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.
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