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2013 (8) TMI 248 - HC - Income TaxExclusion u/s 10(10CC) - non-monetary perquisites - where income tax paid to discharge tax obligation of employee, on his behalf is a monetary perquisite or not - Held that:- only change is in introduction of Section 10 (10CC) which states that tax actually paid by employer to discharge an employee‘s obligation not amounting to a monetary benefit would not be included as employees‘ income. If seen from context of Section 17 (2), and previous history to that provision, as well as pre existing provision of Section 10 (5B) – and interpretation placed on Section 17 (2) read with or provisions which disallow payments made on behalf of employee, by employer, so long as benefit is not expressed in monetary terms in hands of employee, in sense that it is not funded as part of salary, but paid in discharge of obligation, of any sort, eir contractual or legal (tax) directly by employer, it should not be treated as a monetary benefit. reason for this is that Section 10 (10CC) is neutral about kind of benefit availed by employee - words in section contemplate a situation where assessee makes a payment (in cash) in respect of an obligation -obligation of employee - which would have been payable by employee if it is not paid by assessee. payment by assessee contemplated by these words is not evidently a payment to employee but to a third party, no doubt, on account of employee - Following decision of CIT v. Mysore Commercial Union Ltd. [1980 (7) TMI 86 - KARNATAKA High Court] and CIT v. Shriram Refrigeraiton industries Ltd. [1992 (5) TMI 15 - DELHI High Court] - Decided favour of assessee. Social security, pension and medical insurance contributions - Held that:- assessee does not, in any appeal, get a vested right at time of contribution to fund by employer. - amount standing to credit of pension fund account, social security or medical or health insurance would continue to remain invested till assessee becomes entitled to receive it. In case of medical benefit, revenue could not support its contentions by citing any provision in any policy or scheme which is subject matter of se appeals, which entitle vesting right to receive amount under scheme or plan did not occur - one cannot be said to allow a perquisite to an employee if employee has no right to same. It cannot apply to contingent payments to which employee has no right till contingency occurs. employee must have a vested right in amount - contribution made by employee towards a fund established for welfare of employees would not be deemed to be a perquisite in hands of employees concerned as y do not acquire a vested right in sum contributed by employer - amounts paid by employers to pension, or social security funds, or for medical benefits, are not perquisites within meaning of expression, under Section 17 (1) (v) and refore, amounts paid by employer in that regard are not taxable in hands of employee-assessee - Following decision of CIT v. Mehar Singh Sampuran Singh Chawla [1972 (5) TMI 6 - DELHI High Court] - Decided in favour of assessee. Hypothetical Tax - Held that:- hypothetical tax as one where employee of a multinational company, seconded to serve in India, is assured a net salary amount equivalent to what is earned by him abroad. assessee paid a certain amount of tax in US dollars upon salary earned in United states. employer after deducting tax, calculated net amount receivable by assessee; it n considered how much tax would be payable by assessee on income earned in India. As amount payable as tax in India was lower, it (also called hypothetical tax) was not given to assessee, thus assuring that net amount received by him was in accordance with prior agreement. In or words, hypothetical tax denotes sum of money withheld by employer to fulfill a commitment of paying a particular net salary. Court, after considering materials, concluded that so long as assessee paid tax on actual salary received, could not be saddled with hypothetical tax amount - employers had assured a certain net salary; assessees were paid that; they suffered tax on that salary. question of ir paying more, refore, would not arise - Following decision of Commissioner of Income Tax v Dr. Percy Batlivala [2009 (12) TMI 811 - ITAT DELHI] - Decided in favour of assessee. Grossing up under Section 195-A - Tribunal held that taxes paid by employer can be added only once in salary of employee - Held that:- whenever tax is deposited in respect of a non-monetary perquisite, provision of Section 10 (10CC) applies, thus excluding multiple stage grossing up. purpose and intent of introducing amendment to Section 10 (10CC) was to exclude element of income – which would have arisen otherwise, as a perquisite, and as part of salary. Once that stood excluded, and option was given to employer under Section 192 (1A) to honour agreement with employee, Parliament could not have intended its inclusion in any or form, even for purpose of deduction at source. Doing so would defeat intent behind Section 10 (10CC) - Decided in favour of assessee. Assessability of TDS refunds received by employee - Held that:- employer, in terms of its arrangement with employee, had to pay income-tax due on latter‘s income for services rendered. employer could not have paid to State any amount in excess of what was due as tax on salary. But, employer, mistakenly paid to State, excess amounts which were refunded, but instead, to assessee - amount was not paid to employee or due to him, from employer, according to terms of contract governing relationship. It was paid to Government, over and above tax due on salary. It was not for benefit of assessee. It never, therefore, bore characteristic of salary or perquisite. Till assessment was made, amount could not be refunded to assessee. revenue‘s position overlooks that all receipts are not taxable receipts. Before a receipt is brought to tax, nature and character of receipt in hands of recipient has to be considered. Every receipt or monetary advantage or benefit in hands of its recipient is not taxable unless it is established to be due to him. If amount is not due, recipient- in this case, employee is obliged to pay back sum to person, to whom it belongs. A perquisite or such amount, to be taxed, should be received under a legal or equitable claim, even contingent. receipt of money or property which one is obliged to return or repay to rightful owner, as in case of a loan or credit, cannot be taken as a benefit or a perquisite. amounts paid in excess by employer, and refunded to employee never belonged to latter; he cannot be refore taxed - Decided in favour of assessee. Legal expenses incurred - Held that:- primary liability to pay tax in this case was borne by employer; it clearly fell within definition of a non-monetary advantage. That company, as part of its policy, sought advice from a consultancy firm which was paid for its services. That benefit of these ultimately enured to assessee, cannot mean that it formed part of his income as perquisite - assessee was beneficiary to his employer‘s policy of consulting tax experts for filing income tax returns as appears to have been prevailing practice of his employer, in respect of or employees as well, would not transform expense borne by employer into income in assessee‘s hands - Decided in favour of assessee.
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