IN THE ITAT DELHI BENCH ‘G’
Mitsubishi Corpn.
v.
Deputy Commissioner of Income-tax, TDS Circle 50(1), New Delhi
I. P. BANSAL, JUDICIAL MEMBER
AND K. G. BANSAL, ACCOUNTANT MEMBER
IT Appeal Nos. 5074, 5075 AND 5076 (Delhi) OF 2004
[Financial years 1995-96 to 1997-98]
November 2, 2007
Section 154 of the Income-tax Act, 1961 read with rule 3 of the Income-tax Rules, 1962 - Rectification of mistakes - Apparent from records - Assessment years 1995-96 to 1997-98 - Against an order passed by Assessing Officer under sections 201 and 201(1A), Tribunal restored matter to file of Assessing Officer with direction to re-compute liability of assessee for financial years 1995-96 to 1997-98 after grossing up tax with income under section 195A - Thereafter, in original order as well as in order giving effect to order of Tribunal, value of perquisites for employees in respect of rent free accommodation was computed without including tax in gross salary - Subsequently, Assessing Officer passed an order under section 154, and included tax in salary for working out perquisites in respect of rent free accommodation - On appeal, Commissioner (Appeals) confirmed order of Assessing Officer - Whether tax payment is pay and, therefore, not excluded from salary, in terms of rule 3 - Held, yes - Whether, therefore, Assessing Officer was justified in passing an order under section 154 and including tax in salary for working out perquisites in respect of rent-free accommodation - Held, yes
Against an order passed by the Assessing
Officer under sections 201 and 201(1A), the Tribunal restored the matter to the
file of the Assessing Officer with the direction to re-compute the liability of
the assessee for financial years 1995-96 to 1997-98 after grossing up the tax
with income under section 195A. Thereafter, in the original order as well as in
the order giving effect to the order of the Tribunal, the value of perquisites
for the employees in respect of rent free accommodation was computed without
including the tax in the gross salary.
Therefore, a notice under section 154 was served by the Assessing
Officer on the assessee and an order was passed holding that the tax was to be
included in the salary for working perquisite in respect of the rent free
accommodation and the liability under section 201(1) and section 201(1A) was to
be worked out.
On appeal the Commissioner (Appeals)
pointed out that the definitions of both the terms salary and perquisites are
inclusive in nature. Any monetary payment by whatever name called by an employer
is a part of salary, the tax paid by the employer is not included in the
definition of “perquisite”. Therefore,
by simple logic, tax on tax being a monetary payment admittedly paid to meet
the tax liability, is a part of “salary” and cannot be by any stretch of
imagination be regarded as “perquisite”.
On second appeal:
On reading the order of the Tribunal, it
was found that the Tribunal refused to go into the issue raised by the
department for the first time before it, which was to the effect that the tax
should be included in salary for working out perquisite in respect of rent-free
accommodation, by pointing out that the Tribunal did not have power to enhance
the assessment and if the argument was accepted, then, the provisions of cross
appeal and cross objection would become redundant. Since the Tribunal did not
go into the question at all, there was no question of the merger of the order
of the Assessing Officer into the order of the Tribunal in this regard. Thus,
it was not a case of derivative jurisdiction of the Assessing Officer and,
therefore, the case relied upon by the assessee have no bearing on determining
the matter. Further, sub -section (4) of section 154 provides that where an amendment is sought to be made under this section, the order shall be passed
in writing by the income-tax authority concerned, which means that the
authority who passed order can amend the order provided the mistake sought to
be rectified is a mistake apparent from record. The subject matter of
rectification in the instant case was not the order of the Tribunal, which
refused to go into the matter at all, but the original order of the
Assessing Officer. The Assessing
Officer was competent to pass such an order, as his order did not merge into
the order of the Tribunal. [Para 2.6]
Specific inclusion of clause (d)
in “salary” after 1-4-2001 was a conscious decision, which materially altered
the definition not only by excluding perquisites under section 17(2), but also
certain other perquisites mentioned in section 17(2)(iii) and proviso to
section 17(2). In the face of these
changes, it will not stand to reason to accept that the definition of the term
“salary” in rule 3 was the same before and after 1-4-2001. The Kerala High
Court in the case of CIT v. C. W. Steel (No.1) [1992] 86 ITR 817 has referred
to the definition of ‘salary’ under Income-tax Rules, 1922, and pointed out
that tax paid by the employer was in the nature of ‘Pay’. The Bombay High Court
in the case of CIT v. H. D. Dennis & others [1982] 135 ITR 1/[1981] Taxman
231 (Bom.) has distinguished the definition under rule 3 and under section 17
and it has been pointed out that the definition in rule 3 is for the purpose of
valuation of perquisites, mentioned in the rule, for computing income under the
head ‘salary’. The objective of giving a separate definition in rule 3, was to
exclude certain kinds of payments which were otherwise covered by the word
‘salary’. It was also pointed out that the dictionary meaning of the word ‘pay’
includes all periodical payments for service rendered and, therefore, the words
‘salary’ and ‘pay’ would include tax paid by the employer on behalf of the
employer within their ambit. Thus, on merits it was to be held that tax payment
is ‘pay’ and, therefore, salary under rule 3 of the Income-tax Rules. [Para 3]
Further, the definition of the term
“salary” in rule 3 before 1-4-2001 makes it amply clear that there was no scope
to exclude the tax from ''salary” because it was pay and it was not
specifically excluded by any of the exclusionary clauses mentioned therein.
This becomes more clear when a conscious decision was made to amend the rule
and a clause (d) was introduced for the purpose of excluding the value of
perquisites specified in clause (2) of section 17. There is only one interpretation which can be placed on the term
and the same is clear from its definition in rule 3 as it existed for the
relevant years. Therefore, the mistake was apparent from record and flows from
the plain reading of rule 3, Explanation - I. [Para 4]
The Commissioner (Appeals) was right in
upholding the order of the Assessing Officer in this matter.