Commissioner Of Income Tax (Tds v. Oil & Natural Gas Corporation (India) Ltd.....opponent(S

O/TAXAP/549/2013 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 549 of 2013 With TAX APPEAL NO. 550 of 2013 With TAX APPEAL NO. 1095 of 2014 With TAX APPEAL NO. 1096 of 2014 With TAX APPEAL NO. 1097 of 2014 With TAX APPEAL NO. 1098 of 2014 With TAX APPEAL NO. 1099 of 2014 With TAX APPEAL NO. 1100 of 2014 With TAX APPEAL NO. 1101 of 2014 With TAX APPEAL NO. 1102 of 2014 With TAX APPEAL NO. 1103 of 2014 With TAX APPEAL NO. 1104 of 2014 With TAX APPEAL NO. 1105 of 2014 With TAX APPEAL NO. 1106 of 2014 With TAX APPEAL NO. 1094 of 2014 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ?the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ COMMISSIONER OF INCOME TAX (TDS)....Appellant(s) Versus OIL & NATURAL GAS CORPORATION (INDIA) LTD.....Opponent(s) ================================================================ Appearance: MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1MR B S SOPARKAR, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERIandHONOURABLE MR.JUSTICE K.J.THAKER Date : 05/12/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1.By way of these appeals, the appellant-Revenue has challenged (1) the judgment and order dated 16.11.2012 passed in ITA No. 184/Ahd/2010 for AY 2009-10, (2) ITA No. 609, 611/Ahd/2010 for O/TAXAP/549/2013 JUDGMENT AY 2009-10, (3) ITA No. 1343/Ahd/2010 for AY 2009-10, (4) ITA No. 185/Ahd/2010 for AY 2009-10, and (5) the judgment and order dated 11.1.2013 passed in ITA Nos. 153/2012 for AY 2007-08, (6) ITA No. 154/2012 for AY 2008-09, (7) ITA No. 156/2012 for AY 2006-07, (8) ITA No. 157/2012 for AY 2007-08, (9) ITA No. 158/2012 for AY 2008-09, (10) ITA No. 283/2012 for AY 2006-07, (11) ITA No. 284/2012 for AY 2007-08, (12) ITA No. 285/2012 for AY 2008-09, (13) ITA No. 286/2012 for AY 2009-10, (14) ITA No. 329/2012 for AY 2006-07, (15) ITA No. 330/2012 for AY 2007-08, (16) ITA No. 331/2012 for AY 2008-09, (17) for ITA No. 152/2012 for AY 2006-07. 2.While admitting these appeals, this Court has framed the following substantial question of law: “Whether on facts and in law the ITAT was right in holding that payment of uniform allowance etc. to the employees by the assessee is liable for FBT and by holding so it did not consider the fact that the payment of uniform allowance was nothing but additional salary paid in the form of an allowance within the meaning of section 17(1)(iv) attracting the TDS provisions of section 192 of the IT Act ?” 3.The facts of the present case are that for verification of compliances of TDS provisions survey were conducted in the offices Oil and Natural Gas Corporation Limited at its following offices: 1.ONGC workshop at Baroda 2.ONGC Basin office at Baroda, and 3.ONGC Ankleshwar Asset, falling under the jurisdiction of this office. “Whether on facts and in law the ITAT was right in holding that payment of uniform allowance etc. to the employees by the assessee is liable for FBT and by holding so it did not consider the fact that the payment of uniform allowance was nothing but additional salary paid in the form of an allowance within the meaning of section 17(1)(iv) attracting the TDS provisions of section 192 of the IT Act ?” 3.The facts of the present case are that for verification of compliances of TDS provisions survey were conducted in the offices Oil and Natural Gas Corporation Limited at its following offices: 1.ONGC workshop at Baroda 2.ONGC Basin office at Baroda, and 3.ONGC Ankleshwar Asset, falling under the jurisdiction of this office. 4.At the time of survey, besides details of contract payments and other miscellaneous payments, the salary payments to the employees was asked for, and verification was focused on salary and contract expenses incurred by the respective offices of the ONGC. That during the survey/verification of the salary details, it was informed that salary are prepared on computer and therefore, the concerned officers were requested to produce the details of payment of salaries to the employees and to produce form no. 16 for the preceding year for understanding and to provide the salary slips for the month of January, 2009. 4.1 The salary slips shown for employees for January, 2009 reflected that besides salary there was substantial amount of money has paid to each employee against the item CMRE under the column of “Earnings”. The cumulative receipts of above CMRE amount were reflected under the column “YTD Earning” and this amount was exceeding Rs. 50 thousands in each case. Below the above CMRE amount, there were other allowances under the earnings named as “OTHER (T)” and OTHER (NT). The amount of earnings reflected under the above allowances was substantial (in the range of Rs. 1 lakh). 5. On enquiring it was told that the amount of allowances shown as OTHER(NT) was presenting the amount of uniform allowance. On verification from Form 16 produced for test check for FY 2007-08, it was observed that the amount of (NT) allowances was not reflected in Form 16 for the relevant FY i.e. 2007-08. 5.1 The above facts were enquired for the FY 2008-09 as well (as Form 16 was not yet due for this year). But no evidence was produced to justify the non inclusion of these allowances in salary and no reasonable explanation was offered in support of not including the allowances reflected as CMRE and OTHER (NT) in the pay slip of salary income, therefore, the assessee was informed that it has been observed that in your ONGC office the employees are being paid certain allowances in the form of uniform allowances CMRE (Conveyance Maintenance Allowance) and some other allowances which are termed as NT (Non Taxable) and these are not included in the total salary of the employee. And the tax is not deducted on this allowances, therefore, this was enquired at the time of survey verification and also as per order sheet entry dated 25.2.2009 (in the case of ONGC Baroda-Basin Office), vide order sheet dated O/TAXAP/549/2013 JUDGMENT 23.2.2009 & show case dated 24.2.2009 (for ONGC Ankleshwar Asset) and vide order sheet dated 18.2.2009 (for ONGC Baroda Workshop), the employer was asked to explain the following points and to furnish reasons and necessary evidence as to:- What are the NT termed allowances, please specify. Give a list of all the employee of your organization showing their salary and allowances, all taxable and non taxable for FY 2007-08 & 2008-09. b)Why the NT termed allowances are not included in Form 16 issued for FY 207-08 to the employees ? Please produce copies of Form 16. O/TAXAP/549/2013 JUDGMENT 23.2.2009 & show case dated 24.2.2009 (for ONGC Ankleshwar Asset) and vide order sheet dated 18.2.2009 (for ONGC Baroda Workshop), the employer was asked to explain the following points and to furnish reasons and necessary evidence as to:- What are the NT termed allowances, please specify. Give a list of all the employee of your organization showing their salary and allowances, all taxable and non taxable for FY 2007-08 & 2008-09. b)Why the NT termed allowances are not included in Form 16 issued for FY 207-08 to the employees ? Please produce copies of Form 16. c)In Form-16, no deduction have been claimed for expenses on account of CMRE and uniform allowances (NT) u/s 10, therefore, assessee was requested to specify under what provisions of Income Tax Act, these allowances has been claimed as exempted and was requested to provide details and copy of such provisions. Also to show cause as to why an order u/s. 201 and 201(1A)may not be passed. 6.All the offices of ONGC in reference covered for verification of compliances of TDS provisions filed their written replies on the above points. O/TAXAP/549/2013 JUDGMENT As the ONGC is a big corporation and all the offices covered for verification fall under the same management at the higher level and as all offices are expected to be governed by same guidelines, therefore, all the replies received from offices of ONGC placed in a common chart. On going through the replies the different offices of ONGC has filed, shows that these offices has taken a similar stand, as regards CMRE and the Uniform allowance. 7.In connection with the CMRE (NT) payments made to employees, it has been claimed by the ONGC (Baroda-Basin office) and ONGC (Baroda-workshop) that the CMRE (subject to FBT) that “this payment being a reimbursement of conveyance expenses incurred by the employees is taxable only as a fringe benefit (FBT) in the employers hand u/s 115WA of the IT Act, 1961. It was further claimed that the ONGC is paying FBT on this, and hence, the same is not taxable in the employees hand by virtue of the exclusion contained in Section 17(2)(vi) of the IT Act. 8.It was also claimed that CMRE (Non-taxable) paid at the rate of Rs. 800/- per month, which is exempt u/s. 10(14) r.w.r. 2BB of the IT Rules. Whereas, the ONGC, Ankleshwar office has claimed that “it may be pointed out that the allowances which are exempt u/s. 10(14) r.w.r. 2BB of the IT Rules are not included in the salary for the purpose of deduction of tax at source u/s. 192, therefore, the same are not shown in the Form No. 16. 9.Further, it was claimed that “it was only those allowances, which are specifically excluded from the taxability by Rule 2BB, that are treated as exempt in the hands of the employees.” After considering the replies filed by the assessee and the material on record, the assessment order came to be filed. The assessee has challenged the said assessment order by way of appeals before the CIT(A) which came to be partly allowed. Being aggrieved and dissatisfied with the said order of CIT(A), the Revenue preferred appeal before the ITAT which came to be partly allowed, against which, the present Tax Appeals are preferred by the Revenue. 10. Heard the learned advocates appearing for the respectivepartiesandconsideredthe submissions. Learned advocate for the appellant has taken us through the Circular of CBDT being No. 8/2005. Clause 74 of the said Circular reads as under: expenditure incurred on providing safety shoes or uniforms or equipments to the employees or for the purposes of reimbursement of washing charges ? Ans. Any expenditure incurred for meeting 10. Heard the learned advocates appearing for the respectivepartiesandconsideredthe submissions. Learned advocate for the appellant has taken us through the Circular of CBDT being No. 8/2005. Clause 74 of the said Circular reads as under: expenditure incurred on providing safety shoes or uniforms or equipments to the employees or for the purposes of reimbursement of washing charges ? Ans. Any expenditure incurred for meeting the employers statutory obligations under the Employment Standing Orders Act, 1948, fall within the scope of the exclusion in the Explanation to clause (E) of sub-section (2) of Section 115 WB. Therefore, expenditure incurred on providing safety shoes or uniform or equipment to the employees or incurred for the purposes of reimbursement of washing charges, is exempt from FBT to the extent such expenditure is incurred to meet such statutory obligation. 11. Mr. Bhatt has also taken us through para 4.1, 4.3 of the order of CIT(A). 12. Mr. Bhatt has made an endeavour that the Tribunal has not decided the issues as contended by the Department that uniform allowance is part of the salary under section 17(1), and even if it is considered to be perquisite, in view of the statutory provisions, the same will be part of the salary, and therefore, TDS was required to be deducted. 13. He has taken us through the provisions of section 10(14)(i), which reads as under: O/TAXAP/549/2013 JUDGMENT “Sec.10(14)(i)anysuchspecial allowance or benefit, not being in the nature of a perquisite within the meaning of clause (2) of section 17, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, [as may be prescribed], to the extent to which such expenses are actually incurred fore that purpose;” 14. Mr. Bhatt has thereafter contended that in view of this exclusion clause will fall under perquisite, and therefore, it will form part of salary and the deduction granted is bad. 15. Mr. Soparkar learned advocate for the assessee has taken under through section 192 of the Income Tax Act which makes it obligatory on the part of the employer to deduct TDS provided it is salary. He has taken us through the same provisions of section 17(1)(vi) and sec. 17(20(vi), and contended that this will not fall within section 115WB(2)(E), and therefore, it is not part of salary and since the employer is governed by FBT,is not required to pay tax or not required to deduct TDS under section 194. 16. He has taken us through para-9, 10 and 12 of the Tribunal. The Tribunal accepting the contention of assessee has held as under: “9. We have considered the rival submissions and perused the material on record and gone through the orders of authorities below and judgments cited by both the sides. First,we deal with this aspect that whether FBT was payable by the assessee-company on this expenditure or not and if it is found that FBT was payable by the assessee on this expenditure, which was actually paid also, whether there is a liability of the assessee to deduct TDS from this ‘expenditure incurred for the welfare of the employees. In this regard, we feel that provisions of section 17(2)(vi) and section 115 WB 2E with explanation are relevant and the same are reproduced below: 17. (1) … … …(2) … … … … … “(vi) the value of any other fringe benefit or amenity (excluding the fringe benefits chargeable to tax under Chapter XII-H) as may be prescribed;” namely :- (E) employees’ welfare. [Explanation – For the purposes of thisclause,anyexpenditure incurred or payment made to- (i) fulfillanystatutory obligation; or (ii)mitigateoccupational hazards; or (iii)provide first is facilities in the hospital or dispensary run by the employer; or ‘expenditure incurred for the welfare of the employees. In this regard, we feel that provisions of section 17(2)(vi) and section 115 WB 2E with explanation are relevant and the same are reproduced below: 17. (1) … … …(2) … … … … … “(vi) the value of any other fringe benefit or amenity (excluding the fringe benefits chargeable to tax under Chapter XII-H) as may be prescribed;” namely :- (E) employees’ welfare. [Explanation – For the purposes of thisclause,anyexpenditure incurred or payment made to- (i) fulfillanystatutory obligation; or (ii)mitigateoccupational hazards; or (iii)provide first is facilities in the hospital or dispensary run by the employer; or (iv)provide creche facility for the children of the employee; or (v)sponsor a sportsmen, being an employee; or (vi)organize sports events for employees, shall not be considered as expenditure for employees’ welfare;] 10. From the provisions of section 17(2)(vi), we find that perquisites does not include the fringe benefit chargeable to tax under Chapter-XIIH. In Chapter-XIIH, the relevant section regarding liability to pay FBT on employees’ benefits welfare is as per clause-E of sub-section 2 of section 115WB which has been reproduced above. As per the same, FBT is payable on any expenditure incurred on employees’ welfare excluding those expenditures which are incurred to fulfill any statutory obligation or to mitigate occupational hazards etc. This is not in dispute that FBT was paid by assessee-company on this expenditure and this is also admitted position that this expenditure is in the nature of employees’ welfare. One more contention expenditure is in the nature of employees’ welfare. One more contention was raised by the Ld. DR of the Revenue that in the present case, these allowances are given to each employee separately and the benefit arising to each employee is ascertainable and therefore on such benefit, FBT is not payable and only those expenditures in respect of employees’ welfare are liable to FBT,which are common expenditure and benefit obtained by each employee is not ascertainable. We do not find any merits in this contention of Ld. DR of the Revenue because there is no such restriction provided in section 115WB that only common expenditure on employees’ welfare is liable to FBT and not those expenditures which are attributable to an employee directly and whose benefit enjoyed by an employee is ascertainable. Only exception carved out from the liability of FBT is as per O/TAXAP/549/2013 JUDGMENT Explanation to Clause-E of this Section as reproduced above which includes those expenditures which are incurred to fulfill any statutory obligation or to mitigate occupational hazards etc. The impugned expenditure which is in dispute before us does not fall in any of the exclusion clause of the explanation. The second argument of the Ld. DR of the Revenue is this that actual expenditure was not incurred by the employees of the assessee because at the time of survey also, no employees was found wearing any uniform. Regarding this contention also, we find that there is no exclusion provided in section 115WB to exclude those expenditures incurred by the assessee company for employees’ welfare which were not actually incurred by the employees as per the intention for which the expenditure was incurred. As per sub-section 1 of section 115WB,any privilege service,facility or amenity directly or indirectly provided by an employer whether by way of reimbursement or otherwise to his employees is covered within the definition of fringe benefit on which FBT is payable. Asper sub-section 2 of section 115WB, it is provided that fringe benefit shall be deemed to have been provided by the also, no employees was found wearing any uniform. Regarding this contention also, we find that there is no exclusion provided in section 115WB to exclude those expenditures incurred by the assessee company for employees’ welfare which were not actually incurred by the employees as per the intention for which the expenditure was incurred. As per sub-section 1 of section 115WB,any privilege service,facility or amenity directly or indirectly provided by an employer whether by way of reimbursement or otherwise to his employees is covered within the definition of fringe benefit on which FBT is payable. Asper sub-section 2 of section 115WB, it is provided that fringe benefit shall be deemed to have been provided by the O/TAXAP/549/2013 JUDGMENT employer to its employee if the employer has in the course of business incurred any expenditure on or made any payment for various purpose which includes employees’ welfare. As per clause-E of this sub-section, it does not come out that it has to be enquired and looked into whether the employee has incurred the amount given to him by the employer for the same purpose for which it was the amount given to him by the employer for the same purpose for which it was given to the employee. In our considered opinion, for this reason that the employer has paid FBT on a particular expenditure, it is considered as payment of income tax only on deemed income of the employee out of various expenditures incurred by the employer and hence, this is not relevant as to whether the employee has actually incurred those expenditures as intended by the employer. 12. Now, we examine the applicability of CBDT Circular No. 8 of 2005 dated 29.8.2005 (supra). From the relevant question of this Circular i.e. question No. 74 as per which, the question was as to whether FBT is payable on a expenditure incurred on providing safety shoes or uniforms or equipments to the employees or for the purpose of O/TAXAP/549/2013 JUDGMENT reimbursement of washing charges. Reply was this that any expenditure incurred for meeting the employer’s statutory obligation under the Employment Standing Order Act, 1948 fall within the scope of exclusion in the explanation to clause-E of subsection 2 of 115WB and, therefore, to the extent, such expenditure is covered by this exclusion, FBT is not required to be paid. In the present case, we have seen that the expenditure incurred by the assessee in respect of uniform,washing charges etc. is not a required to be paid. In the present case, we have seen that the expenditure incurred by the assessee in respect of uniform,washing charges etc. is not a statutory obligation of the assessee-company and therefore it is not covered by the exclusion clause of Explanation to clause-E of sub-section 2 of section 115WB. The consequence of this is that the same is not perquisites asper section 17(2)(vi) of the IT Act. Now, we examine the applicability of the judgment of Hon’ble apex court rendered examine the applicability of the judgment of Hon’ble apex court rendered in the case of R & B Falcon (A) Pty. Ltd. (supra). In para-17 of this judgment, it is noted by Hon’ble Apex Court that FBT is new concept and the tax is to be levied on the fringe benefit provided or deemed to have been provided by any employer to employee @ 30% on the value of such fringe benefit. provided by any employer to employee @ 30% on the value of such fringe benefit. It is further noted by Hon’ble apex examine the applicability of the judgment of Hon’ble apex court rendered in the case of R & B Falcon (A) Pty. Ltd. (supra). In para-17 of this judgment, it is noted by Hon’ble Apex Court that FBT is new concept and the tax is to be levied on the fringe benefit provided or deemed to have been provided by any employer to employee @ 30% on the value of such fringe benefit. provided by any employer to employee @ 30% on the value of such fringe benefit. It is further noted by Hon’ble apex court that intention of the Parliament to tax the employer on the one hand for the expenditure for the benefit of the employees including entertainment etc., and on the other, when an employee is getting the perks are not to be taxed. Those who get direct or indirect benefit from the expenditure incurred by the employer, no tax is leviable. In para-30 of the judgment, it is also noted by the Hon’ble apex court that Parliament, in introducing the concept of fringe benefit, was clear in its mind that in so far as on the one hand, it has avoided imposition of double taxation i.e. tax both in the hands of employee and employer and on the other hand, it is intended to bring succor to the employer for offering some privilege, service facility or amenity, which was otherwise though to be necessary or expedient. From this observation of the Hon’ble apex court in this judgment and also from the relevant provisions of section 17(2)(vi) and 115WB(2) as reproduced above, it becomes very clear that on fringe benefit like uniform and washing allowance etc. provided by assessee to its employees otherwise than for a statutory obligation, is liable to FBT and same is not liable to income tax O/TAXAP/549/2013 JUDGMENT in the hands of the employee because the same cannot be considered as perquisites as per the provisions of section 17(2)(vi) of the Act. Once we come to this conclusion, it is abundantly clear that no TDS is required to be deducted by the employer from such expenditure incurred by the employer for the benefits of the employees. Accordingly, in the present case, we hold that TDS was not required to be deducted by the assessee-company from this expenditure incurred by it on providing uniform, washing charges and washing allowances etc., So this ground of assessee’s appeal is allowed.” 17. Mr. Soparkar has placed reliance on the decision of the Hon’ble Supreme Court in the case ofR & B Falcon (A) PTY. Ltd. v. Commissioner of Income-tax, reported in [2008] 301 ITR 309(SC), more particularly, para-17, which reads as under: “Fringe benefit tax is a new concept. The tax to be levied on the fringe benefit provided or deemed to have been provided by an employer to employees during the previous year is at the rate of 30 per cent on the value of such fringebenefits.Theobjectof O/TAXAP/549/2013 JUDGMENT imposition of the said tax, as is evident from the said circular dated August 29, 2005, was to bring about an equity. The intention of Parliament was to tax the employer who, on the one hand, deducts the expenditure for the benefit of the employees getting the perks are to be taxed, those who get direct or indirect benefits from the expenditure incurred by the employer, no tax is leviable. As stated in the objective, it is for bringing about a horizontal equity and not a vertical equity.” O/TAXAP/549/2013 JUDGMENT imposition of the said tax, as is evident from the said circular dated August 29, 2005, was to bring about an equity. The intention of Parliament was to tax the employer who, on the one hand, deducts the expenditure for the benefit of the employees getting the perks are to be taxed, those who get direct or indirect benefits from the expenditure incurred by the employer, no tax is leviable. As stated in the objective, it is for bringing about a horizontal equity and not a vertical equity.” 18. Mr. Soparkar learned advocate has contended that in view of provisions of section 115WB(E), the welfare of the employees is the liability of the employer and therefore, he has pointed out that the question as envisaged under section 10(14) of the Act, the Tribunal has not opined anything and this Court should only examine whether the TDS is required to be deducted. 19. We have heard Mr. MR Bhatt learned advocate for the appellant-Revenue and Mr. SN Soparkar learned advocate appearing for the respondent-assessee. The facts which emerges from the record is that the respondent is a Government undertaking, operating all over India, and there is nothing on record that this issue had arisen in any State other then the State of Gujarat. In that view of the matter, it is required to be looked very seriously inasmuch as the benefits which are conferred to the other employees of the respondent-company throughout the country are accepted by the Revenue as benefit deductible and has not been considered as part of salary. Since assessee was governed FBT provision and the applicability of provision for salary will not apply and contention raised by assessee is rightly accepted by the Tribunal. 20. We have gone through the provisions of section 12H and benefits which are conferred under section 115WB(2)(E) of the Income Tax Act. While reading clause(E), the provisions of section 17(2)(vi) whether the payment made under FBT is excluded or not, in our view, it is excluded. 21. In that view of the mater, concurring with the view taken by the Tribunal, we answer the question against the department and in favour of the assessee. All these tax Appeals are dismissed. We have not examined the question regarding whether the payment made is exempted under sec. 10(14) or not. (K.S.JHAVERI, J.) mandora O/TAXAP/549/2013 JUDGMENT (K.J.THAKER, J)