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TMI Blog2019 (5) TMI 1373X X X X Extracts X X X X X X X X Extracts X X X X ..... are also governed by the Kerala Government Pension Rules. These Rules are the same as the Central Civil Services (Pension) Rules 1972 {CCS Pension Rules 1972). The salary, pension and retirement benefits are paid from the consolidated fund of the state government and the grant for payment of salary and retirement benefits are provided by the Legislature through the budget of the State. The amount is specifically provided under the head 'salaries' in the state budget which was placed on record. Thus, there exists an employer employee relationship between the 'payer' and 'payee' i.e. the government and the employee. In our opinion, the employees of the assessee are found to be holding civil posts under the State Government, therefore, the provisions of section 10(10)(i), 10(10A) and 10(10AA) are fully attracted. Once the assessee falls under the above provisions of the Act, the same cannot be subject to TDS. We, therefore hold that payments made by the assessee to its employees towards death cum retirement gratuity, commutation of pension or leave salary shall not be liable for TDS to the extent permitted under the provisions of section 10(10)(i), 10(10A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned Commissioner of Income Tax (Appeals) has erred in deleting the demand raised u/s 201(1) u/s 201 (1A) of the IT Act, 1961 amounting to ₹ 59,65,182/-. 3. The learned Commissioner of Income Tax (Appeals) erred in holding that university employees were to be considered as government employees and were therefore eligible for exemptions under sections 10(10)(i), 10(10A)(i) and 10(AA)(i). 4. The learned Commissioner of Income Tax (Appeals) overlooked that employees of a university are not holders of civil posts and are therefore not government employees. 5. The learned CIT(Appeals) erred in treating University as part of State even though the Income Tax Act in several sections such as section 192(2A) and section 10(10C) clearly distinguishes a university from government. 6. The Learned CIT(Appeals) overlooked that employees of Universities are neither recruited by the State PSC nor paid from the consolidated fund of the State Government. They are employees of the University and not of the Government. 7. The Learned CIT(Appeals) overlooked that a University does not perform any sovereign funct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y other company ; or (iii) an authority established under a Central, State or Provincial Act; or (iv) a local authority ; or (v) a co-operative society ; or (vi) a University established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, (3 of 1956) ; or . (vii) an Indian Institute of Technology within the meaning of clause (g) of section 3 of the Institutes of Technology Act, 1961 (59 of 1961) ; or (viia) any State Government; or (viib) the Central Government; or (viic) an institution, having importance throughout India or in any State or States, as the Central Government may, by notification in the Official Gazette sppecify in this behalf; or (viii) such institute of management as the Central Government may, by notification in the Official Gazette, specify in this behalf; or [on his] [voluntary retirement or termination of his service, in accordance with any scheme or schemes of voluntary retirement or in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer relied on the judgment of the Supreme Court in the case of Mafatlal Industries Vs Union of India (1997) 5 SCC 536 that the legislature can make reasonable discrimination and make a choice in respect of districts, objects, persons, methods and even rates of taxation. 3.3 The Assessing Officer was of the view that when there is specific provision separate treatment provided for in the Income Tax Act to tax the retirement benefits of the University employees than the Government servants, Article 12, which deals with the fundamental rights is not attracted. Therefore, the Assessing Officer reiterated that the assessee cannot be treated as part of Government and the employees of Mahatma Gandhi University do not fall under the category of Government Employees and as such the exemptions available to the Government employees will not be applicable to the University employees. Hence, TDS is to be made on taxable portion of the payment of DCRG, Commutation of pension leave salary. The Assessing Officer passed the order u/s. 201(1) and 201(1A) of the Act raising the demand of ₹ 59,65,182/-. 4. On appeal, the CIT(A) held that the assessee is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her that where any such gratuity or gratuities was or were received in any one or more earlier previous years also and the whole or any part of the amount of such gratuity or gratuities was not included in the total income of the assessee of such previous year or years, the amount exempt from income-tax under this clause shall not exceed the limit so specified as reduced by the amount or, as the case may be, the aggregate amount not included in the total income of any such previous year or years. 5. A careful perusal of the above provision indicates that if a case falls under clause (i) of section 10(10), the entire amount of death-cum-retirement gratuity becomes exempt. Au contraire, if a case falls under sub-clause (iii) of section 10(10), then, the exemption is limited to the amount as the Central Government may notify in official gazette. It is an accepted position that the Notification u/s 10(10)(iii) issued on 24.5.2010 raised the ceiling of exemption from ₹ 3,50,000/- to ₹ 10 lac. Since the original amount was received by the assessee during the currency of an earlier year on his retirement, the exemption limit prevalent at that time at ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State University covered under University Grants Commission (UGC). It is undisputed that the entire funding of the CCSU is done by the State Government. Page 25 is a copy of Notification issued by the Haryana Government increasing the maximum limit of death-cum-retirement gratuity at ₹ 10 lac, under which the assessee has received the arrears of retirement gratuity under this scheme only. The above facts amply demonstrate that CCSU is covered under the expression State. This is further corroborated from Article 12 of the Constitution of India which states that: In this part, unless the context otherwise requires, the State includes the Government and Parliament of India and the Government and the legislature of each of the States either local or other authorities within the territory of India or under the control of the Government of India. The expression other authorities has been interpreted in Umesh v. Singh A 1967 Pat. 3(9) F.B. as including: a Board, a University, the Chief Justice of a High Court, having the power to issue rules, bylaws or regulations having the force of law. The above discussion manifests that CCSU is covered within the meaning of State . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir Singh Panghal in ITA No. 1308/Del/2016 dated 16/06/2016 wherein it was held that leave encashment paid to employees of University formed under a Central Act was exempted u/s. 10(10AA)(i) of the Act. Thus, the CIT(A) held that the assessee is to be treated as State for the purpose of application of TDS provisions. 5. Against this, the Revenue is in appeal before us. The Ld. DR relied on the order of the Assessing Officer. 6. The Ld. AR submitted that the assessee, Mahatma Gandhi University was established as per the Mahatma Gandhi University Act 1985 passed by the Kerala Legislature and hence is a statutory body formed by an Act of the State legislature. It was submitted that as per the Act and Statutes, the Government of Kerala exercises direct control over the financial and administrative matters of the university and the Governor of Kerala is the Chancellor of the University, who shall appoint the Vice Chancellor of the University. It was submitted that the University was created by the State Government to discharge one of its sovereign function of imparting higher education in the State. The Ld. AR referred to the preamble to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Mahatma Gandhi University statutes 1997, the employees belonging to Classes I and II shall have the status of Gazetted Officers of the Kerala Government Service and accordingly, the pay of the employees of the university is fixed and also revised in accordance with and at par with pay revision of the state government employees. It was submitted that the employees of this university are also governed by the Kerala Government Pension Rules. These Rules are the same as the Central Civil Services (Pension) Rules 1972 (CCS Pension Rules 1972). The salary, pension and retirement benefits are paid from the consolidated fund of the state government and the grant for payment of salary and retirement benefits are provided by the Legislature through the budget of the State. The amount is specifically provided under the head 'salaries' in the state budget which was placed on record. Thus, there exists an employer employee relationship between the 'payer' and 'payee' i.e. the government and the employee. It was submitted that the state government retains complete and direct control over the expenditure of the university. The salary, pension and retireme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations having the force of law'. Hence it was concluded that the employee of the assessee was an employee holding a civil post under the State. The Ld. AR submitted that consequently, the view taken for Section 10(10)(i) was extended to Section 10(AA)(i) stating that there was not much difference in the language of the both the sections and hence, the view taken with regard to section 10(10) was to be followed for section 10(10AA). The CIT(A) relied on the decision of ITAT, Delhi SMC Bench, in the case of Ram Kanwar Rana cited supra and allowed the appeal of the assessee. 6.6 It was submitted that the Supreme Court while interpreting the expression other authorities in the case of Som Prakash Rekhi vs. Union of India AIR 1981 SC 212 had culled out certain tests to determine as to when a Corporation should be said to be an instrumentality or agency of the Government. The Ld. AR summarised the tests laid down by the Apex Court with regard to how the conditions are satisfied in the case of the assessee as follows: a) If the entire share capital of the corporation is held by the Government, it would go a long way towards indicating tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act is other authority as per Article 12 of the Constitution and hence, is to be treated a State. The Ld. AR submitted that exemption u/s. 10(10)(i) and 10(10A)(i) of the Act is available to holders of civil posts under a State . It was the submission of the Ld. AR that it is a State as defined in Article 12 of the Constitution since it falls under the category other authority being an authority created by a statute. Reliance was also placed on the decision of the ITAT, Pune in the case of Smt. Sapna Sanjay Raisoni vs ITO (2016) 70 taxmann.com 7 (Pune-Trib.) wherein it was held that Maharashtra State Electricity Board (MSEB) which was established under the Road Transport Act 1950 was considered State as per Article 12 of the Constitution and hence, payment to MSEB would be exempted u/s. 40A(3) of the IT Act. The Supreme Court in the case of Rajasthan State Electricity Board cited supra held that the words other authorities occurring in Article 12 of the Constitution should be given their full dictionary meaning. The expression 'other authorities' in Article 12 will include all constitutional or statutory authorities on whom powers are conferred by law. Any public auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision was on the validity of the directives issued by the State Government and not on income tax. The question in this case was whether the university teachers are employees of the government and the question whether the university can claim reimbursement from government for leave encashment paid to its employees. However, in the case of the assessee herein, it is under the Mahatma Gandhi University Act. In the case of the assessee herein, the question was on the provisions of the Income Tax Act. The question was whether the university employees are employees of State. In the case of the assessee herein, the State Government had already reimbursed all the benefits to the employees of M.G. University by accepting that they are the employees of the State. 7. We have heard the rival submissions and perused the record. The main contention of the assessee is that the employees of the assessee are holding civil posts under the State Government. As such, the provisions of section 10(10)(i), 10(10A) and 10(10AA) of the Act are applicable to the assessee s case. Accordingly, the assessee is not liable to deduct TDS on the payment of death cum retirement gratuity, commuta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are managed in accordance with the provisions of the Kerala Service Rules, 1959, Kerala State and Subordinate Service Rules 1958 and the Government Servants Conduct Rules, 1960. Statute 40 of Chapter 4 of the MGU Statute 1997 brings the employees under the ambit of Kerala Public Servants (inquiries) Act 1963. 7.4 Para 78 of the MG University Act states as follows: Reservation of appointments.-In making appointments by direct recruitment to posts in any class or category under the University or to posts of nonteaching staff in the University, the University shall mutates mutandis observe the provisions of clauses (a), (b) and (c) of rule 14 and rules 15, 16, 17 and 17A of the Kerala State and Subordinate Service Rules, 1958, as amended from time to time. 7.5 As stated in Part II if the Mahatma Gandhi University statutes 1997, the employees belonging to Classes I and II shall have the status of Gazetted Officers of the Kerala Government Service and accordingly, the pay of the employees of the university is fixed and also revised in accordance with and at par with pay revision of the state government employees. The employees of this uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent gratuity, commutation of pension or leave salary shall not be liable for TDS to the extent permitted under the provisions of section 10(10)(i), 10(10A) and 10(10AA) of the Act. Accordingly, we confirm the order of the CIT(A) on this issue. Hence, the appeals of the Revenue are dismissed. C.O. Nos. 01 09/Coch/2019:Assessee 8. The assessee has raised the following common grounds in its Cross Objections: 1) If for any reason the appeal filed by the department is allowed in favour of the appellant, since the Respondent had deducted tax from the employees on the bonafide and honest belief that they are State Government employees, whether tax can be levied u/s.201 of the Income tax Act by treating the Respondent as an assessee is default. 2) Whether the responsibility to assess tax on the salary income of the assesssee is on the assessing officer of the employee concerned and whether the Respondent can be treated as an assessee in default for the reason that there is a legal interpretation regarding an item of payment made by the assessee to the employee. 9. There was delay of 25 days in fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal and admit the Cross Objections for adjudication. 10. Coming to the grounds in the Cross Objections, without prejudice to the above appeals of the Revenue, the Ld. AR submitted that the provisions of section 201(1) and 201(1A) of the Act are not attracted in the present case because non-deduction of tax at source by the university is based on a bonafide estimate of the tax liability of its employees. According to the Ld. AR, the obligation of the employer u/s 192 is only to deduct tax on the estimated income of the Assessee under the head salaries for that financial year. If the estimate is made bonafide and tax is deducted on such bonafide estimate then there can be no proceedings u/s 201(1) and 201(1A), treating the person responsible for deducting tax at the time of payment as Assessee in default. As far as the assessee is concerned, his obligation is only to make an estimate of the income under the head Salaries and such estimate has to be bonafide estimate. 10.1 According to the Ld. AR, Section 192 of the Act uses the word estimate and therefore the statutory intention is that it should be an approximation. The Ld. AR placed reliance on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Mum.) 7. CIT (TDS) vs. Oracle India Pvt Ltd (2013) 37 taxmann.com 327 (Bangalore -Trib.). 8. ACIT vs SAP Labs India Pvt Ltd ([2013] 36 taxmann.com 200 (Bangalore -Trib.) 9. ACIT(TDS) vs. Infosys BPO (2013) 37 taxmann.com 53 (Bangalore -Trib.) 10. CIT vs Kannan Devan Hill Produce Co. Ltd (1987) 30 Taxmann 460 (Ker.). 11. Aligarh Muslim University vs. Income Tax officer(TDS), Aligarh (2017] 83 taxmann.com 364 (Agra-Trib.)) 12. P.V Rajagopal vs. Union of India ((1998) 99 taxman 475 (AP). 13. ACIT (TDS) vs. CISCO Systems Asia Services (2013) 38 Taxmann.com 381 (Bangalore-Trib.) 14. ACIT vs. Thomson Corporation (International) Pvt Ltd. (2013) 37 taxmann.com 383(Bangalore -Trib). 15. Karnataka Power Transmission Corporation Ltd. (2019) 102 taxmann.com 245 (Bangalore Trib.) The Ld. AR submitted that there has been no observation by the ITO that the estimate of salary made by the assessee was not honest or fair. Also, the assessee had deducted tax on the basis of a bonafide estimate of the salary of its employees. 11 The ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y way of reimbursement and not at an earlier point of time. If it is so paid, then, even though the payment would not form part of taxable salary of an employee, the employer has to deduct tax at source treating it as part of salary, is contrary to the provisions of Sec. 192(3) of the Act and cannot be sustained. The reliance placed by the AO on the expression actually incurred found in Sec. 10(5) of the Act and proviso (iv) to Sec. 17(2) of the Act, in our view cannot be sustained. In any event, the interpretation of the word actually paid is not relevant while ascertaining the Quantum of tax that has to be deducted at source u/s.192 of the Act. As far as the Assessee is concerned, his obligation is only to make an estimate of the income under the head salaries and such estimate has to be a bonafide estimate. 27. The primary liability of the payee to pay tax remains. Section 191 confirms this. In a situation of honest difference of opinion, it is not the deductor that is to be proceeded against but the payees of the sums. To reiterate, the payment towards medical expenditure and leave travel is made keeping in view the employee welfare. The exclusion in re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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