TMI Blog2006 (10) TMI 252X X X X Extracts X X X X X X X X Extracts X X X X ..... was not paid within the stipulated period, the assessee-company did not file its TDS return in time and the survey under section 133A was conducted on the assessee s premises on 2-9-1998. At the time of survey it was noticed by the department that the company was paying various allowances such as news gathering allowances, reading allow-ances and telephone allowances to its employees and treated them to be the tax-free allowances. The show-cause notice under section 131 was issued to the assessee to show-cause as to why the above allowances should not be included in the total income of the employees for calculate-ing the liability of TDS under section 192 of the Income-tax Act. It was stated before the Assessing Officer that the allowances given to the employees to meet exigencies of business carried on by the employer which are exempt under section 10(14) of the Act cannot be established that special allowances granted to the employees were not to meet expenses wholly, necessarily, exclusively required for the purpose of which they were allocated. Being not convinced with the explanation of the assessee, the Assessing Officer held that under the law the assessee was fully liable f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee with potential contacts and such like expenditure which is essential and imperative in this kind of business. 6. The reading allowance was also in fact the expenditure incurred on purchase of newspaper and magazines etc. The staff was also required to keep itself abreast of the latest development in terms of news, stories etc. in the print media. Therefore, the expenditure incurred on purchase of newspapers, magazines etc. have to be reimbursed to the staff for discharge of official duties. Likewise telephone allowances were also reimbursement of expenditure incurred on telephones. Telephone is a lifeline and a critical input for this type of business. It is the abiding link between the staff, their supervisory officers, the company, potential contacts and with customers etc. Providing a telephone connection at the residence of the each member of the staff of 550 trained personnel would have been a very expensive and impractical proposition and therefore, the assessee thought it fit to reimburse the amount on account of telephone expenses incurred. 7. The learned counsel for the assessee further contended that the assessee has been duly deducting tax at source on the sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loyee, where regular assess- ment of an employee has been completed and the amount of tax fully paid by him, he has relied upon the following judgments : ( i ) CIT v. Divisional Manager, New India Assurance Co. Ltd. [1983] 140 ITR 818 (MP) ( ii ) CIT v. Shri Synthetics Ltd. [1985] 151 ITR 634 (MP) ( iii ) CIT v. Kannan Devan Hill Produce Co. Ltd. [1986] 161 ITR 477 (Ker.) ( iv ) CIT v. M.P. Agro Morarji Fertilizers Ltd. [1989] 176 ITR 282 (MP) ( v ) Dy. CIT v. Excel Industries Ltd. [2006] 5 SOT 235 (Mum.) ( vi ) Gwalior Rayon Silk Co. Ltd. v. CIT [1983] 140 ITR 832 (MP) ( vi ) Associated Cement Co. Ltd. v. ITO [2000] 74 ITD 369 (Mum.). It was further contended that the assessee cannot be termed to be the assessee in default under the provisions of section 201 of the Income-tax Act as assessee had deducted the tax on the salaries paid to employees in the light of the facts that the assessment years involved are 1997-98 and 1998-99 and the amendment was brought in this section by the Finance Act, 2002 though with retrospective effect 1-4-1962. In support of this proposition the assessee has placed heavy reliance upon the order of the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. The learned DR, on the other hand, submitted that the assessee itself has given a nomenclature of these payments to be allowances. While making the payment of these allowances, he did not make any verification of the bills or vouchers of the expenditure incurred by the assessee. Certain allowances are fixed according to their posts and salary of the employees. Since the assessee has made the payment of allowances, it formed part of salaries and is exigible to tax and in these circumstances, the assessee was required to deduct the TDS on these payments and if he fails to do so, he would be deemed to be the assessee in default for the purpose of section 201 of the Income-tax Act. The learned DR further contended that in fact these payments are in the nature of perquisites which are to be taxed in the hands of the employees as a part of the salary and the assessee was required to deduct the TDS. 10. Having considered the rival submissions and from a careful perusal of record and the nature of business of the assessee, we find that undisputedly the assessee-company had been running news and current affairs television network and in this type of business the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... require tax deduction at source. As such, there was no material to indicate that the conduct of the assessee is not bona fide . Hence the assessee cannot be deemed to be assessee in default. 11. If the claim of the assessee that these allowances are nothing but the reimbursement of the expenditure incurred by its employees is viewed in the light of various orders of the Tribunal, we would find that there is debate on the nature of expenses whether they are the reimbursement of expenditure incurred by the employees or they are the perquisites and form part of the salary. In these circumstances, benefit should go to the assessee as he is under a bona fide belief that these are the mere reimbursements of the expenditure incurred by the assessee and are not chargeable to tax, under this bona fide belief, he did not deduct the TDS. 12. So far as applicability of section 201 is concerned, we have examined this section very carefully and we find that before the amendment by Finance Act, 2002 this section can only be invoked if the assessee does not deduct the tax or after deduction, failed to pay the tax as required under this Act. If he does so, he would be deemed to be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, which the assessee may incur he will be deemed to be an assessee-in-default in respect of that sum (for which he has been declared deemed to be in default). Thus, levy of penalty as per proviso is in addition to any other consequences to the assessee as provided in the Act 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 or 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. 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 g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elied on. Levy of interest under section 201(1A) is a posterior action to declaring an assessee (employer) as deemed to be in default. If no fault can be found with the employer for not deducting tax on some controversial addition or deducting tax on some controversial addition or deducting and paying tax on an honest and fair estimation, then he cannot be declared as an assessee deemed to be-in-default. Under such circumstances, the question of levy of interest under section 201(1A) would not arise. Section 201 has two levels. One is that employer has not deducted tax and second is that after deduction he has failed to pay to the Government. There is nothing in section 201 to treat the employer in default for the deduction. The default in section 201 is not non-deduction and not for short deduction. Since section 201 is a penal section, it has to be strictly construed and it cannot be assumed that there was a duty to deduct tax strictly in accordance with the computation under the Act and for any shortfall as compared to such strict computation, the employer can be declared as assessee-in-default, i.e., it cannot be assumed that due to difference of opinion as to the taxabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is however, held by the Hon ble High Court of Madhya Pradesh in the case of Gwalior Rayon Silk Co. Ltd. v. CIT [1983] 140 ITR 832 that where regular assessment of an employee has been completed and the amount of tax fully paid by him, the ITO(TDS) has no jurisdiction under section 201 to demand further tax from the employer in respect of tax deducted relating to such employee. In the instant case, since the assessment years involved are 1997-98 and 1998-99, the assessment in the hands of employees must have been completed and if the allowances were considered to be perquisites, it must have been taxed in the hands of the employees or in case it was considered to be a reimbursement of the expenditure, no tax might have been charged on these payments. In that case the assessee has a better case in support of his bona fide belief. In any case, if it is charged to tax in the hands of the assessee, it certainly amounts to double taxation. 14. Keeping in view the totality of the facts and circumstances of the case, we find that first of all the assessee has deducted TDS on salaries paid to employees and deducted tax was duly paid to the department. The default was only with ..... X X X X Extracts X X X X X X X X Extracts X X X X
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