmundry and the Nagpur Bench of the jurisdictional High Court in Western Coalfields Ltd., which supported the view that the assessee could not be treated as in default if it had acted fairly and honestly based on the prevailing legal situation.

Issue 2: Levy of Demand Under Section 201(1) and Interest Under Section 201(1A)
The Tribunal examined whether the demand raised under section 201(1) and the interest under section 201(1A) were justified. The assessee argued that it had obtained legal opinions and acted in good faith, believing that no tax was required to be deducted due to the interim stays. The Tribunal agreed, stating that the assessee had fairly and honestly estimated the income and complied with the interim orders of the High Courts. Consequently, the Tribunal held that the assessee could not be treated as an 'assessee in default' and directed the Assessing Officer to delete the demand and interest.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, setting aside the order of the CIT(A) and directing the deletion of the demand raised under section 201(1) and interest under section 201(1A) of the Income Tax Act, 1961. The Tribunal concluded that the assessee had acted in a bona fide manner based on the prevailing legal uncertainty and interim stays granted by various High Courts, and therefore, could not be treated as an 'assessee in default'.