TMI Blog2005 (9) TMI 281X X X X Extracts X X X X X X X X Extracts X X X X ..... 201 of the Income-tax Act, 1961 raising demand for short deduction of tax at source in respect of various gratuity payments to the employees of the company. The aforesaid demand raised by the Revenue Authorities has since been collected and the Appellant was unsuccessful before the Commissioner of Income-tax (Appeals) against the order passed under section 201 of the Income-tax Act, 1961. The Committee of Disputes had not accorded approval to pursue the matter further before the Income-tax Appellate Tribunal and therefore, the demand raised under section 201 could not be agitated before the Income-tax Appellate Tribunal. 4. The Assessing Officer (In short A.O.) has held in the penalty order that the assessee-company while defraying Salaries and Gratuity at the time of retirement has deducted tax at source by considering the exemption limit of Gratuity under section 10(10)(ii) at Rs. 2,50,000 whereas the company correctly should have deducted tax at source considering the exemption limit in respect of gratuity paid at Rs. 1,00,000 under section 10(10)(ii) of the Income-tax Act, 1961. The conclusion of the Assessing Officer was based on the fact that the assessee is liable to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of the ld. CIT(A) the assessee has filed the present appeals before this Tribunal, and in the Paper Book the assessee has filed approval received from the Committee on Disputes to pursue the appeal filed by the assessee. The approval is dated 1-2-2001 and is placed in the Paper Book at pp. 73 to 76. 7. The learned Counsel of the assessee, Shri K.P. Dewani, Advocate has made elaborate arguments in support that there is no case for imposition of penalty under section 271C of Income-tax Act, 1961. It was submitted by him that the obligation of tax deducted at source is provided under section 192 of the Income-tax Act, 1961 and it provides for tax deduction at source on the estimated income from salaries. It was further brought to our attention that the provisions of section 191 provide for direct recovery from employees and all the provisions are under Chapter of Collection Recovery. It was submitted that as per Assessing Officer the default of short deduction of tax at source is for the period from June 1996 to September 1997. The assessee-company while making payment of gratuity has considered gratuity received by employees exempt up to Rs. 2,50,000 considering the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 10(10)(ii) of Income-tax Act, 1961. The learned counsel of the assessee has invited our attention to the Circular No. 138 dated 17-6-1974 issued by Board which explains the various provisions introduced in the Finance Act, 1974. 10. Inviting our attention to the passages of the Circular it was submitted that the Board itself has clarified that the gratuity received by employees in terms of provisions of section 4(5) of the Payment of Gratuity Act shall fall for exemption under section 10(10)(iii) of the Income-tax Act, 1961 being the residuary class. The assessee has also invited attention to the notification placed in the Paper Book at P-70 issued by the Central Government (Notification No. S.0.394 dated 1-2-1996). As per this notification the gratuity exempt at the hands of employee received under section 10(10)(iii) shall be Rs. 2,50,000. The Counsel of the assessee thus submitted that considering the provisions of section 10(10) as explained by Central Board of Direct Taxes there is no default at the hands of assessee for short deduction of tax at source. It was argued that as there is no case for short deduction the question of imposition of penalty under section 271 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. Senior Accounts Officer, Madhya Pradesh Electricity Board [2005] 276 ITR 84 (MP) has held that no penalty under section 271C is imposable. 12. It was submitted that there is no basis or evidence on record for Assessing Officer to make observation that assessee has not acted honestly or has deliberately failed to deduct. None of the correspondence referred to in the order suggest that default on the part of assessee is deliberate. Revenue had not proved that action of assessee in not deducting the tax on payments was a mala fide one. No provision under the Income-tax Act, 1961 authorises the Income-tax Authorities to revise the estimate of income made by the person responsible for paying the income. Revenue has ample power to collect the due tax from employees. Section 191 recognises that tax can be collected directly. Revenue cannot recover the tax which is not deducted from payee of assessee and has to be collected from employees directly. Thus if no tax itself can be collected from assessee then assessee could not be visited with penalty for the same. Reliance is placed on (i) Gwalior Rayon Silk Co. Ltd v. CIT [1983] 140 ITR 832 (MP), (ii) Hero Honda Motors Ltd. v. ITO [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for each year of completed service. Calculated on the basis of the average salary for the three years immediately preceding the year in which the gratuity was paid, or 15 months salary so calculated, or Rs. 24,000 whichever was the least. The Finance Act, 1974 has made the following modifications in the existing provisions relating to exemption of gratuities with a view to liberalizing the provisions in certain directions and removing certain unintended anomalies: (i) Under section 10(10) of the Income-tax Act, as it stood prior to its amendment by the Finance Act, 1974, gratuities received by civilian employees of the Central Government who were not covered by the revised Pension Rules of the Central Government, as for instance, members of the all-India services did not qualify for full exemption from tax. In such cases, the exemption was allowed under the residuary provision and was accordingly limited to one-half month's salary for each year of completed service, calculated on the basis of the average salary for the three years immediately preceding the year in which the gratuity was paid, or 15 months salary so, calculated, or Rs. 24,000 whichever was the least. As this posit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esiduary provision referred to in item (iv) below. This amendment will take effect from 1-4-1975, and will accordingly apply for the assessment year 1975-76 and subsequent years. Gratuities received under the Payment of Gratuity Act during the previous year relevant to the assessment years 1973-74 and 1974-75 will be governed by the existing provisions of section 10(10) of the Income-tax Act. (iv) In the case of those employees of statutory corporations and employees in the private sector who are not covered by the Payment of Gratuity Act, the ceiling limits over the exempt amount of retiring gratuity have been raised. Under the amended provision, exemption will be allowed in an amount not exceeding one-half month's salary for each year of completed service, calculated on the basis of the average salary for the three years immediately preceding the year in which the gratuity is paid or 20 months salary so calculated or Rs. 30,000, whichever is the least. This amendment will also take effect from 1-4-1975, and will accordingly apply for the assessment year 1975-76 and subsequent years." Perusal of the aforesaid circular makes it evident that Revenue Authorities had to apply pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the part of assessee while making deduction of tax at source by considering the exemption available to its employees at Rs. 2.50 lakhs. There could be no personal gain to assessee as it is a Government company and therefore, allegation in the orders of Lower Authorities as to mala fide intention are not justified. In the facts of the present case, the assessee-company has amply d demonstrated that actions of assessee were bona fide by referring to various correspondence which are placed in the paper book. The company has made honest estimate of salary income of employees for deduction of tax at source. The ratio as laid down by various authorities referred to in the submissions of the counsel of the assessee fully supports the case of assessee that it was a bona fide estimate by the assessee for the purpose of F deduction of tax at source in the case of assessee-company. The ratio as laid down by the Hon'ble Jurisdictional High Court in the case of CIT v. Senior Accounts Officer, Madhya Pradesh Electricity Board [2005] 276 ITR 84 (MP) also squarely applies to the facts of the present case. It has been held by the Hon'ble MP High Court in the case referred to hereinabove as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X
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