1994 (6) TMI 45 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of salary income under the Double Taxation Avoidance Agreement (DTAA).
2. Taxability of "Perquisite" value of free boarding and lodging facilities.
3. Validity of the Commissioner of Income-tax's action under section 263.

Issue-wise Detailed Analysis:

1. Taxability of Salary Income under the DTAA:
The appellants, employees of Hyundai Heavy Industries Co. Ltd. (HHI), a non-resident company, filed returns showing NIL income, claiming exemption under the Double Taxation Avoidance Agreement (DTAA) between India and Korea. The Income-tax Officer rejected this claim and taxed the salary income after allowing standard deductions. The Commissioner of Income-tax (Appeals) upheld this decision, and further appeals are pending before the Tribunal.

2. Taxability of "Perquisite" Value of Free Boarding and Lodging Facilities:
The Commissioner of Income-tax, under section 263, opined that the assessment orders were erroneous and prejudicial to the interests of revenue as the Income-tax Officer did not tax the "Perquisite" value of free boarding and lodging facilities provided to the appellants. The appellants argued that no monetary value could be assigned to the benefit of free boarding and lodging, citing various precedents and circulars. The Commissioner rejected these arguments and directed the addition of the "benefit" value of free boarding and lodging to the taxable income, relying on the decision of the Allahabad High Court in All India Defence Accounts Association.

3. Validity of the Commissioner of Income-tax's Action under Section 263:
The Tribunal examined whether the action under section 263 was warranted. The Commissioner initiated action on the grounds that the Income-tax Officer omitted to tax the perquisite value of free boarding and lodging. The Tribunal noted that the issue was debatable and that the Income-tax Officer had not examined this aspect in the assessment orders. Despite upholding the Commissioner's action under section 263, the Tribunal concluded that no amount was required to be taxed for the provision of food, as it did not constitute a "perquisite" under section 17(2). The Tribunal did not adjudicate on the taxability of lodging since no addition was made in subsequent proceedings.

Conclusion:
The Tribunal upheld the action of the Commissioner under section 263 but ruled that no amount was required to be taxed for the provision of food to the assessees. The decision does not prejudice pending proceedings regarding the taxability of salary income under the DTAA. The appeals were partly allowed.