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2011 (11) TMI 453 - AT - Income TaxPerquisite value of accommodation supplied by the employer to the employee - Whether tax paid by the employer on behalf of employee can be included while computing salary under Rule 3 of the Income-tax Rules, 1962 Held that - Tax paid by the employer on behalf of the employee is perquisite u/s 17(2) and, therefore, not includible in salary under Rule 3 for the purpose of computing the perquisite value of the accommodation supplied by the employer to the employee. AO is directed to compute the perquisite value by following the aforesaid direction. See Asstt. CIT v. Makote Hoshizart (2008 (11) TMI 285 - ITAT DELHI-E ) Decided in favor of assessee.
Issues Involved:
1. Whether the CIT(Appeals) erred in confirming the Assessing Officer's finding that "salary" for determining the perquisite value of accommodation under Rule 3 includes the tax paid by the employer company. Issue-Wise Detailed Analysis: Issue 1: Inclusion of Tax Paid by Employer in Salary for Perquisite Valuation The primary issue in these appeals is whether the CIT(Appeals) erred in confirming the Assessing Officer's finding that "salary" for the purpose of determining the perquisite value of accommodation under Rule 3 includes the tax paid by the employer company. 1. Arguments by the Assessee: - The counsel for the assessee argued that tax paid by the employer on behalf of the employee constitutes a perquisite under section 17(2)(iv) of the Income-tax Act, 1961. - Citing the case of RBF Rig Corporation LLC (RBFRC) v. Asstt. CIT, it was contended that payment of tax by the employer is a discharge of an obligation of the employee, which otherwise would have been payable by the employee himself. Hence, the amount of tax paid is a perquisite under section 17(2)(iv). - The counsel further argued that if the tax paid by the employer is considered a perquisite, it should not be included while computing "salary" under Rule 3 for ascertaining the perquisite value of accommodation provided by the employer. 2. Arguments by the Respondent: - The senior DR referred to various paragraphs of the assessment order and argued that the word "obligation" in section 17(2)(iv) does not include income-tax payment on behalf of the employee and such payment amounts to payment of salary in cash. 3. Relevant Case Laws: - T.P.S Scott v. CIT: The Delhi High Court held that the income-tax paid by the employer on behalf of the employee is part of the salary and the word "salaries" naturally includes tax paid on behalf of the employee. - Emil Webber v. CIT: The Supreme Court observed that the amount paid by way of tax on the salary received by the assessee can be treated as income of the assessee and is includible in the total income as "salary". - RBF Rig Corpn. LLC v. Asstt. CIT: The Special Bench of the Tribunal concluded that payment of tax on behalf of the employee by the employer is a discharge of an obligation and is a perquisite under section 17(2)(iv), not a monetary payment to the assessee. - Transocean Offshore Deepwater Drilling Inc. v. Dy. DIT: Followed the decision of RBF Rig Corporation, reinforcing that tax paid by the employer is a perquisite and not a monetary payment. - Asstt. CIT v. Makote Hoshizaki: The Tribunal held that for determining the perquisite value of rent-free accommodation, the term "salary" will not include the value of perquisites specified under section 17(2) of the Act, post the amendment effective from 01.04.2001. 4. Tribunal's Decision: - The Tribunal noted that the issue had been directly dealt with in the case of Makote Hoshizaki, where it was held that the term "salary" for the purpose of determining the perquisite value of accommodation does not include perquisites specified under section 17(2) of the Act. - Following the binding precedent set by the coordinate bench in Makote Hoshizaki, the Tribunal held that the tax paid by the employer on behalf of the employee is a perquisite under section 17(2) and, therefore, not includible in "salary" under Rule 3 for computing the perquisite value of the accommodation. - The Assessing Officer was directed to compute the perquisite value by excluding the tax paid by the employer from the "salary". Conclusion: All appeals were allowed, and the Tribunal directed the Assessing Officer to exclude the tax paid by the employer from the "salary" for the purpose of computing the perquisite value of the accommodation provided to the employee.
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