2008 (2) TMI 462 - AT - Income Tax

TDS deduction u/s 192 - bona fide estimate of the perquisite - valuation of free or concessional educational facilities provided to children of the teacher and staff member - assessee-in-default u/s 201(1) and 201(1A) - value of the benefit of free education exceeded Rs. 1, 000 per month the whole of the amount was to be treated as perquisite - HELD THAT - Section 192 casts an obligation on the employer to estimate the income under the head Salaries and deduct tax at the average rate at the time of its payment. Section 200 casts further obligation that any person deducting any sum shall pay within the prescribed time the sum so deducted to the credit of the Central Government. We find that the assessee had deducted a sum of Rs. 1, 000 per child per month on the basis of the interpretation of the provisions given in the ready reckoner. To our mind that interpretation may or may not have been correct but the assessee had some basis on which the decision was taken not to deduct tax on the impugned amount of Rs. 1, 000 per month per child. Therefore unless it is shown that there was something more than mere reliance on the ready reckoner the assessee cannot be held to be an assessee-in-default. Assessee has been providing free educational facilities to the children of the teachers and staff members. Notwithstanding these orders of the Tribunal in the case of Bal Bharti Public School 2007 (7) TMI 347 - ITAT DELHI-G it cannot wished away that there could have been doubts in the mind of the assessee as to whether in its case deduction of Rs. 1, 000 per month per child should be allowed in valuing the perquisite of free educational facility. Therefore its reliance on the ready reckoner was not completely misplaced and in any case such a reliance could not said to be not bona fide. Respectfully following the decision in the case of Nestle India Ltd. 2000 (1) TMI 35 - DELHI HIGH COURT it is held that this case was not fit for passing an order under section 201(1) and consequently under section 201(1A). Thus the appeals of the revenue are required to be dismissed on the finding that the valuation of the perquisite by the assessee could not be said to be not bona fide for the purpose of deeming it to be an assessee-in-default under section 201(1) and consequently levying interest under section 201(1A). In the result the appeals are dismissed.

Summary

Issues Involved:
1. Validity of the cancellation of the order passed by the Assessing Officer under section 201(1) and section 201(1A).
2. Entitlement of the assessee to deduct Rs. 1,000 per month per child for teachers and staff members.

Detailed Analysis:

Issue 1: Validity of the cancellation of the order passed by the Assessing Officer under section 201(1) and section 201(1A)

The revenue's appeal questioned the learned CIT(A)'s decision to cancel the Assessing Officer's order under sections 201(1) and 201(1A). The Assessing Officer had determined that the entire amount of free education provided to the children of teachers and staff members should be treated as a taxable perquisite if it exceeded Rs. 1,000 per month per child. This led to a cumulative short deduction of tax amounting to Rs. 17,63,592 and an interest liability of Rs. 7,08,480, totaling Rs. 24,72,072.

The CIT(A) applied the "doctrine of purposive construction" to rule 3(5) of the Income-tax Rules, 1962, and concluded that a deduction of Rs. 1,000 per month per child should be allowed, thus reducing the taxable perquisite. The CIT(A) also distinguished between "cost" and "price," directing that only the cost should be considered for tax deduction purposes.

The tribunal referenced multiple court cases, including the Hon'ble Delhi High Court's decision in CIT v. Nestle India Ltd., which supported the notion that an employer should not be deemed an assessee-in-default if they made a bona fide estimate of the perquisite value. The tribunal concluded that the assessee's reliance on the ready reckoner for estimating the perquisite value was bona fide, and thus, the assessee could not be held as an assessee-in-default under section 201(1) and consequently under section 201(1A).

Issue 2: Entitlement of the assessee to deduct Rs. 1,000 per month per child for teachers and staff members

The tribunal examined whether the assessee correctly deducted Rs. 1,000 per month per child while valuing the perquisite of free education. The revenue contended that the entire amount should be taxable if it exceeded Rs. 1,000 per month per child, referencing the Hon'ble ITAT, Delhi Bench "H" decision in ITO v. Director, Delhi Public School, which supported the revenue's stance.

The tribunal acknowledged that the assessee had estimated the perquisite value based on the ready reckoner, which allowed a deduction of Rs. 1,000 per month per child. This estimation was deemed bona fide. The tribunal directed the Assessing Officer to re-calculate the cost, including both direct and indirect costs (excluding depreciation), as per the decision in the case of Director, Delhi Public School.

The tribunal also addressed the argument that the employer should not be deemed in default if employees had filed returns and paid taxes accordingly. However, no evidence was provided to show that employees had filed returns and paid taxes on the correct perquisite value. Thus, this argument was rejected.

Conclusion:
The tribunal dismissed the revenue's appeals, holding that the assessee's valuation of the perquisite was bona fide and could not be deemed an assessee-in-default under section 201(1) and consequently under section 201(1A). The tribunal directed the Assessing Officer to re-calculate the cost of the perquisite as per the established legal guidelines.