Central Food Technologicalresearch Institute.krs Road, Mysore v. Rajagopal

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 14 DAY OF JULY 20271 PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’/BLE MR. JUSTICE HEMANT CHANDANGOUDARILT.A. NO.486 OF 2014 BETWEEN: CENTRAL FOOD TECHNOLOGICALRESEARCH INSTITUTE.KRS ROAD, MYSORE-570020|REP. BY ITS ADMINISTRATIVE OFFICER|SMI. MALLIKA P. KUMAR_AGED ABOUT 53 YEARS.D/O SRI V. RAJAGOPAL. (BY MR. S. PARTHASARATHI, SR. COUNSEL A/WMS. JINITA CHATARJEE, ADV.,) | ... APPELLAN| AND" THE INCOME TAX OFFICER (TDS)‘SHILPASHREE>NO.55/1, OPP. STERLING TALKIESVISHWESHWARANAGARMYSORE-5/0008. .., RESPONDENT (BY SRI. K.V. ARAVIND, ADV.,) THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX|ACT 1961, ARISING OUT OF ORDER DATED 04.07.2014 PASSEDIN ITA NOs.1607 TO 1611/BANG/2013 FOR THE ASSESSMENTYEAR 2007-08 TO 2011-12, PRAYING TO: |(i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW,STATED THEREIN. | (ii) ALLOW THE APPEAL AND SET ASIDE THE ORDER.PASSED BY THE ITAT, BANGALORE IN ITA NO.1607 TO1611/BANG/2013 DATED 4.7.2014 FOR THE ASSESSMENT YEAR.2007-08 TO 2011-12. THIS ILT.A. COMING ON FOR’ HEARING, THIS DAY, | ALOK ARADHE J.,DELIVERED THE FOLLOWING: | JUDGMENT This appeal under Section 260A of the Income TaxAct, 1961 (hereinafter referred to as the Act for short)has been preferred by the assessee against order dated04.07.2014 passed by the Income Tax AppellateTribunal (hereinafter referred to as the tribunal’ forShort). The subject matter of the appeal pertains to the|Assessment years 2007-08 to 2011-12. The appeal was.admitted by a bench of this Court on the following:substantial questions of law: (a)|Whether S/.No.1 of Table-1 ofRule 3 of the IT Rules, 1962 would apply tothe employees of the Appellant who Is one|of the constituent units of the Council! ofScientific|and|[IndustrialResearcnestablisned in 1962 by resolution of tne|then|CentralLegislativeAssembly, registeredUndertheRegistrationofSocieties Act of 1860? (Db)Whether the appellant which|functions directly under the control of the|Ministry of Science and Technology of theGovernment of India and receiving annualgrants from the Government of India basedon budget proposal from the Ministry ofScience and Technology after approval ofthe Planning Commission and when theemployeesweregoverned|Dy theGovernment of India Pay and Allowance|Rules, Conduct Rules and other rules as\applicableiontheCentralGovernmentemployees, can valuation of perquisite to such employees could be made witnout|applying SI.No.1 of Table-1 of Rule of tne IT Rules, 1962 and consequently whether tne|autnorities were Justified in holding tnat|there was short deduction of tax at sourceunder Section 197 of the Act to consider the|Appellant as a defaulter to apply theprovisions of Section 201(1) and 201(1A) ofthe Act? (Cc)If the answer to Question No.2aboveISIn|affirmativeStil] Caf)theappellant-institute be held to be a defaulter|to apply the provisions of Section 201(1) and 201(1A) of the Act of bonafide reasonor belief in interpretation of SI.No.1 ofTable-1 of Rule 3 of the IT Rules, 1962 rws|1/7(2) of the IT Act, 1961? 2.|Facts leading to filing of this appeal brieflystated are that the assessee is one of Constituent Unit|OF|Counc]|OF|ScientificAnd|IndustrialResearch(hereinafter referred to as ‘the CSIR’ for short). TheCSIR is a premier Industrial Research And Development.Organization, which was constituted by resolution of the.erstwhile Central Legislative Assembly in the year 1942.and is an Autonomous body registered under theSocieties Registration Act, 1860 (hereinafter referred to as ‘the 1860 Act for short). The employees of theassessee are governed by the Government of India pay.and allowance rules, conduct rules and other rules as is.applicable to the Central Government employees. A. 2.|Facts leading to filing of this appeal brieflystated are that the assessee is one of Constituent Unit|OF|Counc]|OF|ScientificAnd|IndustrialResearch(hereinafter referred to as ‘the CSIR’ for short). TheCSIR is a premier Industrial Research And Development.Organization, which was constituted by resolution of the.erstwhile Central Legislative Assembly in the year 1942.and is an Autonomous body registered under theSocieties Registration Act, 1860 (hereinafter referred to as ‘the 1860 Act for short). The employees of theassessee are governed by the Government of India pay.and allowance rules, conduct rules and other rules as is.applicable to the Central Government employees. A. provision for reservation for post in services in theassessee's Society is made in accordance with theorders of Government of India. It is the case of the!assessee that employees of assessee is entitled topension on the same scale as the Central Government.employees. The funds payable to the retired employees.of the assessee are received from Ministry Of Scienceand Technology and the accounts of the assessee are|audited by Comptrolier and Auditor General of India. Tne.employees of the assessee are allotted unfurnishedquarters. The assessee raised a claim that valuation ofperquisites under Rule 3 of the Income Tax Rules should.be worked out considering the employees of theassessee to be in par with the government employees.The Assessing Officer by orders dated 16.04.2007 and30.03.2012 passed orders under Section 201(1) and201(1A) read with Section 192 of the Act forAssessment Years J2O0O/7-O8 and 2011-12 and held ththe assessee had not correctly worked out the perquisite| value of accommodation in accordance with amended|Rule 3 of the Rules and the assessee is liable to be.treated as assessee in default under Section 201(1) ofthe Act for non deduction / short deduction. It wasfurther held that assessee is liable to pay interest UnderSection 201(1A) of the Act. 3The assessee thereupon filed an appealbefore the Commissioner of Income Tax (Appeals) who.by an order dated 24.07.2013 affirmed the orderspassedbytheASSeSSINg|Officer..The.aSS@C@SSCthereupon filed an appeal before the tribunal. Thetribunal Dy an order dated 04.07.2013 inter alia neld.tnat|Statutory|Corporation|nasaseparateand|independent existence and is a different entity from.Union of State Government with regard to its property|and funds. It was further held that the case of the|!assessee for the purposes of computing perquisite value.is governed by SI.No.2 of Table 1 appended to Rule 3 oftne Rules. Accordingly, the appeal was dismissed. In the aforesaid factual background, this appeal has been filed. 4Learned counsel for the assessee submittedthat though assessee is a autonomous body registered|under the 1860 Act, it functions directly under thecontrolofMinistry|Of Scienceandtechnology,Government of India and receives annual grant from the|Government of India. It Is'also submitted.that|employees of the assessee are governed by the pay andallowance rules, conduct rules and other rules, which are.applicable to Central Government employees. It isfurther submitted that the employees of the assessee—are at par with the Central Government employees and.are entitled to valuation of perquisites as provided under.S|I.No.1 of Table of Rule 3. It ts further submitted thatthe assessee had rightly valued the perquisites on.account of rent free accommodation or concessional rentaccommodation to its employees and there was no.shortfall in payment of tax as required under Section.197 of the Act. It Is submitted that the assessee could| not have been treated as assessee in default andtherefore, provisions of Section 201(1) and 201(1A) ofthe Act could not have been invoked. Alternatively, it is.Submitted that the assessee could not have been treatedas assessee in default on account of bonafide reason or belief in interpretation of SI.No.1 of Table 1 of Rule 3 of.the Rules read along with Section 17(2) of the Act. In.Support of aforesaid submissions, reliance has been.placed on decisions Supreme Court in."PRADEEPKUMARBISWASVS,INDIANINSTITUTE|OFCHEMICALBIOLOGY, |(2002)5SCC111,'R.D.SHETTYVS,INTERNATIONALAIRPORTAUTHORITY’, AIR 1979 SC 1628, 'P.V.RAJAGOPAL|VS. UNION OF INDIA, (1998) 233 ITR 678 (AP)|and"CITYS,MUNICIPALCORPORATION,VISHAKAPATNAM.’, (2014) 365 ITR 254 (AP).5.|On the other nand, learned counsel for therevenue submits tnat SI.No.1 of Table 1 appended toRule 3(1) of the Rules apply when the accommodation. is provided by the Central Government or StateGovernment. It Is Submitted that assessee is not asCentral Government and therefore, iS governed by'SI.No.2 of Table 1 appended to Rule 3(1) of the Rules. Itis also submitted that the Supreme Court in."'ARUNKUMAR AND OTHERS VS. UNION OF INDIA‘,(2006) 286 ITR 89 (SC)has drawn a distinction|between Central Government, State Government and)employee|oftheotherstatutoryCorporation/Undertaking. It is further submitted that Explanation 1 Nas been incorporated to Section 1/7(2) of the Act byFinance Act, 2007 with retrospective effect i.e., from.01.04.2002. Therefore, thequestion ofgrant|OF concession does not arise. It Is also submitted that§Section 201 of the Act covers the case of shortfall in|payment of tax also and no question of law has been.framed in this case with regard to applicability of Section201 of the Act in case of shortfall of payment of tax. © 6.|We have considered the rival submissions.made by learned counsel for the parties and havecarefully perused the record. Before proceeding further,|we may refer to the well settled principles ofinterpretation laid down in relation taxing statute. In a|taxing Act one Nas to look merely at what is clearly said.There is no room for any intendment. There is no equityabout a tax. There is no presumption as to tax. Nothing|is to be read in, nothing is to be implied. One can onlylook fairly at the language used.[See: BANARASTDEBI VS. ITO, AIR 1964 SC 1742]. It is equally awell settled legal proposition that in all tax matters one|has to interpret the taxation statute strictly. Simply.pecause one class of legal entities is given a benefit:which is specifically stated in the Act, does not mean.that the benefit can be extended to legal entities not.referred to in the Act as there is no equity in matters oftaxation. 7. The issue, which arises for consideration iswhether the assessee, which is registered as a Societyunder the 1860 Act and is one of the constituent units of.CSIR can be treated as Central Government as provided.in SI.LNo.1 of Table 1 appended to Rule 3(1) of the Rules. Before proceeding further, it is apposite to take note of relevant extract of Section 1/7(2) Explanation 1, Rule3(1) read with relevant extract of Table 1 appended to.it, which read as under: 1/(2) “Perquisite” includes -— (i) the value of rent-free accommodationprovided to the assessee by his employer; (ii) the value of any concession in the|matter of rent respecting any accommodationprovided to tne assessee by his employer. Explanation 1:- For the purposes of this|sub-clause, concession in the matter of rentShall be deemed to have been provided if - (a) In a case where an_ unfurnishedaccommodation is provided by an employeeother than tne Central Government or any.State Government and - (i) the accommodation is owned|by the employer,, the value of the|accommodation determined at thespecified rate in respect of the periodduring which the said accommodationwas occupied by the assessee during|the previous year, exceeds the rent|recoverable from, or payable by, thedASS@CSSE€ 1/(2) “Perquisite” includes -— (i) the value of rent-free accommodationprovided to the assessee by his employer; (ii) the value of any concession in the|matter of rent respecting any accommodationprovided to tne assessee by his employer. Explanation 1:- For the purposes of this|sub-clause, concession in the matter of rentShall be deemed to have been provided if - (a) In a case where an_ unfurnishedaccommodation is provided by an employeeother than tne Central Government or any.State Government and - (i) the accommodation is owned|by the employer,, the value of the|accommodation determined at thespecified rate in respect of the periodduring which the said accommodationwas occupied by the assessee during|the previous year, exceeds the rent|recoverable from, or payable by, thedASS@CSSE€ (ii) the accommodation is taken|on lease or rent by the employer, thevalue of the accommodation being|the actual amount of lease rentalpaid or payable by the employer or fifteen per cent of salary, whichever|is lower, in respect of the period|during which the said accommodationwas occupied by the assessee during|the previous year, exceeds the rent|recoverable from, or payable by, the|dSSCSSCEC, (Db)In|aCaASCwhereadfurnishedaccommodation is provided by the CentralGovernment or any State Government, the.licencefeedeterminedby theCentral Government or any State Government — Inrespect of the accommodation in accordancewith the rules of such Government a@sincreased by the value of furniture and.fixtures in respect of the period during whichthe said accommodation was occupied by theassessee during the previous year, exceeds|the aggregate of the rent recoverable from, or payable by, the assessee and any chargespaid or payable for the furniture and fixturesby the assessee; (Cc)In|aCaASCwhereadfurnishedaccommodation is provided by an employerother than the Central Government or any.State Government and -| (1)he accommodation is ownedby the employer, the value of the)accommodation is determined under|sub-clause(1)ofclause(a)|aS|increased by the value of the furniture|and fixtures in respect of the periodduring which the said accommodation|was occupied by the assessee during|the previous year exceeds the rent.recoverable from, or payable by the| dSSCSSAEC, (il)theaccommodationIS.takenOf)lease|Orrent.Dy theemployer,thevalue|oftheaccommodationdeterminedUndersub-clause(il) Of|clause(1)aS|increased by the value of the furniture|and fixtures in respect of the periodduring which the said accommodation|was occupied by the assessee during.the previous year exceeds the rent.recoverable from, or payable by, the|dASS@CSSEE (ad) in a case where the accommodationis provided by the employer in a hotel (except|wherethedSSCSSCECISprovidedSsuUCaccommodation for a period not exceeding inaggregate fifteen days on his transfer from.one place to other), the value of the.accommodation determined at the rete oftwenty four per cent of salary paid or payablefor the previous year or the actual charges|paid or payable to such hotel, whichever islower, for the period during which’ suchaccommodation is provided, exceeds the rent recoverablefrom,Or>payableby,|thedSSCSSCEC, (ad) in a case where the accommodationis provided by the employer in a hotel (except|wherethedSSCSSCECISprovidedSsuUCaccommodation for a period not exceeding inaggregate fifteen days on his transfer from.one place to other), the value of the.accommodation determined at the rete oftwenty four per cent of salary paid or payablefor the previous year or the actual charges|paid or payable to such hotel, whichever islower, for the period during which’ suchaccommodation is provided, exceeds the rent recoverablefrom,Or>payableby,|thedSSCSSCEC, 8. Thus, it is evident that the value of residentialaccommodation provided by the Central Government or.any State Government to the employees either holding|office or post in connection with affairs of the Union or ofsuch State or serving with any body or Undertaking|Under the control of such Government on such.deputation has to be determined in the manner providedin Column Nos.3 and 4 of SI.No.1 of Table 1 of Rule 3 of.the Rules. The assessee, wnhicn is a Society under the1860 Act, is controlled and financed by the Central| |undertaking controlled by the Central Government. The|employees of the assessee may be governed by tneRules governing the service conditions of the employees_of the Central Government. However, for the purposes.of Rule 3, the requirement is that the accommodation.should be provided by the Central Government or State.Government to the employees either holding office orpost in connection witn affairs of Union or of State or serving with any body or undertaking under the control|of such government from deputation. The aforesaidexpression is Unambiguous and unclear and therefore,|its meaning cannot be expanded to include any body,|undertaking under the control of Central Government.Merely because assessee is a body or undertaking>owned or controlled by the Central Government, itcannot be elevated to the status of Central Government.Tnus, tne assessee cannot claim that valuation ofperquisites in respect of residential accommodation.should be computed as in case of an accommodation.provided by the Central Government. Therefore, SI.No.1.of Table 1 of Rule 3 of the Rules does not apply to theassessee. The substantial questions of law No.1 and.No.2 are answered against the assessee and in favour ofthe revenue. oiNow we may advert to the _ substantiaquestion of law No.3 involved in the appeal. It ispertinent to mention here that the tribunal in case ofanother assessee viz., Indian Institute of Bangalore in|I.T.A.No.661/2016 and in I.T.A.No.277/2015 has heldthat assessee had made aboneafidestimate of theemployees salary by valuing the perquisite in the form|of residential accommodation provided to the employees.by valuing the same as if they are the employees of the.Central Government has been accepted and theproceedings under Section 201 and 201(1A) of the Act|have been quashed. Therefore, there appears to be no.justification for taking a contrary view in case of theassessee and therefore, the third substantial question oflaw is answered in the negative and in favour of theaSSe@SSAEC In view of preceding analysis, the order of theIncome Tax Appellate Tribunal dated 04.07.2014 insofar.as it pertains to initiation of proceedings under Section %&#�����%&#,#!-����������������������������������������������������������������������� �������������������������