2019 (2) TMI 793 - AT - Income Tax

TDS u/s 192 - Assessee in Default u/s 201(1) - KPTCL paid Cash equivalent of unutilized leave at the time of their retirement to its employees with no deduction of tds - Consequences for failure to deduct or pay - Held that - The obligation of the Assessee u/s.192 is only to make bonafide estimate of income of his employee under the head salaries. Such obligation cannot be tested on the parameters laid down on exercise of power by authorities under the Act exercising powers u/s.132 or u/s.147 of the Act. Apart from the above, we have already set out the circumstances under which belief was formed by the Assessee while deducting tax at source on salary paid to its employees in the earlier order of the Tribunal which is extracted in paragraph-10 of this order. We are of the view that said conclusions will hold good for the present appeals also, as the facts and circumstances are same in these appeals and the appeals already decided by the Tribunal. Circumstances explained by the learned counsel for KPTCL regarding the manner of formation of KPTCL and the action of the revenue in not questioning KPTCL s action in the past several years after its formation and the manner of exercise of control and affording protecting to employees of KPTCL by the State Government were definitely factors which weighed with KPTCL when it made estimate of its employees income under the head Salaries . There is no reason for them to think that its estimate of employee s income under the head Salaries was incorrect as the belief it entertained was that its employees were to be regarded as employees of State Government and that its employees are entitled to exemption of the entire sum of unutilized leave encashment u/s.10(10AA)(i) of the Act. For the reasons given above and respectfully following the decision of the Tribunal referred to paragraph-10 of this order, we hold that KPTCL has discharged its obligation u/s.192 and hence proceedings u/s.201(1) & 201(1A) of the Act deserves to be quashed and are hereby quashed. All the appeals of KPTCL are allowed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of the respondent in passing orders under Section 201(1) and 201(1A) of the Income Tax Act.
2. Validity of the orders under Section 201(1) and 201(1A) due to the period of limitation.
3. Nature of payments for unutilized leave as income under Section 17(1)(va) of the Act.
4. Applicability of Section 10(10AA)(i) versus Section 10(10AA)(ii) of the Act for KPTCL employees.
5. Applicability of Sections 201(1) and 201(1A) due to KPTCL’s bona fide belief regarding tax deduction obligations.

Detailed Analysis:

1. Jurisdiction of the Respondent:
The appellant, KPTCL, argued that the assumption of jurisdiction by the respondent to pass orders under Sections 201(1) and 201(1A) was invalid. However, the Tribunal did not find merit in this proposition and did not provide a detailed discussion on this point, implying that the jurisdiction was appropriately assumed by the respondent.

2. Period of Limitation:
KPTCL contended that the orders passed under Sections 201(1) and 201(1A) were beyond the period of limitation and thus invalid. The Tribunal did not explicitly address this issue in the detailed analysis, suggesting that the focus was more on the substantive issues rather than procedural limitations.

3. Nature of Payments for Unutilized Leave:
KPTCL argued that the payments made for unutilized leave at the time of retirement were not in the nature of income as defined under Section 17(1)(va) of the Act. The Tribunal referenced the provisions of Section 192, which mandates tax deduction on salaries, including payments for unutilized leave. The Tribunal upheld the view that such payments are indeed part of salary and subject to tax deduction at source.

4. Applicability of Section 10(10AA)(i) vs. Section 10(10AA)(ii):
The core issue was whether KPTCL employees should be considered as State Government employees, thus qualifying for the full exemption under Section 10(10AA)(i), or as employees of a statutory corporation, limiting the exemption to ?3,00,000 under Section 10(10AA)(ii). The Tribunal noted that KPTCL, being a statutory corporation, does not equate to the State Government. Hence, its employees are not entitled to the full exemption under Section 10(10AA)(i). This position was supported by earlier Tribunal decisions and the specific historical and legislative context of KPTCL’s formation and its employees’ status.

5. Bona Fide Belief and Sections 201(1) and 201(1A):
KPTCL argued that it had a bona fide belief that its employees were State Government employees and thus did not deduct tax on unutilized leave payments exceeding ?3,00,000. The Tribunal accepted this argument, referencing the historical context and previous acceptance by the revenue authorities of KPTCL’s tax deduction practices. The Tribunal emphasized that the obligation under Section 192 is to make a bona fide estimate of the employee’s income. Given the historical assurances and the nature of KPTCL’s formation, the Tribunal found KPTCL’s belief reasonable and bona fide. Consequently, the Tribunal quashed the proceedings under Sections 201(1) and 201(1A), ruling that KPTCL had discharged its obligations appropriately.

Conclusion:
The Tribunal allowed all the appeals of KPTCL, quashing the orders under Sections 201(1) and 201(1A) of the Income Tax Act. The key determinations were that KPTCL’s employees are not State Government employees for the purposes of tax exemption on unutilized leave, but KPTCL’s bona fide belief in their status and historical context justified their actions, negating the default status under Sections 201(1) and 201(1A).