1995 (1) TMI 128 - AT - Income Tax

Summary

Issues Involved:
1. Liability to deduct tax at source under section 192 of the Income-tax Act.
2. Taxability of various allowances as part of salary.
3. Validity of garnishing notice issued under section 226(3) of the Income-tax Act.
4. Power of the Appellate Tribunal to grant stay of recovery of demand.
5. Role of the High Power Committee in resolving disputes between government departments and public sector undertakings.

Detailed Analysis:

1. Liability to Deduct Tax at Source Under Section 192 of the Income-tax Act:
The primary issue revolves around whether the applicant, as an employer, is liable to deduct tax at source from the salary paid to its employees, specifically including various allowances such as kit maintenance allowance, telephone expenses, and free and concessional traveling allowance. The Revenue contends that these allowances should be treated as part of the salary for tax deduction purposes, whereas the Airlines argue that these allowances are either not taxable or exempt under section 10(14) of the Income-tax Act.

2. Taxability of Various Allowances as Part of Salary:
The CIT(A) ruled that while the kit maintenance allowance is exempt under section 10(14), other allowances are taxable as perquisites and should be included in the salary for tax deduction purposes. The CIT(A) directed the Assessing Officer to recompute the allowances and determine the shortfall in tax deduction and interest under section 201(1A).

3. Validity of Garnishing Notice Issued Under Section 226(3) of the Income-tax Act:
A garnishing notice was issued by the Assessing Officer to the State Bank of India, demanding payment from the Airlines' account without prior intimation or opportunity for the Airlines to be heard. This action was challenged by the Airlines through a writ petition, leading to a stay order from the Delhi High Court, halting the enforcement of the garnishing notice until 1st February 1995.

4. Power of the Appellate Tribunal to Grant Stay of Recovery of Demand:
The Tribunal has the statutory power to stay recovery proceedings pending the disposal of an appeal to advance justice or prevent its order from being rendered nugatory. This power is not negated by the Supreme Court's directions in the ONGC case or the High Court's stay order. The Tribunal can exercise its statutory powers to grant a stay of demand if the case is deserving.

5. Role of the High Power Committee in Resolving Disputes:
The Supreme Court directed the establishment of a High Power Committee to resolve disputes between government departments and public sector undertakings without resorting to litigation. The Cabinet Secretariat issued a memorandum outlining the procedure for such disputes, including the suspension of the operation of orders under challenge once a reference is made to the Committee. In this case, the Airlines approached the Committee, and thus, the operation of the order or proceedings relating to recovery of demand is deemed suspended.

Conclusion:
The Tribunal concluded that due to the reference made to the High Power Committee, the operation of the recovery order is suspended. Therefore, there is no immediate need to pass a stay order. The Tribunal treated the stay applications as infructuous, emphasizing that the parties should seek resolution through the High Power Committee. The Tribunal also noted that either party could approach it again if future circumstances warrant it.