2012 (11) TMI 343 - HC - Income Tax

Salary income - Whether tax borne by the employee is not part of the pay? - Held that - Though the assessee had paid tax of Rs. 50.00 lakhs, since the assesses was entitled to reimbursement of Rs. 35.00 lakhs from the Company, the salary income (Rs. 77.00 lakhs) received by the assesses had to be enhanced by Rs. 35.00 lakhs only and not the balance Rs. 15.00 lakhs which is paid by the assesses from the salary income. In these circumstances, the Tribunal was justified in holding that the tax amounting to Rs. 15.00 lakhs paid by the assessee from the salary income (not reimbursed by the company) could not be added to that income of the assessee - in favor of assessee. Notional interest on interest free deposit made for accommodation - part of perquisite of the assessee or not ? - Held that - Allowed the claim of the assessee by following the decision of this Court in the case of M.A.E. Paes v. CIT 1997 (9) TMI 83 - BOMBAY HIGH COURT

Summary

Issues:
1. Whether tax borne by the employee is part of the pay?
2. Whether notional interest on interest-free deposit made for accommodation is part of perquisite of the assessee?

Analysis:
1. The case involved the assessment year 1994-1995, where the respondent-assessee, an employee of a foreign company, had a tax equalization policy for his foreign assignment in India. The company was liable to reimburse the tax payable on the total salary received in India. The assessee included the tax reimbursement amount in the salary income declared for tax purposes. The ITAT found that the confusion arose because the assessee had paid tax but was entitled to reimbursement, leading to a discrepancy in the declared income. The Tribunal held that the tax amount paid by the assessee from the salary income, which was not reimbursed by the company, should not be added to the income of the assessee. Therefore, the first question regarding the tax borne by the employee not being part of the pay was dismissed.

2. Regarding the second question, the Tribunal allowed the claim of the assessee based on a previous court decision. The Tribunal followed the decision in the case of M.A.E. Paes v. CIT [1998] 230 ITR 60, which determined that notional interest on an interest-free deposit made for accommodation is not part of the perquisite of the assessee. As a result, the second question was also dismissed, and the appeal was accordingly rejected with no order as to costs.