2009 (7) TMI 50 - HC - Income Tax

Income from salary - Perquisites Exemption u/s 10(10CC) Tax paid by the employer on behalf of assessee assessee claimed the exemption from perquisites in the Return AO denied the claim - The larger bench of ITAT has taken the view that the tax paid by the employer on behalf of the employees, was not a perquisite in the nature of monetary perquisite to its employees, and as such assessees are entitled to exemption under Section 10 (10CC) of the Act matter remitted to tribunal for re-consideration in view of larger bench decision

Summary

Issues:
1. Interpretation of Section 10 (10CC) of the Income Tax Act, 1961 regarding exemption for employer-paid income tax on employees' salaries.
2. Application of the principle of multiple stage grossing up in determining income tax liability.

Analysis:
1. The High Court considered the appeals challenging the order of the Income Tax Appellate Tribunal (ITAT) regarding the exemption under Section 10 (10CC) of the Income Tax Act, 1961. The main issue was whether the employer, who paid income tax on the salaries of its employees, is exempted under this section. The Assessing Officer disallowed the exemption claimed by the assessee and assessed the income after applying the principle of 'multiple stage grossing up'. The Commissioner of Income Tax Appeals partly allowed the appeals, but the ITAT dismissed them. The Court noted a conflicting view by a larger bench of the ITAT, which held that the tax paid by the employer on behalf of employees qualifies for exemption under Section 10 (10CC). Consequently, the Court remanded the matter back to the ITAT for reconsideration in light of this conflicting view.

2. Section 10 (10CC) of the Income Tax Act provides for the exemption of income tax paid by the employer on behalf of the employee. The Court observed that the larger bench of the ITAT had a different interpretation compared to the division bench that handled the present case. The larger bench held that such tax payment by the employer is not a monetary perquisite to employees, making them eligible for exemption under Section 10 (10CC). Due to this conflicting interpretation, the Court set aside the ITAT's order and directed a reconsideration based on the view of the larger bench.

In conclusion, the High Court remanded the case back to the ITAT for reconsideration in light of the conflicting views on the interpretation of Section 10 (10CC) regarding the exemption of income tax paid by the employer on behalf of the employees. The Court did not express a final opinion on the merits of the case but emphasized the need for consistency in the application of tax laws.