2011 (12) TMI 251 - AT - Income Tax

Whether Tax Payments by employer on behalf of Employee be considered as a taxable Perquisite further liable to tax - Held That - Taxes paid by the employer on behalf of the assessee is not a monetary payment but it is discharge of his obligation and the payment fully fits in the jacket of section 17(2)(iv) of the Act and it may be a monetary gain or monetary benefits or a monetary allowance but definitely it is not a monetary payment to the assessee. Reliance placed on RBF Rig Corpn. LIC v. Asstt. CIT (2007 -TMI - 65377 - ITAT DELHI). Thus payments are exempted under 10(10CC). Decided in favour of assessee.

Summary

Issues:
- Whether tax paid by the employer on the income of the employee assessee is entitled to exemption u/s 10(10CC) of the Income Tax Act, 1961.

Analysis:
The appeal was filed by the revenue against the order passed by the Commissioner of Income-tax (Appeals) concerning an assessment made by the Assessing Officer under sec. 143(3) of the Income-tax Act, 1961 for the Assessment Year 2008-09. The main issue revolved around the exemption of tax paid by the employer on the income of the employee assessee under section 10(10CC) of the Act. The Assessing Officer denied the claim of the assessee that no tax was payable on the tax paid by the employer, treating it as a monetary perquisite. The contention was that all taxes concluded by multiple stage grossing up should be borne by the employer. The Assessing Officer referred to various provisions to support this stance, ultimately adding the tax perquisite to the income of the assessee.

The assessee challenged the Assessing Officer's decision before the Ld CIT(A), who, after considering the submissions and relying on a Special Bench decision, held that the tax borne by the employer on behalf of the employee constituted a non-monetary payment and was exempted under section 10(10CC) of the Act. Consequently, the revenue appealed this decision.

During the appeal before the Tribunal, the Department argued against following the Special Bench decision, claiming it disregarded clear provisions of the Act. The Department contended that the taxes paid by the employer should be included in the total income of the employee. The Department reiterated the Assessing Officer's reasons for denying the exemption under section 10(10CC).

The Counsel for the assessee argued that the issues raised were addressed by the Special Bench decision, which should be applied in this case. The Tribunal analyzed the provisions of section 10(10CC) and considered the Special Bench's decision, emphasizing that taxes paid by the employer on behalf of the employee were not a monetary payment but a perquisite falling under section 17(2)(iv) of the Act. The Tribunal concurred with the Special Bench's interpretation, ruling that the tax paid by the employer should be excluded from the total income of the employee under section 10(10CC). This decision was in line with the Special Bench's view that the taxes paid by the employer were not a monetary payment but a discharge of obligation, thus exempt from inclusion in the employee's income.

In conclusion, the Tribunal upheld the order of the Ld CIT(A) and dismissed the revenue's appeal, following the Special Bench's decision. The Tribunal's decision was consistent with a similar case decided by another bench, affirming that the taxes paid by the employer on behalf of the employee were exempted under section 10(10CC) of the Act.