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TMI Blog2019 (2) TMI 793X X X X Extracts X X X X X X X X Extracts X X X X ..... dvocate For The Respondent : Shri K.V. Aravind, Advocate & Standing Counsel ORDER Per Bench In these group of appeals filed by M/s Karnataka Power Transmission Corporation Ltd.(hereinafter referred to as KPTCL or Assessee), against different orders of CIT(Appeals), the only issue involved is as to, whether KPTCL can be considered as "Assessee in Default" under the provisions of Section 201(1) of the Income Tax Act, 1961 ["the Act"] for not deducting tax at source; and, whether KPTCL is liable to pay interest on tax not deducted at source u/s.201(1A) of the Act? 2. The issue arises for consideration on the following facts and circumstances. KPTCL paid "Cash equivalent of unutilized leave at the time of their retirement" to its employees. 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 income-tax 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 paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ........................ (10AA) (i) any payment received by an employee of the Central Government or a State Government, as the cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement whether on superannuation or otherwise; (ii) any payment of the nature referred to in sub-clause (i) received by an employee, other than an employee of the Central Government or a State Government, in respect of so much of the period of earned leave at his credit at the time of his retirement whether on superannuation or otherwise as does not exceed ten months, calculated on the 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.10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was Sec.10(10AA)(ii) and not Section 10(10AA)(i) of the Act. 9. Both the AO and the CIT(A) rejected the plea of KPTCL and that is how KPTCL is in appeal before the Tribunal. The appellants in these appeals are the various divisions of KPTCL situate at various Districts in the State of Karnataka. The various divisions of KPTCL was represented by Mr. A. Shankar, Senior Advocate for Mr. S. Annamalai, Mr. Narendra Sharma and Mr. V. Ravishankar, Advocates on record. The revenue was represented by Shri K.V. Aravind, Advocate and Standing Counsel for the Department. 10. Five propositions were canvassed on behalf of KPTCL by the learned counsels for KPTCL challenging the orders of CIT(A) confirming the action of the AO in holding KPTCL to be an Assessee in default u/s.201(1) of the Act. 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 sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Gazette. Sec.12 of the said Act stipulated that SEBs so constituted shall be a body corporate having perpetual succession and a common seal with power to acquire and hold property both movable and immovable and shall be capable of suing and be sued. That is how Mysore electricity Board came to be established on 1.10.1957 which was subsequently named as Karnataka State Electricity Board (KEB). Employees of State Government became employees of KEB. 13. In view of losses incurred by KEB, Government of Karnataka came out with general policy proposing fundamental and radical reforms in the power sector. Accordingly, Karnataka Electricity Reforms Act, 1999 (KERA) was enacted by the Karnataka State Legislature which advocated division of the functions of generation, transmission & Distribution of electricity and each function to be performed was entrusted to various statutory corporations. The function of generation of electricity was transferred to Visweshwaraiah Vidyuth Nigama Limited way back in 1970. By Section 14(3) of KERA, KPTCL was incorporated and the function of transmission and distribution of electricity was transferred to KPTCL. Subsequently the distribution function w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any period of leave not availed of by him". It was submitted that on retirement the employer employee relationship between KPTCL and the retiring employee ceases and any payment made thereafter cannot be strictly termed as "Salary". Our attention was drawn to Finance Act, 2018 which inserted Sec.56(2)(xi) w.e.f. 1.4.2018 to avoid a possible plea that may be taken in such cases by holding that any payment post retirement will also be chargeable to tax under income from other sources, if it is not chargeable under the head income from salaries. To highlight the legal position that deeming provisions should receive strict construction in fiscal statute, the learned counsel referred to the decision of the Hon'ble Supreme Court in the case of V.M.Salgaocar & Bros.(P) Ltd. Vs. CIT 243 ITR 383(SC). 17. The learned counsel for the Assessee pointing out the above circumstances submitted that u/s.192(1) of the Act the obligation of the employer is only to deduct tax on the estimated income of the Assessee under the head Salaries for that financial year. If the estimate is made bonafide and tax deducted on such bonafide estimate then there can be no proceedings treating the person respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ACIT 115 ITD 411 (All) 19. It was submitted on identical facts such as the Assessee the ITAT Bangalore Bench confirmed orders u/s.201(1) of the Act in the case of Central Food Technological Research Institute (supra) and CSIR National Aerospace Laboratories Vs. ACIT ITA No.453 to 456/Bang.2014 order dated 27.8.2014. 20. We have very carefully considered the rival submissions. We are of the view that the facts and circumstances of the present case are identical to the case of Indian Institute of Science(supra) decided by the ITAT Bangalore Bench. In the said case the deduction of tax at source was u/s.192 of the Act. The question was valuation of perquisites in the form of rent free accommodation provided to employees of a statutory corporation such as the Assessee. The Assessee in that case took similar plea of bonafide belief as raised by KPTCL in the present proceedings. The Tribunal considered the submissions and firstly found that the law on the issue of bonafide belief in the matter of estimating of income 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 (B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made keeping in view the employee welfare. The exclusion in respect of payment towards medical expenditure and leave travel is considered after verifying the details and evidence furnished by the employees. No exemption is granted in the absence of details and/or evidence. The exemption in respect of medical expenditure is restricted to expenditure actually incurred by the employees, or Rs. 15,000/- whichever is lower. The exemption is granted even if the payment precedes the incurrence of expenditure. The requirements/conditions of section 10(5) and proviso to section 17(2) are meticulously followed before extending the deduction/exemption to an employee. No tax can be recovered from the employer on account of short deduction of tax at source under section 192 if a bona fide estimate of salary taxable in the hands of the employee is made by the employer, is the ratio of the following decisions. CIT vs. Nicholas Piramal India Ltd (2008) 299 ITR 0356 (BOMBAY); CIT v. Semiconductor Complex 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 F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DR in the case of Central food Technological Research Institute(supra) and CSIR National Aerospace Laboratories (supra) rendered by the ITAT Bangalore Benches, the said decisions are identical to the case of the Assessee but in those decisions the issue of bonfide estimate while deducting tax at source was never considered nor raised by the parties. Therefore that decision will help the plea of the revenue only to the extent to hold that the employees of KPTCL cannot be regarded as employees of State Government. 24. With regard to the other decisions cited by the learned DR, those are cases in which the person obliged to deduct tax at source were at no point of time instrumentality of State. They were either private parties or Banks. Those decisions are therefore neither relevant nor germane to the issue under consideration in these appeals. 25. For the reasons given above, we hold that KPTCL has discharged its obligation u/s.192 and hence proceedings u/s.201(1) & 201(1A) of the Act deserves to be quashed and are hereby quashed. All the appeals of KPTCL are allowed. 26. In the result, all the appeals of the assessee are allowed." 12. The facts and circumstances in these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permissible. In this regard he drew our attention to decision of Hon'ble Supreme Court in the case of CIT Vs. Calcutta Knitwear 362 ITR 673 (SC) wherein the Hon'ble Supreme Court has held that it is not permissible to read into a section words which are not present in the section. 15. We have considered the submission of the learned standing counsel and are of the view that Sec.192 of the Act uses the word "estimate" and therefore the statutory intention is that it should be an approximation. It is in that view that the concept of bonafide estimate was profounded in the several decisions which are referred to in the earlier of the Tribunal in the case of KPTCL which we have extracted in the earlier paragraph-10 of this order. This contention therefore is devoid of any merit. 16. The learned standing counsel for the Department submitted that the Tribunal erred in concluding that the estimate made by the Assessee of income of its employees under the head salaries was bonafide. According to him, the employees of the Assessee were not employees of State and therefore the leave encashment salary was exempt only upto Rs. 3 lacs. To the extent of payment of leave encashment above Rs. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and recovery of taxes through Tax deduction at source is only a mode of collection of taxes. The revenue always has the option and the right to collect taxes from employees concerned. In that view of the matter, the argument advanced in this regard is held to be not acceptable. 18. The next contention of the learned standing counsel for the Department was that there was no basis for formation of such bonafide belief by KPTCL, especially in the light of the decision of the Hon'ble Karnataka High Court referred to in paragraph-21 of this order. He relied on decisions of the Hon'ble Supreme Court in the case of ITO Vs. TechSpan India (P) Ltd. (2018) 92 taxmann.com 361 (SC) and DGIT(Inv.) Vs. Spacewood Furnishers (P) Ltd. 374 ITR 595(SC). In the first decision, the question arose in the context of validity of initiation of proceedings u/s.147 of the Act and the Court had to examine as to whether the reassessment proceedings u/s.147 of the Act. The Hon'ble Court held that for challenging the validity of initiation of reassessment proceeding on change of opinion, it has to be verified whether in the assessment made earlier there was expression opinion either expressly or by implicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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