2013 (9) TMI 307 - AT - Income Tax

Income from salary - TDS u/s 192 - Perquisite value of the residential accommodation - ownership of accommodation - Section 17(2)- Whether License fee determined under the Punjab Civil Service Rule shall only be taken as taxable perquisite under Rule 3(1) of the Income-tax Rules - Assessee in default u/s 201 - Held that - accommodations provided by the BBMB to the State Government employees were the properties owned by the Government of Punjab and the other States. Admittedly, the said properties were not owned by BBMB and in terms of section 79 of Punjab Reorganization Act, 1966, the residential accommodation established for the employees of the Beas Project was the work pertaining to Bhakra Project, which was owned by Punjab Government and later by partner States. Consequently we find no merit in the order of the Assessing Officer in treating the residential accommodation provided to the employees by BBMB as owned by BBMB. Since the accommodation to the employees of BBMB had been provided by the respective State Governments, and where the Government of Punjab was the owner of the land originally allotted to the Bhakra Project and since BBMB was functioning under the direct control of the Central Government, wherein the employees of BBMB were to be treated as the employees of the Central or State Government, the ingredients of Sr.No.1 of Table-1 under Rule 3 of the Income-tax Rules stand fulfilled. The said provisions relates to the accommodation provided by the Central Government or any State Government to its employees or employees serving with any body or undertaking under the control of such Government on deputation. The employees employed with BBMB were the employees of the State Government, which in turn was functioning under the control of Central Government and consequently the perquisite value of the rent free accommodation provided to such employees was to be the licence fees determined by the State Government as reduced by the rent actually paid by the employees. Admittedly in the facts of the present case the licence value had been determined in accordance with Rule 5.23 of Punjab Civil Service Rules, Vol. I, Part-I and had been included as taxable perquisite under Rule 3(1) of the Income-tax Rules, in the case of the assessee - The accommodation in the present case provided to the employees of BBMB was owned by the respective States and was not owned by BBMB and since the basic condition of ownership of the accommodation has not been specified in the present case, nor the premises had been taken on lease by the BBMB from the respective States, the provisions of Rule 3(1) of the Income-tax Rules is not applicable - Decided against Revenue.

Summary

Issues Involved:
1. Classification of BBMB as a Government or Non-Government body.
2. Computation of perquisite value of residential accommodation provided by BBMB.
3. Non-deduction of tax at source on perquisite value.
4. Demand raised under section 201(1) and interest charged under section 201(1A) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Classification of BBMB as a Government or Non-Government body:
The primary issue was whether BBMB should be considered a Government body or an independent statutory body for the purposes of taxation. The Assessing Officer held that BBMB was a statutory body created by a Gazette Notification and thus classified it as an independent entity, not a Government body. Conversely, the CIT (Appeals) concluded that BBMB, for all intents and purposes, is a Government organization. This conclusion was drawn from various documents, including the Punjab Reorganization Act, Gazette Notifications, and submissions from the appellant. The CIT (Appeals) emphasized that BBMB operates under the supervision and control of the Central Government, with funds sourced from partner States and accounts audited by the Comptroller & Auditor General of India.

2. Computation of Perquisite Value of Residential Accommodation Provided by BBMB:
The Assessing Officer argued that BBMB should be treated as an "other employer," and thus the perquisite value of rent-free accommodation should be calculated at 7.5% of the salary. However, the CIT (Appeals) held that BBMB employees should be treated as Government employees. Consequently, the perquisite value should be computed based on the license fee determined under the Punjab Civil Service Rules, as BBMB falls under Sr.No.1 of Table-I under Rule 3 of Income-tax Rules. The CIT (Appeals) found that the accommodations were owned by the partner States, not BBMB, and administered by BBMB, thus confirming the applicability of the Government employee classification.

3. Non-Deduction of Tax at Source on Perquisite Value:
The Assessing Officer contended that BBMB failed to deduct tax at source on the perquisite value of the accommodation provided to its employees, thus defaulting under section 201(1) of the Act. The CIT (Appeals) disagreed, stating that BBMB had correctly deducted TDS based on the license fee as per Punjab Civil Service Rules. The CIT (Appeals) clarified that the accommodation was owned by the State Governments, and BBMB was merely administering it, thereby aligning with the provisions applicable to Government employees.

4. Demand Raised Under Section 201(1) and Interest Charged Under Section 201(1A) of the Income-tax Act, 1961:
The Assessing Officer raised a demand under section 201(1) for the tax not deducted at source and charged interest under section 201(1A) for the default. The CIT (Appeals) overturned this decision, stating that BBMB had acted correctly in treating the accommodation as Government-owned and deducting TDS accordingly. The CIT (Appeals) concluded that BBMB employees were to be treated as Government employees, and the perquisite value should be based on the license fee determined by the State Government, not the 7.5% salary rule applicable to non-Government employees.

Conclusion:
The CIT (Appeals) held that BBMB is a Government organization, and the residential accommodation provided to its employees should be valued as per the license fee determined under the Punjab Civil Service Rules. The order of the Assessing Officer was overturned, and the appeals filed by the Revenue were dismissed. The CIT (Appeals) emphasized that BBMB operates under the control of the Central Government, with funds from partner States, and the employees should be treated as Government employees for tax purposes.