TMI Blog1989 (9) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... t) employees during the financial year in question to whom the company paid certain tax-free salaries including tax-free perquisites on account of rent-free quarters. It has been stated by the employer that, in accordance with the approval of the Board, these employees were enjoying tax-free salaries and perquisites, but the employer had to Pay tax on such amount of tax-free salary and perquisities. From the statement filed by the employer-company on February 27, 1979, it appeared that the company deposited Rs. 11,29,918 towards tax due on the salary and perquisites in respect of the contract staff on different dates. This statement, however, revealed that, although these deposits were made by the employer-company on a monthly basis, yet the quantum of deposits had not been uniform throughout the year. Particularly, for the months of February and March, 1971, the deposits on account of contract staff were Rs. 1,69,760 and Rs. 7,54,760, respectively. It further transpired that the employer-company paid the net amount of salary to the contract staff at a uniform monthly rate, but the deposit of the tax on account of this salary had not been uniform, particularly, in the last two mont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the Tribunal. The contention of the Department before the Tribunal was that identical issues had been gone into and decided by the Tribunal in the case of Grindlays Bank Ltd. (Income-tax Appeal No. 424/(Cal) of 1981, dated November 30, 1982). Following that decision, the Tribunal upheld the action of the Income-tax Officer charging interest under section 201 (1A). Dr. D. Pal appearing on behalf of the assessee has contended that tax can only be deducted from the salary which is actually paid. He has argued that the value of rent-free accommodation may be treated as a perquisite at the time of making assessment of the income of the employee. But the employer had no legal duty to deduct the tax at source on the value of the perquisite given to the employee. In support of this contention, reliance has been placed upon a circular issued by the Board on July 9, 1951, with regard to deduction of tax at the time of payment of salary to Government servants. There, the question was whether the disbursing officer should take into account the value of rent-free accommodation for computation of the salary from which the deduction of tax has to be made. In that circular, it was stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following manner : The assessee appealed to the Appellate Assistant Commissioner and contended that the obligation to deduct tax under section 192 was confined to the salary actually paid and salary due but not paid did not qualify for deduction of tax at source, that where the salary was tax-free, the tax element of the salary representing a perquisite was not payable to the employee and, therefore, only the net salary paid to the employee should suffer tax deduction. However, the Income-tax Officer had calculated the tax liability in respect of the gross salary which included an element of salary not due to the employee and not payable to him. This was contrary to the provisions of the law. It was contended that tax in respect of the net salary actually paid to the employees had been correctly deducted and paid and any delay in payment was of less than one month, and as provided in rule 119A, the Income-tax Officer should not have charged any interest for such delay, and, therefore, the proceeding for the recovery of the interest was barred by limitation as prescribed in section 231 of the Act. From the order of the Tribunal, it does not appear that any controversy was rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "at the time of payment in section 192 and it was argued that the amount that is actually handed over to the employees will be subjected to deduction at source and nothing else. Section 192 is as under "Salary. - (1) 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 payment is made, on the estimated income of the assessee under this head for that financial year ... (3) The person responsible for making the payment referred to in sub-section (1) may, at the time of making any deduction, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year. (4) The trustees of a recognised provident fund, or any person authorised by the regulations of the fund to make payment of accumulated balances due to employees, shall, in cases where sub-rule (1) of rule 9 of Part A of the Fourth Schedule applies, at the time an accumulated bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16 and also 17, "salary" would include various items like annuity, pension and perquisites. Under section 17(2) which defines "perquisite", various benefits given to the employees by an employer have been included. The list of perquisites, inter alia, includes the value of rent-free accommodation provided by the employer, the value of any benefit or amenity granted or provided free of cost or at a concessional rate in certain cases and also any sum paid by the employer in respect of any obligation which, but for such payment, would have been paid by the employee. Therefore, at the time of making the estimate of salary income for the purpose of making deduction under section 192, the employer is under an obligation to take into consideration not only the actual sum of money that has to be paid to the employee but the total amount of "salary" as defined in section 17 and calculated in the manner provided in the Act. Section 206 of the Act requires a person paying salary to furnish return of deduction made from the salaries of its employees: "206. Persons deducting tax to furnish prescribed returns.-(1) The prescribed person in the case of every office of the Government, the princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er's contribution to a recognised provident fund in excess of 10 per cent. of salary and interest credited to the employee's account in the recognised provident fund in excess of 1/3rd of the salary or in excess of the prescribed rate of interest. For further details, see sections 15 to 17 of the Income-tax Act, 1961." Note No. 1 to Form No. 21 does not leave any room for doubt that the estimate of salary income will not be confined only to the amount of money actually handed over to an employee monthly but will also include various other things including perquisites and the estimate is to be made in accordance with the provisions contained in sections 15, 16 and 17. The deduction of income-tax may have to be made at the time of payment of salary but the calculation of the tax deductible will have to be made on the estimated salary income of the employee for the relevant financial year, according to the provisions of the Act and the Rules framed for this purpose. There is no warrant for the proposition that the amount of incometax deductible will be calculated only on the amount that is actually handed over to the assessee. That apart, when an employer undertakes to pay tax-fre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the opinion of the court is, therefore, to be answered by saying that the sums paid by the appellants as income-tax on the officer's profits and gains form part of the officer's income for income-tax purposes." In the case of Hartland v. Diggines [1926] 10 TC 247 (HL), in accordance with its custom, the employer-company paid the income-tax in respect of the salary of its accountant, though there was no oral or written agreement between the company and the accountant in this regard. The sums paid as income-tax were allowed as deduction in computing the company's profits. In the case of the assessment of the accountant, it was contended that the income-tax was paid by the company not on behalf of the assessee as an individual but in respect of the office held by him in the company. The payment was not a money payment or a payment convertible into money and formed no part of his salary or income and was, therefore, not assessable to tax. This contention was rejected by Viscount Cave L. C. in the following words : (at p. 262) : "But is it a profit, a perquisite, or an emolument ? That the payment is voluntary makes no difference ; that appears plainly from the case of Blakiston ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court were (at p. 383): " 1. Whether, on the facts and in the circumstances of the case and on a proper interpretation of the provisions of section 200 of the Companies Act, 1956, and the various provisions of the Income-tax Act relating to deduction of tax at source from income under the head 'Salaries', the Appellate Tribunal was justified in holding that the salary received by the assessee was rightly grossed up ? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that no credit of tax could be given to the assessee for the difference between the salary income taken for the purposes of assessment and the net tax-free salary received by the assessee from his employer ?" One of the arguments of Dr. Pal for the assessee was that the company could not lawfully agree to pay any tax-free salary to its employee in view of the provision of section 200 of the Companies Act, 1956, and, therefore, the agreement to pay tax-free salary was illegal. The court did not accept the contention advanced by the assessee and answered both the questions in favour of the Revenue. The effect of deduction of tax at source from the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to taxation twice by being taken into account in the income of the assessee. The substance of the matter is that what the assessee received is not merely the sum of Rs. 85,000 but also the immunity from tax on that sum. That being so, the actual sum received was rightly treated as Rs. 1,24,361, see North British Railway Co. v. Scott [1922] 8 T. C. 332, at p. 341 (HL) and Hartland v. Diggines [1926] 10 TC 247, at p. 256 (HL) allowing credit for the sum already paid towards the tax under subsection (5) of section 18. " In view of the aforesaid judgments, we hold that the amount of tax payable on the salary income of the employee which was borne by the company should be treated as part of the "salary" of the employee for the purpose of making an estimate of the income of the employee under section 192. Dr. Pal next contended that, in any event, the employer being a company, it was under no obligation to deduct tax at source from the salary of an employee. His argument was that the person who actually handed over the salary to the employee is the person who should have deducted the tax and any proceedings for levy of penalty or imposition of interest could only be initiated agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e principal officer does not deduct 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 Income-tax 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 provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at twelve per cent. per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. (2) Where the tax has not been paid as aforesaid after it is deducted, the amount of the tax together with the amount of simple interest thereon referred to in sub-section (1A) shall be a charge upon all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any provision of this Act, after the expiration of one year from the last day of the financial year in which the assessee is deemed to be in default. 232. Recovery by suit or under other law not affected.-The several modes of recovery specified in this Chapter shall not affect in any way (a) any other law for the time being in force relating to the recovery of debts due to Government; or (b) the right of the Government to institute a suit for the recovery of the arrears due from the assessee ; and it shall be lawful for the Income-tax Officer or the Government, as the case may be, to have recourse to any such law or suit, notwithstanding that the tax due is being recovered from the assessee by any mode specified in this Chapter." This period of limitation laid down by section 231 is confined to recovery proceedings under the Act. This provision of limitation cannot curtail the power of the Government to file a suit to recover the outstanding amount of tax payable by any other process of law. The outstanding amount of tax can be recovered like any other debt due to the State. Even after the period of limitation laid down in section 231 is over, it is open to the Government ..... X X X X Extracts X X X X X X X X Extracts X X X X
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