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TMI Blog2007 (11) TMI 334X X X X Extracts X X X X X X X X Extracts X X X X ..... not applicable in cases taxes are paid by the employee who is otherwise obliged to pay it. When so paid, no perquisite, as far as employee is concerned, would be involved. The cash payment to the employee by the employer might be assessable as salary but it is not a perquisite or amenity or benefit . We have already noted view of Full Bench of Kerala High Court in Common Wealth Trust Ltd.'s case [ 1981 (11) TMI 47 - KERALA HIGH COURT] where their Lordships saw no good reason to give restricted meaning to the term benefit, amenity or perquisite as the same would not serve the purpose of the section. Their Lordships saw no rationality in the view of the majority High Courts, if it is held that cash allowance paid by the employer to an employee would be entitled to deduction, despite section 40(a)(v) and restrict the application of above provision to non-cash advantage. Such construction, according to their Lordships, would be quite irrational, defeating the very purpose of the Legislation. The aforesaid view, as noted, has not been approved by the Apex Court and a distinction has been drawn between cash payment on one hand and benefit, amenity or a perquisite on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are allowed on this issue. All the appeals of the assessees are allowed in terms stated above. - Member(s) : VIMAL GANDHI., P. N. PARASHAR. ORDER Per Vimal Gandhi, President.- The Special Bench has been constituted under section 255(3) of the Income-tax Act, 1961 on the recommendation of regular Bench to dispose of the following issue: "Whether, on the facts and in the circumstances of the case, tax paid by the employer on the income of the assessee is entitled to exemption under section 10(10CC) of the Income-tax Act?" The Special Bench constituted vide order dated 7-9-2007 is to dispose of entire appeal/appeals, referred to the Bench. 2. The facts leading to the constitution of Special Bench are that after the introduction of clause (10CC) in section 10 with effect from 1-4-2003 by the Finance Act, 2002, it was claimed by the assessee as an employee that where the employer has paid tax on the salary of the employee, the tax on such tax as perquisite is exempt under the above provision. In other words, it is not possible to have double grossing up. However, Delhi Bench of the Tribunal in the case of B.J. Services Co. Middle East Ltd. v. Asstt. CIT [IT Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 4. Shri S.K. Tulsiyan, who appeared on behalf of RBF Rig Corpn. LIC (REFRC)case treated as agent of non-resident employee Alnasser Rahim and 8 others, in the main appeals, submitted taking Alnasser Rahim's case as a test case. He stated that facts in all other cases are identical. 4.1 Shri Tulsiyan submitted that the taxpayer appellants are non-resident foreign nationals employed in India in the relevant assessment year 2004-05. They were employees of non-resident REF Rig Corpn. LIC (REFRC) case treated as statutory agent of the assessee. RBFRC itself was engaged in the business of providing services and facilities in the field of exploration and extraction of oil in India. These employees, as per terms of their employment, were to be paid salary 'net of taxes' and taxes were to be borne by the employer company. He pointed out that copy of Expatriate Second Agreement at page 2 of the paper book specifically provides that taxes on salary were to be borne by the employer. Accordingly in the returns of the employees filed by employer company in the representative capacity, tax borne by the employer on the salary paid was added as a perquisite and tax was calculated on the result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was distinguishable and not applicable to the facts of the case. 6.2 Similar orders have been passed in other cases and exemption claimed by the assessees as a perquisite in the shape of tax paid by the employer to the Government under section 10(10CC) has been denied to all the assessees. Being aggrieved, the assessees are before the Special Bench. 6.3 Shri S.K. Tulsiyan, learned counsel for the assessee submitted that view taken by the learned revenue authorities in these cases and earlier view taken by two Delhi Benches are not legally correct. In the three decisions of High Courts, noted and cited above, the question involved was limited one and the same was whether the taxes of the employees borne by the employer were perquisite. High Courts did not consider the question whether perquisite was a monetary payment or it was a non-monetary perquisite. He further submitted that Hon'ble High Courts did not hold that tax paid by the employer should be subjected to multiple stages grossing. Shri Tulsiyan referred to three decisions as under: 4.2-1 Frank Beaton v. CIT [1985] 156 ITR 16 (Delhi). In this case, Frank Beaton was an employee of M/s. Qantas Airways Ltd., an Australian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.4 In the background of above decisions, Shri Tulsiyan drew our attention to provision of clause (10CC) of section 10 introduced in the Statute by Finance Act, 2002 with effect from 1-4-2003: "10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- (10CC) in the case of an employee being an individual deriving income in the nature of a perquisite, not provided for by way of monetary payment, within the meaning of clause (2) of section 17, the tax on such income actually paid by his employer, at the option of the employer, on behalf of such employee, notwithstanding anything contained in section 200 of the Companies Act, 1956 (1 of 1956)." He, thereafter, drew our attention to provision of section 17(2) defining 'perquisite' in an inclusive definition, setting out different types of benefits which are treated as perquisites and added to salary income of the assessee. He specifically drew our attention to clause (iv), which according to him is most important and would clinch the issue. The said clause is as under: "(iv) any sum paid by the employer in respect of any obligation which but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s income, on the income in the nature of perquisites (not provided for by way of monetary payment). The employer shall also continue to have the option to deduct the tax on whole or part of such income." 6.6 Shri Tulsiyan emphasized that consequent changes were made in sections 195A, 198, 199, 200 and 203 which are highlighted in the above Memorandum. All the above amendments will take effect from 1-6-2002. 6.7 Shri Tulsiyan again drew our attention to provisions of section 10(10CC) and emphasized that important words and expression used and required consideration by the Special Bench are as to what is the interpretation of expression "a perquisite, not provided for by way of monetary payment". Further words required to be understood are "provided for by way of". In his view payment of tax by employer on behalf of the employee is a perquisite. The controversy is whether it is in the shape of monetary payment to the employee. According to Shri Tulsiyan the expression "provided for" means to make something ready or to do something necessary for a benefit. Shri Tulsiyan gave examples that you make provision for family or your staff or children and so on and, therefore, it will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to compute the deemed profits derived by the NRC by applying the method of multiple stage grossing up of the income. We do not find any merit in this argument of the department. Firstly, as stated above, section 44B is a complete code by itself. It is charging section as far as income of the NRC is concerned from oil exploration. It deals with computation of deemed profits. Secondly, section 195A comes under Chapter XVII which deals with collection and recovery of tax whereas section 44BB comes under Chapter IV which deals with computation of business income. Therefore, section 195A shall not assist department in applying the concept of multiple stage grossing up of the income to the profits derived by the NRC from oil exploration falling under section 44BB of the Act. In this case, assessee has computed its income by taking into account benefit which it has received on account of ONGC paying tax on its behalf Dispute is with regard to value of benefit. Whether one takes contract to be protected contract or not protected contract, in both cases, value of benefit remains constant. Lastly, we may point out that section 195A has no application. It is not a charging section. It provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessment year 2002-03 in the case of employees whose taxable salary, excluding perquisites is up to Rs. 1,00,000. For subsequent years, I propose to give an option to the employer to pay the tax on perquisites on behalf of the employees." It is, therefore, clear from above that option to the employer to pay tax on the perquisites received by the employee was to be treated as exempt. Otherwise, there was no need to make above statement about changes. 6.11 Shri Tulsiyan also drew our attention to para 64.1 in the Memorandum Explaining Provisions in the Finance Bill, 2002: "64.1 Under the existing provisions of section 192 of the Income-tax Act, 1961, an employer is required to deduct tax at source on income under the head 'Salaries', inclusive of the value of perquisites. In case, such tax is paid by an employer on behalf of an employee, the same being in the nature of an obligation which, but for such payment, would have been payable by the employee, is considered a perquisite, and is chargeable to tax." 6.12 It was submitted by Shri Tulsiyan that aforesaid statement in the Memorandum clinches the issue. When tax is paid by an employer on behalf of an employee, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there was no use in repeating all of them. He, however, read out two decisions of the Appellate Tribunal in the case of B.J. Services Co. Middle East Ltd. and in the case of Western Geo International Ltd. With reference to the first, he pointed out that the question raised was whether multiple grossing up adopted by the revenue in that case was reasonable. The Bench, after considering decision of Uttaranchal High Court in the case of ONGC, Bombay High Court in the case of H.D. Dennis and of Delhi High Court in the case of Frank Beaton held that as employer company was to bear Income-tax relating to work in India, the tax paid was nothing but salary and it was a mandatory payment. There is very brief reference in para 7.5 of the order to section 10(10CC) of Income-tax Act. There is no discussion of the provision, its object and intention and the language of the section has nowhere been considered. Shri Syali accordingly submitted that it was a decision given sub silentio and, therefore, not a binding precedent. In this connection, Shri Syali drew our attention to decision of Supreme Court in the case of Municipal Corporation of Delhi v. Gurnam Kaur [1989] 1 SCC 101 where their Lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In B. Shama Rao v. Union Territory of Pondicherry 15 it was observed, 'it is trite to say that a decision is binding not because of its conclusions but in regard to its ratio and the principles, laid down therein'. Any declaration or conclusion arrived without application of mind or preceded without any reason cannot be deemed to be declaration of law or authority of a general nature binding as a precedent. Restraint in dissenting or overruling is for sake of stability and uniformity but rigidity beyond reasonable limits is inimical to the growth of law." 7.2 Referring to the other case of Western Geo International Ltd. decided by ITAT 'C' Bench, New Delhi Shri Syali admitted that in that case, provisions of section 10(10CC) were referred to by the Bench which also considered provisions of section 192(1A) but the Court was influenced by the decision in the case of B.J. Services Co. Middle East Ltd., referred to above and treated tax liability of assessee as nothing but salary. The Bench in para 4 framed the issue for their consideration as under: "The issue raised before us relates to computation of taxable salary in case of employees who have been provided with net of tax sala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 10(10CC) of the Act, the monetary payment should have actually been made to the assessee and not to a third party. Shri Syali placed before us copy of Synopsis which according to him were filed but not considered by the Bench, in arriving at an erroneous view. Shri Syali drew our attention to Circular No. 8 of 2002 issued by the Central Board of Direct Taxes where reference has been made to para 64 already reproduced above. He once again read out and analysed section 10(10CC) and submitted that section envisages as under: (a) A perquisite provided by way of a non-monetary payment; and (b) Falling with the meaning of section 17(2); and (c) And on which tax has actually been paid by employer. Shri Syali stated that core question is whether payment of tax is a perquisite, "not provided by way of monetary payment". The above expression is not defined in the Act and, therefore, it will be opposite to look to dictionary meaning and how it is understood in common parlance. The word, "monetary" has its genesis in the word 'money' and, therefore, Shri Syali brought to our notice definition of "money" in Webster Illustrated Contemporary Dictionary. With reference to meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , "not provided for by way of monetary payment to the assessee". In the perquisites detailed in above Rule, payment of money is involved on the part of the employer but there is no monetary payment flowing from the employer to the employee. Therefore, from the above, it is clear that payment of taxes by the employer on behalf of employees is a non-monetary perquisite which is exempt under section 10(10CC) of the Income-tax Act. 8. Smt. Anitha Sumanth, Advocate, appeared on behalf of asses sees listed above in this order. She adopted arguments of Shri S.K. Tulsiyan and Shri M.S. Syali. She further cited decision of Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188 to the effect that the beneficial provisions should be liberally construed. 9. Shri Durga Charan Dash, CIT (DR), Shri Davendra Shankar, CIT (DR) and Ms. Y.S. Kakkar, D.R. were heard on behalf of revenue. The sum and substance of argument of Departmental Representatives was that the entire scheme of the Act is to be considered and when provisions of section 10(10CC) are considered along with sections 17(2), 40(a)(v), sections 192(1A), 195, 195(1A) and 198, no doubt is left in the mind that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-monetary perquisites allowed to them. Payment of tax of employee was a monetary perquisite. The learned D.Rs further pointed out that tax paid on behalf of the employees was income received by the employee under section 198 of the Income-tax Act. It was argued that commercial angle has to be examined with reference to entries made in the books of account. The learned D.R. also added that if the plea raised on behalf of the assessees are accepted, then clause (iv) of section 17(2) would be rendered otiose. 9.2 In the written reply filed on behalf of revenue it has been elaborated as to what is salary, perquisites, how value of perquisites is taxable as part of salary. It is explained that perquisites can be put in two classes, (a) that which has monetary value, (b) perquisites that are not provided by way of monetary payment. Where an employee is paid 'tax free salary', the taxes paid on behalf of employees are perquisites and are liable to be taxed under the head "salary". The learned D.R. placed great reliance on the decision of Emil Webber v. CIT [1993] 200 ITR 483 (SC). Reliance was also placed on decision of Mysore High Court in the case of Tokyo Shibaura Electric Co. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year. (1A) Without prejudice to the provisions contained in sub-section (1), the person responsible for paying any income in the nature of a perquisite which is not provided for by way of monetary payment, referred to in clause (2) of section 17, may pay, at his option, tax on the whole or part of such income without making any deduction therefrom at the time when such tax was otherwise deductible under the provisions of sub-section (1)." Section 195A. Income payable 'net of tax'- In a case other than that referred to in sub-section (1A) of section. 192, where under an agreement or other arrangement, the tax chargeable on any income referred to in the foregoing provisions of this Chapter is to be borne by the person by whom the income is payable, then, for the purposes of deduction of tax under those provisions such income shall be increased to such amount as would, after deduction of tax thereon at the rates in force for the financial year in which such income is payable, be equal to the net amount payable under such agreement or arrangement." 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- (10CC) in the case of an employee, being an individual deriving income in the nature of a perquisite, not provided for by way of monetary payment, within the meaning of clause (2) of section 17, the tax on such income actually paid by his employer, at the option of the employer, on behalf of such employee, notwithstanding anything contained in section 200 of the Companies Act, 1956 (1 of 1956)." 11.4 It is clear from above that the clause is applicable, if the following circumstances conjectively exist: (1) The assessee is an employee (individual) deriving income in the nature of a perquisite; and (2) The said perquisite is not provided by way of monetary payment within the meaning of clause (2) of section 17; and (3) Taxes actually paid by employer at his option on behalf of employee on above perquisite is exempt and would not form part of the total income of the employee. This would be notwithstanding anything contained in section 200 of the Companies Act. 11.5 Taking the last sentence of the clause, we have already noted provision of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be inferred that in all cases, the employer was obliged to pay taxes, on behalf of the employees. The assessments having been made on above terms, it is too late for the revenue to contend that we should again concentrate on whether the employer had an obligation to pay taxes on behalf of the employee. 12.1 The learned DR further contended that taxes paid by the employer on behalf of the employee was part of the salary and liable to be taxed as such. There is no dispute that this tax paid is a perquisite, to which clause (iv) of section 17(2) is applicable. We will elaborate on this. Some courts, without a doubt have held that taxes paid by employer is part of the salary and is liable to be taxed as such. For the purpose of resolving the controversy before us, this distinction does not make any difference as now it is in-built in clause 10(10CC) that taxes actually paid is a perquisite within the meaning of section 17(2) of the Income-tax Act. The controversy is whether it is a monetary payment. 13. In order to solve above controversy, we may now refer to decisions to which our attention was drawn and which are relevant to the issue involved. In the case of Tokyo Shibaura Ele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt held that cash payment by the employer was not a perquisite. In coming to above conclusion, their Lordships of Delhi High Court not only considered in detail the relevant provisions but also considered various decisions on the issue. The discussion is as under: "The counsel also drew our attention to the relevant provision as contained in section 40A(5) which limits the allowance and is in two parts, where expenditure incurred by the company results directly or indirectly in the payment of any salary to its employee and, where the company incurs any expenditure which results, directly or indirectly, in the provision of any perquisite, 'whether convertible into money or not' to an employee. This, according to the counsel, is a clear pointer to the fact that the earlier provisions, as contained in clause (c)(iii) and clause (a)(v) of section 40 of the Act, did not include any cash payment made by the company to the employee within the meaning of the words 'any benefit, amenity or perquisite'. In support of his contentions, Mr. Ved Vyas referred to various decisions which may be noticed. In CIT v. Kanan Devan Hills Produce Co. Ltd. [1979] 119 ITR 431, the Calcutta High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. Kanan Devan Hills [1979] 119 ITR 431 (Cal.), held that a direct payment to the employee did not come within the scope of expenditure resulting directly or indirectly in the provision of any perquisite to an employee whether convertible into money or not for the purpose of working out disallowance under section 40A(5). The court, therefore, held that the expenditure incurred by the company for reimbursement of medical expenses incurred by the employee could not be treated as a perquisite of the employee for the purpose of making disallowance under section 40A(5). In another case of the Calcutta High Court in CIT v. National and Grindlays Bank Ltd. [1984] 145 ITR 457, the question was whether the cash payments on account of reimbursement of medical expenses of the employees of the company could not be included in the value of benefits, amenities or perquisites for the purpose of disallowance in excess of the limits laid down under section 40(c)(iii) or section 40(a)(v) of the Act. The court answered the question in favour of the assessee following its decision in Indian Leaf Tobacco Dev. Co. (1982) 137 ITR 827 (Cal.). In CIT v. Venkataraman [1978] 111 ITR 444, the Madras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 135 ITR 19. In the Kerala High Court, their Lordship had held as under: "The only question before us is whether despite the very clear indication by reason of the context of the provision in section 40(a)(v) that the term 'benefit, amenity or perquisite' must exhaust all advantages that an employee gets other than his salary, should a different meaning be given to this term because of the words 'whether convertible into money or not' following it. It is seen to have been argued, and successfully, in some cases that the words 'whether convertible into money or not' reflect on the nature of 'benefit, amenity or perquisite'. Such a qualification is said to be inappropriate in the case of a cash benefit. In other words, cash cannot be qualified by the term 'whether convertible into money or not' and, therefore, whatever may be the natural meaning of the term 'benefit, amenity or perquisite', any advantage in terms of money which may fall normally within anyone of the these three must stand excluded. We notice that this argument succeeded before the Karnataka High Court in CIT v. Mysore Commercial Union Ltd. [1980] 126 ITR 340, before the Calcutta High Court in CIT v. Kanan Devan Hil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rposes of calculation under section 40A(5) of the Income-tax Act. Their Lordships held as under: "There has been a catena of authorities which have taken the view that payment of cash allowance to an employee by way of reimbursement of medical expenses or house rent is not a perquisite." Their Lordships reviewed entire case law and observed as under: "The leading case on this point is CIT v. Kanan Devan Hills Produce Co. Ltd. [1979] 119 ITR 431 (Cal.). That decision of the Calcutta High Court was based on the interpretation of section 40(c)(iii) of the Act and it came to the conclusion that the words 'whether convertible into money or not' occurring in the said sub-clause clearly indicated that cash payment was not contemplated by the said provision. This decision of the Calcutta High Court was followed by the same court in (1982) 137 ITR 827 (Cal.), Indian Leaf Tobacco Development Co. Ltd. v. CIT [1983] 139 ITR 763 (Cal.), CIT v. Oriental Bank Ltd. [1984] 145 ITR 457 (Cal.), CIT v. National Grindlays Bank Ltd. [1986] 161 ITR 820 (Cal.), Alkali Chemical Corporation of India Ltd. v. CIT [1986] Tax LR 483 (Cal.), CIT v. Darjeeling Co. Ltd. [1989] 176 ITR 331 (Cal.), CIT v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 CTR 284 and CIT v. Jay Engineering Works Ltd. [1990] 182 ITR 181. Apart from the aforesaid authorities including three decisions of this court, it is clear to us that payment of the type which was made is not a perquisite. The Explanation 2(b) to section 40A(5) is exhaustive. The payment in cash made by the employer to an employee by way of reimbursement does not fall under sub-clauses (1) to (v) of clause (b) of Explanation 2. This being so, the payment in question cannot be regarded as a perquisite at all. It was sought to be contended by Mr. Rajendra that section 40A(5)(a)(ii) of the Act uses the expression 'incurs directly or indirectly any expenditure' and he submits that the payment which has been made by the employer to the employee would fall in this category. We are unable to agree with this submission. Sub-clause (ii) of section 40A(5)(a) deals with two types of cases. Firstly, it deals with the expenditure incurred directly or indirectly by an assessee in respect of any assets of the assessee used by an employee either wholly or partly for his own purpose or benefit. Reading the words 'incurs directly or indirectly any expenditure', in isolation, would give no meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e' and the latter provision as 'sub-section'. The sub-section is wider in its scope and application than the sub-clause. Sub-clause (i) of clause (a) of sub-section (5) deals with 'any expenditure which results directly or indirectly in the payment of any salary to an emmployee or a former employee' Sub-clause (i) of clause (c) of sub-section (5) deals with 'any expenditure which results directly or indirectly in the payment of any salary to an employee or a former employee'. Sub-clause (i) of clause (c) of sub-section (5) sets out the limits/ceilings on such expenditure while clause (a) of Explanation 2 appended to the sub-section defines the expression 'salary' for the purposes of this sub-section. These features were absent in sub-clause (v) of section 40(a). Now, coming to sub-clause (ii) of clause (a) of sub-section (5) which corresponds to section 40(a)(v) it uses only one expression 'perquisite' as against section 40(a)(v) which spoke of 'benefit of amenity or perquisite', but this is no real distinction because the definition of 'perquisite': in clause (b) of Explanation (2) to the sub-section takes in both benefits and amenities. The said definition also includes, inter al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o costs." 13.4 In the case of Frank Beaton v. CIT [1985] 156 ITR 16 (Delhi), the assessee a non-resident under an agreement with its employer was not to pay tax on his salary and allowances. His employer company was to pay tax on salary and allowances. Their Lordships held that single grossing up of tax and not multiple grossing up was permitted under the Statute, Justice Ranganathan, who wrote separate but concurring judgment made the following relevant observations: "The assessee is an employee and the income in question is chargeable to tax in his hands under the head 'Salaries'. Section 17(1)(iv) of the Act includes, within the scope of the charge imposed by this section 'perquisites' in lieu of, or in addition to, any salary. Section 17(2) defines 'perquisites' to include, inter alia, '(iv) any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee'. It, therefore, follows that, if the employer pays any income-tax, the obligation to pay which lies on the employees, the amount of any income-tax so paid will be assessable in the hands of the employee-assessee as part of his salary income. The provision may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Act. On appeal, their Lordships relied upon the decision of Madras High Court in the case of CIT v. S.S.M. Lingappan [1981] 129 ITR 597 and held that benefit could be taxed as a perquisite under section 17(2)(iii) of the Income-tax Act. This case, in our view, is also of no help to the revenue. 13.8 In the case of Emil Webber v. CIT [1993] 200 ITR 483, relied upon by the revenue, the question before the Hon'ble Supreme Court was whether the assessee, one of the foreign personnel whose services were provided for setting up plant in India for an Indian concern (Ballarpur Ltd.). The agreement provided that salary of the foreign personnel were payable free of tax or duty. The taxes paid on employee's income was held to be income from other sources as there was no relationship of employer and employee with M/s. Ballarpur Ltd. This finding of the Tribunal was confirmed on appeal by the Hon'ble High Court. The Supreme Court confirmed the decision of the High Court, by observing as under: "Held, affirming the decision of the High Court, (1) that the amount paid by Ballarpur was nothing but a tax upon the salary received by the appellant. It was paid by virtue of the obligation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the provision. The payment of tax on behalf of the employee at the option of the employer can only be treated as discharge of an obligation of the employee which but for such payment would have been payable by the employee himself. It is a perquisite fully covered by sub-clause (iv) of clause (2) of section 17 of the Act and nothing else. 14.3 The cash payment to the employee by the employer might be assessable as "salary" but it is not a "perquisite or amenity or benefit". We have already noted view of Full Bench of Kerala High Court in Common Wealth Trust Ltd.'s case where their Lordships saw no good reason to give restricted meaning to the term "benefit, amenity or perquisite" as the same would not serve the purpose of the section. Their Lordships saw no rationality in the view of the majority High Courts, if it is held that cash allowance paid by the employer to an employee would be entitled to deduction, despite section 40(a)(v) and restrict the application of above provision to non-cash advantage. Such construction, according to their Lordships, would be quite irrational, defeating the very purpose of the Legislation. The aforesaid view, as noted above, has not bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, if paid by the employer on behalf of the assessee, is to be included in the perquisites amounting to salary rendering it liable to tax by being included in income." 16. It is clear from above that taxes paid by employer on behalf of the employee were treated as a perquisite covered by sub-clause (iv) of clause (2) of section 17 of the Income-tax Act and, therefore, includible in the salary. There is no dispute that payment of taxes made by the employer on behalf of the employee is a perquisite and part of the income assessable under the head "salary" if clause 10(10CC) was not brought on the Statute Book. It is also a benefit or amenity enjoyed by the employee but it is not a monetary payment to the employee. It is a payment by the employer which discharges an obligation of the employee, which otherwise would have been discharged by the employee. Such payments of taxes, therefore, are fully covered by above sub-clause (iv). 17. The decision of CIT v. American Consulting Corpn. [1980] 123 ITR 513 (Ori.), noted above also supports the view that taxes paid on behalf of the assessee is a perquisite or a benefit, but not income from business. It could not be taxed except under c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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