TMI Blog2005 (3) TMI 398X X X X Extracts X X X X X X X X Extracts X X X X ..... els and other packing material for packing of the medicines which is purchased from various suppliers as per assessee s own specification. Such specification of packing material required by it is given by the assessee to the suppliers and after the approval of the samples, regular supply orders are placed. The suppliers also print name/logo, etc. of the assessee wherever required. A survey operation under s. 133A of the Act was conducted on 2nd Feb., 2000, at the premises of the assessee during the course of which assessee was found to have procured printed packing material involving cartons, labels, inserts, rolls, corrugated boxes, p.p. caps, self-adhesive company stickers, leaflets and aluminium foils manufactured by different parties as per the purchase orders placed with them giving its specific requirement. According to the AO, the said procurement was in pursuance of material contracts entered into with the concerned suppliers and relying on the decision of Hon ble Supreme Court in the case of Associated Cements Co. Ltd. vs. CIT (1993) 111 CTR (SC) 165 : (1993) 201 ITR 435 (SC) and the subsequent Circular No. 681, dt.8th March, 1994, issued by the CBDT, he held that tax @ 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the submissions of the Authorised Representative. The appellant has been purchasing various packing materials from several vendors as per its requirement. These packing materials are manufactured by these vendors as per the specification given by the assessee. The items purchased by the assessee are subject to payment of excise duty and sales-tax, wherever applicable. When the packing material is manufactured and ready, the same are delivered to the assessee. No raw material or any part is supplied by the assessee to the manufacturer. The goods are delivered in a readymade form by the vendors to the assessee. Purchase orders are placed by the assessee from these suppliers for supply of packing material based on its own specification. If the supplied packing material is not as per the specifications, the same are rejected. The Board vide its Circular No. 681, dt.8th March, 1994, has clarified that the provisions of s. 194C are not applicable with regard to contract for sale of goods. In the assessee s case, admittedly, there is no supply of material by the assessee to the vendor which has been converted into boxes, labels, etc., and after being printed, has been supplied to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held by the AO. He invited our attention to the Circular No. 681 issued by the CBDT on 8th March, 1994, and pointed out that the Board itself has clarified in paragraph No. 7 of the said circular that the provisions of s. 194C would not cover contract for sale of goods. He contended that the AO, however, did not properly interpret the said circular and his reliance on the said circular to draw an adverse inference against the assessee on the issue under consideration was clearly misplaced. He also contended that the decision of Pune Bench of Tribunal in the case of Wadilal Dairy International Ltd. is squarely applicable to the facts of the present case since it was held therein that purchase of packing material by the assessee for its products from various manufacturers did not involve any works contract even if the same was manufactured according to the assessee s specifications and even some printing was also done on the said material by the manufacturers as per the specification of the assessee. He, therefore, strongly supported the impugned order of learned CIT(A) on this issue and urged that the same may be upheld. 6. We have considered the rival submissions and also perus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ady observed, the material required for manufacture of packing material was procured by the concerned manufacturers on their own and, therefore, the decision of Hon ble Madras High Court in the case of Kumudam Publications (P) Ltd. relied upon by the learned Departmental Representative, has no application to the present case. On the other hand, the decision of Pune Bench of Tribunal in the case of Wadilal Dairy International Ltd. cited by the learned counsel for the assessee is directly applicable to the facts of the case wherein, in the similar facts and circumstances, it was held by the Tribunal that purchase of packing material by the assessee for its products from various manufacturers which was manufactured according to the assessee s specifications did not involve any work contract, even if some printing was also done on the said material by the manufacturers as per the requirement of the assessee, the provisions of s. 194C thus were not applicable. As such, considering all the facts and circumstances of the case and keeping in view the aforesaid decision of the Tribunal in the case of Wadilal Dairy International Ltd. as well as Circular No. 681, dt.8th March, 1994, issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment was entered into by a consultancy agreement with M/s Indochem Techno Consultants Ltd. and in terms of the said agreement, it was to pay consultancy fee and also to provide a car to the consultants for the purpose of carrying out their functions. Referring to the provisions of s. 194J, it was pointed out that it is only the fee for rendering the technical/professional services which would be liable for deduction of tax at source and not any other amount which is not in the nature of fee paid by the assessee. Reliance was placed on behalf of the assessee-company to the Board s Circular No. 714, dt.3rd Aug., 1995, wherein it was clarified in paragraph No. 2 that deduction of tax at source under s. 194J @ 5 per cent of the sum as income-tax has to be only on the income comprised of such sum. It was submitted that the reliance by the AO on reply to question No. 30 as per Circular No. 715, dt.8th Aug., 1995, was misplaced since the said clarification applies only if there is a composite bill which does not differentiate between the reimbursement and other sum. It was pointed out that in the case of the assessee, there was no composite bill but separate bills had been raised for fee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reimbursement of expenses as per the consultancy agreement entered into by the assessee-company with M/s Indochem Techno Consultants Ltd. was also part of the professional fees paid to the said consultant and the same, therefore, was covered by s. 194J making it obligatory for the assessee-company to deduct tax at source @ 5 per cent from such reimbursement. 11. The learned counsel for the assessee, on the other hand, strongly supported the impugned order of learned CIT(A) on this issue. He submitted that as per the consultancy agreement entered into by the assessee-company with M/s Indochem Techno Consultants Ltd., separate bills for expenses actually incurred by the said consultant were raised on the assessee and since no element of profit was involved in the said bills, reimbursement of the same was not covered under s. 194J. He also submitted that tax on its income for all the years under consideration having been already paid by M/s Indochem Techno Consultants Ltd., the assessee could not be held liable for short deduction of tax, if any, as rightly held by the learned CIT(A). 12. After considering the rival submissions and perusing the relevant material on record, we find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, however, included a perquisite value only to the extent of Rs. 74,397 on account of accommodation so provided to the managing director, being 20 per cent of the salary during the period of stay in the hotel. The AO found that the total hotel bill of Rs. 12,26,643 was comprising of room rent of Rs. 8,79,427 and a balance of Rs. 3,47,216 towards laundry expenses, telephone calls, restaurant bills, pub bills, flower shop, etc. According to him, the said perquisite was to be considered as rent-free accommodation provided to an employee by the employer and as per r. 3(iii) of the IT Rules r/w Circular No. 374, dt.14th Dec., 1983, he worked out its value at Rs. 7,01,685 on account of room rent paid by the assessee-company. The balance amount paid by the company amounting to Rs. 3,47,216 on account of other expenses was also treated by him as a perquisite as per s. 17(2) of the Act. The amount of additional perquisite thus was determined by him at Rs. 9,74,504 and a tax @ 30 per cent amounting to Rs. 2,92,351 was held to be recoverable from the assessee-company being short deducted at source along with the interest of Rs. 54,623 under s. 201(1A). Before the learned CIT(A), it was subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was allotted to him. The computation of perquisite value @ 20 per cent of the salary made by the assessee is reasonable as far as the expenses incurred on account of room rent is concerned. However, the amount paid towards laundry, telephone, restaurant, flower shop, etc. amounting to Rs. 3,47,216 is also inclusive of some element of personal expenses of the employee. The AO has added the total amount as perquisite under s. 17(2) of the Act which appears to be excessive. In my view, 25 per cent of the balance payment of Rs. 3,47,216 can be reasonably estimated towards personal expenses and be added as perquisite of the employee. The amount of short deduction of tax and interest thereon under ss. 201(1) and 201(1A) may be suitably modified by the AO." 15. The learned Departmental Representative relied on the order of the AO in support of the Revenue s case on this issue and specifically invited our attention to pp. 4 and 5 of the AO s order to point out the reasons given by the AO in justification of his action on this issue. 16. The learned counsel for the assessee, on the other hand, submitted that arrangement of stay for its managing director was made by the assessee-company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suitable residential accommodation was not available on his arrival inIndia, he was put in a five star hotel temporarily till such accommodation could be arranged. Thus, the arrangement made by the assessee-company for stay of its managing director in a hotel was clearly a substitute for a residential accommodation which was to be provided by it to him as per the terms of employment and value of this perquisite being in the nature of residential accommodation was to be ascertained as provided in specific r. 3(iii) of IT Rules r/w Circular No. 374, dt.14th Dec., 1983. A similar view has also been expressed by the Bombay Bench of Tribunal in the case of R.V. Graafeillan cited by the learned counsel for the assessee involving similar facts and circumstances wherein it was held that where employee was made to stay in a five star hotel till suitable accommodation could be provided by the employer as per the terms of employment, entire hotel expenses would not form value of perquisites. Moreover, the perquisite value of the arrangement made for stay of its managing director in a hotel was determined by the assessee-company in accordance with r. 3(iii) r/w Circular No. 374, issued by CBD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to the employees was a perquisite as per s. 17(2) of the Act. Before the learned CIT(A), it was submitted that the assessee-company having undertaken to provide car with a driver to the concerned employees, the value of perquisite on account of driver s salary ought to have been worked out as per r. 3 and not on the basis of amount reimbursed to the employees as done by the AO. The learned CIT(A) noted that as per r. 3(iii)(c)(iv) of IT Rules, if the employee owns a motor car but the actual running and maintenance charges (including remuneration of the chauffer) are met or reimbursed to him by the employer, the value of the perquisite to the employee has to be determined as an amount which can reasonably be attributed to the user of the car by the employee for his personal purposes. Accordingly, he held that 50 per cent of the amount reimbursed could reasonably be attributed towards the personal user of the employees in the case of the assessee and directed the AO to recompute the perquisite value in the hands of the employees accordingly. 21. The learned Departmental Representative relied on the order of the AO in support of the Revenue s case on this issue, whereas the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred an expenditure of Rs. 1,89,300 towards maintenance and hire charges of the AC provided in the said residential accommodation. The assessee-company also incurred an additional expenditure of Rs. 25,28,410 towards repairs and renewals of the said accommodation. The AO added an amount of Rs. 1,89,300 as perquisite value as per r. 3(iii)(b)(ii) of IT Rules and also added Rs. 2,52,841 as perquisite value being 10 per cent of Rs. 25,28,410 while computing the salary income of the managing director. Accordingly, he worked out short deduction of tax to the extent of Rs. 1,32,642 and held the assessee to be in default on this count under s. 201(1) along with interest of Rs. 32,828 payable thereon under s. 201(1A). Before the learned CIT(A), it was submitted on behalf of the assessee-company that the expenditure incurred on maintenance and hire charges of AC as well as on account of repairs and maintenance to the residential accommodation of the assessee could not be treated as perquisite liable to be included in the salary of the managing director. It was also submitted that the said residential accommodation was occupied by its director only for a period of five months, i.e., fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO and confirmed by learned CIT(A). Similarly, furniture and other incidental items were provided in the accommodation given by the assessee-company to its managing director costing Rs. 25,28,410 and value of this perquisite was to be calculated at 10 per cent per annum of the original cost of such furniture as specifically provided in r. 3(a)(iii), irrespective of whether the cost so incurred on account of furniture by the assessee-company was subsequently recovered by it from the subsequent occupant. Keeping in view these specific provisions contained in r. 3(a)(iii), we hold that the valuation of perquisite on account of providing AC and other furniture in the rent-free accommodation of managing director to the extent sustained by the learned CIT(A) was in accordance with law, especially the relevant Rules framed thereunder and there being no infirmity in his impugned order on this issue, we find no justifiable reason to interfere with the same. The same is, therefore, upheld, dismissing ground No. 2 of the assessee s cross-objection for financial year 1998-99 being C.O. No. 268/Del/2004. 26. The next issue which is raised by the Revenue in all its appeals relates to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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