2020 (12) TMI 1186 - AT - Income Tax

Income from salary - addition being the amount of salary refunded to the employer company - Double addition - appellant was working as Whole Time Director (WTD) with Sun Pharma Advanced Research Company Ltd. (SPARCL) and his remuneration was fixed at maximum salary of ₹ 3,50,00,000/- in AGM - HELD THAT - Since there was limit for payment of remuneration to the whole time director as per the Company Act, 1956, therefore, the company has made an application to the Ministry of Corporate Affairs, Govt. of India for approving the salary of the whole time director as per the resolution passed in the annual general meeting dated 31st July, 2012. Central Government has approved the salary of the whole time director at a lesser amount. Thereafter, the company had made second application to the Central Government to approve the excess salary, however, no response was received from the Central Government. Assessee was asked to refund the excess salary of ₹ 2.14 crores out of ₹ 1.99 crores pertained to the year under consideration. The assessee has refunded the excess amount of salary to the company and filed revised return of income showing the actual amount of salary received as approved by the Ministry of Corporate Affairs, Govt. of India. However, the Assessing Officer has taxed the excess amount as salary income on the ground that the amount was received by the assessee. The ld. CIT(A) has deleted the addition holding that refund of salary by the assessee was not voluntary but was to comply with the legal requirements of law, therefore, the same cannot be considered as income assessable to tax In the case of the assessee, the Central Government had decided the remuneration according to the provisions of Companies Act, 1956 and the refund of the salary was not voluntary but was to comply with the legal requirement of law. We find that the facts and issue involved in the case of the assessee are similar to the case of the CIT Vs. Raghunath Murti 2008 (8) TMI 996 - DELHI HIGH COURT . We consider that the refund was made merely with a view to comply with the provisions of Companies Act, 1956, therefore, we do not find any infirmity in the decision of ld. CIT(A). Accordingly, the appeal of the Revenue is dismissed.

Summary

Issues Involved:
- Addition towards income from salary deleted by CIT(A)
- Taxability of salary under section 15(b)
- Taxability of perquisite value of interest

Issue 1: Addition towards income from salary deleted by CIT(A)

The assessee's appeal for A.Y. 2014-15 challenged the order of CIT(A)-2, Vadodara, deleting the addition towards income from salary. The Revenue contended that the salary, whether due or not, and whether received or not, is chargeable to income tax. The Assessing Officer added an amount to the total income of the assessee based on the total salary originally received. However, the CIT(A) allowed the appeal, emphasizing that the refund of excess salary was not voluntary but to comply with legal requirements. The CIT(A) relied on a decision of the Hon'ble Delhi High Court to support this conclusion. The Tribunal dismissed the appeal of the Revenue, affirming the CIT(A)'s decision.

Issue 2: Taxability of salary under section 15(b)

The Revenue argued that the amount in question should be taxable under section 15(b) even if considered as 'not due.' However, the CIT(A) analyzed the facts, highlighting that the entitlement to remuneration is governed by the Companies law and approved by the Central Government. The CIT(A) noted that the remuneration exceeding the approved amount was not due to the appellant. The CIT(A) further emphasized that the refund of salary was made to comply with the provisions of the Companies Act, 1956, and was not voluntary. Citing a relevant decision, the CIT(A) held that only the net amount of salary after deducting the refund amount is taxable. Consequently, the addition made by the Assessing Officer was directed to be deleted.

Issue 3: Taxability of perquisite value of interest

The Revenue contended that the perquisite value of interest should be taxable as the assessee did not state that any interest was charged by the employer. However, the CIT(A) considered the facts and the legal requirements under the Companies Act, 1956. The CIT(A) concluded that the refund of the excess salary was not voluntary but to comply with legal provisions. Relying on a decision of the Hon'ble Delhi High Court, the CIT(A) held that the refund was made to adhere to the law, and therefore, the excess amount should not be considered as income assessable to tax. The Tribunal upheld the CIT(A)'s decision, dismissing the appeal of the Revenue.

In conclusion, the Tribunal affirmed the CIT(A)'s decision to delete the addition towards income from salary, emphasizing that the refund of excess salary was not voluntary but to comply with legal requirements. The Tribunal found no infirmity in the CIT(A)'s decision and dismissed the appeal of the Revenue.