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TMI Blog2011 (6) TMI 340X X X X Extracts X X X X X X X X Extracts X X X X ..... O) treating the aforesaid tax paid by the employer as "salary" and legal validity of this rectification order was questioned by the assessee by filing appeal on the ground that there was no mistake "apparent from the records" which could give jurisdiction to the AO to pass the rectification order. The basic facts which are largely undisputed are as follows: The assessee is a non-resident company incorporated in Japan. It has a liaison office at New Delhi. In this liaison office, Indian staff has been employed. In addition, however, Japanese expatriate staff (referred to as the „rotating staff‟) was also deployed. These rotating staff, i.e., Japanese staff are the employees of the assessee company primarily working in Japan. However, during the relevant period, they were posted in India in the liaison office of the assessee in New Delhi. Certain salary allowances paid to the rotating staff in Japan were not taxed initially. An order under Section 201(1) and Section 201(1A) of the Act was passed on 30.03.2000 for the Financial Year 1988-89 to 1997-98. Thus, the original order dated 30.03.2000 was passed by the AO under Section 201(1) and 201(1A) of the Act. Vide t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lenging the assumption of jurisdiction by the AO under Section 154 of the Act. The order was challenged on merits as well. After considering the rival submissions before him, the CIT (A) pointed out that the definitions of both the terms "salary" and "perquisite" are inclusive in nature. Any monetary payment by whatever name called by an employer is a part of the salary. The tax paid by the employer is not included in the definition of perquisite. Therefore, by simple logic, tax being a monetary payment admittedly paid to meet the tax liability of the employees is a part of salary and cannot by any stretch of imagination be regarded as perquisite. He also referred to the submission made before him that the salary received abroad became taxable because of the deeming fiction and in absence thereof, the amount could not have been taxed in India. In this connection, it was pointed out that the submission is not only hypothetical but also bereft of any merit. The assessee never came clean on fact as to whether the payments made abroad were in respect of services rendered in India or outside India. Therefore, no legal fiction was involved when such payments were brought to tax in India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; 8. Mr. Ganesh, learned Senior Counsel appearing for the appellant questioned the rationale behind the impugned order passed by the Tribunal making myriad submissions which can be compartmentalized as follows: (i) The decision of the Tribunal in concluding that the issue involved viz. whether the tax payment by an employer is to be included in the gross salary for the purpose of computation of rent free accommodation perquisite can be a subject matter of proceedings under Section 154 of the Act (empowering the AO to rectify a „patent mistake apparent from record‟) is utterly fallacious. (ii) The decision of the Tribunal in concluding that the AO was competent to pass order under Section 154 of the Act even after giving appeal effect to the original order of the Tribunal dated 29.11.2002 on the premise that the rectification under Section 154 is with respect to the original order passed by the AO under Section 201(1)/201(1A) of the Act is grossly incorrect and against the settled principles of law. (iii) The decision of the Tribunal in concluding on merits that the tax payment by an employer is to be included in the gross salary for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng for the Revenue, countered the aforesaid submissions with the plea that in the first round of litigation when the Tribunal refused to consider such a submission of Departmental Representative on merit, it was because of the reason that no such question had arisen for consideration and the Tribunal, therefore, could not have dealt with the same. She argued that in these circumstances, in the impugned order passed by the Tribunal in which second round, it rightly held that the doctrine of merger would not apply and the question was still at large, which enabled the AO to invoke the provisions of Section 154 of the Act. She further submitted that the Tribunal rightly concluded in the instant case that the issue was not debatable and it was an apparent case of patent mistake of law and to rectify such a mistake, the AO was empowered by the provisions of Section 154 of the Act. She also referred to the judgment of Bombay High Court in the case of Emil Webber Vs. Commissioner of Income Tax [200 ITR 483] and also of this Court in T.P.S. Scoot and Others Vs. Commissioner of Income Tax [232 ITR 475] in support of the submission that tax perquisite is a part of gross salary. Her precise a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m record. The subject matter of rectification in this case was not the order of the Tribunal, which refused to go into the matter at all, but the original order of the Assessing Officer. We are of the view that the Assessing Officer was competent to pass such an order, as his order did not merge into the order of the Tribunal." We are entirely in agreement with the aforesaid approach of the Tribunal. 13. Coming to the scope and ambit of Section of Section 154 of the Act, this provision has been interpreted by the Apex Court in number of judgments. Principle of law which has been authoritatively embedded in various judgments including the judgments cited by the counsel for both the parties is that a glaring or an obvious mistake of law can be rectified under Section 154 of the Act. Insofar as factual mistake is concerned, it should be apparent on the record and exercise requiring investigation to find the mistake of fact, impermissible as when investigation is required to find mistake apparent on record. Likewise, the issue of law which can be rectified invoking the provisions of Section 154 of the Act should be an established principle of law. If such an issue requires inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x on the salary amount received by the assessee can be treated as the income of the assessee. It cannot be overlooked that the said amount is nothing but a tax upon the salary received by the assessee. By virtue of the obligation undertaken by Ballarpur to pay tax on the salary received by the assessee among others, it paid the said tax. The said payment is, therefore, for and on behalf of the assessee. It is not a gratuitous payment. But for the said agreement and but for the said payment, the said tax amount would have been liable to be paid by the assessee himself. He could not have received the salary which he did but for the said payment of tax. The obligation placed upon Ballarpur by virtue of Section 195 of the Income Tax Act cannot also be ignored in this context. It would be unrealistic to say that the said payment had no integral connection with the salary received by the assessee. We are, therefore, of the opinion that the High Court and the authorities under the Act were right in holding that the said tax amount is liable to be included in the income of the assessee during the said two assessment -years." 16. Even the Bombay High Court had occasion to deal with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otherwise go with the word "salary". Thirdly, the purpose of giving a separate definition of salary in r. 3 appears to be to exclude certain kinds of payments which are otherwise covered by the word "salary". This is obvious from the fact that the definition of salary given in the said rule excludes from its ambit only certain allowances, viz., dearness allowance or dearness pay, unless it enters into the computation of superannuation or retirement benefits of the employee; employer's contribution to the provident fund account of the assessee and allowances which are exempted from the payment of tax." 18. Even this jurisdictional High Court had considered the identical issue way back in the year 1998 in T.P.S. Scott (supra). In that case, the assessees were employees of the British Council which having functioned till 1992, merged thereafter in the British High Commission with effect from March 10, 1992. The relevant accounting period in respect of these assessee was 01.04.1991 to 09.03.1992. The tax liability of the asessees referable to this period was paid by the British High Commission on 29.03.1992, in India. The assessees contended that the tax was paid by the Britis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ite, it became incumbent upon the Tribunal to deal with this argument and give its reasoning as to why such a contention of the assessee would not hold any water. However, at the end of it all, the conclusion is rested upon the aforesaid judgments in order to demonstrate that this was not a debatable issue, but had been conclusively determined by the Courts on earlier occasion. The focus of the Tribunal was as to whether the issue was debatable or not which was negatived in the following manner: "4. The question that concerns us now is whether the issue is debatable or it is a patent mistake of law. We find that the learned counsel for the assessee was able to quote only the case of A.M. Awasthy (supra) in support of his contention. The judgments in the case of C.W. Steel and H.D. Dennis (supra) were there before the Assessing Officer when he passed the original order. In view of the two decisions of Hon‟ble High Courts, the order of the Tribunal will stand superseded. Further, the definition of the term "salary" in Rule 3 before 1.4.2001 makes it amply clear that there is no scope to exclude the tax from "salary" because it is pay and it is not specifically excluded ..... X X X X Extracts X X X X X X X X Extracts X X X X
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