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TMI Blog2005 (8) TMI 574X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee submitted the details from time to time. One of the details so furnished was as under :- "The calculation of income-tax by disallowing the conveyance allowance in respect of employees of the company amounting to Rs. 4,60,832 is as under :- 817 staff members -conveyance allowance Rs. 18.22 lakhs, IT Rs. 3,99,562 503 worker members -do- Rs. 2.96 lakhs, IT. Rs. 61,270 1320 total employees -do- Rs. 21.18 lakhs, IT Rs. 4,60,832 3. The Assessing Officer considered that conveyance allowance was taxable (sic) perquisite under section 17(2) and hence the employer was required to deduct the tax on payment of conveyance allowance. For non-deduction of tax at source on payment of conveyance, he ordered collection of deficit tax of Rs. 4,60,832 under section 201(c). For this, he advanced following reasoning :- "I have considered the submissions made by the assessee but I am unable to agree with the same. The word 'perquisite' is defined under section 17(2) of the Act. As per clause (iv) thereof perquisite will include any sum paid by the employer in respect of any obligation which but for such payment would have been payable by the assessee. As held by the Hon'ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reasoning of the Assessing Officer, that conveyance allowance was taxable on perquisite, hence employer i.e. the assessee was required to deduct the tax on payment of the same. The assessee had raised the issue of inordinate delay in passing the order under section 201/201(1A). The annual return was filed on 30-5-1996, whereas the common order under these two sections was passed on 23-3-2001 i.e. beyond the period of four years. The assessee relied on the decisions :- 1.Traco Cable Ltd. v. CIT [1987] 166 ITR 278 (Ker.) 2.Bal Krishna Das v. CIT [1976] 103 ITR 825 (Delhi) for the proposition that orders passed under section 201 after the lapse of 4 years is bad in law. The CIT(A), however, did not agree with the assessee on this proposition as it involved interpretation of section 231, which was withdrawn w.e.f 1-4-1989. Hence, it would not have any application to assessment year 1996-97. While dealing with quantum of deficient tax and interest, the CIT(A) considered non-deduction of tax from payment of conveyance allowance to 503 workers to whom Rs. 2.96 lakhs was paid, proper as conveyance allowance paid to them was actually incurred for conveyance for official duties. Howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant submitted various details vide letters dated 28-2-2001 and 12-3-2001. (6)In the letter dated 28-2-2001 the appellant had submitted detailed notes in respect of various queries raised by the Assessing Officer. In respect of conveyance allowance it was stated that although it was termed as an allowance it was in fact a reimbursement made to the employees towards petrol/maintenance of cars and drivers' salaries for cars used for official duties, subject to a fixed limit as per the norms laid down by the appellant. (7)It was further clarified that in respect of employees not provided with a car by the appellant nor having a car of their own, reimbursement towards conveyance expenses was made for commuting to and from the office and residence through the salary slip. The amount reimbursed towards conveyance expenses was fixed depending on the grade of employee. (8)It had been further clarified that the aforesaid reimbursement of conveyance expenses was not treated as perquisite under section 17 in view of the explanation to sub-section (2) of the Act and accordingly was treated as exempt under section 10(14) of the Act. (9)For this proposition reliance was placed on the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Kerala High Court held that interest under section 201(1A) is mandatory and automatic. In CIT v. Dhanalakshmy Weaving Works [2000] 245 ITR 13 (Ker.), it was held that such interest is compensatory and not penal. Having said so it is to be seen as to when and under what circumstances interest under section 201(1A) can be levied. 10. Section 201(1A) reads as under :- "201. Consequences of failure to deduct or pay - (1) If any such person referred to in section 200 and in the cases referred to in section 194, the principal officer and the company of which he is the principal officer does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax: Provided that no penalty shall be charged under section 221 from such person, principal officer or company unless the Assessing Officer is satisfied that such person or principal officer or company, as the case may be, has without good and sufficient reasons failed to deduct and pay the tax. (1A) Without prejudice to the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roviso is in addition to any other consequences to the assessee as provided in the Act or under any other Act, [no Act is mentioned in the sub-section (1)]. Therefore, it is quite clear that penalty under section 221 as per proviso can be levied only after the assessee is declared as deemed to be in default for the sum of tax not deducted at source or after deduction not paid to the credit of Central Government in time as provided under the Act. The interest under section 201(1A) can also be levied only after the assessee is declared as deemed to be in default. Thus, in a case where the assessee is not declared as deemed to be in default or has wrongly been declared, then neither the penalty under section 221 can be levied nor interest under section 201(1A) can be charged. 13. Proviso to section 201(1) provides one exception to the main sub-section. It provides that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person has without good or sufficient reasons failed to deduct and pay the tax. The main sub-section does not provide levy of penalty. The main section only provides as to under what circumstances a perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1961 (section 4 of Income-tax Act, 1961) and 'levy' is the procedure laid down for the realization of the tax. Thus, the proviso to section 201(1) determines the liability to levy of penalty, which can be fastened only on the persons, who did not have good and sufficient reasons for not deducting tax and paying to the Central Government and thus could not be protected by virtue of proviso. That is only those persons will be liable to penalty under section 221 who are declared as 'deemed to be in default' after holding that they did not have good and sufficient reasons for not deducting the tax or not paying in time to the Central Government. Thus, a person who has not committed any default in TDS, he is not at all liable to penalty. One is not required to take recourse to section 221 in their cases. And further, a person, who is not in default is also not covered by section 201(1A). Thus, before invoking section 221, the Assessing Officer has to clear the hurdle provided by section 201(1) i.e. he has to first declare the assessee in default. Interest under that section can also not be charged on an assessee not declared in default, which is clear from the wordings used in secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t deducted tax on the estimated income of the employee. The assessee filed annual returns of salary income in respect of its employees showing the amount of tax deductible at source under section 192 for the assessment year 1977-78. The ITO examined the returns and found after making some controversial additions that the tax was not properly deducted. The additions made by the ITO related to valuation of perquisites relating to accommodation and furniture, disallowance of claim for exemption of leave travel concession and reduction of the standard deduction to Rs. 1,000 on the ground that the employees were in receipt of conveyance allowance. The ITO demanded extra tax as well as interest under section 201(1A) from the assessee. The Tribunal held that if the salary income of the employee was not correctly estimated by the employer, the ITO (TDS) could demand additional tax from the employer under section 201, but where full taxes had been realised from the employees, no demand could be made under section 201. The Tribunal further held that interest under section 201(1A) was leviable. On a reference : Held that in the instant case it had not been found by the ITO or the Tribunal t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adesh High Court in P.V. Rajagopal v. Union of India [1998] 233 ITR 678. The head notes from the above decision are :- "On March 23, 1995, the Central Board of Direct Taxes informed the Chief Commissioner of Income-tax, Hyderabad, that where the employer directly bears a part of the interest burden of the employees by reimbursing a portion of the interest payable by the employee in respect of building loans, such reimbursement is taxable as income from 'salaries' under section 17(2)(iii) of the Income-tax Act, 1961. This was forwarded to the Deputy Commissioner of Income-tax of each zone and circulated to various companies. Orders under section 201 were passed on the companies. On writ petitions challenging the letter by the employees including a trade union: Held (i) that when an action is taken by the employer ostensibly for administering a statute adverse to a person at the instance of the Department a cause of action certainly arises to dispute the same. The letter of the Central Board of Direct Taxes was the basis of the action taken by the employer to the detriment of the employees. The remedy suggested by the Revenue that after deduction, the employee should file a return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as the employees. As far as the taxpayer is concerned, the money will be in his account earning interest until a correct adjudication is made as to the liability and he does not have to lose it and seek refund. As far as the revenue is concerned, there will be a guaranteed security for the payment of tax until adjudication takes place. The employers can also be relieved of the unpaid burden of acting as the agent of the Government for collecting tax at source." 17. Similar view is expressed by ITAT in Mahindra & Mahindra Ltd. v. ITO [1996] 55 TTJ (Bom.) 174 that section 201 cannot be applied in a case where tax is short deducted without any mala fide. Further, another important question arises in this case is that whether a written order is necessary for treating an assessee in default. It is held in Mettur Chemicals & Industrial Corpn. Ltd. v. IAC [1984] 150 ITR 341 (Mad.) that a written order is necessary for declaring a person as deemed to be in default so that the aggrieved person can file an appeal under section 246/246A. 18. In the present case, the Assessing Officer has passed an order directing the assessee to pay Rs. 4,60,832 under section 201(1), as is evident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) @ Rs. 25, 50 & 100 P.M. during different periods of the year. (ii)Employees in the management cadre were paid CA ranging from Rs. 415 to 915 P.M. (iii)The work place was at a distance of 2 to 4 km. from railway station and the employees needed to engage auto rickshaw or other public conveyance to reach work place. (iv)The CA was paid thus, to commute from place of residence to work place and back. (v)Reliance was placed by the assessee on circular No. 196, dated 31-3-1976 which provided that if disbursing office is satisfied that CA is covered under section 10(4) as incurred wholly and exclusively for the purposes of business employment then deduction to tax thereon may not arise. (vi)As per employer-assessee, Explanation to section 17(2) stated that use of vehicle from office to residence and vice versa will not be regarded as perquisite. (vii)The Assessing Officer was of the view that perquisite as per clause (iv) of section 17(2) would include a sum paid by employer for an obligation which but for such payment would have been payable by the assessee. (viii)According to the assessee-employer, there are two decisions supporting the contention that reasonable conveyance al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ault can be collected from the employer on behalf of the Govt. but adjustment in the hands of the employees cannot be given as their assessments are already stand completed. Section 199 provides that credit for any tax deducted as per sections 192 to 196D shall be given to the person on whose behalf tax has been deducted. The mechanism to give credit of deficient tax as per section 201(1) collected after the completion of assessment of the concerned employees will fail as no such credit could be given. This will create an unjust enrichment of the revenue, which is not permissible. From this, it follows that raising of demand for collection of deficit tax, if any, as per section 201(1) can be done only before the completion of assessment of the concerned employee. However, this will not be the case insofar as the levy of penalty under section 221 read with section 201(1) and charging of interest under section 201(1A) are concerned. If an assessee is declared as deemed to be in default for certain tax, then levy of interest under section 201(1A) can still be done. Thus, in our view, the Assessing Officer was incorrect in directing to recover a sum of Rs. 4,60,832 as deficient tax fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 256(2) : Held, rejecting the application for a reference, (i) on the facts, that section 10(14) was applicable : reimbursement was granted for use of one vehicle owned and possessed by the employee for expenses incurred in undertaking official journeys and payment was made on the employee issuing a certificate that he incurred more expenses than the amount reimbursed. That the amount was reimbursed only up to a limit did not detract from the fact that expenses were being paid towards actual expenses incurred by the employee. (ii) That the fact that the employee, during the course of his assessment to tax, was found not entitled to full benefit under section 10(14) did not in any way reflect on the estimate made by the employer of the tax payable on the income of the employee at the time when such amount was paid. 22. Similarly in the case of CIT v. Hyundai Heavy Industries Ltd. [2003] 264 ITR 328 (Uttaranchal), Hon'ble High Court held that where reimburse- ment for free meals was paid to technicians, no TDS was done, and it was not treated as taxable by the employer then no TDS was required to be done and, therefore, no interest under section 201(1A) was required t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest cannot run in perpetuity. The working becomes an impossibility. Hence, no interest under section 201(1A) can be charged in such case. Other view is also supported by the decision of ITAT in Salwan Construction Co. v. Asstt. CIT [IT Appeal No. 2915 (Delhi) of 1993] for assessment year 1987-88, relied upon by the learned counsel for the assessee. In the present case also the alleged deficient tax has not been paid. Hence, interest under section 201(1A) cannot be charged from the employer-assessee. 24. In view of foregoing discussion, we hold that :- 1.A written order has to be passed specifically declaring an assessee as deemed to be in default. If such specific order is not passed, interest under section 201(1A) cannot be charged on the defaulting assessee and also penalty under section 221 cannot be levied. 2.Where an employer-assessee honestly and fairly estimate income of his employees, then for addition to be made by the Assessing Officer in the cases of employee, the employer-assessee cannot be defaulted. 3.If there are two views possible on an issue/item of addition and employer adopts the view favourable to the employee and do not deduct the tax thereon, then he ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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