TMI Blog2008 (4) TMI 406X X X X Extracts X X X X X X X X Extracts X X X X ..... the employees for performance of their duty and not as mementos as claimed by your appellant and therefore, these are perquisites in the hands of the employees. Your appellant submits that in the facts and circumstances, gift coupons given to the employees cannot be considered as perquisite taxable under the head 'Salaries'. Your appellant, therefore, submits that it has not committed any default for short deduction of tax under section 192 of the Income-tax Act, as alleged. Under the circumstances, penalty levied under section 271(1)(c) for such alleged default and confirmed by the learned Commissioner of Income-tax (Appeals) is not at all justified. Your appellant submits that it be so held now and the penalty levied under section 271(1)(c) be cancelled now." The penalty levied under section 271(1)(c) are as under: Rs. 1996-97 1,25,58,513 1997-98 1,46,04,078 The assessee had sought to raise an additional ground in both these appeals that the order of the Assessing Officer imposing penalty was bad-in law being time-barred in view of the provisions of section 275(1)(c) of the Income-tax Act, 1961 (for short "the Act"). However, the assessee has with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. 1995-96 - 11,459 Coupon for safety performance gift issued in February 1996 enabling the employees to exchange the same for safety performance articles worth Rs. 3,000 from any of the prescribed shops. This was valid up to 31-3-1996. 4. 1996-97 - 11,346 Coupon for safety performance award issued on 15-1-1997 authorising the employees to exchange the same for safety performance. Award articles worth Rs. 3,500 from any shop/establishment having registration with sales tax authority. This was valid up to 15-3-1997. ------------------------------------------------------------ As will be seen from the above, the gifts at item Nos. 1 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransferable and articles could be obtained by the employees only by producing identity badge. As submitted in earlier paragraph that the coupon was non-transferable and the employee himself had presented it before the seller of articles along with his identity badge. We respectfully submit that presenting of such mementos cannot be considered as income chargeable to tax in the hands of the employees and hence no tax was deducted therefrom. As will be seen from the above the company has deducted the tax whenever payment has been made to the employees, which is covered by term 'salary or perquisite' and no tax has been deducted from the last two items, as in our opinion, granting of mementos on such special occasion cannot be treated as income from which tax was required to be deducted. In view of the above, we submit that we had complied with the provision of the Act in connection with the deduction of tax from gifts given to the employees and there is no question of considering the company as an assessee in default as observed by you in your above letter. As regards the nature and basis of the conveyance allowance, as required by you in your above letter, we have to inform yo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uisites paid to the employees of the Corporation. We may further submit that there is a likelihood of deleting the demand raised under section 201(1) of the Income-tax Act in view of the following judicial decisions of the High Court and the Appellate Tribunal: (1) P.V. Rajagopal v. Union of India [1998] 233 ITR 678 (AP); and (2) Gujarat Narmada Valley Fertilizers Co. Ltd. v. ITO [1991] 71 ITD 66 in I.T.A. Nos. 2811 and 2812/Ahd./1997 by ITAT, Ahmedabad. In the case of P.V. Rajagopal v. Union of India [1998] 233 ITR 678 the hon'ble High Court of the Andhra Pradesh, while dealing with the implication of section 201 of the Income-tax Act, held as under: 'This section has two limbs, one is where the employer does not deduct tax and the second where after deducting tax, the employer fails to remit it to the Government. There is nothing in this section to treat the employer as the defaulter where there is a shortfall in the deduction. The Department assumes that where the deduction is not as required by or under the Income-tax Act, there is a default. But the fact is that this expression "as required by or under this Act" grammatically refers only to the duty to pay the tax, tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and material on record there is no question of any difference of opinion as to the taxability of amount of gift coupon issued to the employees for the Assessing Officer at Rs. 1,25,58,513. Further contention of gift coupons as memento is factually incorrect and misleading. The assessee did not act honestly and tried to suppress the facts of payment of gift coupon by not disclosing in its annual return filed under section 206 of the Income-tax Act and deliberately attempted to conceal this information from the Department which came to the notice of the Department from advertisements in newspapers and hoardings on certain shops, viz., "IPCL Coupons Accepted". The Income-tax Officer has conducted an inquiry and it was gathered that the company has distributed the gift coupons of Rs. 3,000 to each employees and when called for from the assessee-company, the company has tried to suppress the facts. Even the learned Commissioner of Income-tax (Appeals)-II, Baroda has also observed that during the course of appeal, the assessee was asked specifically about the details of cash gift paid in the financial year 1995-96 and the assessee-company had tried to suppress and delay the information t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... short deduction as a default in terms of section 201 of the Act. By the amendment brought by the Finance Act, 2001, with retrospective effect from April 1, 1962, a provision has been subsequently introduced to treat the non deduction of whole or any part of the tax as a default. The gift coupons being a minor part of the total salary of the employees, the default of the assessee amounts to a minor non-deduction of part of tax which, at the relevant time, was not a case of P.V. Rajagopal [1998] 233 ITR 678 (AP) which has been relied on by the assessee and dealt with by the lower authorities. In this case also, the interest subsidy given by the assessee to employees was held to be liable for TDS, whereas the hon'ble High Court held that the tax need not be deducted. Learned counsel for the assessee contends that this judgment has been followed by the Ahmedabad Bench, in the case of Gujarat Narmada Valley Fertilizers Co. Ltd. v. ITO [1991] 71 ITD 66, wherein, in similar circumstances, the order passed by the Assessing Officer under section 201(1) and 201(1A) of the Act were quashed by the following observations: "After a survey was conducted on the premises of the assessee-company, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is short deducted under Chapter XVII can be recovered from payer of income Held, no-Whether such tax has to be recovered from assessee direct-Held, yes-Whether where assessee has acted honestly and fairly while computing estimated income of employees and there is only shortfall in deduction of tax, section 201 will be applicable-Held, no. Section 191 of the Income-tax Act, 1961-Deduction of tax at source-Direct payment-Whether there is nothing in section 191 where by the primary obligation of the assessee is transferred to the payer of the income in the event of failure to deduct tax thereon under Chapter XVII-Held, yes." It was vehemently argued that had the Committee on Disputes given the permission, the assessee would have taken the same line of arguments and based on the judgments in the case of (i) P.V. Rajagopal [1998] 233 ITR 678 (AP); (ii) Gujarat Narmada Valley Fertilizers Co. Ltd. [1991] 71 ITD 66 (Ahd); and (ii) Associated Cement Co. Ltd. [2000] 74 ITD 369 (Mum) on fringe benefit, i.e., gift coupons with the assessee's bona fide belief to be not a perquisite in view of the various international awards granted to the assessee, the question of penalising the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was applicability of section 41(1). The assessee had contended throughout that instead of routing the said receipt through profit and loss account, the same was directly credited to gratuity fund account and because of this bona fide mistake, while preparing the return of income, the amount received from the insurance company was not included in the total income. This explanation tendered by the assessee had not been found to be incorrect or false in any manner whatsoever. The assessee was a co-operative society managed through a governing board and as stated by the society, there was no personal interest involved. The omission had occurred not with an intention but due to oversight. There was nothing on record to show that any particular individual had any personal interest in committing the act of omission of showing the amount received from the insurance company as income of the assessee. In fact, the entries in the books of account reflected that the assessee had credited the said sum to the fund account directly and the said entry appeared in the balance-sheet without going through the profit and loss account. Penalty was not leviable." It was contended by learned counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee then adverted to the computation of income of some of the employees to demonstrate that the amount of gift coupons in question stands assessed as taxable perquisite in the hands of the respective employees either by assessments under section 143(3) and/or under section 148 of the Act. By this exercise, the assessee has paid TDS, interest on TDS, besides the respective employees have been assessed in respect of these gift coupons and they also have paid tax. In the totality of the facts and circumstances, there is no loss whatsoever to the Revenue and in view thereof penalty under section 271(1)(c) of the Act is not justified. It was further contended that in view of the original provisions of section 201 of the Act which existed at the relevant time, the assessee could not have been treated as an assessee in default as there was only a minor short deduction. The retrospective amendment itself indicates that the Legislature was aware of this position which has been subsequently cured by a retrospective amendment. Therefore, technically speaking, at the relevant time, the assessee could not have been brought in the net of being assessee in default and subjected to the conseque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable items and, therefore, the assessee did not come clean in respect of furnishing relevant particulars. It was on the detection by the Department that it was known the assessee had paid gift coupons to employees without TDS. But for the vigilance of the Income-tax Department, TDS would not have been paid by the assessee. There is an allegation that when the details of gift coupons were called for, the assessee tried to avoid disclosure of facts and, therefore, the assessee did not act with bona fides. The assessee had no reasonable cause as proper reasons about bona fide belief have not been given. The orders of the lower authorities were relied on. Learned counsel for the assessee, in the rejoinder, contends that the salary is one head and the payment given from time to time goes towards deduction of TDS from salary. Therefore, there is no justification in the argument of the learned Departmental representative that gift coupons TDS was an independent deduction and the assessee was covered by section 201 of the Act. Further, the allegation that the assessee did not act honestly or suppressed facts is without justification inasmuch as the fact about conferment of the gift a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee public sector undertaking was conferred various safety awards by international organizations has not been disputed. Similarly, the grant of gift coupons to employees to commemorate such safety awards also has not been disputed. The assessee contends that it held a bona fide belief that the payment was not in the nature of salary. Being a Central Government public sector undertaking professionally managed, it pleads that there was no personal interest of anybody to deliberately treat such payments as non taxable because the amount is very small as compared to salary and the number of employees. The fact that the safety awards were conferred and the gift coupons in question are linked to such safety award holding this a bona fide belief on the part of the assessee cannot be called a farce. The Department has not controverted the plea of bona fides except accusing that the assessee suppressed the information. It has not controverted that the fact of grant of gift awards and grant of gift coupons was displayed by the assessee by way of hoardings, advertisement, celebration and company's resolution. Therefore, the Department has not made out any case based on proper and indep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to cancel the penalty amounting to Rs. 44,03,120 levied by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961." The brief facts of the case are that in the assessment, the Assessing Officer observed that the appellant has entered into a number of foreign exchange forward transactions with authorised dealers (SBI) to purchase the right to purchase foreign exchange (foreign currency) at a specified rate in future on or before a certain specified date. No physical purchase of foreign currency is effected on the date of contract. However, on the date of maturity of the contract, if the market rate of foreign currency is lower than that fixed by the said contract, the appellant has to bear the losses. The authorised dealer, in turn, charges the appellant for the services rendered for such guarantee to supply foreign currency at a pre-determined rate, if the actual price of the said currency is higher than the pre-determined rate on that date, which is known as rollover charges. The appellant incurred loss of Rs. 53.50 lakhs on account of cancellation of such forward exchange contract and further paid rollover charges to the extent of Rs. 39.87 lakhs. According ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct cannot be entered unless there are underlying transactions of purchase/sale/any other liability. This, thus, indicates that the transaction for foreign exchange liability cannot be undertaken for the purpose of making gains/loss out of pure dealing in foreign currency but can be undertaken only if there are underlying transactions and one wants to protect oneself against future rise/fall in the currency value. Various provisions of the exchange control manual containing directions and standing instructions to authorised dealer in foreign exchange issued by the RBI were referred to. It was, accordingly, submitted that the transaction involving forward contract in foreign exchange for payment in foreign currency for import of seeding material cannot thus be considered as speculative transaction as the same is within the parameters of guidelines issued by the RBI. The gain/loss has to be considered as revenue in nature. It was added that in fact in the assessment years 1993-94 to 1995-96, these has been considered as such by the Department. Under the circumstances, there is no ground for the Assessing Officer to consider the loss under consideration as speculative loss in the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompared to the total payment is not justified. The learned Departmental representative on the other hand, supported the order of the Assessing Officer. We have heard the parties and considered rival submissions. The learned Commissioner of Income-tax (Appeals) deleted the penalty in respect of forward exchange contract and commission payment by following observations: "Be that as it may, the facts relating to this issue are that the appellant had taken a loan from IBRD in foreign currency for payment towards import of seeding material which was to be manufactured by the plant being set up by the appellant. The loan was to be repaid in foreign currency. To guard against any future loss in payment to IBRD in foreign currency, because of fluctuation in exchange rate, the appellant, entered into forward exchange contract with SBI, a recognized dealer in this regard. For rolling over such contract after the expiry date of the previous contract and their cancellation before the maturity date at times, has resulted in losses under consideration. The transactions are in accordance with the guidelines issued in this regard by RBI. The appellant has considered these losses as revenue in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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