Circular No. 11/2008
F. No.134/34//2008-TPL
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
(Tax Policy & Legislation Division)
……
New Delhi, the 19th December, 2008
Subject:-Definition of ‘Charitable purpose’ under section 2(15) of the Incometax
Act, 1961 – reg.
Section 2(15) of the Income Tax Act, 1961 (‘Act’) defines “charitable purpose” to
include the following:-
(i) Relief of the poor
(ii) Education
(iii) Medical relief, and
(iv) the advancement of any other object of general public utility.
An entity with a charitable object of the above nature was eligible for exemption from tax
under section 11 or alternatively under section 10(23C) of the Act. However, it was seen that a
number of entities who were engaged in commercial activities were also claiming exemption on
the ground that such activities were for the advancement of objects of general public utility in
terms of the fourth limb of the definition of ‘charitable purpose’. Therefore, section 2(15) was
amended vide Finance Act, 2008 by adding a proviso which states that the ‘advancement of any
other object of general public utility’ shall not be a charitable purpose if it involves the carrying
on of –
(a) any activity in the nature of trade, commerce or business; or
(b) any activity of rendering any service in relation to any trade, commerce or
business;
for a cess or fee or any other consideration, irrespective of the nature of use or application, or
retention of the income from such activity.
2. The following implications arise from this amendment –
2.1 The newly inserted proviso to section 2(15) will not apply in respect of the first three
limbs of section 2(15), i.e., relief of the poor, education or medical relief. Consequently, where
the purpose of a trust or institution is relief of the poor, education or medical relief, it will
constitute ‘charitable purpose’ even if it incidentally involves the carrying on of commercial
activities.
2.2. ‘Relief of the poor’ encompasses a wide range of objects for the welfare of the
economically and socially disadvantaged or needy. It will, therefore, include within its ambit
purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or
children, small and marginal farmers, indigent artisans or senior citizens in need of aid. Entities
who have these objects will continue to be eligible for exemption even if they incidentally carry
on a commercial activity, subject, however, to the conditions stipulated under section 11(4A) or
the seventh proviso to section 10(23C) which are that
(i) the business should be incidental to the attainment of the objectives of the entity,
And
(ii) separate books of account should be maintained in respect of such business.
Similarly, entities whose object is ‘education’ or ‘medical relief’ would also continue to
be eligible for exemption as charitable institutions even if they incidentally carry on a
commercial activity subject to the conditions mentioned above.
3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is
‘advancement of any other object of general public utility’ i.e. the fourth limb of the definition of
‘charitable purpose’ contained in section 2(15). Hence, such entities will not be eligible for
exemption under section 11 or under section 10(23C) of the Act if they carry on commercial
activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or
business is a question of fact which will be decided based on the nature, scope, extent and
frequency of the activity.
3.1. There are industry and trade associations who claim exemption from tax u/s 11 on the
ground that their objects are for charitable purpose as these are covered under ‘any other
object of general public utility’. Under the principle of mutuality, if trading takes place between
persons who are associated together and contribute to a common fund for the financing of
some venture or object and in this respect have no dealings or relations with any outside body,
then any surplus returned to the persons forming such association is not chargeable to tax. In
such cases, there must be complete identity between the contributors and the participants.
Therefore, where industry or trade associations claim both to be charitable institutions as well
as mutual organizations and their activities are restricted to contributions from and
participation of only their members, these would not fall under the purview of the proviso to
section 2(15) owing to the principle of mutuality. However, if such organizations have dealings
with non-members, their claim to be charitable organizations would now be governed by the
additional conditions stipulated in the proviso to section 2 (15).
3.2. In the final analysis, however, whether the assessee has for its object ‘the advancement of
any other object of general public utility’ is a question of fact. If such assessee is engaged in any
activity in the nature of trade, commerce or business or renders any service in relation to trade,
commerce or business, it would not be entitled to claim that its object is charitable purpose. In
such a case, the object of ‘general public utility’ will be only a mask or a device to hide the true
purpose which is trade, commerce or business or the rendering of any service in relation to trade,
commerce or business. Each case would, therefore, be decided on its own facts and no
generalization is possible. Assessees, who claim that their object is ‘charitable purpose’ within
the meaning of Section 2(15), would be well advised to eschew any activity which is in the
nature of trade, commerce or business or the rendering of any service in relation to any trade,
commerce or business.
(Pradip Mehrotra)
Director (TPL-I)
Regards,
Praveen Boda
Wednesday, December 24, 2008
Hearing procedure to be followed by the Transfer Pricing Officer
Moser Baer India Ltd vs. ACIT (Delhi High Court)
Where the assessees challenged by writ petitions the orders passed by the Transfer Pricing Officer (“TPO”) determining the Arm’s Length Price (“ALP”) in relation to “International transactions” on the grounds that the said orders were passed without granting an oral hearing and without considering the documents and information filed by the assessees and without disclosing the information and documents obtained by the TPO which were used by him in the determination of the ALP, HELD, allowing the challenge:
(1) S. 92CA (3) imposes an obligation on the TPO to accord an oral hearing to the assessee. Even otherwise, an order entailing civil and penal consequences cannot be passed without a hearing.
(2) The fact that the assessee did not demand an oral hearing makes no difference. It is the constitutional obligation of the State to adopt a procedure which is both fair and just while dealing with its citizens. The fact that a citizen is unaware of his legal right cannot be used as a plank to seek legal sustenance for its actions which are otherwise invalid. It is duty of the State, in its role as a litigating party, to inform the citizen of his right i.e., to seek an oral hearing.
(3) The argument of the department that the failure to grant an oral hearing is a defect which could be cured by providing such an opportunity in the appellate forum is not acceptable.
(4) As a matter of procedure, the show-cause notice issued by the TPO just prior to the determination of ALP should refer to the documents or material available with the AO in relation to the international transaction in issue. The show cause notice should also give an option to the assessee:-
(a) To inspect the material available with the AO as give the leeway to file further material or evidence if he so desires, and
(b) to seek a personal hearing in the matter.
(5) An order is passed in breach of the principles of natural justice is a nullity in the eye of law and consequently a writ petition is maintainable notwithstanding the availability of alternate remedy.
Where the assessees challenged by writ petitions the orders passed by the Transfer Pricing Officer (“TPO”) determining the Arm’s Length Price (“ALP”) in relation to “International transactions” on the grounds that the said orders were passed without granting an oral hearing and without considering the documents and information filed by the assessees and without disclosing the information and documents obtained by the TPO which were used by him in the determination of the ALP, HELD, allowing the challenge:
(1) S. 92CA (3) imposes an obligation on the TPO to accord an oral hearing to the assessee. Even otherwise, an order entailing civil and penal consequences cannot be passed without a hearing.
(2) The fact that the assessee did not demand an oral hearing makes no difference. It is the constitutional obligation of the State to adopt a procedure which is both fair and just while dealing with its citizens. The fact that a citizen is unaware of his legal right cannot be used as a plank to seek legal sustenance for its actions which are otherwise invalid. It is duty of the State, in its role as a litigating party, to inform the citizen of his right i.e., to seek an oral hearing.
(3) The argument of the department that the failure to grant an oral hearing is a defect which could be cured by providing such an opportunity in the appellate forum is not acceptable.
(4) As a matter of procedure, the show-cause notice issued by the TPO just prior to the determination of ALP should refer to the documents or material available with the AO in relation to the international transaction in issue. The show cause notice should also give an option to the assessee:-
(a) To inspect the material available with the AO as give the leeway to file further material or evidence if he so desires, and
(b) to seek a personal hearing in the matter.
(5) An order is passed in breach of the principles of natural justice is a nullity in the eye of law and consequently a writ petition is maintainable notwithstanding the availability of alternate remedy.
Sunday, December 21, 2008
Automation of Central Excise and Service Tax--ACES
Automation of Central Excise and Service Tax
The Excise and Service Tax Department has launched ACES (Automation of Central Excise and Service Tax), a workflow based application software at LTU, Bangalore. This web enabled software will completely replace the current mode of manual filing of returns, payment of taxes, seeking refund/rebate of duties, obtaining various permissions and approvals from the department by an electronic interface. ACES will subsequently be launched in other major centres as well. Other details can be obtained from http://www.cbec.gov.in/press-release/press-note-aces-launch-2.pdf.
Excel Utilities for Central Excise
l ER1 Return Excel Utility – Download from http://www.aces.gov.in:12520/REGASE/downloadable/ACES-EFiling-ER1.zip
l ER3 Return Excel Utility – Download from http://www.aces.gov.in:12520/REGASE/downloadable/ACES_efiling_ER3.zip
l ER4 Return Excel Utility – Download from http://www.aces.gov.in:12520/REGASE/downloadable/ACES_efiling_ER4.zip
l ER5 Return Excel Utility – Download from http://www.aces.gov.in:12520/REGASE/downloadable/ACES_efiling_ER5.zip
l ER6 Return Excel Utility – Download from http://www.aces.gov.in:12520/REGASE/downloadable/ACES_efiling_ER6.zip
l Dealer Return Excel Utility – Download from http://www.aces.gov.in:12520/REGASE/downloadable/ACES_efiling_DLR.zip
Excel Utility for Service Tax - ST3 Return Excel Utility – Download from http://www.aces.gov.in:12540/STASE/downloadable/ACES-EFiling-ST3.zip
Regards,
Praveen Boda
Filing of claim for refund of service tax paid under notification No. 41/2007-ST dated 6/10/2007--- Circular No. 106 /9 /2008-ST
Circular No. 106 /9 /2008-ST
F.No.137/84/2008-CX.4
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Excise & Customs)
****
New Delhi, dated the 11th December, 08
Sub:- Filing of claim for refund of service tax paid under notification No. 41/2007-ST dated 6/10/2007 – reg.
Notification No. 41/2007-ST, dated 6/10/2007 allows refund of service tax paid on specified services used for export of goods. The Board has from time to time examined the procedural difficulties arising in implementation of this refund scheme. In this context, a circular (No. 101/4/2008-ST, dated 12.5.2008) was issued earlier whereby the procedural difficulties that were being faced by the merchant exporters and the exporters having multi location offices were resolved. Subsequently, notification No. 32/2008-ST, dated 18.11.2008 has also been issued to (i) extend the period of filing of refund claim by the exporter from 60 days to six month and from the end of the quarter to which such refund claim pertains; and (ii) allow refund on testing service, without any copy of agreement with the buyer of goods, if such testing and analysis is statutorily stipulated by domestic rules and regulations.
2. The Board has received further references from field formations and trade seeking clarification on other procedural issues. Trade has also reported delays in sanction of refund claims. These issues and the clarification for streamlining of procedures are discussed below.
3. ISSUE No. I: The procedure for availing refund, under the aforesaid notification, by a manufacturer exporter not registered with central excise is as under:
(i)
He shall file the claim with the central excise authority having jurisdiction the over factory of manufacture [para 2 (b)(i) of the notification];
(ii)
He shall file a declaration in the format given in the annexure to the notification. The CX authority would issue a STC No. (Service Tax Code) to him [para 2 (c) and 2(d) of the notification].
The issue raised by some of the exclusive Central Excise Commissionerates is that they do not have access to the System for Allotment of Service Tax Payer Code (SAPS). Hence, exclusive Central Excise Commissionerates in places like Delhi and Bangalore have not been able to process the refund claims filed by the manufacturer exporter not registered with central excise.
CLARIFICATION: The Directorate of Systems has reported that there is no restriction for exclusive Central Excise Commissionerates in having access to SAPS. Therefore, exclusive Central Excise Commissionerates, not having access to SAPS at the moment, may approach the Directorate of Systems to get the access to the centralized software.
4. ISSUE NO. II: One of the conditions of the notification is that the exporter claiming exemption has actually paid the service tax on the specified services [para 1(c) of the notification]. The other condition is that the refund claim shall be accompanied by document evidencing payment of service tax [para 2(f) (ii) of the notification]. In this regard the following issues have been raised.
(i) Whether the invoices/bills/challan issued by the service provider, showing service tax amount could be treated as evidence that the exporter has paid the service tax.
(ii) The invoices produced by the exporters are at times not complete (i.e. does not have STC code of service provider)
(iii) One to one correlation between payment of ST and invoice is difficult in many cases.
CLARIFICATION: The invoices/challans/bills issued by supplier of taxable service, in conformity with rule 4A of the Service Tax Rules, 1994, are reasonable evidence that the services on which refund is being sought are taxable service. The compliance of condition that exporter has actually paid the service tax rests with the exporter claiming refund. Therefore, in so far as this condition is concerned, the refund claim should be processed based on furnishing of appropriate invoices/ bills/ challan by the person claiming refund and undertaking to the effect of payment of service tax by him. For the purposes of compliance verification, random checks should be carried out independently and where the refund amount is significant, post refund audit may also be carried out.
As regards incomplete invoices/bills etc,., rule 4A of the Service Tax Rules, 1994 prescribes the statutory requirement. Compliance of this rule requires that the invoices/challan/bills should be complete in all respect. Therefore, the exporter claiming refund of service tax under notification No. 41/2007-ST should ensure in their own interest that invoices/bills/challan should contain requisite details (name, address and registration No. of service provider, S. No. and date of invoice, name and address of service receiver, description, classification and value of taxable service and the service tax payable thereon). Refund claim cannot be allowed on the basis of invoices not having complete details as required verification cannot be carried out by the department on the basis of incomplete invoices.
5. ISSUE NO. III: Vide instruction F. No. 341/15/2007-TRU, dated 17.4.2008, direction has been issued that refund claim be disposed of within thirty days. Commissioners have stated that it is not practically feasible in all cases to dispose of the refund claim within this time frame in view of procedural and other issues involved in processing of claim.
CLARIFICATION: The difficulties arising in processing of claims may be brought to the notice of the Board. The procedural difficulties brought so far to the notice of the Board have been clarified earlier vide circular No. 101/4/2008-ST, dated 12.5.2008 and vide this circular. This should enable the field formations to dispose of the pending refund claims expeditiously. Therefore, every effort should be made by field formations to adhere to the prescribed timelines.
The Board has further decided that simplified procedure for refund, as prescribed by the Board vide circular No. 828/5/2006-CX dated 20.4.2006 for sanction of refund/rebate of unutilized CENVAT credit under rule 5 of the CENVAT Credit Rules, 2004/rebate would mutatis mutandis apply to refund claims under notification No. 41/2007-ST. Under this simplified procedure, 80% of the due refund amount is sanctioned as adhoc interim refund to specified category of exporters having good track record, within 15 days of filing of a refund claim, subject to the condition that refund claim is complete and contains the requisite documents. For this purpose, the specified category of exporters would be (i) all exporters having export turnover of more than Rs 5 crore in the current or preceding financial year; (ii) PSUs including PSUs of State Governments; (iii) Star Export Houses as specified under Chapter 3.5 of the Foreign Trade Policy, 2004-2009; (iv) manufacturer-exporters registered with Central Excise who have been exporting during the previous two financial years and have minimum export of Rs. 1 crore or more during the preceding financial year. (v) exporters registered with service tax or central excise who have paid central excise duty and/or service tax amounting to Rs. 1 crore or more during the preceding financial year; (vi) All Export Oriented Units.
6. Wide publicity may be given (in the form of trade notices, advertisements) to make the stakeholders aware of the above clarification and compliance should be monitored. Any difficulty faced in processing of refund claims under aforesaid notification may be immediately brought to the notice of the undersigned.
Yours faithfully,
(Gautam Bhattachraya)
Commissioner (ST)
Case law on Food Coupons...!!
HIGH COURT OF GUJARAT
Commissioner of Income-tax (TDS)
v.
Reliance Industries Ltd.
D.A. MEHTA AND BANKIM N. MEHTA, JJ.
TAX APPEAL NOS. 415 TO 420 OF 2008
SEPTEMBER 11, 2008
I. Section 192, read with section 17, of the Income-tax Act, 1961 and rule 3 of the Income-tax Rules, 1962 - Deduction of tax at source - Salaries - Whether where assessee-company had distributed free food/meal coupons to its employees for purchase of meals only at specified eating points; such coupons were not transferable; and value of each coupon did not exceed monetary limit provided by rule 3(7)(iii), merely because some of employees had misused said facility by using coupons for other purposes, assessee-company could be treated to be in default for non-compliance with requirement of deducting tax at source under section 192 - Held, no
II. Section 17, read with section 192, of the Income-tax Act, 1961 - Salaries - Perquisites - Whether Explanation to section 17(2)(iii)(c) only envisages that expenditure is in relation to use of any vehicle provided by employer; there is no qualification as to nature of vehicle or as to ownership of vehicle - Held, yes - Whether payment made by assessee-employer to its employees by way of reimbursement of conveyance expenses was tax-free perquisite and, therefore, assessee was not required to deduct TDS in that behalf - Held, yes
FACTS-I
The assessee-company distributed free food/meal coupons to its employees for purchase of meals as per company's policy. For that purpose, it had entered into an agreement with 'A'. The employees were provided with coupons of 'A' at the rate of Rs. 50 per day. The assessee-company claimed that amount paid to 'A' for food/meal coupons given to the employees was not taxable perquisite within the meaning of rule 3(7)(iii) and, therefore, it did not deduct the tax at source on that amount. The Assessing Officer found that some of coupons had been misused by some of the employees for purchase of grocery items, cosmetics items, etc., from shops/super stores selling such items. According to the Assessing Officer, in light of rule 3(7)(iii) the value of free meals provided by an employer to an employee had to be treated as perquisite within the meaning of section 17(2) for being taxed under the head 'Salaries'; that the proviso under clause (iii) of sub-rule (7) of rule 3 provides for an exception but the assessee was not entitled to claim benefit of the proviso, because according to the Assessing Officer, the coupons had been misused by some of the employees. The Assessing Officer, therefore, estimated certain amount as being taxable perquisite in hands of the employees and initiated proceedings under sections 201, 201(1A) and 271C for non-compliance with requirement of deducting tax at source by the assessee under section 192. On appeal, the Commissioner (Appeals) held that the assessee and the contracting party 'A' had taken sufficient steps to prevent misuse of food coupons and had complied with the requirement of the relevant rule, and if some of the employees had misused the facility by using the coupons for some other purpose, the assessee could not be liable for such misuse. However, thereafter, the Commissioner (Appeals) estimated 30 per cent value of the coupons as having been misused and treated the assessee-company in default for levy of interest towards short deduction of tax and levy of penalty. On cross appeals, the Tribunal held that the assessee had not defaulted in any manner for non-deduction of tax at source.
On appeal :
HELD-I
On a plain reading of rule 3(7)(iii), it is clear that the value of free meals provided by an employer to an employee shall not be taxed as a perquisite in the hands of the employee if during office hours at office or business premises free meals are provided by the employer; alternatively, the employer can issue paid vouchers having value up to Rs. 50 per meal with a further condition that such vouchers are not transferable and are usable only at the specified eating points, again to be used during office hours. [Para 12]
Admittedly, in the instant case, it was an accepted position between the parties that the assessee had distributed such meal coupons pursuant to an agreement with 'A' . Such coupons were to be used by the employees only at the specified eating points, including canteen of the assessee; such coupons were not transferable; and the value of each coupon did not exceed the specified monetary limit. In that context, both, the Commissioner (Appeals) and the Tribunal, had concurrently found that the assessee had taken all necessary steps to comply with the requirement of the provisions and no default could be ascribed to the assessee merely because some employees had misused the facility provided to them. [Para 13]
The assessee, at the time of issuance of coupons, could not envisage as to which of the employees would misuse the coupons, because the liability to deduct tax at source is correlated with the taxability of the amount in the hands of a particular employee and there can be no case of an estimation on percentage basis. The primary liability to offer the amount for tax is that of an employee concerned and it is only by a prescribed mode of recovery that the employer is required to deduct tax at source. Such deduction has to be specifically employee-wise and the employer cannot be called upon to presume that a particular percentage of employees, out of the total work-force, shall misuse the facility so as to warrant deduction of tax at source. Furthermore, correspondingly, such tax deducted at source has to be given credit to the employee concerned in his assessment and unless and until the tax deduction certificate specifies the employee concerned, there can be no corresponding credit given to the employee. [Para 15]
In the circumstances, it was not possible to accept the stand of the revenue that the Tribunal had committed any error, in law, so as to warrant interference. [Para 16]
FACTS-II
The assessee-company made payment to its employees by way of reimbursement of conveyance expenses. The Assessing Officer held that such reimbursement was required to be included in the taxable perquisite for computing the income taxable under the head 'Salaries' in hands of the employees and the employer-assessee having failed to deduct tax at source was liable under sections 201, 201(1A) and 271C. On appeal before the Commissioner (Appeals), the assessee succeeded. The Commissioner (Appeals) held that the only requirement was providing of a vehicle by the employer and there was no requirement that the vehicle in question had to be owned either by the employer or a third party, but if the vehicle was owned by the employee concerned, the reimbursement would become taxable. The Tribunal concurred with the view expressed by the Commissioner (Appeals).
On appeal :
HELD-II
It had concurrently been found by both, the Commissioner (Appeals) and the Tribunal, that under the Explanation to section 17(2)(iii)(c), if any expenditure is incurred by the employer for journey by the employee from residence to the office or other place of work, and from office or other place of work to the residence of the employee, such amount of expenditure shall not be regarded as benefit or amenity granted or provided to the employee free of cost or at a concessional rate for the purpose of including such amount as taxable perquisite in hands of the employee. The provision, therefore, envisages that the expenditure is in relation to use of any vehicle provided by the employer. There is no qualification as to the nature of the vehicle or as to the ownership of the vehicle. In fact, the Assessing Officer had also accepted that if the vehicle is owned by the employer or hired by the employer, the amount of expenditure cannot be treated as perquisite in hands of the employee. Once this is the position, it is not possible to read any further prohibition as the revenue wanted to, namely, if the vehicle is owned by the employee, the expenditure is not allowable and has to be taxed as perquisite in his hands. [Para 17]
Both the appellate authorities, namely, the Commissioner (Appeals) and the Tribunal, had rightly read the provision, which is primarily relatable to an employee, i.e., perquisite which is required to be included for being taxed under the head 'Salaries' in the hands of the employee and cannot be read so as to fasten a liability on the employer, unless and until a specific finding is recorded that the same is taxable in hands of the employee as a perquisite. Hence, even on that issue, the approach of the appellate authorities could not be faulted with and the impugned order of the Tribunal did not give rise to any question of law, much less a substantial question of law. [Para 18]
As a consequence, the Tribunal had rightly come to the conclusion that the assessee was neither liable to pay interest either under section 201 or under section 201(1A), nor could it be held liable to penalty under section 271C. [Para 19]
Manish R. Bhatt and Mrs. Mauna M. Bhatt for the Appellant. S.N. Soparkar and Mrs. Swati Soparkar for the Respondent.
Commissioner of Income-tax (TDS)
v.
Reliance Industries Ltd.
D.A. MEHTA AND BANKIM N. MEHTA, JJ.
TAX APPEAL NOS. 415 TO 420 OF 2008
SEPTEMBER 11, 2008
I. Section 192, read with section 17, of the Income-tax Act, 1961 and rule 3 of the Income-tax Rules, 1962 - Deduction of tax at source - Salaries - Whether where assessee-company had distributed free food/meal coupons to its employees for purchase of meals only at specified eating points; such coupons were not transferable; and value of each coupon did not exceed monetary limit provided by rule 3(7)(iii), merely because some of employees had misused said facility by using coupons for other purposes, assessee-company could be treated to be in default for non-compliance with requirement of deducting tax at source under section 192 - Held, no
II. Section 17, read with section 192, of the Income-tax Act, 1961 - Salaries - Perquisites - Whether Explanation to section 17(2)(iii)(c) only envisages that expenditure is in relation to use of any vehicle provided by employer; there is no qualification as to nature of vehicle or as to ownership of vehicle - Held, yes - Whether payment made by assessee-employer to its employees by way of reimbursement of conveyance expenses was tax-free perquisite and, therefore, assessee was not required to deduct TDS in that behalf - Held, yes
FACTS-I
The assessee-company distributed free food/meal coupons to its employees for purchase of meals as per company's policy. For that purpose, it had entered into an agreement with 'A'. The employees were provided with coupons of 'A' at the rate of Rs. 50 per day. The assessee-company claimed that amount paid to 'A' for food/meal coupons given to the employees was not taxable perquisite within the meaning of rule 3(7)(iii) and, therefore, it did not deduct the tax at source on that amount. The Assessing Officer found that some of coupons had been misused by some of the employees for purchase of grocery items, cosmetics items, etc., from shops/super stores selling such items. According to the Assessing Officer, in light of rule 3(7)(iii) the value of free meals provided by an employer to an employee had to be treated as perquisite within the meaning of section 17(2) for being taxed under the head 'Salaries'; that the proviso under clause (iii) of sub-rule (7) of rule 3 provides for an exception but the assessee was not entitled to claim benefit of the proviso, because according to the Assessing Officer, the coupons had been misused by some of the employees. The Assessing Officer, therefore, estimated certain amount as being taxable perquisite in hands of the employees and initiated proceedings under sections 201, 201(1A) and 271C for non-compliance with requirement of deducting tax at source by the assessee under section 192. On appeal, the Commissioner (Appeals) held that the assessee and the contracting party 'A' had taken sufficient steps to prevent misuse of food coupons and had complied with the requirement of the relevant rule, and if some of the employees had misused the facility by using the coupons for some other purpose, the assessee could not be liable for such misuse. However, thereafter, the Commissioner (Appeals) estimated 30 per cent value of the coupons as having been misused and treated the assessee-company in default for levy of interest towards short deduction of tax and levy of penalty. On cross appeals, the Tribunal held that the assessee had not defaulted in any manner for non-deduction of tax at source.
On appeal :
HELD-I
On a plain reading of rule 3(7)(iii), it is clear that the value of free meals provided by an employer to an employee shall not be taxed as a perquisite in the hands of the employee if during office hours at office or business premises free meals are provided by the employer; alternatively, the employer can issue paid vouchers having value up to Rs. 50 per meal with a further condition that such vouchers are not transferable and are usable only at the specified eating points, again to be used during office hours. [Para 12]
Admittedly, in the instant case, it was an accepted position between the parties that the assessee had distributed such meal coupons pursuant to an agreement with 'A' . Such coupons were to be used by the employees only at the specified eating points, including canteen of the assessee; such coupons were not transferable; and the value of each coupon did not exceed the specified monetary limit. In that context, both, the Commissioner (Appeals) and the Tribunal, had concurrently found that the assessee had taken all necessary steps to comply with the requirement of the provisions and no default could be ascribed to the assessee merely because some employees had misused the facility provided to them. [Para 13]
The assessee, at the time of issuance of coupons, could not envisage as to which of the employees would misuse the coupons, because the liability to deduct tax at source is correlated with the taxability of the amount in the hands of a particular employee and there can be no case of an estimation on percentage basis. The primary liability to offer the amount for tax is that of an employee concerned and it is only by a prescribed mode of recovery that the employer is required to deduct tax at source. Such deduction has to be specifically employee-wise and the employer cannot be called upon to presume that a particular percentage of employees, out of the total work-force, shall misuse the facility so as to warrant deduction of tax at source. Furthermore, correspondingly, such tax deducted at source has to be given credit to the employee concerned in his assessment and unless and until the tax deduction certificate specifies the employee concerned, there can be no corresponding credit given to the employee. [Para 15]
In the circumstances, it was not possible to accept the stand of the revenue that the Tribunal had committed any error, in law, so as to warrant interference. [Para 16]
FACTS-II
The assessee-company made payment to its employees by way of reimbursement of conveyance expenses. The Assessing Officer held that such reimbursement was required to be included in the taxable perquisite for computing the income taxable under the head 'Salaries' in hands of the employees and the employer-assessee having failed to deduct tax at source was liable under sections 201, 201(1A) and 271C. On appeal before the Commissioner (Appeals), the assessee succeeded. The Commissioner (Appeals) held that the only requirement was providing of a vehicle by the employer and there was no requirement that the vehicle in question had to be owned either by the employer or a third party, but if the vehicle was owned by the employee concerned, the reimbursement would become taxable. The Tribunal concurred with the view expressed by the Commissioner (Appeals).
On appeal :
HELD-II
It had concurrently been found by both, the Commissioner (Appeals) and the Tribunal, that under the Explanation to section 17(2)(iii)(c), if any expenditure is incurred by the employer for journey by the employee from residence to the office or other place of work, and from office or other place of work to the residence of the employee, such amount of expenditure shall not be regarded as benefit or amenity granted or provided to the employee free of cost or at a concessional rate for the purpose of including such amount as taxable perquisite in hands of the employee. The provision, therefore, envisages that the expenditure is in relation to use of any vehicle provided by the employer. There is no qualification as to the nature of the vehicle or as to the ownership of the vehicle. In fact, the Assessing Officer had also accepted that if the vehicle is owned by the employer or hired by the employer, the amount of expenditure cannot be treated as perquisite in hands of the employee. Once this is the position, it is not possible to read any further prohibition as the revenue wanted to, namely, if the vehicle is owned by the employee, the expenditure is not allowable and has to be taxed as perquisite in his hands. [Para 17]
Both the appellate authorities, namely, the Commissioner (Appeals) and the Tribunal, had rightly read the provision, which is primarily relatable to an employee, i.e., perquisite which is required to be included for being taxed under the head 'Salaries' in the hands of the employee and cannot be read so as to fasten a liability on the employer, unless and until a specific finding is recorded that the same is taxable in hands of the employee as a perquisite. Hence, even on that issue, the approach of the appellate authorities could not be faulted with and the impugned order of the Tribunal did not give rise to any question of law, much less a substantial question of law. [Para 18]
As a consequence, the Tribunal had rightly come to the conclusion that the assessee was neither liable to pay interest either under section 201 or under section 201(1A), nor could it be held liable to penalty under section 271C. [Para 19]
Manish R. Bhatt and Mrs. Mauna M. Bhatt for the Appellant. S.N. Soparkar and Mrs. Swati Soparkar for the Respondent.
Import of Shrink wrapped software--Not subject to Tax Withholding
One more favorable judgment on “Import of Software”, not being subjected to tax withholding…
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'B'
ITA Nos.470 to 478(BNG)/08Assessment Year : 2007-08
INCOME TAX OFFICER (INTL TAXATION)WARD-19(2), BANGALORE
Vs
M/s SONATA INFORMATION TECHNOLOGY LTDNO 193, 1st FLOOR, R V ROAD, BASAVANAGUDIBANGALORE
Dated : November 07, 2008
Appellant Rep. by : Shri K P Rao Respondent Rep. by : Shri Krupal Kanakia
Income tax - import of shrink softwrae products from USA - AO argues that the software was licensed for limited use and the payment made for the same to be treated as royalty payment taxable u/s 9 (1)(vi) - CIT(A) deletes the same in view of the Tribunal's decision in the Samsung Electronics Co Ltd case - Held, as earlier decided in the case of assessee itself, the payment was made for the article which partook the character of sale of goods, no tax was required to be deducted u/s 195 - Revenue's appeal dismissed
ORDER
Per : Bench :
Common issues have been raised by the revenue in these appeals on the following grounds :
"The order of the ld. CIT(A)-IV, Bangalore is liable to be set aside, since it is contrary to law and to the facts of this case.
The learned CIT(A) has placed reliance on the order of the Tribunal in the case of M/s. Samsung Electronics Co. Ltd. (ITA No.264 to 266/Bang/2002).However, while passing this order, the Tribunal has not taken into account that the impugned transaction was not one of outright sale of software but was a licence for limited use thereof. The agreement between the resident payer and the non-resident payee too clarifies this point.
In the above order in the case of M/s. Samsung Electronics Co. Ltd, the Tribunal has placed reliance on the judgment of the Supreme Court in the case of Tata Consultancy Services Vs. The State of Andhra Pradesh (157 KLJ 345) (2004).However, while doing so, it has not taken into account the fact that the Supreme Court was adjudicating the matter in terms of the Andhra Pradesh General Sales Tax Act and not in terms of the Income Tax Act. As such, the said ratio would not be squarely applicable to the instant case.
For the aforesaid reasons, the decision of the Tribunal in the case of M/s. Samsung Electronics Co. Ltd. had not been accepted and an appeal u/s.260A filed. Further, the learned CIT(A) failed to even discuss whether the payment would be considered as royalty in terms of use of secret formula or process, etc apart from use of copy right as detailed in the order."
2. The ld. Counsel for the assessee at the outset submitted that the issue is squarely covered by the earlier decision of the Tribunal beginning A.Y. 2001-02 when the Tribunal was pleased to hold that the purchases made by the assessee was that of shrink software products from USA and were sold to distributors appointed by the company. The transactions of imported Shrink Wrapped Software was equivalent to purchase of goods. Hence did not attract provisions of section 9(1)(vi). The authorities below had held a view that the payment made by the assessee was related as per section 9(1)(vi) of Income Tax Act read with section Article 12(2) of Double Tax Avoidance Act between India and US which was considered by the Tribunal not applicable to the facts of the assessee's case. Copies of the orders of the earlier years have been annexed in the paper book submitted.
3. The learned D.R. agreed that the issue stands covered by the earlier decision of the Tribunal in assessee's own case but relied on the ground so agitated by the A.O. as mentioned above for his part of submission.
4. We have heard the rival contentions and perused the material available on record. We are inclined to hold that the issue stands covered in favour of the assessee as submitted by the learned counsel. We have perused the order of the learned CIT(A) who has taken a note thereof and had called for report from the A.O. to consider the assessee's transaction whether can be held as related. The relevant extract of the AO's report dt.26.2.2008 is reproduced below :
"The transactions in question involve trading in imported Shrink Wrapped Software and they are similar in nature to the transactions involved in the Tribunal decisions in the case of M/s. Sonata Information Technology Ltd. And M/s. Sonata Software Ltd.. The transactions involved in the appeals are identical to the kind of transaction in respect of which ITAT has allowed relief."
After hearing both the sides, we find that similar issue had come up for consideration in assessee's case as well as on appeal by the revenue when the Tribunal held that payments made by the assessee for acquiring quoted rate articles which partook the character of sales of goods, hence no tax was required to be deducted u/s. 195 in respect of payments made for acquisition of software. This decision was reported in 103 ITD 324, therefore, the issue stands covered by the earlier decision by the Tribunal which we are inclined to follow. No controverting material thereto has been submitted by the revenue on this score. In view thereof the appeals are dismissed.
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'B'
ITA Nos.470 to 478(BNG)/08Assessment Year : 2007-08
INCOME TAX OFFICER (INTL TAXATION)WARD-19(2), BANGALORE
Vs
M/s SONATA INFORMATION TECHNOLOGY LTDNO 193, 1st FLOOR, R V ROAD, BASAVANAGUDIBANGALORE
Dated : November 07, 2008
Appellant Rep. by : Shri K P Rao Respondent Rep. by : Shri Krupal Kanakia
Income tax - import of shrink softwrae products from USA - AO argues that the software was licensed for limited use and the payment made for the same to be treated as royalty payment taxable u/s 9 (1)(vi) - CIT(A) deletes the same in view of the Tribunal's decision in the Samsung Electronics Co Ltd case - Held, as earlier decided in the case of assessee itself, the payment was made for the article which partook the character of sale of goods, no tax was required to be deducted u/s 195 - Revenue's appeal dismissed
ORDER
Per : Bench :
Common issues have been raised by the revenue in these appeals on the following grounds :
"The order of the ld. CIT(A)-IV, Bangalore is liable to be set aside, since it is contrary to law and to the facts of this case.
The learned CIT(A) has placed reliance on the order of the Tribunal in the case of M/s. Samsung Electronics Co. Ltd. (ITA No.264 to 266/Bang/2002).However, while passing this order, the Tribunal has not taken into account that the impugned transaction was not one of outright sale of software but was a licence for limited use thereof. The agreement between the resident payer and the non-resident payee too clarifies this point.
In the above order in the case of M/s. Samsung Electronics Co. Ltd, the Tribunal has placed reliance on the judgment of the Supreme Court in the case of Tata Consultancy Services Vs. The State of Andhra Pradesh (157 KLJ 345) (2004).However, while doing so, it has not taken into account the fact that the Supreme Court was adjudicating the matter in terms of the Andhra Pradesh General Sales Tax Act and not in terms of the Income Tax Act. As such, the said ratio would not be squarely applicable to the instant case.
For the aforesaid reasons, the decision of the Tribunal in the case of M/s. Samsung Electronics Co. Ltd. had not been accepted and an appeal u/s.260A filed. Further, the learned CIT(A) failed to even discuss whether the payment would be considered as royalty in terms of use of secret formula or process, etc apart from use of copy right as detailed in the order."
2. The ld. Counsel for the assessee at the outset submitted that the issue is squarely covered by the earlier decision of the Tribunal beginning A.Y. 2001-02 when the Tribunal was pleased to hold that the purchases made by the assessee was that of shrink software products from USA and were sold to distributors appointed by the company. The transactions of imported Shrink Wrapped Software was equivalent to purchase of goods. Hence did not attract provisions of section 9(1)(vi). The authorities below had held a view that the payment made by the assessee was related as per section 9(1)(vi) of Income Tax Act read with section Article 12(2) of Double Tax Avoidance Act between India and US which was considered by the Tribunal not applicable to the facts of the assessee's case. Copies of the orders of the earlier years have been annexed in the paper book submitted.
3. The learned D.R. agreed that the issue stands covered by the earlier decision of the Tribunal in assessee's own case but relied on the ground so agitated by the A.O. as mentioned above for his part of submission.
4. We have heard the rival contentions and perused the material available on record. We are inclined to hold that the issue stands covered in favour of the assessee as submitted by the learned counsel. We have perused the order of the learned CIT(A) who has taken a note thereof and had called for report from the A.O. to consider the assessee's transaction whether can be held as related. The relevant extract of the AO's report dt.26.2.2008 is reproduced below :
"The transactions in question involve trading in imported Shrink Wrapped Software and they are similar in nature to the transactions involved in the Tribunal decisions in the case of M/s. Sonata Information Technology Ltd. And M/s. Sonata Software Ltd.. The transactions involved in the appeals are identical to the kind of transaction in respect of which ITAT has allowed relief."
After hearing both the sides, we find that similar issue had come up for consideration in assessee's case as well as on appeal by the revenue when the Tribunal held that payments made by the assessee for acquiring quoted rate articles which partook the character of sales of goods, hence no tax was required to be deducted u/s. 195 in respect of payments made for acquisition of software. This decision was reported in 103 ITD 324, therefore, the issue stands covered by the earlier decision by the Tribunal which we are inclined to follow. No controverting material thereto has been submitted by the revenue on this score. In view thereof the appeals are dismissed.
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