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TMI Blog2019 (2) TMI 793X X X X Extracts X X X X X X X X Extracts X X X X ..... peals and the appeals already decided by the Tribunal. Circumstances explained by the learned counsel for KPTCL regarding the manner of formation of KPTCL and the action of the revenue in not questioning KPTCL’s action in the past several years after its formation and the manner of exercise of control and affording protecting to employees of KPTCL by the State Government were definitely factors which weighed with KPTCL when it made estimate of its employees income under the head “Salaries”. There is no reason for them to think that its estimate of employee’s income under the head “Salaries” was incorrect as the belief it entertained was that its employees were to be regarded as employees of State Government and that its employees are entitled to exemption of the entire sum of unutilized leave encashment u/s.10(10AA)(i) of the Act. For the reasons given above and respectfully following the decision of the Tribunal referred to paragraph-10 of this order, we hold that KPTCL has discharged its obligation u/s.192 and hence proceedings u/s.201(1) & 201(1A) of the Act deserves to be quashed and are hereby quashed. All the appeals of KPTCL are allowed. - Decided in favour of assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 201(1) (1A) of the Act lays down consequences if tax is not deducted at source when there is a requirement to deduct tax at source laid down under any provisions of the Act and it reads thus:- Section-201: Consequences for failure to deduct or pay . ( 1) Where any person, including the principal officer of a company,- ( a) who is required to deduct any sum in accordance with the provisions of this Act; or ( b) referred to in sub-section (1A) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: .. ( 1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest,- ( i) at one per cent for every mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tilized leave period is an employee of Central or State Government, then the entire payment so made is exempt and therefore, an employee in such circumstances is not obliged to deduct tax at source on such payment. If, on the other hand, the person to whom such payment is made is not a Central or State Government employee, then only ₹ 3 lacs is exempt and the remaining sum is taxable and the employer has to deduct tax at source on payment in excess of ₹ 3 lacs towards unutilized leave period. 6. Sec.10(10AA) does not define as to who is to be regarded as employee of Central or a State Government. The revenue s case is KPTCL is not State Government, but a statutory corporation and therefore its employees cannot be regarded as employees of State Government and therefore, they ought to have deducted tax at source on payments above ₹ 3 lacs on account of earned leave at the time of retirement. 7. KPTCL, in the present group of cases, did not deduct tax at source on payments made to its retirement employees towards unutilized leave period where such payment was made in excess of ₹ 3 lacs. It is in this scenario that the Income-tax Authorities initiated proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ec.10(10AA)(i) of the Act are applicable in the case of the Assessee as the employees of KPTCL are to be regarded as employees of State Government; ( v) The provisions of Sec.201(1) 201(1A) of the Act are not attracted in the present case because the non deduction of tax at source by KPTCL was under the bonafide belief that it was not obliged to deduct tax at source on payments in excess of ₹ 3 lacs towards unutilized leave period as it believed that its employees were employees of State Government and therefore the applicable provisions will be only Sec.10(10AA)(i) of the Act. 11. It is not in dispute before us that identical issue in the case of KPTCL, the appellant, in all these appeals came up for consideration before this Tribunal in ITA No.2223/Bang/2017 to 2300/Bang/2017 and this Tribunal by its order dated 2.5.2018 allowed the appeals of KPTCL holding as follows:- 11. We have heard the parties on proposition (iv) and (v) alone as there are decisions of ITAT Bangalore Bench on identical facts and identical issues. As far as proposition No. (iv) is concerned, it was submitted by the learned DR that this Tribunal in the case of Central Food Technolog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t after its inception till AY 2012-13 it has been deducting TDS by considering its employees as employees of State Government in view of the historical background under which KPTCL came into existence. The revenue has accepted in the past the manner in which tax was deducted at source by KPTCL by considering the employees of KPTCL as employees of State Government. It was pointed out that it is only in AY 2012-13, that the revenue took the stand that employees of KPTCL were not to be regarded as employees of State Government because employment under KPTCL cannot be equated with an office or post in connection with the affairs of such State. It was for the first time that the revenue took the stand that Statutory Corporations such as KPTCL were not to be regarded as State Government. It has also been contended that the Assessee has been filing return of TDS for AY 2013-14 in the status of Statutory body (State Govt.) in form No.27A. 15. The learned counsel for KPTCL drew our attention to the Tripartite Agreement dated 31.7.1999 under the provisions of Sub-Section 2 of Section 15 of the Karnataka Electricity Reform Ordinance, 1999 between the Government of Karnataka and KEB and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Indian Institute of Science Vs. DCIT ITA No.1589/Bang/2014 for AY 2010-11 order dated 27.2.2015 on identical facts. In the aforesaid decision, the Tribunal took the view that the estimate of income under the head salary made by the Assessee on the belief that its employees were to be equated with State Government employees was a bonafide estimate and therefore the Assessee has discharged its obligation u/s.192 of the Act and hence proceedings u/s.201(1)( 201(1A) of the Act were to be quashed. Reliance was also placed on the decision of the Hon ble Bombay High Court in the case of CIT Vs. Kotak Securities Ltd. 340 ITR 333 (Bombay) wherein the Hon ble Bombay High Court took the view that when the question whether there was an obligation to deduct tax at source or not on a particular payment, is highly debatable then the Assessee cannot be held to be a defaulter for not deducting tax at source and consequently no disallowance u/s.40(a)(ia) of the Act for non deduction of tax at source should be made. 18. The learned DR submitted that no attempt whatsoever was made by KPTCL to show that the estimate of income under the head salaries made by it was bonafide. Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not on the basis of salary accrued. Sec.192(3) of the Act permits the employer to increase or reduce the amount of TDS for any excess or deficiency. We have already noticed that the fact that bills/evidence to substantiate incurring of expenditure on medical treatment up to ₹ 15,000/- and the availing of the LTC by the employees and the fulfilment of the conditions contemplated by Sec.10(5) of the Act for availing exemption by the employees so availing LTC, have not been disputed by the AO. Even assuming the case of the AO, that at the time of payment the Assessee ought to have deducted tax at source, is sustainable; the Assessee on a review of the taxes deducted during the earlier months of the previous year is entitled to give effect to the deductions permissible under proviso (iv) to Sec.17(2) or exemption u/s.10(5) of the Act in the later months of the previous year. What has to be seen is the taxes to be deducted on income under the head salaries as on the last date of the previous year. The case of the AO is that LTC and Medical reimbursement should be paid at the time the expenditure is incurred or after the expenditure is incurred by way of reimbursement and not at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (DEL) Gwalior Rayon Silk Co. Ltd. v. CIT [1983] 140 ITR 832 (MP) ITO v G. D. Goenka Public School (No. 2) [2008] 306 ITR (AT) 78 (Del) Usha Martin Industries Ltd. V. ACIT (2004) 086 TTJ 0574 (KOL) Nestle India Ltd. v. ACIT (1997) 61 ITD 444 (Del) Indian Airlines Ltd. v ACIT (1996) 59 ITD 353 (Mum) 21. The Tribunal thereafter proceeded to hold as follows:- 19. We have considered the rival submissions. In our view, the plea of the Assessee that it made a bona fide estimate of employee s salary by valuing the perquisites in the form of residential accommodation provided to the employees by valuing the same as if employees were employees of Central Govt. has to be accepted. In this regard, it is clear from the records that the position with regard to the assessee not being a Central govt. was brought to its notice by the department only in the proceedings initiated in 2013. Even thereafter, the Assessee has been taking a stand that its employees or employees of Central Govt. As held in several decision referred to by the ld. counsel for the Assessee, the obligation of the Assessee is only to make a bonafide estimate of the salary. In our view, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eals and the appeals already decided by the Tribunal started simultaneously as evidenced by the Chart filed by the learned counsel for the Assessee, which is placed on record. The learned Standing counsel for the revenue, however, submitted that the following contentions which were not put forth in the appeals decided by the Tribunal and the contentions in the Miscellaneous Application seeking rectification of the earlier order of the Tribunal (copies of which were filed before us), may be considered. Similar submissions were already considered by this Tribunal in MP No.175/Bang/2018 to 252/Bang/2018 in ITA No.2223/Bang/2017 to 2300/Bang/2017 by order dated 4.1.2019. We shall now deal with the contentions of the revenue. 13. The learned Standing Counsel submitted the Hon ble Supreme Court in the case of CIT Vs. Eli Lilly Co.(India) Pvt. Ltd. (2009) 178 Taxman 505(SC) while cancelling penalty u/s.271C of the Act for nondeduction of tax at source on the ground that the estimate of salary for the purpose of deduction of tax at source by the Assessee in that case was bonafide and therefore no penalty should be levied, nevertheless observed that the Assessee was liable to proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its employees the same was not exempt and ought to have been considered while estimating income of the Assessee. In this regard, he drew our attention to a decision of the Hon ble Karnataka High Court in the case of Karnataka Electricity Board ILR 2006 KAR 3384 = 2007(1) Kar LJ 147 , wherein the question was whether the benefit of free power can be denied to the future employees KPTCL when such benefit was available to erstwhile employees of KEB who became employees of Statutory corporation KPTCL by law passed by State Legislature. The contention was that there was discrimination between employees who continued in service in the erstwhile KEB and those who would become employees of KPTCL in future. The Hon ble Court held that there was no such discrimination as the two set of employees formed a distinct class and therefore could be treated differently and that there was no violation of Article 14 of the Constitution. It is the contention of the learned standing counsel that in the light of this decision rendered as early as 26.7.2006 in the case relating to the Assessee would show that the Assessee must be having sufficient knowledge that its employees cannot be equated with empl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording to him, in the present case the Assessee has set out the basis on which they formed belief that its employees were to be regarded as employees of State. In the second decision, the question arose in the context of recording of satisfaction before issue of warrant of authorization u/s.132 of the Act for search and seizure proceedings. The Hon ble Court observed that there must be application of mind to the material and thereafter bonafide and honest opinion has to be formed. According to him in the present case, the Assessee did not have any material based on which he formed bonafide belief that its employees are employees of State. 19. We have considered the above submission and are of the view that the same is without any merit. The above are cases where challenge to the action by authorities who were vested with power to take particular action invading the right of privacy or for initiating proceedings for levy of tax. It may not be appropriate to read the observations of the Hon ble Court in the context of the present case. The obligation of the Assessee u/s.192 is only to make bonafide estimate of income of his employee under the head salaries. Such obligation canno ..... X X X X Extracts X X X X X X X X Extracts X X X X
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