2021 (2) TMI 28 - AT - Income Tax

TDS u/s 192 - leave fare concession LFC provided by the appellant to its employees - whether the action of the employer in not deducting tax at source from the leave travel facility in question could be said to be reasonable or bonafide? - HELD THAT - We have our prima facie reservations on the coordinate benches decisions holding taxability of these amounts in the hands of the employees concerned, because that aspect of the matter is not really relevant as on now. We leave it at that for the time being. The coordinate bench decisions deal with only the issue of taxability of leave travel facility under section 10(5) and not with the broader question about the nature of tax deduction at source liability under section 192, as also the issue about bonafides of the stand of the assessee employer. These decisions, therefore, do not come in the way of our present decision. Once we hold, as we do in this case, that estimation of income, in the hands of the employees under the head' income from salaries', by the employer was bonafide and reasonable, the very foundation of impugned demands raised under section 201 r.w.s 192 ceases to hold good in law. We must, therefore, vacate these demands. Bearing in mind entirety of the case, we cancel the impugned demands under section 201 r.w.s. 192 as unsustainable in law.

Summary

Issues Involved:
1. Limitation of Order under Section 201(1) and 201(1A).
2. Leave Fare Concession (LFC) involving en-route foreign travel.
3. Bona fide belief of the appellant regarding non-deduction of tax at source.

Detailed Analysis:

1. Limitation of Order under Section 201(1) and 201(1A):
The appellant contended that the order under section 201(1) and 201(1A) was barred by limitation and thus void-ab-initio. The CIT(A) held that the provisions of section 201(3), as amended by the Finance Act, 2014, are retrospective and apply to the assessment year in question. The Tribunal did not find it necessary to delve into this issue in detail, given the conclusions on other grounds.

2. Leave Fare Concession (LFC) involving en-route foreign travel:
The primary issue was whether LFC provided by the appellant to its employees, which involved en-route foreign travel, should be exempt under section 10(5) of the Income Tax Act, 1961. The CIT(A) held that the appellant was an assessee in default for not deducting tax at source on LFC payments involving foreign travel. The appellant argued that the exemption under section 10(5) is available even if the journey involves a foreign leg, as long as the designated place is in India and the employee actually visits the designated place. The Tribunal noted that the statutory provisions do not explicitly bar travel involving a foreign sector for exemption under section 10(5). It was concluded that the employer's estimation of income, including LFC, was bonafide and reasonable. Therefore, the employer could not be faulted for not deducting tax at source.

3. Bona fide belief of the appellant regarding non-deduction of tax at source:
The appellant maintained that it had a bona fide belief that it was not liable to deduct tax at source on LFC provided to employees. The Tribunal emphasized that the employer's duty under section 192 is to estimate the income of the employees reasonably and bonafide. The Tribunal found that the appellant’s actions were in good faith and based on a reasonable interpretation of the law. Consequently, the appellant could not be held as an assessee in default under section 201.

Conclusion:
The Tribunal vacated the demands under section 201 r.w.s 192, holding that the appellant had reasonably and bonafide estimated the income of its employees and deducted tax accordingly. The appeal was allowed in favor of the appellant, and the demands were canceled as unsustainable in law. The Tribunal also appreciated the well-drafted statement of facts and grounds of appeal, which were crucial in the absence of representation during the hearing.