Delhi High Court

Mitsui Engg. And Shipbuilding Co. ... vs Asstt. Cit on 28 November, 2000

Equivalent citations: 2001 79 ITD 481 Delhi

ORDER

Per G.L. Garoo, A.M.

The appellant filed appeal against the order passed by the Commissioner (Appeals) vide appeal No. 90/92-93 dated 18-2-1993. The appellant took various grounds in appeal which are reproduced as follows :

"1. The learned Commissioner (Appeals) has erred on facts and in law in taxing the amount of Rs. 45,846 as perquisite value of hotel accommodation provided to the assessee by the employer and in not accepting the assessee's contention that it is not taxable at all.

2. Without prejudice to the above ground of appeal, the learned Commissioner (Appeals) has erred on facts and in law in enhancing the value of perquisite in respect of hotel accommodation from Rs. 28,653 as assessed by the assessing officer to Rs. 45,846 thus resulting in enhancement of assessment without giving any opportunity at all to show cause against such enhancement.

3. Without prejudice to the above ground of appeal, the learned Commissioner (Appeals) has erred on facts and in law in not accepting the alternative ground of appeal that the value of this perquisite should have been taken at 10 per cent of the salary after allowing deduction under section 10(6)(viia).

4. The learned Commissioner (Appeals) erred on facts and in law in not accepting the assessee's contention that interest under section 234B was not chargeable when the assessee derived income only under the head 'Salaries' on which tax is deductible at source."

2. Mr. H. Itoh, the appellant is a Japanese Technician who is in employment with Mitsui Engineering and Shipbuilding Co. Ltd. The appellant was provided hotel accommodation for which employer paid rent of Rs. 150 per day. The appellant claimed the rent as be exempt under section 10(14) of the Income Tax Act. The assessing officer observed that the provisions of section 10(14) are amended with retrospective amendment and according to the amended provision, the appellant does not fulfill the conditions laid down under section 10(14) of the Act. The assessing officer observed that since the appellant availed the perquisite in shape of rent free accommodation, furniture and fixture, gas, water, electricity, facility of servant etc., such perquisite will be treated as income of the appellant. The assessing officer worked out the perquisites at 12.5 per cent of the salary drawn by the appellant. Aggrieved against the order passed by the assessing officer, the appellant filed appeal before the Commissioner (Appeals). Before the Commissioner (Appeals), appellant took plea that payment of hotel rent by the employer cannot be treated as perquisite. The second point taken before the Commissioner (Appeals) was that while computing the perquisite, the appellant should have been allowed deduction under section 10(6)(viia) of the Income Tax Act. The appellant relied on the decision of CIT v. D.S. Blackwood (1989) 178 ITR 470 (Cal). The Commissioner (Appeals) observed that this case can be distinguished because the assessee came to India on tour and not on regular employment whereas the appellant stayed in India as an employee on regular basis. The Commissioner (Appeals) also observed that section 10(14) is not applicable because the allowances granted by the employer and incurred wholly and exclusively for the purpose of employment will be exempt only if these allowance are notified by the Central Government. The Central Government has not issued any notification regarding allowances of hotel rent and as such, they are not exempt under section 10(14) of the Act. The Commissioner (Appeals) observed since composite facilities were provided by the employer, therefore, perquisite will be valued at 20 per cent of the salary which resulted into enhancement of perquisite by Rs. 17,193. The assessing officer as well as the Commissioner (Appeals) rejected the plea regarding deduction of exemption under section 10(6)(viia) from the salary calculation of perquisite as same is not supported by law. Aggrieved against the order of the Commissioner (Appeals), the appellant is before us.

3. Learned counsel of the appellant pleaded that the appellant was provided hotel accommodation at the project site. The learned counsel pleaded that perquisite in shape of rent free accommodation provided at a place other than headquarters cannot be treated as perquisite envisaged under section 17(2) of the Income Tax Act.

4. The learned counsel also pleaded that in case perquisite is to be valued and calculated, same should be calculated in accordance with Income Tax Rules. The learned counsel pleaded that for valuation of perquisite, rule 3(a)(iii) is applicable on the fact and circumstances of the case. Learned counsel, however, pleaded that the appellant is entitled for deduction of salary to the tune of Rs. 48,000 under section 10(6)(viia) of the Income Tax Act. Learned counsel pleaded that the appellant is entitled for deduction of this amount of salary for calculation of perquisite.

5. The learned counsel also pleaded that the assessing officer was not justified in charging interest under section 234B. Learned counsel pleaded that his income is not subject to payment of advance tax and TDS was deducted from the salary by the employer. Learned counsel pleaded that sections 215 and 234B are pari on similar footing because one has to look into section 209 and applicability of section 209 before interest under section 234B is charged. The learned counsel relied on the decision of Sedco Forex International Drilling Inc. v. Dy. CIT (2000) 72 ITD 415 (Del).

6. The learned Departmental Representative, on the other hand, pleaded that section 17(2) of the Income Tax Act is squarely applicable on the facts and circumstances of the case. The learned Departmental Representative pleaded that the authorities below were justified in estimating perquisite because it was not only the residential accommodation that was provided but also composite facilities of the hotel were provided to the appellant. However, learned Departmental Representative failed to point out any provision in Rules to calculate the perquisite at 20 per cent. Regarding charging of interest under section 234B, learned Departmental Representative relied on the order of the authorities below.

7. We have heard both the sides. The first issue to be settled relates to the plea of the appellant that the hotel rent provided at Bhatinda is not covered under section 17(2) of the Income Tax Act. Section 17(1) elaborates the definition of 'salary' and includes perquisite as part of salary in clause (iv) to sub-section (1) of section 17. Section 17(2) further elaborates perquisite to include value of rent free accommodation provided to the assessee by his employer. The learned counsel has submitted that if the accommodation is provided at a place other than headquarters, same should not be included in perquisite. The very nature of accommodation is to be understood from the proper perspective so that a complete meaning is given to the language of the clause (iv). Temporary position of compensation of accommodation is dealt when the official is on tour and his headquarter is at a place other than a place where he undertakes temporary journey. For this, the appellant will not get rent free accommodation but is provided daily allowance. The taxability or otherwise of daily allowance is dealt with by different provisions and need not be discussed for this issue. There has to be a distinction between daily allowance provided at a place other than headquarters and residential accommodation provided at a place of work. In case residential accommodation is provided at a place of work by the employer, he is covered by section 17(2)(i). The valuation of such perquisite is to be calculated according to the Income Tax Rules dealing with the subject. It is very essential to understand that the definition of perquisite is inclusive definition and therefore, the ordinary meaning of the definition will also prevail while one has to interpret whether or not any gain is to be treated as perquisite. According to the definition of Oxford Dictionary, perquisite means casual emoluments, fee or profit attached to an office or position in addition to salary or wages. Keeping in view the overall position, we are of the opinion that under the facts and circumstances of the case, the rent free accommodation by way of hotel accommodation provided to the employee is to be calculated as a perquisite as envisaged under section 17(2) of the Income Tax Act.

8. The second point taken by the learned counsel relates to the claim of deduction to be given regarding the portion of salary which is exempt under section 10(6)(viia). Once it is decided that the hotel accommodation is perquisite, we have to give a finding regarding the calculation of the perquisite. The perquisites are to be valued in accordance with the Income Tax Rules and rule 3 is the relevant rule applicable on facts and circumstances of the case. Rule 3(a) speaks that the value of rent free residential accommodation shall be determined on the basis provided in various sub-sections of the rule. The salary has a different definition for the purpose of valuation of perquisite. The salary is defined in explanation (1) to rule 3(a) of the Income Tax Rules and explanation (1) speaks as follows :

"Explanation 1 : 'Salary' includes the pay, allowances, bonus or commission payable monthly or otherwise, but does not include the following, namely :

(i) dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the assessee concerned;

(ii) employer's contributions to the provident fund account of the assessee;

(iii) allowances which are exempted from payment of tax;

(iv) any allowance in the nature of an entertainment allowance, to the extent such allowance is deductible under clause (ii) of section 16."

9. Sub-clause (iii) of the Explanation clearly mentions that all the allowances which are exempt from the payment of tax does not form part of the salary. The deduction under section 10(6)(viia) is, therefore, not to be included as part of the salary for purpose of calculating the perquisite.

10. The third controversy is regarding the applicability of rule for calculation of perquisite under facts and circumstances of the case. The learned counsel has submitted that rule 3(a)(iii) is applicable in the case of the appellant. The learned Departmental Representative has not supported his case of application of 20 per cent and has also not supported any rules envisaged in rule 3 of the Income Tax Rules. We, therefore, agree with the learned counsel on the situation and we are of the opinion that on the facts and circumstances of the case, where furnished hotel accommodation is provided, the relevant rule will be 3(a)(iii)(B) of the Income Tax Rules. The impact of this rule will be that the perquisites will be valued at 10 per cent of the salary as defined above and same is to be increased by 15 per cent of the value of the furniture. To decide this issue, the assessing officer has to take into account the place where hotel is located as well as the status of the hotel. Reasonable and fair estimate has to be arrived at. In the case of the appellant, the hotel is located at Bhatinda and the furnishing of the hotel can reasonably be estimated. The assessing officer is directed to make a reasonable estimate of furnishings of the hotel. The assessing officer will calculate the perquisite according to the directions and discussions given above. So far as applicability of section 10(14) of the Income Tax Act is concerned, from assessment year 1988-89, approval from the Government of India is not available to the assessee on the allowances. Therefore, the appellant is not entitled for the benefit under section 10(14) of the Income Tax Act.

11. The assessee's plea before the learned Commissioner (Appeals) failed because according to learned Commissioner (Appeals), the assessed tax has been defined under section 234B as tax on total income determined on regular assessment as reduced by the amount of tax deducted or collected at source. Whereas according to learned Commissioner (Appeals), section 215(5) speaks of tax deductible, he has observed that no tax was deducted or collected at source and therefore, appellant was liable to levy interest under section 234B. The learned counsel pleaded that in fact, the tax was deducted and paid which is borne out by the calculation shown at page 1 of the paper book. This issue has come before the Income Tax Appellate Tribunal in Sedco Forex International Drilling Inc. (supra). Section 234B sub-section (1) explanation (1) defines assessed tax. The assessed tax is defined as follows :

"Explanation 1. - In this section, 'assessed tax' means,

(a) for the purposes of computing the interest payable under section 140A, the tax on the total income as declared in the return referred to in that section;

(b) in any other case, the tax on the total income determined under sub-section (1) of section 143 or on regular assessment,

as reduced by the amount of tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income."

12. According to Explanation (1), for the purpose of calculating interest, tax on the assessed income as assessed under section 143(1) or (3) is to be reduced by tax deducted or collected at source on any income which is subject to such deduction. The tax deducted or collected is to be interpreted for the purpose of section 234B of the Income Tax Act. The important interpretation in the section relates to the fact whether or not the appellant is liable to advance tax. For working out liability of advance tax, one has to look into section 210 of the Income Tax Act and section 210 comes into operation if section 209 becomes applicable on the income of the appellant. Section 209, sub-section (a) speaks as follows :

"(d) the income-tax calculated under clause (a) or clause (b) or clause (c) shall, in each case, be reduced by the amount of income-tax which would be deductible (or collectible) at source during the said financial year under any provision of this Act from any income (as computed before allowing any deductions admissible under this Act) which has been taken into account in computing the current income or, as the case may be, the total income aforesaid; and the amount of income-tax as so reduced shall be the advance tax payable."

13. It is very clear that for making assessee liable to advance tax and while making estimate, he shall reduce the amount of income-tax which would be deductible or collectible at source. We are not placing much reliance on the argument of the learned counsel relatable to comparison between 215(5) of the Income Tax Act. We are of the opinion that section 209(1)(d) is clear on the given situation. The explanation of the provision in simple language is whether or not the person who has to deduct tax at source makes deduction, the appellant has to reduce the tax deduction at source which is deductible from the estimate of his income and estimate of his tax. Under those circumstances, the impact on section 234B Explanation (1) will be that such amount will logically be reduced from the assessed tax because in section 234B, there has to be finding that advance tax was payable as envisaged under section 210. In the case of the appellant, however, even tax deducted at source from the salary was, in fact, deducted. Keeping in view, we are of the opinion that the authorities below were not justified in recording finding that the appellant is liable to make payment under section 234B of the Income Tax Act.

The appeal is partly allowed.