I-T – Tax paid by employer in respect of salary paid to employees would constitute non-monetary perquisite eligible for exemption u/s 10(10CC) – If CIT(A) had followed Special Bench order, unnecessary and unwarranted appeal could have been avoided: ITAT
An AO and a CIT(A) blatantly refuse to follow the decision of a Special Bench of the ITAT. What happens to them? Absolutely nothing because the Tribunal finds that the disobedience was not with a view to harass the assessee.
19 appeals are decided in this case which revolves around the controversy as to whether the tax paid by the employer on behalf of the employee is a perquisite not provided by way of monetary payment for the purpose of allowing exemption u/s 10(10CC) of the Act. In all these cases, the assessees have claimed in the return of income that the tax paid by the employer on behalf of the assessee’s employees is a perquisite not provided by way of monetary payment, and as such they are not to be included into the salary income chargeable to tax under the Income Tax Act inasmuch as per provisions of section 10(10CC) of the Act, the perquisite not provided by way of monetary payment are exempted from tax.
However, the AO has not accepted the assessee’s contention and held that the tax paid for and behalf of the employee is a perquisite, which is to be added to the income of the assessee on multiple stage grossing up.
Being aggrieved, the assesses preferred appeals before the CIT (A) and contended that tax liability borne by employer is not a perquisite provided by way of a monetary payment in terms of and for the purpose of section 10(10CC) of the Act, and in support of that contention, the assesses had relied upon the decision of Special Bench of Income Tax Appellate Tribunal, Delhi Bench ‘F’, New Delhi in the case of RBF RIG Corporation, LLC Vs. ACIT (2007-TIOL-442-ITAT-DEL-SB).
The CIT(A) had taken note of the aforesaid decision of the Special Bench but has decided not to follow the aforesaid decision by observing that intention of legislature in introducing section 10(10CC) was in respect of those perquisites which required valuation thereof and not in respect of a tax perquisite which itself is describable in terms of rupees only. In other words, the CIT(A) has taken a view that perquisites in respect of which the provisions of section 10(10CC) have been introduced are the perquisites which need to be valued according to the basis of valuation prescribed in rule (3) and not a tax perquisite which does not need valuation. The CIT(A) further observed that it was certainly not any one’s case that a tax payment also needs to be valued to be described in terms of money or rupees.
Aggrieved, the assessees are in appeal before ITAT.
The Special Bench had held,
From the changes introduced through the Finance Act, 2002, with effect from 1.4.2003, the Legislature has reflected its intention in clear terms to exempt in the hands of the employee, the tax paid by his employer on the perquisite falling under clause (2) of section 17. The said perquisite itself was tax paid by the employer at his option which the employee was obliged to pay. This has been specifically provided in clause (10CC) and is further corroborated by changes made in section 40(a)(v), sections 192(1A) and 195A and other consequential amendments. These changes are to be seen with similar provisions existing earlier to appreciate the new scheme. The Notes and Memorandum issued with the Bill has the title ‘Scheme for taxation of perquisites simplified with employer given option to pay tax on behalf of employees’, leave no amount of doubt that tax paid by the employer on behalf of the employee is a perquisite and tax on such income is exempt under section 10(10CC). [Para 11.3]
In view of the decision of the Special Bench in the above referred case, the Tribunal held that the tax borne by the employer on perquisites of the employees would constitute non-monetary benefit and as such the same is exempted u/s 10(10CC) of the Act. Tribunal therefore, reversed the order of the authorities below on this point and allowed the assessee’s claim that the tax paid by the employer in respect of salary paid to the aforesaid assessees would constitute non-monetary perquisite eligible for exemption u/s 10(10CC) of the Act. In other words, the assessees’ claim of exemption u/s 10(10CC) of the Act in respect of tax paid by the employer in respect of salary paid to its employees, of the Act is directed to be allowed. The A.O. shall modify the assessment orders of all these assessees accordingly.
Awarding cost
As the Commissioner (Appeals) had blatantly exhibited judicial indiscipline by not following the decision of the Special Bench, is the assessee entitled to costs? The Tribunal observed,
“There is no quarrel as to the proposition that in the hierarchal system of the court, it is necessary for the lower tier to loyally accept the decision of the higher tier otherwise judicial system would collapse. It is also not in dispute that the ld. CIT(A) is subordinate to Tribunal in judicial hierarchy. Therefore, he is bound to follow the order of the Tribunal, and in case the revenue is not satisfied with the order of the ld. CIT(A), it is open to the revenue to take up the matter before the higher appellate authority. It is also equally true that in case the ld. CIT(A) would have followed the order of the Special Bench of the Tribunal, the unnecessary and unwarranted appeal by the assessee could have been avoided, and in that case, department could have filed appeal before the Tribunal provided the department was not inclined to accept the decision of the ld CIT(A), which is based on the decision of Tribunal. However, in the present case, we do not find any material to say that the ld. CIT(A) has disregarded the order of the Special Beach of the Tribunal with a view to harass the assessees and to cause any monetary loss to the assessee in filing further appeal before the Tribunal. We, therefore, restrain ourselves from awarding any cost of appeal against the revenue.”
