2021 (7) TMI 1053 - HC - Income Tax

Computing value of perquisites u/s 17(2) - assessee is a Trust constituted under Charitable Endowment Act, 1890 - value of residential accommodation provided by the Central Government or any State Government to the employees either holding office or post in connection with affairs of the Union or of such State or serving with any body or Undertaking under the control of such Government on such deputation - whether the assessee, which is a Trust registered under the Charitable Endowment Act, 1890 can be treated as Central Government as provided in Sl.No.1 of Table 1 appended to Rule 3(1) of the Rules? - HELD THAT - The assessee, which is a Trust under the 1890 Act, is controlled and financed by the Central Government. The assessee is a Body or an undertaking controlled by the Central Government. governed by the Rules governing the service conditions of the employees of the Central Government. The assessee may be an instrumentality of the State of for the purpose of Article 12 of the Constitution of India. For the purposes of Rule 3, the requirement is that the accommodation should be provided by the Central Government or State Government to the employees either holding office or post in connection with affairs of Union or of State or serving with any body or undertaking under the control of such government from deputation. The aforesaid expression is unambiguous and unclear and therefore, its meaning cannot be expanded to include any body, undertaking under the control of Central Government. Merely because assessee is a body or undertaking owned or controlled by the Central Government, it cannot be elevated to the status of Central Government. Thus, the assessee cannot claim that valuation of perquisites in respect of residential accommodation should be computed as in case of an accommodation provided by the Central Government. Therefore, Sl.No.1 of Table 1 of Rule 3 of the Rules does not apply to the assessee. The substantial questions of law No.1 and No.2 are answered against the assessee and in favour of the revenue. Obligation to establish that the Appellant has provided any concession to the Employees in respect of the accommodation before applying Rule 3 of the Income Tax Rules 1962 - Explanation 1 has been incorporated in Section 17(2) of the Act by Finance Act, 2007 with effect from 01.04.2002. Thus, in view of Explanation 1 to Section 17(2) of the Act, which provides that concession in the matter of rent shall be deemed to have been provided, the substantial question of law No.3 does not arise for consideration in this appeal. The liability is created under Section 17(2)(ii) of the Act by a deeming provision. Therefore, the provisions of Rule 3 of the Rules shall apply to the case of the assessee.

Issues Involved:

1. Applicability of Sl.No.1 of Table-1 of Rule 3 of the IT Rules, 1962 to the employees of the appellant.
2. Justification of treating the appellant as a defaulter under Sections 201(1) and 201(1A) of the Income Tax Act, 1961.
3. Consideration of bonafide belief in the interpretation of Sl.No.1 of Table-1 of Rule 3 of the IT Rules, 1962.

Detailed Analysis:

Issue 1: Applicability of Sl.No.1 of Table-1 of Rule 3 of the IT Rules, 1962

The appellant, a constituent unit of the Council of Scientific and Industrial Research (CSIR), claimed that its employees should be treated akin to Central Government employees for the purpose of valuation of perquisites under Rule 3 of the IT Rules, 1962. The appellant argued that since it functions under the Ministry of Science and Technology and its employees are governed by the same rules as Central Government employees, the valuation should be done as per Sl.No.1 of Table-1 of Rule 3.

However, the court noted that the appellant, though controlled and financed by the Central Government, is a society registered under the Societies Registration Act, 1860. The court emphasized that the language of the statute is clear and unambiguous, requiring that the accommodation must be provided directly by the Central or State Government to their employees. The court concluded that merely being a body or undertaking controlled by the Central Government does not elevate the appellant to the status of the Central Government. Therefore, the court held that Sl.No.1 of Table-1 of Rule 3 does not apply to the appellant, and the valuation should be done as per Sl.No.2 of Table-1.

Issue 2: Justification of treating the appellant as a defaulter under Sections 201(1) and 201(1A) of the Income Tax Act, 1961

The Assessing Officer had held the appellant liable as an assessee in default under Sections 201(1) and 201(1A) for not correctly valuing the perquisite value of accommodation provided to its employees. The appellant's appeal to the Commissioner of Income Tax (Appeals) and subsequently to the Income Tax Appellate Tribunal (ITAT) was dismissed, with the ITAT affirming that the appellant should be governed by Sl.No.2 of Table-1 of Rule 3.

The court upheld this view, reiterating that the appellant cannot be treated as the Central Government for the purposes of Rule 3. Thus, the court answered the first two substantial questions of law against the appellant and in favor of the revenue, affirming the appellant's status as a defaulter for short deduction of tax at source.

Issue 3: Consideration of bonafide belief in the interpretation of Sl.No.1 of Table-1 of Rule 3 of the IT Rules, 1962

The appellant argued that even if it is considered a defaulter, it should not be penalized due to its bonafide belief in the interpretation of the rules. The court noted that in a similar case involving the Indian Institute of Bangalore, the tribunal had accepted the bonafide estimate of the employees' salary by valuing the perquisite as if they were Central Government employees, and had quashed proceedings under Sections 201 and 201(1A).

In light of this, the court found no justification for taking a contrary view in the appellant's case. Therefore, the court answered the third substantial question of law in favor of the appellant, quashing the initiation of proceedings under Sections 201 and 201(1A).

Conclusion:

The court quashed the order of the Income Tax Appellate Tribunal dated 04.07.2014 insofar as it pertained to the initiation of proceedings under Sections 201 and 201(1A) of the Income Tax Act, 1961. The appeal was disposed of accordingly.

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