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TMI Blog2008 (4) TMI 406X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the gift coupons has been given to the employees for performance of their duty and not as mementos as claimed by your appellant and therefore, these are perquisites in the hands of the employees. Your appellant submits that in the facts and circumstances, gift coupons given to the employees cannot be considered as perquisite taxable under the head 'Salaries'. Your appellant, therefore, submits that it has not committed any default for short deduction of tax under section 192 of the Income-tax Act, as alleged. Under the circumstances, penalty levied under section 271(1)(c) for such alleged default and confirmed by the learned Commissioner of Income-tax (Appeals) is not at all justified. Your appellant submits that it be so held now and the penalty levied under section 271(1)(c) be cancelled now." The penalty levied under section 271(1)(c) are as under: Rs. 1996-97 1,25,58,513 1997-98 1,46,04,078 The assessee had sought to raise an additional ground in both these appeals that the order of the Assessing Officer imposing penalty was bad-in law being time-barred in view of the provisions of section 275(1)(c) of the Income-tax Act, 1961 (for short "the Act"). However, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same for safety performance articles worth Rs. 3,000 from any of the prescribed shops. This was valid up to 31-3-1996. 4. 1996-97 - 11,346 Coupon for safety performance award issued on 15-1-1997 authorising the employees to exchange the same for safety performance. Award articles worth Rs. 3,500 from any shop/establishment having registration with sales tax authority. This was valid up to 15-3-1997. ------------------------------------------------------------ As will be seen from the above, the gifts at item Nos. 1 and 2 in cash are in recognition of the performance and have been treated as salary and tax has been deducted therefrom and paid to the Government. As regards item at serial No. 3, the company received various awards of honours and award of merits from National Safety Council of USA under occupational safety/health award-program. The company being desirous of sharing this honour with its employees decided to present them some memento which can remain with and remind them about importance of safety measures in the industries like ours. On detailed consideration, it was felt that giving identical articles to each of the employees may not be ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ast two items, as in our opinion, granting of mementos on such special occasion cannot be treated as income from which tax was required to be deducted. In view of the above, we submit that we had complied with the provision of the Act in connection with the deduction of tax from gifts given to the employees and there is no question of considering the company as an assessee in default as observed by you in your above letter. As regards the nature and basis of the conveyance allowance, as required by you in your above letter, we have to inform you that we have already explained the same vide our letter dated February 28, 1996 (copy enclosed). As regards details of houses of the employees taken on lease by the company we have to inform that only two employees whose houses have been taken on lease, who happened to be the directors of the company and the rent paid has been treated by them as their income. As regards details of other allowances given to the employees, the same have already been furnished by our letter dated June 10, 1994, copy enclosed for ready reference." . The Assessing Officer, however, was not satisfied with the above reply of the assessee and by his orders und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: 'This section has two limbs, one is where the employer does not deduct tax and the second where after deducting tax, the employer fails to remit it to the Government. There is nothing in this section to treat the employer as the defaulter where there is a shortfall in the deduction. The Department assumes that where the deduction is not as required by or under the Income-tax Act, there is a default. But the fact is that this expression "as required by or under this Act" grammatically refers only to the duty to pay the tax, that is deducted and cannot refer to the duty to deduct the tax. Since this is a penal section, it has to be strictly construed and it cannot be assumed that there is a duty to deduct the tax strictly in accordance with the computation under the Act and if there is any shortfall due to any difference of opinion as to the taxability of any item the employer can be declared to be an assessee in default.' While deciding the appeal in the case of Gujarat Narmada Valley Fertilizers Co. Ltd. [1991] 71 ITD 66, the Income-tax Appellate Tribunal, Ahmedabad Bench has strongly relied on the above decision of the Andhra Pradesh High Court, in deciding the issue i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Income-tax Officer has conducted an inquiry and it was gathered that the company has distributed the gift coupons of Rs. 3,000 to each employees and when called for from the assessee-company, the company has tried to suppress the facts. Even the learned Commissioner of Income-tax (Appeals)-II, Baroda has also observed that during the course of appeal, the assessee was asked specifically about the details of cash gift paid in the financial year 1995-96 and the assessee-company had tried to suppress and delay the information to the Department in respect of gift payment and cash payment. I am, therefore, satisfied that it is a fit case for imposition of penalty under section 271(1)(c) of the Income-tax Act. I, therefore, levy penalty of Rs. 1,25,58,513 under section 271(1)(c) of the Income-tax Act which is 100 per cent. of non-deduction of tax for the financial year 1995-96 relevant to the assessment year 1996-97. The Income-tax Officer, TDS-3, Baroda, is directed to issue a demand notice and challan accordingly." Aggrieved, the assessee preferred the first appeal where the penalties were confirmed. Being aggrieved, the assessee is in appeal before us. Learned counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es was held to be liable for TDS, whereas the hon'ble High Court held that the tax need not be deducted. Learned counsel for the assessee contends that this judgment has been followed by the Ahmedabad Bench, in the case of Gujarat Narmada Valley Fertilizers Co. Ltd. v. ITO [1991] 71 ITD 66, wherein, in similar circumstances, the order passed by the Assessing Officer under section 201(1) and 201(1A) of the Act were quashed by the following observations: "After a survey was conducted on the premises of the assessee-company, the Assessing Officer found that there were certain allowances given to the employees in addition to salary by giving it different nomenclatures and as such these ought to have been included as salary income under section 15 and the assessee was duty bound to deduct the tax at source and since the assessee had failed to deduct the tax at source thereon, it had violated the provisions of section 192. The Assessing Officer accordingly, held the assessee-company to be an assessee deemed in default within the meaning of section 201(1), read with section 192. The Commissioner (Appeals) upheld the action of the Assessing Officer. On second appeal, the assessee contende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Committee on Disputes given the permission, the assessee would have taken the same line of arguments and based on the judgments in the case of (i) P.V. Rajagopal [1998] 233 ITR 678 (AP); (ii) Gujarat Narmada Valley Fertilizers Co. Ltd. [1991] 71 ITD 66 (Ahd); and (ii) Associated Cement Co. Ltd. [2000] 74 ITD 369 (Mum) on fringe benefit, i.e., gift coupons with the assessee's bona fide belief to be not a perquisite in view of the various international awards granted to the assessee, the question of penalising the assessee does not arise. Reliance was also placed on the decision of the hon'ble Gujarat High Court in the case of CIT v. Bombay Conductors and Electricals Ltd. [2008] 301 ITR 328; [2008] 3 DTR 200, which is in the context of section 271(1) (c) of the Act, the hon'ble High Court held as under: "Held-The Tribunal has found that there is no evidence on record to show that infraction, of the provisions was with knowledge or in defiance of the provisions. It has further been held that there is nothing on record to indicate that the assessee had indulged in any tax planning or tax evasion. To the contrary, the Tribunal has recorded that by making the book entries by converting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oversight. There was nothing on record to show that any particular individual had any personal interest in committing the act of omission of showing the amount received from the insurance company as income of the assessee. In fact, the entries in the books of account reflected that the assessee had credited the said sum to the fund account directly and the said entry appeared in the balance-sheet without going through the profit and loss account. Penalty was not leviable." It was contended by learned counsel for the assessee that in this case also, the assessee is governed by a board of directors having Government nominees and there was nothing on record to indicate that any particular individual had any personal interest. This was a collective belief held by the responsible officers of the assessee-company and, therefore, the imposition of penalty on a public sector undertaking, who has a clean record of payment of tax, the penalty deserves to be deleted. Further reliance was placed on the decision of the Tribunal, Delhi Bench, in the case of Mitsui and Co. Ltd. v. Deputy CIT [1999] 65 TTJ (Delhi) 1, wherein the assessee deducted tax from the salary paid to expatriate employees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... original provisions of section 201 of the Act which existed at the relevant time, the assessee could not have been treated as an assessee in default as there was only a minor short deduction. The retrospective amendment itself indicates that the Legislature was aware of this position which has been subsequently cured by a retrospective amendment. Therefore, technically speaking, at the relevant time, the assessee could not have been brought in the net of being assessee in default and subjected to the consequence thereof, i.e., the deduction of tax, levy of interest and the imposition of penalty. Reliance was further placed on the judgment of the hon'ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26, wherein it has been laid down that the penalty should not be levied merely because it is lawful to do so. Besides, the same should not be imposed for technical or venial breach of provisions. Similarly, if the breach flows from a bona fide belief in respect of discharge of legal obligation, the same shall not be penalised. Further reliance was placed on the judgment of the hon'ble Gujarat High Court in the case of CIT v. Harsiddh Construction Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee, in the rejoinder, contends that the salary is one head and the payment given from time to time goes towards deduction of TDS from salary. Therefore, there is no justification in the argument of the learned Departmental representative that gift coupons TDS was an independent deduction and the assessee was covered by section 201 of the Act. Further, the allegation that the assessee did not act honestly or suppressed facts is without justification inasmuch as the fact about conferment of the gift award and granting of gift coupons to the employees was displayed by way of hoardings, advertisement, celebrations and company's resolution, the act of such a magnitude cannot be suppressed by any person. The assessee is a public sector undertaking in which the majority of share holding is held by the Central Government and it cannot be assumed that a public sector undertaking was suppressing some information which was widely publicised. As already mentioned, the tax and interest have been recovered from the assessee besides the tax on regular assessments have been paid by the employees and there is no loss to the Revenue whatsoever. Therefore, the judgments of the hon'ble Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re linked to such safety award holding this a bona fide belief on the part of the assessee cannot be called a farce. The Department has not controverted the plea of bona fides except accusing that the assessee suppressed the information. It has not controverted that the fact of grant of gift awards and grant of gift coupons was displayed by the assessee by way of hoardings, advertisement, celebration and company's resolution. Therefore, the Department has not made out any case based on proper and independent facts to establish the charge of suppression or withholding of information. The assessee is a Central Government public sector undertaking managed by the board of directors and in the given facts and circumstances, we are unable to hold that there was any personal interest of any quarters to treat these small payments deliberately as tax free instead of knowing that they were taxable. The salary comes from revenue of the public sector undertaking when huge TDS is made from regular salary, we see no reason as to why the assessee, a Central Government public sector undertaking, will not pay TDS on such a small and fringe payment. Therefore, we are inclined to accept that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant has to bear the losses. The authorised dealer, in turn, charges the appellant for the services rendered for such guarantee to supply foreign currency at a pre-determined rate, if the actual price of the said currency is higher than the pre-determined rate on that date, which is known as rollover charges. The appellant incurred loss of Rs. 53.50 lakhs on account of cancellation of such forward exchange contract and further paid rollover charges to the extent of Rs. 39.87 lakhs. According to the Assessing Officer, the loss of Rs. 53.50 lakhs was on account of the fact that as on the predetermined date, the market rate of such foreign currency was less than the contract rates. The risk in the variation of foreign currency was entirely on the appellant. He was, therefore, of the opinion that entering into such contract was speculative in nature having probability of getting losses and profits considering the sensibility of forward exchange market. The transaction so entered into was not the normal business transaction of the appellant. Therefore, he held the entire loss and rollover charges as speculative transaction and accordingly disallowed Rs. 93.37 lakhs. This was confirm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in foreign currency for import of seeding material cannot thus be considered as speculative transaction as the same is within the parameters of guidelines issued by the RBI. The gain/loss has to be considered as revenue in nature. It was added that in fact in the assessment years 1993-94 to 1995-96, these has been considered as such by the Department. Under the circumstances, there is no ground for the Assessing Officer to consider the loss under consideration as speculative loss in the assessment made. The assessee was under bona fide belief and the disallowances carried more than one possible opinions, therefore, penalty should not be levied. The Assessing Officer however, did not accept the assessee's explanation and levied penalty under section 271 (1) (c) of the Act. In the first appeal, the Commissioner of Income-tax (Appeals) deleted the same. Aggrieved, the Revenue is in appeal. The learned Departmental representative supported the order of the Assessing Officer. Learned counsel for the assessee submitted that the assessee, in any case, cannot be considered to have concealed the particulars of income or filed inaccurate particulars of income by claiming such loss as rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to IBRD in foreign currency, because of fluctuation in exchange rate, the appellant, entered into forward exchange contract with SBI, a recognized dealer in this regard. For rolling over such contract after the expiry date of the previous contract and their cancellation before the maturity date at times, has resulted in losses under consideration. The transactions are in accordance with the guidelines issued in this regard by RBI. The appellant has considered these losses as revenue in nature on the ground that these are to guard against future fluctuation in exchange rate and that the said contracts had been taken in respect of the import of seeding material in which it has traded and as such, transaction relating to contract are in the course of its business. The Assessing Officer, however, interpreted the entire transaction as speculative in nature on the ground elaborated in the assessment order. It can thus be seen that the Assessing Officer has taken for an interpretation which is different from the interpretation taken by the appellant and also different from the interpretation by the Department of the similar claims made in other years as mentioned above. The disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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