Ita/653/2015 Of The Commissioner Of Income Tax v. M/S Symphony Marketing

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 1 DAY OF APRIL 2016 PRESENT THE HON'BLE MR. JUSTICE JAYANT PATEL AND THE HON’BLE MRS. JUSTICE B.V.NAGARATHNA| ITA. No.653/2015 C/W ITA.NOs.654 AND 655/2015 BETWEEN: 1.|THE COMMISSIONBR OF INCOME-TAX, TDS,| NO.59, HMT BHAVAN,| v FLOOR, BELLARY ROAD, GANGANAGAR, BANGALORE —- 560 032. «|THE INCOME-TAX OFFICER(TDS), WAR-18(2), NO.59, HMT BHAVAN, v FLOOR, BELLARY ROAD,GANGANAGAR, BANGALORE —- 560 032.GANGANAGAR, BANGALORE —- 560 032. _. APPBLLANTS COMMON (BY SRI.K.V.ARAVIND, STANDING COUNSEL) AND: M/S.SYMPHONY MARKETINGSOLUTIONS INDIA PVT.LTD.,BLOCK B, SALARPURIA SOFTZONE,BELLANDUR VILLAGE, VARTHUR HOBLI, BANGALORE —- 560 032.PAN: AAKCS 6235N... RESPONDENT COMMON, ‘THESE ITAS ARE FILED UNDER SECTION 260-A OF|INCOMETAXACT1961,ARISING.OUTOF.ORDER.DATED:24/07/2015PASSED|IN|ITA|NOs.874/BANG/2014,1292/BANG/2014 AND 1586/BANG/2014 RESPECTIVELY, FOR.THE ASSESSMENT YEARS 2009-2010, 2010-11 AND 2011-2012.RESPECTIVELY, PRAYING TO 1. FORMULATE THE SUBSTANTIALQUESTIONS OF LAW STATED ABOVE. 2. ALLOW THE APPEALSAND SET ASIDE THE ORDERS PASSED BY THE IIAT,BENGALURU IN ITA NOS.874/BANG/2014,1252/BANG/2014ANT)1586/BANG/2014RBESPBRCTIVELDATD:24/07/2019CONFIRMING THR ORDER OF THE APPELLATE COMMISSIONER|AND CONFIRM THR ORDER PASSED BY THE INCOME TAX)OFFICER(TDS), WARD-18(2), BENGALURU. THESE APPEALS COMING ON FOR ADMISSION THIS|DAY,JAYANT PATEL J.DELIVERED THE FOLLOWING: | JU DBiGMENT All these appeals are preferred by the Revenue byraising following substantial questions of law:- “1 Whether on the facts and in thecircumstances of the case, the Tribunalis right in law in relying on thecircularsNo.33(LXXX-VI-5)dated|01/08/1955 and No.Q/FD/695/1/90—dt:11/11/1996 issued by Ministry ofExternal Affairs when these circularsare not applicable in toto to the presentcase and do not fall into the category of the allowances covered under these!circulars?” 2. “Whether on the facts and in thecircumstances of the case the Tribunal.is right in law in relying on the decision|of the Tribunal, Kolkota bench in the.case of Saptarshi Ghosh?” 3. “Whether on the facts and in thecircumstances of the case the Tribunal|is right in law in holding that per-diem|allowance paid to the employees as a)part of the salary is not liable to TDS)under section 192°?” 2 |We have heard Mr.K.V. Aravind, learnedcounsel appearing for the appellants. 3.|We may record that the Tribunal in theimpugned order while considering aforesaid aspect hasobserved at paragraphs 4.3.1 to 4.3.3 as under:- “4 3.1 We have heard the rival submissions andperused and carefully considered the material onrecord; including the judicial pronouncements andGovt. of India Circulars cited and referred to. Thefacts of the matter in respect of payment of perdiem by the assessee to its employees traveling forbusiness/official trips to USA and Europe @ $ 50and $ 75 respectively to cover actual expenses ofmeals, travel, laundry and other miscellaneousexpenses etc. are not disputed and the contrastingviews of both the assessee and the AssessingOfficer thereon; as to the same being reasonableand exempt under Section 10(14) of the Act orliable to deduction of tax under section 192 oft theAct have been laid out briefly at paras 2.1 to 2.3 ofthis order (Supra). 4.3.2. We find that the learned CIT (Appeals)’s intheir.impugnedorders|hadconsideredthedecisions of the ITAT, Kolkata Bench in the case ofsaptarshi Ghosh (supra) and decision of theMumbai Bench of the ITAT in the case of MadanlalMohanlal Narang(supra) wherein it was held thatit is not open to Revenue to call for details ofexpenditureincurred|unless.theperdiem 4.3.2. We find that the learned CIT (Appeals)’s intheir.impugnedorders|hadconsideredthedecisions of the ITAT, Kolkata Bench in the case ofsaptarshi Ghosh (supra) and decision of theMumbai Bench of the ITAT in the case of MadanlalMohanlal Narang(supra) wherein it was held thatit is not open to Revenue to call for details ofexpenditureincurred|unless.theperdiem allowancepaid1Sdisproportionatelyhighcompared to the salary received or with regard tothe duties performed by the employee. In thecontext, the learned ClIT(Appeals)’s also examinedthe Circular No.Q/FD/699/1/90 dt.11.11.1996and Circular No.Q/FD/695/2/2000 dt/21.9.2010issued by Ministry of External Affairs, Govt. ofIndia and came to the conclusion that the perdiem allowance of $ 50 to $ 75 paid by theassessee to its employees on official trips to USAand Europe to be reasonable and that the samewould be covered as exempt under Section 10(14)of the Act. In the impugned order for AssessmentYear 2009-10 dated.25.9.2014, the last of theimpugned orders to be passes, the learnedClIT(Appeals) held as under at 3 to 5 as under:- “3.0 I have carefully considered the facts,the appellant’s submissions and perused the|impugned order. I agree with the argument of|Id. A.R. that the per diem allowance paid to itsemployeesqualifiesfor.exemptionundersection 10(14)(i1) of the Act r.w. Rule 2BB(1). Clause (b) of Rule 2BB(1) refers to any|allowance to meet the ordinary daily charges|incurred by an employee on account of absencefrom normal place of duty. There is no|monetary limit prescribed and hence unless|such allowance is) said to be fictitious or abnormally high or otherwise taxable in the|hands of the employee, no liability could be|fastened under Section 192 on the employer to deduct tax on such allowance. Moreover, it isalso not possible to collate bills for every|minuscule expenses and mere non-collation ofbills in support of amount expenses cannot|prevail over the fact of incurring such expenses. |It is found that the Assessing Officer has not|gone through the CBDT Circular wherein it is clarified that where specific allowances are|reasonable with reference to the nature of the|duties performed by the employee and are not|disproportionately high compared to the salary|received by him, no attempt will ordinarily be|made to call for details of expenses actually|incurred by him with a view to disentitling himto some extent from the exemption. 3.1)Useful reference could also be made to the.following decisions: 1.CIT Vs.L&TLtd(2009)313 ITR 1(SCO2 |CITVs ITILtd(2009)221CTR1(SC)6093.|CIT Vs.Gostino Mario & Others 241)ITR 312(SC) 4CIT Vs.Micro Land Ltd.(2010)323|ITR 670 (Karnataka) To the question as to whether assessee-|employer is bound to collect and verify proot otjourney and actual expenditure incurred for|section 10(5) before granting exemption under|that provision, it was held by the Hon’ble|Courts that there is no such requirement in thelaw. The provision of section 10(14) and 10(5)| are somewhat pari material, in the sense that|proviso to section 10(5) also puts a ceiling that|such allowance shall not exceed the actual|expenditure. In any case, the allowance cannot|be denied exemption under section 10(14) and|assessee-employer said to be in default for|failure to deduct tax on the ground of absence|of proof of such actual expenses on food, travel,laundry incurred by the employees, while|performing duties in a foreign country. 3.2)In view of the above reasons, alsoaccepted in case of appellant for Assessment|YCalAO 11-12(appellateorder.dated17.10.2013) where it was held that the per'diem allowance is reasonable at $ 50 to $ 75 for|the US and Europe, and would be covered|under Section 10(14). The appellant could not|be said to be indefault within the meaning ofsection 201(1) for not including such attempt|allowance for the purpose of section 192. The|Assessing Officer is directed to exclude such|amounts of per diem allowances form the|amounts liable to TDS under Section 192.Appellate Grounds of appeal (No.1.1 to 1.4) on|the issue are allowed. 3.2)In view of the above reasons, alsoaccepted in case of appellant for Assessment|YCalAO 11-12(appellateorder.dated17.10.2013) where it was held that the per'diem allowance is reasonable at $ 50 to $ 75 for|the US and Europe, and would be covered|under Section 10(14). The appellant could not|be said to be indefault within the meaning ofsection 201(1) for not including such attempt|allowance for the purpose of section 192. The|Assessing Officer is directed to exclude such|amounts of per diem allowances form the|amounts liable to TDS under Section 192.Appellate Grounds of appeal (No.1.1 to 1.4) on|the issue are allowed. 4The other ground (No.2) of appeal raisedis with regard to levying of interest under|section 2O1(1A), amounting to Rs.12,93,117/relating to default under Section 20O1(1) rws192. Since, the assessee has been held to be|not in default under section 201(1) with regard|to the per diem allowances paid the interest|under Section 2O1(1A) is also held to be not|chargeable, and hence deleted. 5As a result, the appeal is allowed.” 43.3Before us, except for raising theerounds of appeal and supporting the views of theAssessing Officer, which are not tenable in thelight of the judicial pronouncements of theTribunal and the Circulars of Ministry of ExternalAffairs, Govt. of India referred to above, Revenuehas not been able to controvert the findings in theimpugned orders of the learned CIT (Appeals)’s.Following the decision of the Hon'ble ITAT, KolkataBench in the case of Saptarshi Ghosh (supra)wherein it has been held that there is norequirement for the assessee-employer to collectand verily the proof of journey, actual expenditureincurred in respect of per diem allowance andfurther that it is not open to revenue to call fordetails of expenditure unless the allowances arehighly disproportionate or ureasonable to thesalary received or nature of duties performed. Wealso concur with the findings of the learnedClT(Appeals) that, in the lght of the circularsissued by the Ministry of External Affairs, Govt. ofIndia dated 11.1996 and 21.9.2010(supra), the perdiem allowance of $ 50 to $ 75 paid to employeeson their official trips to USA and Europe are reasonable and would be exempt under Section10(4) of the Act. In this view of the matter, weuphold the decisions of the learned ClIT(Appeals),that since the assessee has been held to be not indefault under Section 201(1) of the Act with regardto per diem allowances paid, interest undersection 2ZO1(A) of the act is also consequently notchargeable. Consequently, the Grounds at S.Nos.1 to 4 raised by Revenue are rejected for all threeAssessment Years 2009-10 to 2011-12.” 4The aforesaid shows that the Tribunal has|followed its earlier judicial pronouncement of KolkataBench and has also considered circulars issued by theMinistry of Extental Affairs, Government of Indiainstructing that if the amount which is stated to havebeen paid as per diem allowance was not highlydisproportionate or not unreasonable, the furtherverification of the actual expenditure is not to beconsidered. The resultant effect is that the amount is tobe treated as by way of reimbursement of expenses. 5Mr. Aravind, learned counsel appearing forthe appellant, raised the contention that as per Section17(1)(iv) of the Income Tax Act, 1961, (‘the Act’ forShort) the amount would fall in the category ofperquisites in addition to the salary or wages andtherefore, the TDS was deductable. However, when he)was contronted with the nature of the amount as to'whether such amount is taxable or not, he submitted|that as per Section 10(14) if it is by way ofreimbursement, such amount would not be taxable. —But it is his submission, the payment made cannot betreated as reimbursement because it is paid withoutverification of the expenses already incurred by theemployee concerned. 6. section 10(14) of the Act reads as under:- (14)(ijJany such special allowance or benefit,not being in the nature of a perquisite within themeaning of clause(2) of section 17, specificallysranted to meet expenses wholly, necessarily and 6. section 10(14) of the Act reads as under:- (14)(ijJany such special allowance or benefit,not being in the nature of a perquisite within themeaning of clause(2) of section 17, specificallysranted to meet expenses wholly, necessarily and exclusively incurred in the performance of theduties of an office or exployment of profit, |as maybe prescribed], to the extent to which suchexpenses are actually incurred for that purpose; (lijany|such.allowanceerantedCO the.assessee either to meet his personal expenses atthe place where the duties of his office oremployment of profit are ordinarily performed byhim or at the place where he ordinarily resides, orto compensate him for the increased cost of living,las may be prescribed and to the extent as may beprescribed]:| OProvided|that nothing in sub-clause(ii) shallapply to any allowance in the nature of personalallowance granted to the assessee to remunerateor compensate him for performing duties of aspecial nature relating to his office or employmentunless such allowance is related to the place of hisposting or residence;| The aforesaid shows that if any allowance or benefit not being in the nature of perquisite is granted to meet the expenses wholly, necessarily or exclusively incurred inperformance of duties, to the extent to which suchexpenses are actually incurred would fall in the saidcategory. It is the case of the assessee that the paymentwas not made as an allowance on par with theperquisites, but the case of the assessee was that thepayment was made to meet the expenses incurred. —When the payment is made to meet the expensesincurred and when not taxable under Section 10(14) ofthe Act merely because the actual expenses were notverified, the character or nature of the payment wouldnot be changed so as to include under Section 17(2) ofthe Act. On the aspects of verification, the Tribunal hasrelied upon not only its own decision but has furtherrelied upon the circular issued by the Ministry. TS|In view of the above, we do not find, anysubstantialquestionoT|law,wouldarise for B>:,<6142/<>:��2,�B2:92,,16���1:B1��2..�/01�23312.,�241� 6<,C<,,16����������+$-�������������������������������������������+$-������������������������������������Q2.7(���