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TMI Blog2011 (11) TMI 453X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant less rent recovered. (2) The ld. CIT(A) erred in confirming the conclusion of the Assessing Officer that : (a) The tax paid by the employer is not a perquisite within the meaning of section 17(2)(iv). (b) Salary for the purpose of determining the perquisite value of accommodation under Rule 3 will include the tax paid by the employer company. (3) The CIT(A) erred in not following the principle laid down by the Special Bench of the Delhi Tribunal in the case of RBF Rig Corporation & Others Vs. ACIT, 297 ITR (AT) 228." 2. The case of the ld. counsel for the assessee is that tax paid by the employer on behalf of the employee constitutes perquisite within the meaning of section 17(2)(iv) of the Income-tax Act, 1961 ('the Act' for short). In the case of RBF Rig Corpn. LIC (RBFRC) v. Asstt. CIT [2007] 109 ITD 141 (SB)/165 Taxman 101 (Delhi) (Mag.), it has been held that 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. Therefore, the amount of tax paid is a perquisite covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e., section 2 of the Act, vide sub-clause (iii) of clause (24) thereof, includes the value of any perquisite or profit in lieu of salary taxable under clauses (2) and (3) of section 17, within the meaning of "income". All these statutory provisions make it clear that an amount of tax which would have been payable by an employee-assessee, 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. 4. In the view taken hereinabove, we are fortified by two English decisions, i.e., North British Railway Co. v. Scott [1922] 8 Tax Cases 332 (HL) and Hartland v. Diggines [1926] 10 Tax Cases 247 (HL). Both these decisions have been followed by two High Courts in India, i.e., the Bombay High Court in CIT v. H.D. Dennis [1982] 26 CTR (Bom.) 107 : [1982] 135 ITR 1 (Bom.): tc 58r. 443, AND THE Madras High Court in CIT v. I.G. Mackintosh [1975] 99 ITR 419 (Mad.): TC 58R. 438. Both the High Courts have held that the income-tax paid by the employer on behalf of the employee is a part of the salary of the assessee and the word "salaries" would in its natural import comprehend within it tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The question then arises under which head of income should the said income be placed. Inasmuch as the assessee is not an employee of Ballarpur, which made the payment, it cannot be brought within the purview of Section 17 of the Act. It must necessarily be placed under sub-section (1) of Section 56, 'income from other sources'. According to the said subsection, income of every kind which is not to be included from the total income under the Act shall be chargeable to income tax under the head 'income from other sources', if it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said principle of this case to the facts of this case." 4.3 In the case of RBF Rig Corpn. LLC (supra), the question before the Special Bench was-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 u/s 10(10CC) of the Income-tax Act, 1961? The Tribunal came to the conclusion that it is not money which is paid to the assessee when taxes are paid on his behalf. It is discharge of his obligation, therefore, the payment fits within the wording of section 17(2)(iv). This decision is explicit that payment of tax on behalf of the employee by the employer is discharge of an obligation and, therefore, it is a perquisite. It is not a monetary payment or a monetary allowance etc. Certainly it is not a monetary payment to the assessee. The ld. DR tried to distinguish this case by mentioning that the decision is not in the context of Rule 3 but section 10(10CC). In any case, the employer is bound to deduct tax at source from the salary paid to an employee even if there is no private agreement between the employer and the employee that the tax on the salary will be borne by the former. Therefore, payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent-free accommodation, the term "salary" will not include value of perquisite as specified in section 17(2) of the Act. Referring to the decision in the case of CIT v. H.D. Dennis [1982] 135 ITR 1/[1981] 7 Taxman 231 (Bom.), it was further held that the definition given in Rule 3 is co-extensive given in section 17, except that there is an express exclusion therefrom of certain kinds of payments mentioned therein. This decision was rendered on 06.04.1981. However, sub-clause (d) of clause (vi) of the Explanation to Rule 3 became applicable with effect from 01.04.2001, which excludes the perquisites specified under section 17(2) of the Act. Since this rule specifically excludes perquisites specified in section 17(2) from the salary for the purpose of computation of perquisite, the tax paid on behalf of the employee by the employer is not includible in "salary" for the purpose of computing the perquisite value of the accommodation supplied to the employee. For the sake of ready reference, the finding recorded in this decision in paragraph no. 11 is reproduced below:- "11. Thus, on the comparison of definition of the word 'salary' before and after 01.04.2001, it is clear that for th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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