TMI Blog1998 (12) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 206 of the Act for the Financial Year 1995-96 on 24-5-1996. A survey was carried out at the premises of the assessee-company on 19-12-1996 by the Income-tax Officer (TDS). As a result of the survey the Income-tax Officer found that there were several payments made to the employees on which tax was not deducted at source which according to the Income-tax Officer (TDS), formed part of the salary to the employees and as such the assessee was duty bound to deduct the tax at source in respect of those payments as well. The details of such allowances / payments, since which year the assessee has been paying these allowances and what amount is actually being paid are as follows : Paid from Particulars Rate Amount 1976 Vehicle allowance for vehicles of employees Rs. 380 to Rs. 2425 per month vehicle-wise Rs. 2,47,90,929 01 July, 86 Cash Canteen Assistance Rs. 550 per employee per month Rs. 1,98,78,159 1976 Medical Reimbursement Rs. 410 per family per month Rs. 1,37,10,680 01 July, 86 Professional Books Allowance Rs. 75 to Rs. 650 a month Rs. 52,67,594 01 Jan, 84 Gardening Allowance Rs. 175 to Rs. 700 per employee per month. Rs. 29,89,547 01 July, 94 Birthday ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has filed these two appeals. 4. Shri J. P. Shah, the learned counsel for the assessee submitted that these allowances are being paid since last several years, majority of them by way of reimbursement, the assessee-company had not deducted the tax on bona fide understanding that these are not taxable in the hands of the employees and the fact of the matter is that none of them were taxed in the hands of any employee in their regular assessments and there are more than 2700 employees to whom these allowances are paid. It was submitted that all the employees are income-tax assessees and they file the returns and all these payments have been made through bank transfers to the bank account of the employees. It was submitted that the assessee has been regularly deducting the tax from the payments of salary to the employees. The issue of correct deduction of tax arose for the first time on 24-9-1993 when the AO issued a notice in respect of salary paid in F.Y. 1992-93 proposing to charge the interest under section 201(1A) on approximately Rs. 3,50,000 but the proceedings were subsequently not pursued further and the assessee is under the belief that these must have been dropped. Aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was submitted that the assessee-company under the circumstances was under the bona fide belief that the above payments are not taxable in the hands of the employees. It was further submitted that the assessee-company took from the employees the receipts to the effect that the employees had spent the above amounts and therefore requested for reimbursement and got the same. Accordingly it was submitted that the AO as well as the Commissioner of Income-tax(A) were not justified in holding the assessee-company to be an assessee in default under section 201(1) for the amount of Rs. 2,36,45,731 and also for charging interest under section 201(1A). Reliance was placed on the decision of the Hon'ble Andhra Pradesh High Court in the case of P. V. Rajagopal vs Union of India [1998] 233 ITR 678 / 99 Taxman 475 as well as the decisions in the cases of Commissioner of Income-tax vs Manager, M. P. State Co-op. Development Bank Ltd. [1982] 137 ITR 230 / 11 Taxman 226 (MP); Commissioner of Income-tax vs Kannan Devan Hill Produce Co. Ltd. [1986] 161 ITR 477 / 30 Taxman 460 (Ker); Gwalior Rayon Silk Co. Ltd. vs Commissioner of Income-tax [1983] 140 ITR 832 / 14 Taxman 99 (MP); KLM Royal Dutch Airl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons who are bound under the Act to make deduction of income-tax at the time of making payments of any income, profits or gains are not concerned with the ultimate result of the assessments of the persons to whom the payments are made. Strong reliance was placed for the above proposition on the decision of the Hon'ble Supreme Court in the case of Aggarwal Chamber of Commerce Ltd. vs Ganpat Rai Hira Lal [1958] 33 ITR 245. It was further submitted that in view of the decision of the Supreme Court, the reliance placed by the learned counsel for the assessee on the decisions of the High Courts is not very relevant and the Tribunal should adjudicate the issue in favour of the revenue on the basis of the decision of the Supreme Court referred to supra. As far as charging of interest under section 201(1A) is concerned, the learned D.R. relied on the decisions of the Hon'ble Bombay High Court in the case of Bennet Coleman Co. Ltd. vs Income-tax Officer [1986] 157 ITR 812 / 21 Taxman 831 and Pentagon Engg. (P.) Ltd. vs Commissioner of Income-tax [1995] 212 ITR 92 (Bom). 6. We have considered the rival submissions and have also gone through the orders passed by the AO as well as the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se may be, referred to in sub-section (1)." The above section came up for adjudication before the Hon'ble Andhra Pradesh High Court in the case of P. V. Rajagopal (supra) and the Hon'ble High Court at page 269 held as under : "This section has two limbs, one is where the employer does not deduct tax and the second where after deducting tax, the employer fails to remit it to the Government. There is nothing in this section to treat the employer as the defaulter where there is a shortfall in the deduction. The Department assumes that where the deduction is not as required by or under the Act, there is a default. But the fact is that this expression "as required by or under this Act" grammatically refers only to the duty to pay the tax that is deducted and can not refer to the duty to deduct the tax. Since this is a penal section, it has to be strictly construed and it can not be assumed that there is a duty to deduct the tax strictly in accordance with the computation under the Act and if there is any shortfall due to any difference of opinion as to the taxability of any item the employer can be declared to be an assessee in default." The Hon'ble Madhya Pradesh High Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is interconnected and not independent of each other. Where the assessment in relation to an employee has been completed and has become final and no further tax is found due from the employee, that puts an end to the liability of the employer. Thereafter, it can not be said that the liability of the employer survives. We are here dealing with a case where the assessment on the employee has become final. It is admitted that it can not be reopened under any of the provisions of the Act. The present discussion is confined to such cases. Any other view would lead to absurdity." Now, coming to the decisions relied upon by the learned D.R., it is seen that the decision of the Supreme Court in the case of Aggarwal Chamber of Commerce Ltd. (supra) is distinguishable on facets. In that case the dispute was between the two parties and not between the Revenue and the assessee. In that case the appellant company acting as a Commission Agent on behalf of the Respondent entered into several transactions of forward delivery with a firm of Hapur in British India, in which there was a considerable amount of profits. The Hapur firm deducted and paid the income-tax in respect of the profits on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not required to deduct the tax at source from those payments. Thus, keeping in view the totality of the facts and circumstances of the case and the material on record as well as settled legal position in the cases of P. V. Rajagopal (supra), Manager, M.P. State Co-operative Development Bank Ltd. (supra), Gwalior Rayon Silk Co. Ltd. (supra), Kannan Deven Hill Produce Co. Ltd. (supra) as well as the decisions of the Tribunal in the cases of Industrial Credit Investment Corpn. of India Ltd. (supra) Nestle India Ltd (supra), we are of the opinion that the Departmental Authorities have not proved that the action of the assessee in not deducting the tax on the above payments was a malafide one. On the other hand, in view of the fact that the proceedings initiated by the AO for F.Ys. 1992-93 and 1993-94 in respect of the alleged short deduction of TDS were not further pursued, we are of the opinion that the assessee under the bona fide belief, did not deduct the tax at source from the disputed payments and it could not be held to be an assessee deemed to be in default under section 201(1). Accordingly we quash the orders passed by the AO under section 201(1) and 201(1A)of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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