TMI Blog2007 (3) TMI 311X X X X Extracts X X X X X X X X Extracts X X X X ..... claiming refund of Rs. 31.383. The return was signed and verified by Mr. Carlo Agnilera, country manager of the company on behalf of its aforesaid employee. The return was processed on 29th Dec., 2004. Thereafter, notice under s. 148 was issued on 10th Feb., 2005 and the assessee vide letter dt. 18th Feb., 2005, consented to treating the return originally filed as having been filed in response to notice under s. 148. In the course of these proceedings, the assessee filed the "appointment agreement" dt. 26th April, 2004 in the case of Mr. Daniel C. Tatroman, break-up of salary and allowances, details of working days, on period, off period salary, total salary, certificate regarding duty and certificate regarding perquisites. It was stated that appointment agreements in all cases were identical. It appears that the company agreed to pay income-tax on behalf of Mr. Roger David Arnold and the question was whether, in view of the aforesaid agreement, the tax had to be grossed up at multiple stages or only at single stage for working out the salary liable to be taxed under s. 15 of the IT Act, 1961 (the Act)? Before the Asstt. CIT (OSD), Range-I, Dehradun (for short the AO). the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income. Thus, it was held that the tax deducted at source, which was done on the basis of multiple grossing up method, was the income of the assessee under the head "salaries". 3. Aggrieved by this order, the assessee moved an appeal before the CIT(A)-I, Dehradun. The assessee made more or less the same submissions before the learned CIT(A) as made before the AO. The learned CIT(A) pointed out that the facts of the case of ONGC and the facts of the case of the assessee were clearly distinguishable. In that case, the assessee was engaged in the business of providing services or facilities in connection with prospecting etc. of mineral oils under "net of tax contract". The income was computed to tax under s. 44BB of the Act. Moreover, the benefit or perquisite obtained by the assessee in carrying on the business was chargeable to tax under s. 28(iv) of the Act. In the instant case, the income is chargeable under the head "salaries". Coming to the decision of Hon'ble Delhi High Court in the case of Frank Beaton, it was pointed out that the Hon'ble Court categorically observed that if under the terms of employment, the employer agreed to pay all taxes which the employee may be calle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the perquisite not provided by way of a monetary payment. It was held that the tax paid by the employer on behalf of the employee was a monetary perquisite, and, therefore, it was not caught within the mischief of s. 10(10CC). Thus, the appeal filed by the assessee was dismissed. 4. Before us, the learned counsel for the assessee filed a copy of the consolidated order of Hon'ble Tribunal, Delhi Bench "H", New Delhi in 15 cases which also includes the order in the case of the assessee for asst. yr. 2003-04 in ITA No. 1651/Del/2005. In that order it was pointed out that the undisputed facts were that the company was an agent of the employees and as per terms of agreement, the employees were entitled to tax-free remuneration in India. The responsibility for payment of taxes was that of the company. The income of the assessee was taxable under the head "salaries". There was also no dispute about the amount of salary computed by the AO except that whether the cost of tax paid by the company was to be included in the income of the assessee on the basis of single stage grossing up or multiple stage grossing up. In this connection, it was pointed out that provisions of s. 195A were appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal also referred to the decision in the case of Hughes Services in ITA No. 1924/Del/1997 for asst. yr. 1993-94. The question in that case was whether, perquisite value of boarding was liable to be taxed as income from other sources? The question was decided in favour of the assessee and against the Revenue by relying on the decision of Hon'ble Tribunal, Delhi (Special Bench) in the case of Saipam Spa vs. ITO (2001) 70 TTJ (Del) 1 : (2001) 76 ITD 101 (Del). In that case, it was held that the boarding provided to the assessee in steel bunkers, which could not be claimed as a matter of right, could not be considered as a benefit or perquisite. It was pointed out that the facts of the instant case were entirely different. Hon'ble Tribunal also referred to its own order in the case of ITO vs. ONGC, as an agent of Mr. V.T. Arasenco in ITA No. 4723/Del/1990 for asst. yr. 1988-89, in which it was held that the grossing up was to be done on single stage basis. It was mentioned that the copy of this order was not placed before the Bench and, therefore, it is not known whether provisions of s. 195A or s. 10(6) were considered or not. Having considered all these matters, it was pointed ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e determination of the income or the tax liability of the assessee. He also referred to the decision of Hon'ble Uttranchal High Court in the case of ONGC, at p. 346, where it is mentioned that s. 195A was introduced for the purpose of tax deduction at source only. Therefore, this section cannot be applied for supporting multiple stage grossing up of income in respect of computation of deemed profits under s. 44BB of the Act. It was this case that if this section does not support multiple stage grossing up under s. 44BB, it can also not support multiple stage grossing up of computation of income under the head "salaries". He also drew our attention towards the words "an agreement or other arrangement" used in s. 195A of the Act. 7. We have considered the facts of the case and rival submissions. Before proceeding with the controversy at hand, it may be pointed out that while the AO referred to the agreement of the company with Mr. Daniel C. Tatroman dt. 26th April, 2004, the assessee filed before us the agreement with the aforesaid person dt. 5th July, 2004. The relevant terms and conditions, numbered 1 to 7, are reproduced below: "1. You are requested to report in India on 5th J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s works out to be the payment for about 150 days of the work done under the agreement. 7.1 Before the AO and the learned CIT(A), the assessee had relied on the decision of Hon'ble Uttranchal High Court in the case of ONGC. In that case, ONGC had filed a return of income under s. 160 r/w s. 163 on 31st Dec., 1990, as an agent of a non-resident person. The contract between ONGC and the non-resident person was a net of tax contract for the purpose of oil exploration. For computing income in such a case, provisions of s. 44BB were applicable and 10 per cent of the gross receipts was deemed to be the income of the non-resident person. Since ONGC was liable to pay tax of the non-resident person under the agreement, the AO held that the payment of tax amounted to benefit under s. 28(iv) of the Act. Accordingly, he added the tax component on the basis of multiple grossing up to the income of the nonresident person. The learned CIT(A) held that this method was not applicable in computation of income under s. 44BB r/w s. 195A of the Act. This order was confirmed by the Tribunal. The Hon'ble Court pointed out that s. 44BB was a special provision for computing income of a non-resident person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n it was held that the word "salaries" would in its natural import comprehend within it taxes paid on behalf of the employees. In the first case, it was pointed out that the sum paid by the company is not a sum outside the salary or independent of it, but is a part of salary. In the second case, in accordance with the custom, the income-tax payable by the employee was paid by the company. It was held that the ratio of the first case was equally applicable notwithstanding the fact that there was no specific agreement between the employer and the employee to pay the salary free of income-tax. Thus, in either case, namely, where income-tax is paid by the employer as per agreement or where income-tax is paid by the employer as per custom, the income- tax so paid is part and parcel of the salary and not outside or independent of it. It also follows that the aforesaid proposition holds for the computation of salary or perquisite. 7.3 We now turn our attention towards the decision of Hon'ble Delhi High Court in the case of Frank Beaton Ors. The facts of that case were that Mr. Frank Beaton was the area manager in Delhi of M/s Quantas Airways Ltd. from January, 1968 to 12th Nov., 1971. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber of calculations has to be made, which may eventually lead to the calculations made by the Department. The Hon'ble Court examined the agreement between Mr. Beaton and M/s Quantas Airways Ltd. and came to the conclusion that the company had to pay Mr. Beaton a salary and tax on that salary. There was no obligation on the company to pay tax on tax paid on behalf of Mr. Beaton. That additional tax had to be paid by Mr. Beaton. Thus, the writ was granted in favour of the petitioner to the effect that tax on the salary had to be paid by the company as if it was a taxable salary. Any further tax resulting from that payment had to be paid by Mr. Beaton. Of course, the Court found difficulties because Mr. Beaton had left the country in 1971 and was not available in India for payment of tax on tax. Speaking on behalf of the Court, Hon'ble Justice Ranganathan, while agreeing with Hon'ble Justice Kapur, pointed out that if the employer pays any income-tax, the obligation to pay which lies on the employee, the amount of income-tax paid will be assessable in the hands of the employee as part of his salary. The result of this proposition will be that if an employer stipulated that he will pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 95A and deducted tax accordingly. The company suo motu deducted tax under s. 195A of the Act and suo motu filed return of income on behalf of the employee to claim refund. The Hon'ble Delhi High Court clearly held at p. 22 that if entire tax has to be paid by the employer, an infinite number of calculations have to be made, which may eventually lead to the same conclusion as arrived at by the Department. The same conclusion was arrived at p. 26, where it is mentioned that if, by terms of employment, the employer has agreed to pay all taxes, which the employee may be called upon to pay in respect of the salary assessed in his hand, the entire tax of Rs. 34,114 will be added in respect of taxability of the salary itself. It may be mentioned that the aforesaid amount, of Rs. 34,114 was calculated by adopting multiple grossing up method. The only reasonable interpretation of para 6 of the appointment agreement is that the company was to bear income-tax related to work in India. The company entered into a large number of such agreements as it habitually deployed its employees in India. It is also assessed to tax in India on a regular basis. The company was aware of the provisions of IT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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