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TMI Blog2009 (8) TMI 844X X X X Extracts X X X X X X X X Extracts X X X X ..... that the appellant was not entitled to exemption under section 10( 10CC ) of the Income-tax Act, 1961 in respect of tax perquisite (tax borne by the employer on behalf of the employee). 2.In holding that section 10( 10CC ) was applicable only in respect of perquisites which need to be valued as per Rule 3 of the Income-tax Rules, 1962. 3.In holding that exemption under section 10( 10CC ) of the Income-tax Act, 1961 was not applicable in respect of perquisites under section 17(2)( iv ). 4.In not accepting that the decision of the Tribunal in the case of RBF RIG Corpn. v. Asstt. CIT reported in 109 ITD 141 was squarely applicable to the case of the assessee." 3. The aforesaid grounds of appeal revolve around the controversy as to whether the tax paid by the employer on behalf of the employee is a perquisite not provided by way of monetary payment for the purpose of allowing exemption under section 10( 10CC ) of the Act. In all these cases, the assessees have claimed in the return of income that the tax paid by the employer on behalf of the assessee s employees is a perquisite not provided by way of monetary payment, and as such, they are not to be included into the sala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10( 10CC ) of the Act." 6. Still aggrieved, the assessees are in appeal before us. 7. In the course of hearing of this appeal, the ld. counsel for the assessees has submitted that the ld. CIT(A) has affirmed the action of the Assessing Officer in rejecting the assessees claim of exemption under section 10( 10CC ) in respect of tax paid by the employer, in total disregard to the decision of Special Bench of Tribunal in the case of RBF RIG Corpn., LIC ( supra ) and the ld. CIT(A) totally ignored the fact that the Special Bench of the Tribunal in the aforesaid case had come to a categorical finding that the tax borne by the employer constituted non-monetary benefit in the hands of the employee and, therefore, such tax cannot be subject to multiple grossing up. It was, therefore, submitted that action of the ld. CIT(A) in disregarding the decision of the Special Bench of the Tribunal amounts to gross violation of the principles of judicial hierarchy that exists in tax proceedings. The ld. counsel for the assessee has relied on number of decisions to contend that it is necessary for the lower tier to loyally accept the decision of the higher tier otherwise the judicial syste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on-monetary benefit and, therefore, exemption under section 10( 10CC ) was not available to the assessee. In reaching the aforesaid decision, the CIT(A) has totally lost sight of the fact that the Special Bench of the Tribunal in the case of RBF RIG Corpn. ( supra ) had come to a categorical finding that tax borne by the employer constituted non-monetary benefit in the hands of the employee and therefore such tax cannot be subject to multiple grossing up. It would be appreciated that the aforesaid action of the CIT(A) in disregarding the decision of the Special Bench of the Tribunal is subversive of judicial propriety and amounts to gross violation of the principles of judicial hierarchy that exists in tax proceedings. The Supreme Court in the case of Union of India v. Kamlaxmi Finance Corporation AIR 1992 SC 1991, had unambiguously held that the order of the Appellate Tribunal was binding on the Asstt. Collector or the Appellate Collector and even if the lower authorities had some reservation on its correctness that would not be ground to disregard the decision of the higher forum. The relevant observation of the Apex Court at page 713 of the order are as follows : ". . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue but the remedy is also in the hands of the same officer. He has only to bring the matter to the notice of the Board or the Collector so as to enable appropriate proceedings being taken under section 35E(1) or (2) to keep the interests of the department alive. If the officer s view is the correct one, it will no doubt be finally upheld and the revenue will get the duty, though after some delay which such procedure would entail." Your Honour s kind attention is also invited to the decision of the Supreme Court in Asstt. Collector of Central Excise v. Dunlop India Ltd. [1985] 154 ITR 172, wherein the Apex Court, while quoting with approval the decision of the House of Lords in Cassel Co. v. Broome, held that in the hierarchical system of the Court it is necessary for the lower tier to loyally accept the decision of the higher tier otherwise the judicial system would collapse. The Court further observed that it is inevitable that there may be times when the decision of the Appellate Tribunal did not attract unanimous approval but that would not entitle the lower authorities to disregard the decision. To the same effect is the decision of the Madhya Pradesh Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, thus, the humble prayer of the assessees that the assessees have been subjected to unnecessary litigation and cost of appeals totalling to approximately Rs. 28 lakhs only because of the refusal of the CIT(A) to follow the order of the Special Bench of the Tribunal. Such action of the CIT(A) is in gross violation of the principles of judicial discipline and hierarchy which needs to be deplored upon and the assessee should be entitled to refund of the appeal fees." 8. The ld. D.R., on the other hand, submitted that the Assessing Officer as well as the ld. CIT(A) has decided this issue in the light of the provisions contained in section 10( 10CC ) of the Act without having any mala fide or dishonest intention to harass the assessees or to put the assessees into any monetary losses by way of depositing the appeal fees for the purpose of filing the appeal before the Tribunal. He further submitted that not following the decision of Special Bench by the ld. CIT(A) is not a mala fide or dishonest act of the ld. CIT(A) so as to impose any cost upon the department. 9. We have heard both the parties and have carefully gone through the orders of the authorities below. We have a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Delhi Benches in the cases of B.J. Services Co. Middle East Ltd. and Western Geo International Ltd. ( supra ). In the above circumstances, the Special Bench was constituted to consider the relevant question. Before the Special Bench, it was contended that the assessees were non-resident foreign nationals employed in India in the relevant assessment year 2004-05. They were employees of non-resident company treated as statutory agent of the assessees. Those 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. 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 resultant figure. However, no further tax on tax was claimed to be payable in the light of provision of section 10( 10CC ). The Assessing Officer did not allow claim of the assessees. He held that tax borne by the employer was a monetary perquisite and, hence, further tax thereon should also be added to the salary by multiple stage grossing up process. The assessee impugned the action of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the employee . The words at the option of the employer only imply that the employer now has an option to pay the taxes on behalf of the employees. It is for the employer to decide whether taxes are to be paid by the employee or the employer. The clause is 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. This is more than clear from provision of section 192(1A) and section 195, and section 195A and from other consequent changes made through Finance Act, 2002 with effect from 1-4-2003. Sub-section (1A) to section 192 introduced through the same Finance Act, provides that the employer, may pay at his option, tax on the whole or part of such income without making any deduction therefrom . (para 11.6) In the case of CIT v. Mafatlal Gangabhai Co. (P.) Ltd. [1996] 219 ITR 644/ 85 Taxman 381, the Supreme Court noted the difference between a payment by employer to the employee and a payment by the employer to a third party. A payment to a third party in respect of any obligation, which but for such payment would have been payable by the employee, would only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, reverse the order of the authorities below on this point and allow the assessee s claim that the tax paid by the employer in respect of salary paid to the aforesaid assessees would constitute non-monetary perquisite eligible for exemption under section 10( 10CC ) of the Act. In other words, the assessees claim of exemption under section 10( 10CC ) of the Act in respect of tax paid by the employer in respect of salary paid to its employees, of the Act is directed to be allowed. The Assessing Officer shall modify the assessment orders of all these assessees accordingly. 12. We have also heard both the parties on the issue about awarding any cost to the assessee in all these appeals. 13. There is no quarrel as to the proposition that in the hierarchical system of the court, it is necessary for the lower tier to loyally accept the decision of the higher tier otherwise judicial system would collapse. It is also not in dispute that the ld. CIT(A) is subordinate to Tribunal in judicial hierarchy. Therefore, he is bound to follow the order of the Tribunal, and in case the revenue is not satisfied with the order of the ld. CIT(A), it is open to the revenue to take up the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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