TMI Blog2014 (4) TMI 277X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance paid for defraying expenses 'wholly, necessarily and exclusively' in the performance of the duties - it is only to the extent such expenses are actually incurred, that exemption would be available under section 10(14) in respect of even an allowance notified by the Central Government in that behalf - the conveyance allowance is clearly taxable under the head 'Salary' and as such the assessee could not have excluded the conveyance allowance paid, while computing the tax deductible at source, from the salaries paid by it to its employees – Decided against Assessee. Interest debited to recoup the interest - Whether in a case where interest is debited to the account of an Indian company by bank to recoup the interest charged to it by the discounting bank would it entail deduction of tax at source u/s 195 of the Act by the Indian company – Held that:- The assessee had privity of contract only with the Allahabad Bank and the amounts were paid to Allahabad Bank - It cannot be said that the assessee had any obligation to the American Express Bank and in that view of the matter it cannot be said that the transaction would fall within section 9(1)(5) of the Act - In the circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the account of an Indian company by bank to recoup the interest charged to it by the discounting bank would it entail deduction of tax at source under section 195 of the Income-tax Act by the Indian company ? (3) Whether the appellant is liable for payment of interest under section 201 of the Income-tax Act in respect of royalty amount when the payment of tax was effected soon after the ascertainment of the quantum of royalty payable to the non-resident company in accordance with the agreement entered into with the non-resident company ? (4) Whether items which are subject matter of dispute, controversy and legal interpretation could at all be considered for the purpose of passing order under section 201 of the Income-tax Act demanding payment of tax and interest thereof? So far as question No. 1 is concerned, the contention of the learned counsel for the assessee, Sri Y. Ratnakar, is that the conveyance allowance is given to the employees of the company in lieu of providing a vehicle for transportation and as such the same does not form part of the salary. The specific claim before the authorities was that the conveyance allowance paid to employees for c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad conveyance allowance as such expenses are expected to be met by the employee and for which the employee is entitled for the standard deduction when his income being assessed under the head Salary income. We have considered the rival submissions and it may be useful to refer to the orders of the Tribunal in Dr. Reddy Laboratories case (supra), which was followed by the Tribunal : 9 We have considered the rival submissions and perused the orders of the lower authorities and other papers filed before us. As regards the conveyance allowance, we find from the orders of the lower authorities and other material papers filed before us that the assessee has been making payment of conveyance allowance to its employees in fixed sums, with no bearing on the actual expenditure incurred by them and the same has been paid basically to enable the employees to perform the journeys to come to the work place and to go back to their residences. It has been the contention of the assessee right from the beginning that the conveyance allowance paid to the employees for coming to office from residence and returning thereto does qualify for exemption under section 10(14) of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... head 'Salary'and as such the assessee could not have excluded the conveyance allowance paid, while computing the tax deductible at source, from the salaries paid by it to its employees. The reasoning given by the Tribunal is apt and we do not see any reason to defer (differ ?) from the same. In that view of the matter, question No. 1 is required to be answered against the assessee and in favour of the Revenue. So far as question No. 2 is concerned, this question arises on account of the fact that certain amounts were paid by the assessee to Allahabad Bank, who had arranged the letters of credit (in short L. C. ) in favour of their suppliers M/s. Tecumseh Products Co. The Allahabad Bank debited a sum of US $ 1,16,468-70 + US $ 3457-66 along with certain other payments to M/s. Amex International, which were recouped from the assessee. The amount of US $ 3,457-66 which was collected by Allahabad Bank was treated as paid by the assessee to the American Express Bank towards interest. On such amount, the assessee was treated as the assessee in default for non-deduction of tax at source under section 195 of the Act and was demanded with a sum of Rs. 2,78,639 with further i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to question No. 4, the learned counsel for the assessee, Sri Y. Ratnakar, would submit that section 201 of the Act at the relevant point of time did not deal with the situation of short deduction and payment of the tax. He would draw the attention of the court to section 201 of the Act before and after amendment which reads as under : Before amendment 201. (1) If any such person and in the cases referred to in section 194, the principal officer and the company of which he is the principal officer does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax : Provided that no penalty shall be charged under section 221 from such person, principal officer or company unless the Assessing Officer is satisfied that such person or principal officer or company, as the case may be, has without good and sufficient reasons failed to deduct and pay the 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 subsectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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,- By pointing out the difference in language he would submit that the invocation of section 201 in the facts and circumstances of the case is not permissible. He would also submit that when the assessee under a bona fide impression that the conveyance allowance would not form part of salary for the purpose of deduction of tax at source, section 201 of the Act cannot be invoked. He would submit that even assuming that conveyance allowance which was paid to the employees may not qualify for a deduction under section 10(14) of the Act, in view of the bona fide dispute/controversy, whether the conveyance allowance would form part of salary or not, nondeduction of a portion of the salary would not attract section 201 of the Act as it then existing. He would also rely on the judgment of the Division Bench of this court reported in P. V. Rajagopal v. Union of India [1998] 233 ITR 678 (AP), wherein it was held as follows (page 696) : It is quite significant that these circulars do not contain any warning about short deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no penalty shall be charged under section 221 from such person, principal officer or company unless the Assessing Officer is satisfied that such person or principal officer or company, as the case may be, has without good and sufficient reasons failed to deduct and pay the 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 subsection does not deduct 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 at fifteen per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. (2) Where the tax has not been paid as aforesaid after it is deducted, the amount of the tax together with the amount of simple interest thereon referred to in sub-section (1A) shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub-section (1).' This section has two limbs, one is where the employer does not deduct the tax and the second where after deducting, the tax fails to remit it to the Government. There is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o any salary or wages (referred to as 'salaries' hereinafter) paid to their employees for the purpose of deducting tax at source under section 192 of the Income-tax Act, 1961. Such defaulters are liable to penalty proceedings under sections 221 and 271C of the Act, and also liable to prosecution under Chapter XXII of the Act. 2. However, before taking stringent measures, the Board has decided to grant an opportunity to such defaulters. Even now if they pay the proper tax on 'salaries' as envisaged under section 192 along with interest liability under section 201(1A) of the Act no penalty proceedings under section 221 or prosecution under Chapter XXII of the Act shall be initiated provided such payment is made on or before February 28, 1995. 3. This circular shall also cover such cases which were earlier covered by Circular No. 685, dated June 17, 1994 (see [1994] 208 ITR (St.) 54), where the facility was extended in respect of salaries and allowances paid abroad or perquisites provided abroad to the employee for services rendered in India. The time-limit of July 31, 1994, was fixed by Circular No. 685 (which was later extended to August 31, 1994) is now extend ..... X X X X Extracts X X X X X X X X Extracts X X X X
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