1997 (9) TMI 138 - AT - Income Tax

Summary

Issues:
1. Whether the assessee was liable to deduct tax on reimbursements made under the Conveyance Maintenance Reimbursement Expenditure Scheme.
2. Whether the AO and CIT(A) were justified in charging interest under section 201(1) of the Income Tax Act.
3. Whether the amount in question was exempt under section 10(14) of the Income Tax Act.

Detailed Analysis:
1. The primary issue in this case was whether the assessee, a public sector undertaking, was required to deduct tax on reimbursements made under the Conveyance Maintenance Reimbursement Expenditure Scheme. The assessee contended that the reimbursements did not constitute income in the hands of the employees and, if considered income, were exempt under section 10(14) of the IT Act. The ITO, however, held the assessee in default for not deducting tax on the reimbursements. The ITAT noted that the liability to deduct tax at source arises under sections 192 to 195 of the Act and failure to do so results in penalties under section 201, including interest at 15% per annum. The tribunal considered the conditions for exemption under section 10(14) and concluded that the employer could not be held liable to pay tax under section 201(1) in this case.

2. The second issue pertained to the justification of charging interest under section 201(1) by the AO and confirmed by the CIT(A). The tribunal referenced previous judgments to establish that if the employer had a genuine belief that the amount in question was exempt under section 10(14), they could not be made liable to pay tax under section 201(1). The tribunal found that the AO and CIT(A) were not justified in charging interest under section 201(1) in this case, ultimately canceling the tax charged.

3. Lastly, the tribunal analyzed whether the amount in question was exempt under section 10(14) of the Income Tax Act. The tribunal reviewed Circulars and notifications to determine the applicability of the exemption conditions. It was noted that the employer was under a genuine impression that the amount was exempt under section 10(14), satisfying the necessary conditions for exemption. The tribunal held that the employer could not be made liable to pay tax under section 201(1) based on the exemption provisions. The decision was supported by previous judgments and the tribunal allowed the assessee's appeal, canceling the tax charged.

In conclusion, the tribunal ruled in favor of the assessee, holding that the reimbursements under the Conveyance Maintenance Reimbursement Expenditure Scheme were not subject to tax deduction, the interest charged under section 201(1) was not justified, and the amount in question was exempt under section 10(14) of the Income Tax Act. The appeal was allowed, and the tax charged was canceled, aligning with previous tribunal decisions on similar matters.