2013 (5) TMI 557 - AT - Income Tax

Performance incentive - non deduction of TDS - whether be considered as part of salary for the purpose of computation of exemption u/s 10(13A) in respect of HRA paid to the employees - CIT(A) allowed the claim by deleting the demand raised u/s 201(1) - Held that - Considering the principle laid down consistently by the Jurisdictional High Court in the case of Nestle India Ltd (2000 (1) TMI 35 - DELHI High Court), Delhi Public School (2011 (10) TMI 17 - DELHI HIGH COURT) and Maruti Udyog Ltd.(2011 (12) TMI 103 - DELHI HIGH COURT) & in the facts of the present case where no case has been made out by the Revenue to show that the assessee has acted dishonestly and/or in a mala fide manner. The impugned order deserves to be upheld. The fact that there is a short deduction of tax in the present case where it was linked with the performance incentive paid to the employee on the basis of achievement of fixed percentage, the estimated TDS deducted in a bona fide manner as per the settled legal position cannot be faulted with. There being no allegation of even an iota of mala fide on the part of the assessee, the relief granted by the CIT(A) though on different reasoning is sustained. In favour of assessee. Non deduction of TDS on link charges as technical services u/s 194J - demand raised u/s 201(1)/201(1A) - CIT(A) allowed the claim by deleting the demand raised u/s 201(1) - Held that - Admittedly the payments are made to MTNL & BSNL etc. for providing space for transmission of date for carriage of voice and for availing the service of inter-communication, port access for which as per the settled uncontested legal position is that no human intervention is necessary. Nothing has been placed on behalf of the department to show that the facts have not been correctly appreciated in the case of the assessee. The lack of human intervention in making use of the service provided by BSNL and MTNL etc domains and in the fact as they stated the finding cannot be faulted with. Accordingly, being satisfied by the reasoning and finding arrived in the impugned order, ground of the department is also dismissed. In favour of assessee.

Summary

Issues Involved:
1. Deletion of demand raised on account of considering performance incentive as part of salary for the purpose of computation of exemption under Section 10(13A) of the Income Tax Act, 1961 in respect of House Rent Allowance (HRA) paid to employees.
2. Deletion of demand raised under Sections 201(1) and 201(1A) of the Income Tax Act on account of considering link charges as technical services under Section 194J of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Performance Incentive as Part of Salary for HRA Exemption:
The revenue contested the deletion of demand raised due to the non-inclusion of performance incentives in the calculation of HRA exemptions under Section 10(13A). The assessee argued that performance incentives are not part of "salary" as defined in Rule 2(h) of the Fourth Schedule for computing HRA exemptions. The CIT(A) agreed, citing Section 10(13A), Rule 2A, and the Karnataka High Court decision in CIT vs. B. Ghoshal, which supports excluding performance incentives from salary for HRA exemption purposes. The Tribunal upheld the CIT(A)'s decision, noting that the employer's estimate of TDS was bona fide and honest, as required under Section 192(1). The Tribunal referenced judgments from the Madhya Pradesh High Court (Gwalior Rayon Silk Co. Limited vs. CIT) and the Delhi High Court (CIT vs. Nestle India Ltd. and CIT vs. Maruti Udyog Ltd.), which support the view that an employer's bona fide estimate of TDS cannot be faulted without evidence of dishonesty or mala fide intent. Consequently, the Tribunal dismissed the revenue's appeal on this issue.

2. Link Charges as Technical Services:
The revenue also contested the deletion of demand related to link charges, arguing these should be considered "fees for technical services" under Section 194J. The CIT(A) disagreed, referencing the Supreme Court's decision in CIT vs. Bharti Cellular Ltd., which held that "technical services" require human intervention. The CIT(A) found that telecom connectivity payments made by the assessee involved no human intervention and thus did not qualify as technical services. The Tribunal upheld this view, citing the Delhi High Court's decision in Asia Satellite Telecommunication Co. Ltd. vs. DIT, which held that payments for satellite connectivity do not constitute technical services. The Tribunal also referenced other supportive judgments, including the Madras High Court's decision in Skycell Communication Ltd. vs. DCIT and the Mumbai Bench Tribunal's decision in DCIT vs. Angel Broking Ltd. The Tribunal concluded that the payments to MTNL and BSNL for telecom services did not involve human intervention and thus did not require TDS under Section 194J. Therefore, the Tribunal dismissed the revenue's appeal on this issue as well.

Conclusion:
In conclusion, the Tribunal upheld the CIT(A)'s decisions on both issues, finding that the assessee's treatment of performance incentives for HRA exemption and link charges for telecom services was in accordance with the law. The appeals by the revenue were dismissed in their entirety.