2013 (4) TMI 312 - AT - Income Tax

Tax paid by the employer on the salary/remuneration of the employee - whether covered under section 17(2) although a monetary perquisite as held by CIT(A) - whether eligible for exemption u/s 10 (10CC) - assessee filed return of income of the above persons as an authorized agent u/s 163 - Held that - As decided in Director, Income Tax (International Taxation) Versus Sedco Forex International Drilling Inc & Others 2012 (8) TMI 426 - UTTARKHAND HIGH COURT & bunch of cases despite prohibition contemplated in the Section 200 of Companies Act for payment of tax free remuneration to an employee, Section 10(10CC) of the Income Tax Act provides for exemption of amount which is not a monetary payment to employee and is also provided as perquisite u/s 17(2) and thereby has acknowledged that remuneration plus tax payable thereon is permissible. Therefore, the payment of tax on account of salaries of the employees not by way of monetary payment to the employees concerned, but for or on their account to the Department and the same being one of the perquisites included in Section 17(2), such payment was to be excluded from the income of the employees - Decided in favour of assessee.

Summary

Issues:
- Interpretation of section 10(10CC) of the Income Tax Act, 1961 regarding exemption of tax paid by the employer on behalf of the employee.
- Application of section 17(2) of the Act in determining tax exemption eligibility.
- Discrepancy between Assessing Officer's decision and Ld CIT(A)'s decision on tax perquisite exemption.
- Impact on revenue collection and potential contract adjustments by employers.
- Judicial precedent from the Hon'ble High Court of Uttrakhand on tax exemption for employer-paid taxes.

Analysis:
1. Interpretation of Section 10(10CC): The case involved three appeals by the revenue challenging orders of Ld CIT(A) regarding tax paid by the employer on behalf of foreign national employees. The issue revolved around whether such tax payments constitute a non-monetary perquisite eligible for exemption under section 10(10CC) of the Income Tax Act, 1961.

2. Application of Section 17(2): The Assessing Officer initially disallowed the exemption claimed by the assessee, citing that the tax perquisite was not covered under section 10(10CC) as it was not eligible for exemption under the provisions of section 17(2) of the Act. This decision was based on a Special Bench order of the Delhi Tribunal.

3. Discrepancy in Decisions: The Ld CIT(A), after reviewing submissions and the Special Bench order, allowed the appeals of the assessee, leading to the revenue filing appeals before the Tribunal. The Tribunal, considering the arguments of both parties, found in favor of the assessee, citing a judgment from the Hon'ble High Court of Uttrakhand.

4. Revenue Impact and Contract Adjustments: The Ld DR raised concerns about potential revenue loss and employer contract adjustments if tax on employer-paid taxes was exempted. However, the Ld AR argued that the matter was settled by the High Court judgment, which supported the assessee's position.

5. Judicial Precedent: The Tribunal referenced the High Court judgment, which clarified that tax payments made by the employer on behalf of employees, not as monetary payments but to the Income Tax Department, constitute a non-monetary benefit exempt under section 10(10CC). Following this precedent, the Tribunal dismissed the revenue's appeals, upholding the CIT(A)'s decision.

In conclusion, the Tribunal's decision aligned with the judicial precedent set by the Hon'ble High Court of Uttrakhand, affirming that tax paid by the employer on behalf of employees qualifies as a non-monetary benefit exempt under section 10(10CC) of the Income Tax Act, 1961.