1981 (1) TMI 100 - AT - Income Tax

Summary

Issues:
1. Short deduction of tax under section 192 of the Income Tax Act.
2. Imposition of penalty under section 201 of the Income Tax Act.
3. Interpretation of the term "salary" under section 192 for tax deduction purposes.
4. Bonafide belief of the assessee regarding the inclusion of perquisites in salary for tax deduction.

Detailed Analysis:
1. The issue in this case revolves around the short deduction of tax by the assessee under section 192 of the Income Tax Act. The Income Tax Officer (ITO) found a shortfall in tax deduction due to the exclusion of perquisites like the value of electricity and bungalow maintenance allowance from the salary while calculating tax at source. The ITO issued a show-cause notice for penalty under section 201 of the Act.

2. The assessee contested the ITO's decision, arguing that perquisites should not be included in the definition of salary for tax deduction purposes under section 192. The Assessing Officer of Income-tax Appeals (AAC) upheld the penalty, stating that perquisites like free electricity and bungalow maintenance allowance provided to employees should be considered part of the salary for tax deduction.

3. The assessee further appealed to the Appellate Tribunal, reiterating their argument that their interpretation of the circular and section 192 led them to believe that perquisites were not part of the salary for tax deduction. The Tribunal considered the assessee's consistent belief over the years, supported by their challenge to penalty orders in previous years, and concluded that the assessee had a bonafide belief that perquisites should not be included in the salary for tax deduction under section 192.

4. The Tribunal, relying on the decision in Hindustan Steel Ltd. vs. State of Orissa, held that penalty under section 201 was not exigible against the assessee due to their bonafide belief. The Tribunal allowed the appeal, directing the refund of any penalty amount already paid by the assessee. The judgment emphasizes the importance of bonafide belief in interpreting tax laws and determining the liability for penalties under the Income Tax Act.