2017 (9) TMI 469 - AT - Income Tax

Exemption under section 10(10CC) - determining that payment of tax, payable on salaries of the employees by employer is to be excluded from the income of the employees - whether tax paid by the employer is a perquisite not provided by way of a monetary payment ? - Held that - Section 10(10CC) provides an exemption from multiple grossing-up of tax paid by the employer whereby the same is added only once to the income of the employees and the tax-on-tax being a non-monetary perquisite is treated as exempt as per section 10(10CC). This issue had already been decided in favour of the assessee by the decision of the Special Bench of Delhi Tribunal in the case of RBF Rig Corporation (2007 (11) TMI 334 - ITAT DELHI-F). The issue stands covered in favour of the assessee by in the case of Sedco Forex International Drilling Inc. & Others (2012 (8) TMI 426 - Uttarkhand High Court) as held payment of tax on account of salaries of the employees not by way of monetary payment to the employees concerned, but for or on their account to the Department and the same being one of the perquisites included in Section 17(2), such payment was to be excluded from the income of the employees. Merely because SLP of the department is pending before the Hon ble Supreme Court is no ground to take a contrary view against the assessee

Summary

Issues:
1. Exclusion of tax paid by the employer on salaries of employees from the income of employees under section 10(10CC) of the Act.
2. Determination of tax payment by employer as monetary or non-monetary in nature for exemption under section 10(10CC) of the Act.

Analysis:
1. The appeal by Revenue challenged the order of the Ld. CIT(A) regarding the exclusion of tax paid by the employer on salaries of employees from the income of employees under section 10(10CC) of the Act. The A.O. added the value of perquisite on account of the tax paid by the employer to the income of the assessee, despite the assessee claiming exemption under section 10(10CC). The A.O. disallowed the exemption, citing that the department had not accepted previous decisions in favor of the assessee. However, the assessee argued that tax paid by the employer qualifies as a non-monetary perquisite exempt under section 10(10CC) based on previous judgments. The Ld. CIT(A) deleted the addition, relying on the decision of the Hon'ble Uttarakhand High Court, and allowed the appeal of the assessee.

2. The issue of whether tax payment by the employer is monetary or non-monetary in nature for exemption under section 10(10CC) was extensively discussed. The Ld. CIT(A) considered the legislative history and previous judgments, including the decision of the Hon'ble Uttarakhand High Court, which clarified that tax paid by the employer on behalf of employees qualifies as a perquisite under section 17(2)(iv) of the Act. The High Court ruled that such payment, although monetary, is not directly paid to the employees but on their behalf to the income tax department. Therefore, it is to be excluded from the income of the employees under section 10(10CC) of the Act. The Ld. CIT(A) concluded that the issue was covered in favor of the assessee and dismissed the department's appeal based on the judgment of the Hon'ble Uttarakhand High Court.

In summary, the judgment upheld the exemption of tax paid by the employer on salaries of employees from the income of employees under section 10(10CC) of the Act, based on the clarification that such payment qualifies as a perquisite under section 17(2)(iv) and is to be excluded from the employees' income. The decision relied on previous judgments and legislative history to support the interpretation that tax payment by the employer, although monetary, is a non-monetary perquisite exempt under section 10(10CC) of the Act.