2009 (2) TMI 243 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 148 of the IT Act.
2. Taxability of the refund issued to the assessee under Section 10(5B) of the IT Act.
3. Classification of the refund as a "perquisite" under Section 17(2)(iv) of the IT Act.
4. Application of Section 198 of the IT Act regarding excess tax paid.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 148 of the IT Act:
The reassessment proceedings were initiated by issuing notices under Section 148 for the assessment years 1999-2000, 2000-01, and 2001-02. The AO believed that the refund issued to the assessee was not exempt under Section 10(5B) and constituted taxable income that had escaped assessment. The CIT(A) upheld these reassessments, leading to the appeals before the Tribunal.

2. Taxability of the Refund Issued to the Assessee under Section 10(5B) of the IT Act:
The assessee, a resident of Japan and employee of M/s T.S. Tech Company Ltd., Japan, was deputed to the Indian subsidiary, M/s T.S. Tech Sun (India) Ltd. The tax paid on the salary was exempt under Section 10(5B). The AO contended that the refund issued was taxable income, as it exceeded the amount due and was not covered under the exemption. However, the Tribunal noted that the excess tax paid by the employer was refunded to the assessee and subsequently remitted to the employer, confirming that the refund did not constitute taxable income for the assessee.

3. Classification of the Refund as a "Perquisite" under Section 17(2)(iv) of the IT Act:
The AO classified the refund as a "perquisite" under Section 17(2)(iv), arguing that any sum paid by the employer in respect of any obligation payable by the assessee qualifies as a perquisite. The Tribunal disagreed, stating that the employer's obligation was only to pay the correct tax on the assessee's income. Any excess payment was not a perquisite since it was not for services rendered or any benefit to the assessee. The Tribunal emphasized that all receipts are not taxable and must be examined for their nature and character in the recipient's hands.

4. Application of Section 198 of the IT Act Regarding Excess Tax Paid:
Section 198 deems all sums deducted in accordance with the chapter as income received. The Tribunal clarified that this section was not applicable as the excess amount was not deducted but paid by the employer. Moreover, a wrong payment of excess tax cannot be considered a deduction in accordance with the statute. Therefore, Section 198 did not apply to the excess amount refunded.

Conclusion:
The Tribunal concluded that the excess tax refunded to the assessee, which was subsequently returned to the employer, could not be treated as taxable income or a perquisite. The reassessment orders were set aside, and the appeals of the assessee were allowed. The Tribunal highlighted that the nature of the receipt must be examined, and if the amount is not due to the recipient, it cannot be taxed. The employer's right to the refund and the obligation to return the excess amount were crucial in determining the taxability.