2012 (11) TMI 785 - HC - Income Tax

Allegation of discrimination - From the salary of the employees, Opp. Party nos. 2 and 3 deduct income tax U/s.192 and deposit the same with the Central Government. - reimbursement of the tax deducted and paid on that part of the house rent allowance - allege that the company discriminate the members of the petitioner-Association in taking decision not to reimburse the tax deducted and paid on that part of the house rent allowance (hereinafter mentioned as perquisites ), while it is reimbursing same to the non- executives by paying an equivalent amount known as up-keep allowance . - held that - respondents directed to decide the claim of the petitioner as to whether the members of the petitioner-Association and non-executives belong to the same class and the executives are entitled to 5% Up-keep Allowance as the non-executives are getting after giving an opportunity of hearing to the petitioner, within a period of one month from the date of production of certified copy of this judgment. Whether accommodation provided to the Executives working under Opposite party no.1 could be regarded as part of their income on which tax could be deducted at source under Section 192 of the I.T. Act from the salary paid to the Executives. - held that - it is open to the members of the petitioner-Association to make an application as provided under sub-section (1) of Section 197 to the Assessing Officer and satisfy him that no tax is deductible from the salary on account of the accommodation provided by the employer to them. In such event, the Assessing Officer has to examine the case of the petitioner and if he is satisfied that the members of the petitioner-Association are entitled to be issued with certificate of No deduction of Income Tax he shall issue such certificate and on production of such certificate before opposite party No.1, opposite party No.1 is bound not to deduct tax until such certificate is cancelled. Thus, a statutory remedy is available to the petitioner under Section 197 of the Act. Section 197 is a complete provision so far as deduction of tax at source is concerned.

Issues Involved:
1. Validity of the impugned order passed without affording an opportunity of hearing.
2. Whether accommodation provided to executives is part of their income subject to tax deduction at source under Section 192 of the I.T. Act.

Issue-wise Detailed Analysis:

1. Validity of the Impugned Order Passed Without Affording an Opportunity of Hearing:

The petitioner argued that the impugned order dated 29.9.2011, which denied "Up-keep Allowance" to executive cadre employees, was discriminatory and violated Articles 14 and 19 of the Constitution of India. The petitioner emphasized that both executive and non-executive employees should be treated equally regarding pay and perquisites, including residential accommodation and corresponding tax deductions. The petitioner claimed that the order was passed without providing an opportunity for a hearing, thus violating the principles of natural justice, specifically the audi alteram partem rule.

The court referenced several precedents, including *Maneka Gandhi v. Union of India* and *S.L. Kapoor v. Jagmohan*, asserting that decisions made without hearing the affected parties are null and void. The court concluded that the impugned order was invalid as it was passed without affording an opportunity for a hearing, which is essential when an order has civil consequences.

2. Whether Accommodation Provided to Executives is Part of Their Income Subject to Tax Deduction at Source Under Section 192 of the I.T. Act:

The petitioner contended that the accommodation provided by the employer should not be regarded as part of the executives' income, and therefore, no tax should be deducted at source under Section 192 of the I.T. Act. They argued that the accommodation was provided as part of the duties of the executives and should not be considered a taxable perquisite.

The court noted that the determination of whether the accommodation provided constitutes a taxable perquisite depends on the factual scenario and the nature of the evidence produced. This determination requires an examination of the relevant materials, which is beyond the scope of a writ petition and should be addressed by the Assessing Authority.

The court referred to Section 192 of the I.T. Act, which mandates the deduction of income tax from salaries, including perquisites. It also highlighted Section 197, which allows an assessee to apply for a certificate of lower or no tax deduction if justified. The court advised the petitioner to seek such a certificate from the Assessing Officer, who would then determine whether the accommodation provided should be exempt from tax deduction.

Conclusion:

The court set aside the impugned order and directed the opposite party to reconsider the petitioner's claim regarding the entitlement to the "Up-keep Allowance" after providing an opportunity for a hearing. The petitioner was also advised to utilize the statutory remedy under Section 197 of the I.T. Act to address the issue of tax deduction on the accommodation provided. The writ petition was disposed of with these observations and directions.

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