IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH ‘B’, CHANDIGARH
BEFORE Ms. SUSHMA CHOWLA, JUDICIAL MEMBER
AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER
ITA Nos.1331 to 1333/Chd/2010
(Assessment Years : 2007-08 to 2009-10)
The A.C.I.T.(TDS-I),
Chandigarh.
Vs.
M/s Chandigarh Industrial & Tourism
Corp. Ltd., SCO 121 -22
Sector 17-B, Chandigarh.
PAN: PTLC10783D
(Respondent)
(Appellant)
Appellant
by
Respondent by
:
:
Smt.Jaishree Sharma, DR
Shri B.M.Khanna
Date of hearing :
Date of Pronouncement :
4.10.2011
21.10.2011
O R D E R
Per SUSHMA CHOWLA, J.M. :
These three appeals by the Revenue are against the consolidated
order of the Commissioner of Income Tax (Appeals) , Chandigarh dated
2 3 . 0 7 . 2 0 1 0 r e l a t i n g t o a s s e s s m e n t ye a r s 2 0 0 7 - 0 8 t o 2 0 0 9 - 1 0 a g a i n s t t h e
order passed u/s 201 (1) and 201(1A) of Income Tax Act, 1961.
2.
All the three appeals filed by the Revenue relating to the
same assessee on the same issue were heard together and are being
disposed off by this consolidated order for the sake of convenience.
3.
The only ground of appeal raised by the Revenue in all the
appeals is as under :
“On the facts and circumstances of the case, the
Ld. Commissioner of Income Tax (Appeals) has erred
in treating the CITCO employees covered by section
17(2) of the I.T. Act, 1961 read with clause 1 of the
Rule 3(1) of the I.T. Rules, 1962.”
4.
The brief facts relating to the issue raised in the present
appeal are that survey/inspection u/s 133A of the Income Tax Act
was conducted at the premises of the assessee in Chandigarh on
2
9,10,11 and 14.12.2009.
During the course of inspection it was
noticed that the person responsible was not deducting tax at source
on the perquisite value of the gift of Rs.9000/ - per employee given
at
the
time
of
Diwali
festival
which
perquisite u/s 17(2) of the Act.
was
not
considered
as
The assessee corporation was
having a head office at Chandigarh address and was running three
hotels i.e. Hotel Shivalik View, Hotel Park View and Hotel Mount
View.
The said gift in cash of Rs.9000/- was given to all the
employees of all the four units of the assessee corporation.
The
Assessing Officer issued show cause notice to the assessee in this
regard.
In reply, the assessee claimed that the said expenditure
was booked under the head ‘staff welfare’.
It was further claimed
that where the payment/gift made to the employees was purel y
voluntary and gratuitous, the gift money would not be liable to tax
as salary and hence no question of TDS on perquisite would arise.
Reliance was placed on the judgment of Hon'ble Supreme Court in
C.Lakshmi
Raj yan
Vs.
CIT
[40
ITR
340(SC)] .
The
second
contention of the assessee was that where voluntary pa yment was
made by an employer on account of personal consideration without
the employee having vested right in such payment, it was held by
the
Delhi
Tribunal
in
Deepak
Verma
Vs.
DCIT
[22
SOT
345
(Delhi)] that the same could not be regarded as salary/profits in
lieu of salary and hence was not taxable.
The Assessing Officer
observed that the cash gift of Rs.9000/ - per employee given by the
employer was taxable under the provisions of section 17(2)(vi) of
the Act read with Rule 3(7)(iv) of Income Tax Rules.
Accordingl y,
the Assessing Officer treated the assessee to be in default and as
per
the
tabulation
vide
Annexure-A
in
respect
of
each
of
the
employees for three years under consideration, the assessee was
3
held
liable
to
pay
the
under-mentioned
additional
taxes
and
interest:
Assessment Year
Tax u/s 201(1)
Interest u/s 201(1A)
2007-08
2008-09
2009-10
Rs.5,31,769/Rs.8,61,073/Rs.3,41,184/-
Rs.1,86,121/Rs.1,98,047/Rs. 37,826/-
5.
The CIT (Appeals) noted from the Minutes of Meeting placed
on record that the Board of Directors had took note of the fact that
the
profits
measure
of
of
the
staff
business
welfare
had
to
increased
significantly
commensurate
with
the
and
as
profits
generated by the assessee, payment of Diwali gift @ Rs.9000/ - per
employee
was
approved
by
the
Board
of
Directors.
The
CIT
(Appeals) further observed that the said Diwali gift could not be
connected with the employment and was voluntary payment of the
assessee out of personal gratuitous
reasons.
The CIT (Appeals)
further observed that the said payment was not sanctioned by the
terms of employment and, therefore, the employees did not have
vested right in the same, as Diwali gift was never a condition
precedent to the employment or to compensate the assessee for the
services rendered as an employee, the same was held to be not
taxable. The CIT (Appeals) further held as under :
“The perusal of this paragraph clearly shows
that perquisites which are provided by the employer
to the employee by reason of his employment will be
covered under Rule 3 of the Income Tax Rules, 1962.
As discussed above, Diwali Gi ft was not granted by
the Appellant by reason for employment, it was totally
voluntary and was granted on account of personal
consideration without the employee having a vested
right in such payment. As per the settled principle of
law any voluntary payment which is granted on
account
of
personal
consideration
without
the
employee having a vested right in such payment and is
unconnected with the employment is a capital receipt
and hence not taxable. The provision of Section 17(2)
of the Income Tax Act applies only when the
4
‘perquisites are part of the employment and if
perquisites are not part of the employment and are
unconnected with the employment and if the employee
has no vested right in such perquisites, such
perquisites cannot be taxed.
The Assessing Officer
failed to establish that the employees of the Appellant
had vested right in such payments and that these were
in any way connected with the employment. Since
Diwali Gift was paid by the Appellant to the
employees amounting to Rs.9,000 each in cash, such
payment will be treated as gift in the hands of the
employees and such gifts being unconnected with the
employment will be dealt with by the provisions of
Section 56 (1)(vii) of the Income Tax Act, 1961. As
per Clause (a) of Section 56(1)(vii), s ince the value
of Diwali Gift was Rs.9,000/ - in the hands of each
employee, such Diwali Gift will also not be taxable
under Chapter IV-F, being less than Rs.50,000/ 6.
The learned D.R. for the Revenue stressed that under the
provisions
of
Rule
3(7)(iv)
of
the
Income
Tax
Rules
the
gift
received by employee from the employer on any occasion is to be
included as a perk.
It was further pointed out by the learned D.R.
for the Revenue that under the provisions of section 17(2)(vi) of
the Act the rule prescribed there-under was Rule 3(7(iv) of Income
Tax Rules.
7.
of
The learned A.R. for the assessee placed reliance on the order
the
CIT
(Appeals),
referred
to
the
provisions
of
section
17(2)(iv) of the Income Tax Act and stressed that there was no
obligation on th e employer to make the aforesaid Diwali gift of
Rs.9000/-.
It was also stressed that the employee had no vested
right in the said Diwali Gift.
Reliance was placed on the ratio laid
down in CIT Vs. Lala Shri Dhar [84 ITR 192(Del)], CIT Vs. Vinay
Bharat Ram [129 ITR 128(Del)] and CIT Vs. Harnandraj Shrikishan
Akodia [61 ITR 50 (MP)].
The learned A.R. for the assessee
stressed that under Chapter-12 the provisions are laid down for
collection and recovery of tax and the same is not charging section.
5
8.
We have heard the rival contentions and perused the record.
The
issue
arising
in
the
present
appeal
is
in
respect
of
the
inclusion of perquisite value of Diwali gift given by the employer
to its employee .
The assessee corporation is running three hotels
i.e. Hotel Shivalik View, Hotel Park View and Hotel Mount View
alongwith head office at Chandigarh address.
The profits of the
assessee corporation had increased significantly and in order to
commensurate the said profits generated with the contribution of
the employees, decision was taken to provide for Diwali gift @
Rs.9000/-
per
employee.
The
employee
was
irrespective
of
expenditure
was
booked
said
the
by the
payment
rank
of
assessee
of
the
Rs.9000/-
employee.
under
the
per
The
head
‘staff
welfare’ as the same has no connection with the employment and
was a voluntary payment by the assessee out of personal gratuitous
reasons.
The
said
payment
was
not
linked
with
the
terms
employment of the employees of the assessee corporation.
of
The
issue arising before us is whether the same constitutes perquisite in
hands
of
the
employee
and
consequently tax
was
liable
to
be
deducted at source out of such payment. Section 17(2) of the Act
defines perquisite to include certain items as part of salary .
As per
clause (vi) to section 17(2) of the Act the value of any other fringe
benefits and amenities excluding the fringe benefits chargeable to
tax under Chapter-XII-H, as may be prescribed, is to be included in
the hands of the assessee as perquisite u/s 17(2) of the Act.
The
rules in connection with the perquisite value of which is included
as part of salary are prescribed under Rule 3 of the Income Tax
Rules.
Sub-rule (7) to Rule 3 of Income Tax Rules prescribes the
fringe
benefits
or
amenities
to
be
included
provisions of section 17(2)(vi) of the Act.
in
view
of
the
The said Rule 3 has
6
undergone repeated amendments.
respect
of
assessment
years
The assessee is in appeal in
2007-08
to
2009-10.
During
the
relevant period Rule 3(7) of Income Tax Act Rules had limited
operations in respect of the fringe benefits.
As per clause (i) the
value of benefits of interest free or concessional loans are to be
determined, as per clause (vii) value o f benefits of certain movable
assets was to be included and as per clause (viii) va lue of benefits
arising
from
transfer
of
any
movable
asset
belo nging
to
the
employer to the employee was to be included as fringe benefits or
amenities provided by the employer or employee.
Clause (ii) to
(vi) of Rule 3(7) were omitted of the I.T. ( Seventh Amendment)
Rules, 2005 w.e.f. 1.4.2005. Clause (iv) to Rule 3(7) before its
amendment provided the procedure for including the value of any
gift or voucher or token in lieu of such gift in the hands of the
assessee where the value of such gift exceeded R s.5000/-.
Further
Rule 3 has been amended by way of substitution by I.T. (Thirteenth
Amendment) Rules 2009 w.r.e.f. 1.4.2009.
Under Rule 3(7) the
benefits or amenities in terms of section 17(2) (vii) of the Act have
been provided and as per clause (iv) value of any gift or voucher or
token in lieu of such gift received by the employee or the member
of his household on ceremonial occasion or otherwise is includible
as a perquisite in the hands of the employee.
Section 17(2) of the
Act defining perquisite has also undergone amendment under which
sub-clause (vi), (vii) and (viii) were substituted for sub -clause (vi)
by the Finance (No.2) Act 2009 w.e.f. 1.4.2010.
to
section
17(2)
includes
the
value
of
any
Sub -clause (viii)
other
benefits
or
amenities as may be prescribed as a perquisite in the hands of the
employee.
Reading the two provisions of the Act and the Rule in
conjunction, we find that under Rule 17(2)(vi) of the Act, the
7
provisions in existence during the assessment years 2007 -08 to
2009-10,
the
value
of
such
fringe
benefits
or
amenities
as
prescribed under Rule 3 is to be treated as perquisite in the hands
of the assessee. The perquisites are defined under Rule 3 and at the
relevant time the gift or voucher was not one of the prescribed
benefits or amenities under Rule 3 (7) of the Act.
The said value
of the perquisite on account of gift or voucher was prescribed
under Rule 3 (7) of the Income Tax Rules which was omitted by
I.T.(Seventh
Amendment)
Rules,
2005
w.e.f.
1.4.2005.
The
substitution of the said Rule 3 is by retrospective effect from
1.4.2009
by
I.T.
(Thirteenth
Amendment)
Rules,
2009.
The
captioned years in appeal before us are relating to assessment years
2007-08 to 2009-10 and in the absence of any prescribed rules
under Rule 3(7) of the Act the amenities provided by the employer
i.e. the assessee before us to its employee b y way of Diwali gift is
not to be treated as a perquisite in the h ands of the employees.
Consequently, there is no requirement of tax deduction at source
out of such payments to the employees.
The assessee thus cannot
be held to be in default on such non deduction of tax at source out
of payment of Rs.9000/ - per employee on account of Diwali gift.
We are not addressing the issue whe ther the said Diwali gift fall
within the ambit of gift as per Rule 3(7)(iv) /(vi) (substituted) of
I.T. Rules in view of the provisions being not on the statute at the
relevant time. The assessee accordingl y, is not liable to pay any
tax u/s 201(1) or interest
u/s 201(1A) of the Act in
the captioned
8
assessment
years.
accordingly.
The
Assessing
Officer
is
thus
directed
The grounds of appeal raised by the Revenue are
allowed.
9.
In the result, the appeals in ITA Nos.1331 to 1333/Chd/2010 are
allowed.
Order pronounced in the open cou rt on this 21st
day of October,
2011.
Sd/-
Sd/-
(MEHAR SINGH)
ACCOUNTANT MEMBER
Dated
*Rati*
21 s t
(SUSHMA CHOWLA)
JUDICIAL MEMBER
October, 2011
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The D R.
True Copy
By Order
Assistant Registrar, ITAT, Chandigarh
9
True Copy
By Order
Assistant Registrar, ITAT, Chandigarh