The Commissioner Of Income Tax – Tds, Mumbai v. Bharat Bijlee Company Limited

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.5532 OF 2010 The Commissioner of Income Tax – TDS, Mumbai..Appellant. Versus Bharat Bijlee Company Limited..Respondent. Mr.Suresh Kumar for the appellant.Mr.S.N. Inamdar with Mr.Mihir Naniwadekar for the respondent. CORAM : J.P. Devadhar &K.K. Tated, JJ. P.C. : DATE : 8th September 2011 1.Whether on the facts and in the circumstances of the present case, the Income Tax Appellate Tribunal was justified in holding that the amount of gratuity and leave encashment paid by the assessee to its employees on their voluntary retirement without deducting tax at source did not attract the provisions of Section 201 of the Income Tax Act, 1961 is the question raised in this appeal. 2.The assessment year involved herein is AY 2003-04. of electric motors, transformers etc. During the course of survey, it was noticed that 14 employees of the assessee had taken voluntary retirement during the year. Out of the 14 employees who took voluntary retirement, 10 employees were re-employed on the very next day. According to the assessing officer, the voluntary retirement and the immediate re-employment was a device adopted with malafide intention to avail the benefit of Section 10(10) and 10(10AA) of the Income Tax Act, 1961 on the amount of gratuity and leave encashment paid by the assessee to its employees on voluntary retirement. Appeal filed by the assessee was dismissed by the Commissioner of Income Tax (Appeals). On further appeal filed by the assessee, the Income Tax Appellate Tribunal has allowed the claim of the assessee. Challenging the order of the Income Tax Appellate Tribunal, the Revenue has filed the present appeal. 4.It is not in dispute that the assessing officer had disallowed the benefits of Section 10(10) and 10(10AA) of the Act to the employees who had received gratuity and leave encashment amount on voluntary retirement on the ground that the voluntary retirement was taken with malafide intention. However, the Income Tax Appellate Tribunal has disagreed with the assessing officer and held that there was no malafide intention and, therefore, the employees are entitled to the benefits of Section 10(10) and 10(10AA) of the Act. That order of the Income Tax Appellate Tribunal has attained finality. Thus, the amount of gratuity and leave encashment paid by the assessee being exempt from tax in the hands of the employees, the question of deducting tax at source while making payment to the employees did not arise and consequently, the assessee could not be subjected to the consequences provided under Section 201 of the Act. 5.In these circumstances, in our opinion, the Income Tax Appellate Tribunal was justified in holding that the assessee bona fide believed that the amount of gratuity and leave encashment paid to the employees were not liable to tax and, therefore, for not deducting tax at source while paying gratuity and leave encashment amount, the assessee cannot be subjected to the consequences under Section 201 of the Act. 6.In the result, we see no merit in the appeal and the same is hereby dismissed with no order as to costs. (K.K. Tated, J.) (J.P. Devadhar, J.)