2018 (4) TMI 1484 - HC - Income Tax

TDS on Salary - perquisite - Living allowance u/s 10(14) - inclusion of boarding and lodging allowances paid to employees sent on deputation to U.K. - whether these allowances paid to the employees deputed to the U.K. fall within the provisions of Section 10(14)(i) of the Income Tax Act - Held that - After considering Section 10 (14) of the Act, this Court, In Bellien Michael Andresmant (1998 (10) TMI 58 - ANDHRA PRADESH High Court), has observed that there was no evidence on record to establish that the living allowance was paid to the assessees in connection with the duties to be performed by them and that in the absence of such evidence, it cannot be held that the allowance paid to them was exempted under Section 10 (14) of the Act. The amounts in dispute attract the definition of perquisite in Section 17 (2) of the Act and they do not fall within the exception of Section 10 (14) of the Act. Levy of interest u/s 201(1A) - bonafide belief for non deduction of tax on perquisite - Held that - As rightly argued by the learned counsel for the Revenue, unlike Section 221 of the Act, Section 201 (1A) of the Act is not hedged in by any requirement such as good faith, wilful default etc.,. Therefore, for levying interest, mens rea or wilful conduct is wholly irrelevant. In view of the fact that the appellant failed to deduct tax on the payments made, Section 201 (1A) is automatically attracted and even if the appellant is bona fide in not making such deduction, it is nevertheless liable to pay interest. The third question of law framed by the appellant is accordingly answered against it.

Summary

Issues Involved:
1. Taxability of boarding and lodging allowances paid to employees deputed to the UK.
2. Applicability of Section 10(14)(i) of the Income Tax Act to these allowances.
3. Legality of the order under Section 201(1) read with Section 201(1A) regarding non-deduction of tax on these allowances.

Issue-wise Detailed Analysis:

1. Taxability of Boarding and Lodging Allowances:
The primary issue was whether the boarding and lodging allowances paid to employees deputed to the UK constituted "salaries" liable to tax. The court examined the consultant's agreement, which specified different compensation structures for work in India and the UK. The court noted that the allowances paid towards boarding and lodging were clear from the substantial question of law framed by the assessee. The court had to determine whether these allowances fell within the definition of 'perquisite' under Section 17(2) or were exempt under Section 10(14) of the Income Tax Act, read with Rule 2BB of the Income Tax Rules.

2. Applicability of Section 10(14)(i) of the Income Tax Act:
The court analyzed Section 10(14) of the Act, which excludes certain allowances from total income. The court referenced Rule 2BB, which prescribes various allowances exempted from total income. The court considered previous judgments, including S.G.Pgnatale and Bellien Michael Andresmant, to determine whether the allowances were given as a personal advantage or mere reimbursement. The court concluded that the lump sum payments made to employees were to meet high costs towards accommodation and other personal expenditures, which could not be treated as expenses incurred in connection with the discharge of their duties. Therefore, these allowances did not fall within the exception of Section 10(14) of the Act and were taxable as perquisites under Section 17(2).

3. Legality of the Order under Section 201(1) read with Section 201(1A):
The court addressed whether the appellant's failure to deduct tax on the allowances could be excused due to a bona fide impression that the amounts were not taxable. The court noted that under Section 201 of the Act, an employer who fails to deduct tax is deemed to be an assessee in default and is liable to pay tax along with interest under Section 201(1A). The court emphasized that mens rea or wilful conduct was irrelevant for levying interest under Section 201(1A). The court rejected the appellant's reliance on the Rajasthan High Court judgment in Munni Lal, which pertained to penalty imposition under Section 194C(2) and not to interest under Section 201(1A). The court held that the appellant was liable to pay interest for failing to deduct tax, regardless of its bona fide belief.

Conclusion:
The court dismissed the appeals, concluding that the allowances paid to employees deputed to the UK were taxable as perquisites and did not qualify for exemption under Section 10(14). The appellant was also liable to pay interest under Section 201(1A) for failing to deduct tax on these allowances. The interim stay granted earlier was vacated, and related miscellaneous petitions were dismissed as infructuous.