1998 (12) TMI 96 - AT - Income Tax

Summary

Issues Involved:
1. Non-deduction of tax from certain payments to employees u/s 201(1) read with section 192.
2. Interest charged u/s 201(1A).

Summary:

Issue 1: Non-deduction of Tax u/s 201(1) read with section 192
The first appeal concerns the Commissioner of Income-tax(A)'s decision to uphold the AO's order deeming the assessee as an assessee in default for non-deduction of tax from specific payments to employees for the Financial Year 1995-96, resulting in a demand of Rs. 2,36,45,431. The AO identified several payments (vehicle allowance, cash canteen assistance, medical reimbursement, professional books allowance, gardening allowance, birthday gift, and safari allowance) as taxable income under sections 2(24)(iiia)/2(24)(iiib) read with sections 17(2)(iii) and 17(2)(iv). The assessee argued that these payments were not taxable and had been made under a bona fide belief that tax was not deductible. The Commissioner of Income-tax(A) upheld the AO's decision, leading to the appeal.

Issue 2: Interest Charged u/s 201(1A)
The second appeal addresses the partial relief granted by the Commissioner of Income-tax(A) concerning the interest charged by the AO u/s 201(1A), amounting to Rs. 51,72,501. The Commissioner of Income-tax(A) directed the AO to charge interest based on the shortfall worked out u/s 201(1) instead of monthly defaults.

Judgment Details:

Non-deduction of Tax u/s 201(1)
The Tribunal considered the assessee's argument that the allowances were paid based on a bona fide belief that they were not taxable. The Tribunal noted that the AO's previous proceedings for FYs 1992-93 and 1993-94 were not pursued further, reinforcing the assessee's bona fide belief. The Tribunal referenced several High Court decisions, including P. V. Rajagopal vs Union of India, which held that section 201 does not apply to shortfall in deduction due to differences in taxability opinions. The Tribunal concluded that the Department did not prove the assessee's malafide intent and quashed the AO's order u/s 201(1).

Interest u/s 201(1A)
Since the Tribunal quashed the AO's order u/s 201(1) based on the bona fide belief, it did not adjudicate the merit of the taxability of the disputed amounts in the employees' hands. Consequently, the interest charged u/s 201(1A) was also quashed.

Conclusion:
The appeals were allowed, and the orders passed by the AO u/s 201(1) and 201(1A) were quashed.