TMI Blog2018 (5) TMI 583X X X X Extracts X X X X X X X X Extracts X X X X ..... Even thereafter, the Assessee has been taking a stand that its employees or employees of Central Govt. Obligation of the Assessee is only to make a bonafide estimate of the salary. Assessee has made such an estimate. The Assessee s obligation u/s.192 is therefore properly discharged and hence proceedings u/s.201(1) 201(1A) of the Act have to be quashed and are hereby quashed As in present case the circumstances explained by the KPTCL [assessee] regarding the manner of formation of KPTCL and the action of the revenue in not questioning KPTCL s action in the past several years after its formation and the manner of exercise of control and affording protecting to employees of KPTCL by the State Government were definitely factors which weighed with KPTCL when it made estimate of its employees income under the head Salaries . There is no reason for them to think that its estimate of employee s income under the head Salaries was incorrect as the belief it entertained was that its employees were to be regarded as employees of State Government and that its employees are entitled to exemption of the entire sum of unutilized leave encashment u/s.10(10AA)(i) of the Act. - Decided in fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances. KPTCL paid cash equivalent to its employees at the time of their retirement. Under Section 17(1)(va) Salary includes-(va) any payment received by an employee in respect of any period of leave not availed of by him. Under Section 192 of the Act, Any person responsible for paying any income chargeable under the head Salaries shall, at the time of payment, deduct incometax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made on the estimated income of the assessee under this head for that financial year. KPTCL as an employer was bound to deduct tax at source on the salaries paid to its employees by including the payment received by an employee in respect of any leave period not availed by the employee. Section 201(1) (1A) of the Act lays down consequences if tax is not deducted at source when there is a requirement to deduct tax at source laid down under any provisions of the Act and it reads thus: Section-201: Consequences for failure to deduct or pay. ( 1) Where any person, including the principal officer of a company,- ( a) who is required t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis of the average salary drawn by the employee during the period of ten months immediately preceding his retirement whether on superannuation or otherwise, subject to such limit as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to the limit applicable in this behalf to the employees of that Government: 4. It is not in dispute that the Specified Limit in the case of employee other than an employee of the Central Government or a State Government i.e., employee falling within clause (ii) of Sec.10AA is ₹ 3,00,000 in salary to employees who retire, whether on superannuation or otherwise, after 1-4-1998 Vide Notification No. 123/2002 dated 31-5-2002. 5. As can be seen from the above provisions that if the employee to whom payment is made for unutilized leave period is an employee or Central or State Government then the entire payment so made is exempt and therefore an employee in such circumstances is not obliged to deduct tax at source on such payment. If on the other hand the person to whom such payment is made is not a Central or State Government employee then only ₹ 3 lacs is exempt and the remainin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. They are: ( i) Assumption of jurisdiction by the respondent in all these appeals is bad in law and hence the orders passed u/s.201(1) 201(1A) of the Act are invalid. ( ii) The orders passed u/s.201(1) 201(1A) of the Act are beyond the period of limitation and hence barred by time. ( iii) The payments in question for which KPTCL was treated as Assessee in default for not deducting tax at source were not in the nature of income within the meaning of Sec.17(1)(va) of the Act and therefore there was no obligation on the part of the Assessee to deduct tax at source; ( iv) The provisions of Sec.10(10AA)(i) of the Act are applicable in the case of the Assessee as the employees of KPTCL are to be regarded as employees of State Government; ( v) The provisions of Sec.201(1) 201(1A) of the Act are not attracted in the present case because the non deduction of tax at source by KPTCL was under the bonafide belief that it was not obliged to deduct tax at source on payments in excess of ₹ 3 lacs towards unutilized leave period as it believed that its employees were employees of State Government and therefore the applicable provisions will be only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rated and the function of transmission and distribution of electricity was transferred to KPTCL. Subsequently the distribution function was given to four independent distribution companies in 2002 viz., BESCOM, MESCOM, HESCOM, GESCOM. Employees of KEB became employees of KPTCL. 14. It is the plea of KPTCL that after its inception till AY 2012-13 it has been deducting TDS by considering its employees as employees of State Government in view of the historical background under which KPTCL came into existence. The revenue has accepted in the past the manner in which tax was deducted at source by KPTCL by considering the employees of KPTCL as employees of State Government. It was pointed out that it is only in AY 2012-13, that the revenue took the stand that employees of KPTCL were not to be regarded as employees of State Government because employment under KPTCL cannot be equated with an office or post in connection with the affairs of such State. It was for the first time that the revenue took the stand that Statutory Corporations such as KPTCL, were not to be regarded as State Government. It has also been contended that the Assessee has been filing return of TDS for AY 2013-14 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year. If the estimate is made bonafide and tax deducted on such bonafide estimate then there can be no proceedings treating the person responsible for deducting tax at the time of payment, as Assessee in default . The learned Counsel for KPTCL placed reliance on a decision of the ITAT Bangalore Bench in the case of Indian Institute of Science Vs. DCIT ITA No.1589/Bang/2014 for AY 2010-11 order dated 27.2.2015 on identical facts. In the aforesaid decision, the Tribunal took the view that the estimate of income under the head salary made by the Assessee on the belief that its employees were to be equated with State Government employees was a bonafide estimate and therefore the Assessee has discharged its obligation u/s.192 of the Act and hence proceedings u/s.201(1)( 201(1A) of the Act were to be quashed. Reliance was also placed on the decision of the Hon ble Bombay High Court in the case of CIT Vs. Kotak Securities Ltd. 340 ITR 333 (Bombay) wherein the Hon ble Bombay High Court took the view that when the question whether there was an obligation to deduct tax at source or not on a particular payment, is highly debatable then the Assessee cannot be held to be a defaulter for not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome under the head salaries for the purpose of Secc.192 of the Act, was explained in a decision of ITAT Bangalore in the case of ACIT Vs. Infosys BPO Ltd. 150 ITD 132 (Bang) in the following manner: 26. It is no doubt true that TDS is to be made at the time of payment of salary and not on the basis of salary accrued. Sec.192(3) of the Act permits the employer to increase or reduce the amount of TDS for any excess or deficiency. We have already noticed that the fact that bills/evidence to substantiate incurring of expenditure on medical treatment up to ₹ 15,000/- and the availing of the LTC by the employees and the fulfilment of the conditions contemplated by Sec.10(5) of the Act for availing exemption by the employees so availing LTC, have not been disputed by the AO. Even assuming the case of the AO, that at the time of payment the Assessee ought to have deducted tax at source, is sustainable; the Assessee on a review of the taxes deducted during the earlier months of the previous year is entitled to give effect to the deductions permissible under proviso (iv) to Sec.17(2) or exemption u/s.10(5) of the Act in the later months of the previous year. What has to be see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd [2007] 292 ITR 636 (P H) CIT vs. HCL Info System Ltd. [2006] 282 ITR 263 (Del) CIT v Oil and Natural Gas Corporation Ltd [2002] 254 ITR 121 (Guj) ITO v Gujarat Narmada Valley Fertilizers Co. Ltd [2001] 247 ITR 305 (Guj) CIT v Nestle India Ltd (2000) 243 ITR 0435 (DEL) Gwalior Rayon Silk Co. Ltd. v. CIT [1983] 140 ITR 832 (MP) ITO v G. D. Goenka Public School (No. 2) [2008] 306 ITR (AT) 78 (Del) Usha Martin Industries Ltd. V. ACIT (2004) 086 TTJ 0574 (KOL) Nestle India Ltd. v. ACIT (1997) 61 ITD 444 (Del) Indian Airlines Ltd. v ACIT (1996) 59 ITD 353 (Mum) 21. The Tribunal thereafter proceeded to hold as follows: 19. We have considered the rival submissions. In our view, the plea of the Assessee that it made a bona fide estimate of employee s salary by valuing the perquisites in the form of residential accommodation provided to the employees by valuing the same as if employees were employees of Central Govt. has to be accepted. In this regard, it is clear from the records that the position with regard to the assessee not being a Central govt. was brought to its notice by the department only in the proceedings initiate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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