Tax Appeal Nos. 519 and 531 of 2013

M.R. SHAH AND MS. SONIA GOKANI, JJ.

M.R. Bhatt and Mrs. Mauna M. Bhatt for the Appellant.
S.N. Soparkar and B.S. Soparkar for the Respondent.

JUDGMENT

Ms. Sonia Gokani, J.- These appeals are preferred by the Revenue challenging the order of the Income-Tax Appellate Tribunal, Ahmedabad (hereinafter referred to as 'the Tribunal') dated January 11, 2013.

2. Since all these appeals raise identical questions of law, they are being decided by this common order and the facts wherever necessary for adjudication of these appeals shall be drawn from Tax Appeal No.519 of 2013.

3. A survey was conducted under section 133(A) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') at the premises of the respondent-Oil and Natural Gas Corporation Ltd. (hereinafter referred to as 'the ONGC) at Vadodara and Ankleshwar. On examination of salary slips of employees of the respondent-assessee, it was noticed that the respondent-assessee was paying substantial amount in terms of money in the name of non-taxable allowances, which were not reflected in Form No.16 nor was any value of the same reflected in Form No.12BA (perquisite form) forming part of Form No.16. It was noticed during the course of verification that the respondent-assessee paid uniform allowance and conveyance maintenance reimbursement expenditure (hereinafter referred to as 'the CMRE'); and while computing the Tax Deducted at Source (TDS) from the payment of salary of its employees, the amount attributable to the payment of these allowances/perquisites was not considered. It was noticed by the Assessing Officer that the payment of CMRE was done on monthly basis along with the salary and the quantum of such CMRE ranged from Rs.4455/- per month to Rs.18,330/- per month, based on the class of the employee.

3.1 This was treated as the additional salary in the form of allowance by the Assessing Officer within the meaning of provision of section 17(1)(iv) of the Act and was held liable to be taxed as salary income. The respondent-assessee did not deduct TDS from the payment of this amount. The respondent-assessee was treated as an assessee in default under section 201(1)/201(1A) of the Act and the order was passed raising a huge demand in respect of CMRE.

3.2 During the course of verification, it was also noticed by the Assessing Officer that the scheme named 'Holiday Homes' floated for the benefit of employees, was also in vogue. The employees were entitled to holidays anywhere in India as well as at abroad for a maximum period of 10 days in a block of two years or every year for maximum of five days. They were granted reimbursement at the rate of full daily allowance, as also the paying guest charges as admissible, regardless of the fact they stayed at hotel or made their own arrangement. This was held to be non-official and private visit and, therefore, was considered to be in the nature of salary of the employees taxable under section 17(1)(iv) of the Act. It was also held to be exempt under section 10(14) of the Act and, accordingly, the Assessing Officer held that non-deduction of TDS would attract proceedings under section 201(1) and section 201(1A) of the Act and the demand of huge amount was raised for the respective years.

3.3 Aggrieved by such order of the Assessing Officer, the respondent-assessee preferred an appeal before the Commissioner of Income-tax (Appeals), Vadodara and the CIT (Appeals) on November 16, 2011 decided both the issues in favour of the respondent-assessee.

3.4 Aggrieved by the same, the Revenue challenged the decision of the CIT (Appeals) before the Tribunal, which confirmed the order of the CIT (Appeals) in respect of both these issues and, therefore, aggrieved by this decision of the Tribunal, the present set of appeals have been preferred for different assessment years raising the following substantial questions of law for our consideration :
"(B) Whether the Appellate Tribunal has substantially erred in holding that the payment of conveyance maintenance reimbursement expenditure (CMRE), to the employees by the assessee is liable for fringe benefit tax (FBT) and by holding so, it overlooked the fact that the payment of CMRE 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 sec. 192 of the I. T Act ?

(C) Whether the Appellate Tribunal has substantially erred in holding that payment under holiday home scheme to the employees for non official and private purpose is liable for fringe benefit tax (FBT) and also not a prescribed Fringe Benefit u/s.17(2)(vi) and by holding so it overlooked the fact that such payment was nothing but additional salary paid in the form of scheme within the meaning of section 17(1)(iv) attracting the TDS provisions of sec.192 of the I.T. Act ?"

4. We have heard Mr. M.R. Bhatt, learned Senior Counsel appearing with the learned advocate Mrs. M.M. Bhatt for the Revenue, who has fervently argued and urged that mere payment of Fringe Benefit Tax (hereinafter referred to as 'the FBT') by the respondent-assessee would not absolve the respondent-assessee of deducting the TDS, if the amount paid to the employees fall under section 17(1)(iv) of the Act. It is abundantly clear that the manner in which the scheme of CMRE is worked out, it is an additional amount which is a part of salary and not the perquisite. He further urged that the Tribunal has not discussed anything as to whether this would fall under the salary or a perquisite and straightway endorsed the decision of the CIT (Appeals), which is like abdicating one's authority.

4.1 As regards 'Holiday Home Scheme' also, the learned Senior Counsel for the Revenue has urged that the Tribunal has committed an identical error in stamping the order of the CIT (Appeals) without independently opining on the subject and, therefore, this is a clear case where this Court needs to intervene. He also urged that the issue is larger, where this Court also needs to consider that in the event the FBT is paid by the respondent-assessee as an employer, can the respondent-assessee be absolved from its onus from deducting the TDS, if otherwise these amounts are a part of the salary paid to the employees.

5. Per contra, Mr. S.N. Soparkar, learned Senior Counsel appearing with the learned advocate, Mr. B.S. Soparkar for the respondent-assessee, fervently argued and urged that as far as the first question is concerned, it is covered by the decision of this Court in the case of CIT v. Oil & Natural Gas Corpn. Ltd. (ONGC) [2002] 254 ITR 121/125 Taxman 698, whereby it is held that the FBT is an additional angle which would not preclude this Court from considering the fact that the issue is already covered by the decision of this Court. He has also urged that the only question this Court needs to examine is whether they are taxable receipts as it is not the question of payment of tax by the assessee, but deducting the TDS. Again, the FBT once already paid, the assessment in that respect when already admitted, there is no question of either attracting any penalty or any default or wilful default on the part of the respondent-assessee. He urged the Court that with regard to 'Holiday Home Scheme' also, only on certification by the higher officials on availment of such benefit, the allowances are being parted with. This is clearly falling under the perquisite and can, in no manner, be said to be a part of salary under section 17(1)(iv) of the Act; and when both the CIT (Appeals) and the Tribunal have held in favour of the respondent-assessee, no interference is required by this Court. Mr. Soparkar has also relied upon the decision rendered in the case of CIT v. Larsen & Toubro Ltd. [2009] 313 ITR 1/181 Taxman 71 (SC), wherein it is held that no evidence is to be collected by the employer for deciding individually the claim of every employee in absence of any such requirement.

6. Upon thus hearing both the sides and on close examination of materials on record as also considering the case laws on the subject, for the reasons to follow hereinafter on each issue raised by the Revenue, we are of the opinion that the Tax Appeals deserve no entertainment.

6.1 As far as first issue of CMRE is concerned, the order dated October 24, 2008 of the respondent-ONGC in respect of the scheme of CMRE, concerning the amount of money payable to the employees, depending upon their status/ designation is as follows :

"Sub: Revision of rates of Conveyance Maintenance Reimbursement Expenditure (CMRE)

In super session to this Office Order of even No. dated 18.9.2008, the issue regarding revision of rates of conveyance maintenance reimbursement expenditure (CMRE) was further discussed in 336th meeting held on 22.10.2008 at New Delhi. It has been decided with the approval by EC to revise the existing rates of conveyance maintenance reimbursement expenditure (CMRE) for E01/SI & E1/S11 level employees drawing basic pay from Rs. 12,000/- to Rs. 14,249/- and E-3/E-4 level executives as under :

* This includes reimbursement of Rs.6000/- p.m. towards subsidy, subject to self clarification by the concerned officer that he was not availing the facility of staff car.

2. In addition to above rates of CMRE, employees (Executives/ Nonexecutives) shall be paid Transport Allowance as provided in Office Order (11/2006) No.18(7)/2005-CMRE/CP dated 13.2.2006, at following rates, as is being paid at present :

3. Other terms and conditions of Conveyance Maintenance Reimbursement Expenditure (CMRE), scheme shall remain unchanged.

4. This order shall be effective from 01.09.2008."

6.2 The employer respondent-ONGC paid the CMRE allowance to all its employees as per their status and designation and treated the same as non-taxable income. The FBT also has been paid on these allowances by the respondent-assessee. The Assessing Officer noted that the TDS provisions are attracted inasmuch as the amount is a part of salary income and mere payment of FBT on CMRE would not extinguish the liability of the respondent-assessee of deducting the TDS. When the judgment of this Court rendered in the case of the very respondent-assessee was shown to the Assessing Officer, he was of the opinion that it has lost its relevance as the CMRE has been treated as perquisite by the respondent-assessee.

6.3 The CIT (Appeals) has held that CMRE was granted to the employees towards running and maintenance expenditure of their personal vehicles for using such vehicles for official work and the same has been paid upto the ceiling prescribed for different employee grades and on the basis of a declaration made by the employee every month in respect of expenditure incurred in the declaration for running and maintenance of the vehicle for official work. On the basis of such declaration, CMRE at fixed rates has been paid.

6.4 The Tribunal also took into account the FBT under clauses (F) and (H) of section 115WB(2) of the Act and held that the decision of the Gujarat High Court rendered in the case of ONGC (supra) would cover the issue in favour of the respondent-assessee. The Tribunal was of the opinion that the CIT (Appeals) correctly appreciated the issue. It has held thus :

"18. We have considered the rival submissions and perused the material on record and gone through the orders of authorities below. We find that this issue was decided by Ld.CIT (A) as per para-3.3 of his order, which is reproduced:

3.3 I have considered the submission of the learned Authorized Representative, Remand Report of learned ACIT and reply of remand report of authorized representative and further considering the arguments of both the appellant and respondent and facts of the case. It is seen that the Conveyance Maintenance Reimbursement (CMRE) scheme was introduced in ONGC to reimburse to employees the expenditure incurred by them on maintenance and use of their own vehicles in the performance of official duties and thereby reduce pressure on ONGC vehicles and maintenance cost thereof thus saving a portion of expenditure, which otherwise could have been borne by the appellant. The CMRE is not blanket payment, but the reimbursement is for the actual amount incurred in maintaining and running the vehicle restricted to maximum amounts per month fixed by ONGC, taking various parameters into account. Each employee is required to submit his claim on monthly basis for reimbursable running & maintenance expenditure incurred in the preceding month, in the prescribed form. The claims are submitted by employee on line by making necessary entries in the appellant's computerized system. It is also not true that all employees automatically become eligible for receiving CMRE payments. Rather, CMRE is allowed only to those employees in respect of whom permission is granted by a competent authority to, do so after applications are made by the employee's controlling officers, on a thorough scrutiny. In addition, employees are also allowed reimbursement once every year towards the cost of insurance incurred by them on the vehicles for which they have been allowed to claim CMRE. This reimbursement is allowed on production of receipt for payment of insurance premium and copy of insurance policy/ cover note etc., Restrictions on payments when employees were on leave or absent from duties for more than 30 days and 60 days reveal that the contention of the AO that even when the vehicles were not used, the CMRE was paid falls flat. There is a considerable merit in the submissions of the appellant that when the employees are on onshore duty for longer periods, then expenses like insurance, maintenance expenses etc., are necessary to be reimbursed to employees coming under the scheme is acceptable. Even though may checks and balances were in vogue like selection of the employees coming under this scheme, procedure for reimbursements online claim by the employees etc. is there, for any shortcomings committed by the employees, the employer cannot be found fault with, rather it is for the AO assessing the employees to find out the correctness of the claim and in case of any default to take appropriate action. The fact that the employer is paying fringe benefit tax on CMRE cannot be ignored. Thus, taking the overall picture of the CMRE, there is no hesitation to hold such reimbursement to employees coming under the scheme as not part of the salary and accordingly no TDS is attracted in the hands of the employer. Hence I am of the view that the Assessing Officer was not justified by treating the assessee in default u/s.201(1) and 201(1-A) of the Act Hence the Assessing Officer is directed to delete the same i.e. the levies u/s.201(1) and 201(1-A)."

6.5 If one looks at the aforementioned decision of this Court in the case of ONGC (supra), it directly covers the entire issue in question. The questions which arose before this Court in the aforementioned case are as follows :

6.6 This very CMRE scheme was in operation and was challenged in the aforementioned Tax Appeal. After examining both the above quoted questions, the Court held that no question of law referable to the Court arises as the answer was evident. It would be profitable to reproduce the relevant part of the said decision as under :

...The tax at the case of an employee in receipt of salaries is deducted on the basis of estimate of income under the head "Salary" emanating from the employer. That estimate also include a fair estimate by the employer whether any amount paid by him is not likely to be subjected to tax under any provisions of the Income-tax Act. As we have noticed above, the evidence regarding operation of the scheme clearly attracted the provisions of sec. 10(14) inasmuch as reimbursement is granted for use of one vehicle owned and possessed by the employee for expenses incurred in undertaking official journeys and the payment is made on employee issuing a certificate that he has incurred more expenses than the amount which is being reimbursed to him at the end of the month. The fact that reimbursement upto a maximum limit and not more does not detract from the fact that expenses are being paid as far as employer is concerned towards reimbursing actual expenses incurred by the employee in undertaking official journeys upto the extent amount is actually reimbursed. Nor the fact that the employee, during the course of his assessment, is not found entitled to full benefit u/s 10(14), does in any way reflect on the estimate of income tax payable on income of the employee at the time when such amount is paid. Whether an employee actually incurs such amount for the official purposes is relevant for assessment of employee because exemption operates in his terms and conditions of availing such exemption that is to be fulfilled by him whether the employee is able to substantiate his claim to exemption has no bearing on estimate of income liable to tax to be made by the employer. These findings do not give rise to any question of law. The fact that ultimately on the assessment of employees they have been found in not utilising the full amount received by them from the employer does not reflect in any manner on the estimate of the employer at the end of each month about the income of the employee receiving from his employer liable to tax as per the mark it bears...."

6.7 Tribunal has aptly approached the issue to hold that eventually for any shortcoming of employees, employer cannot be found fault with. As this question concerns respondent to a limited extent as to whether tax was to be deducted at source for being taxable receipts and the issue since is squarely covered by the decision of this Court in assessee's own case, the present Tax Appeals on this issue deserve no consideration.

7. The second question pertains to the 'Holiday Home Scheme' floated by the respondent-assessee, whereby the respondent-assessee is to provide 'Holiday Homes' to the employees of the respondent-assessee at certain designated centres for recreation and rejuvenation. It provides for monetary subsidy to the employees and their family members.

7.1 Under the said scheme, the employee is entitled to visit any place in India or abroad for private/non-official holidays with his family members every year for five days or for 10 days in a block of two years. The employee is required to inform the respondent-assessee his intention to avail such holiday and on return, the reimbursement is made, where the daily allowance of four persons along with the paying guest charges is also made, as admissible under the scheme. According to the Assessing Officer, such payment is made purely for private purposes and, therefore, even the payment of FBT by the respondent-assessee would have no relevance. Such payment amounts to remuneration in addition to the salary and is taxable under section 17(1)(iv) of the Act. The Assessing Officer also went to an explanation of holding that the payment made is identifiable to each individual and the monetary amount is also specific. Therefore, there would not be any difficulty in evaluation of the payment, which can be claimed individually by every employee. Accordingly, the Assessing Officer held that the amounts are taxable as salary and TDS was deductible on the payments. The Assessing Officer further held that section 10(14) of the Act which permits certain allowances to be exempted from the income of the salary also would not cover such amount as Explanation to section 10(14)(ii) of the Act does not permit the nature of personal allowance granted to any person for performing duties of a special nature, unless such allowance is related to his place of posting or residence. Holding that such scheme caters to the private and personal nature of expenses incurred by the employee, it is not permissible.

7.2 When the matter travelled to the CIT (Appeals), it held in favour of the respondent-assessee by setting aside the order of Assessing Officer by holding thus :

"3.2(iii) Holiday home reimbursement :

During the period, when FBT was applicable, appellant considered reimbursements to employees under holiday home scheme to be liable to be FBT under section 115WB(2)(G), i.e. expenditure for use of hotel, boarding and lodging facilities. During the FBT regime expenditure borne or reimbursed by employer on travelling, accommodation and other items for holiday availed of by employee or any member of his family was prescribed as a fringe benefit for the purpose of section 17(2)(vi) by Rule 3(7)(ii), only in respect of those employers, who were not liable to pay fringe benefit tax under Chapter XII-H of the Act. Rule 3(7)(ii) was inserted as above through income-tax (Fourteenth Amendment) Rules, 2007 w.e.f 1.4.2008. Thus, as far as A. Yrs. 2008-09 and 2009-10 are concerned, appellant's contention that the holiday home scheme would not be considered as perquisite u/s.17(2)(vi) in the hands of employees is acceptable. For A. Yrs. 2006-07 and 2007-08, since expenditure incurred by employers for holiday availed of by employees or their family members was not prescribed as a 'fringe benefit' for the purpose of section 17(2)(vi), it could not therefore be taxed as perquisite in employee's hands. However, the payment received under holiday home scheme would be non taxable in employee's hands only if it was actually and fully utilized towards hotel, boarding and lodging facilities, etc. on a holiday availed by self or family member. If in any employee's case, it is found that the payment in question was actually and/or fully not utilized towards holiday home scheme. It would constitute concerned employee's taxable salary. As far as appellant is concerned, due to payment of FBT and due to holiday home reimbursement being not a prescribed 'fringe benefit' for the purpose of section 17(2)(vi) from A. Yrs. 2006-07 to 2009-10, appellant is, not to be treated as assessee in default u/s.201(1) in this regard. For A.Y. 2010-11 also, appellant is not to be treated as assessee in default subject to verification by the ACIT (TDS) that tax at source has already been deducted from Holiday Home reimbursements."

7.3 The Revenue carried the said order of CIT (Appeals) to the Tribunal and after quoting the order of the CIT (Appeals), the Tribunal held that FBT was paid by the respondent-assessee on such expenditure and, therefore, on the same reasons as given by it for CMRE, the issue raised by the respondent-assessee has been decided in its favour and it did not interfere with the order passed by the CIT (Appeals) qua this issue.

7.4 On close examination, it appears true that the Tribunal has not much dealt with the subject and essentially on the ground that the FBT has been paid by the respondent-assessee, it followed its own reasonings given in relation to another issue of CMRE. At the same time, we must also notice that it has approved the logic and reasonings given by the CIT (Appeals), which has dealt with the issue with sufficient elaborations and the same covers both factual and legal aspects. It is rightly and appropriately observed that the payment received under the 'Holiday Home Scheme' would be non-taxable in employee's hands only if, in fact, the same has been used towards the hotel boarding and lodging facilities for holidays availed for the family and friends. In the event of their not spending such amount towards the 'Holiday Home Scheme', the same would constitute the employees' taxable income.

7.5 As could also be noticed, the respondent-assessee did make payment of FBT. Thus, the scenario that emerges is that as far as the assessment years 2006-07 and 2007-08 are concerned, the expenditure incurred by the employer for holidays enjoyed by the employees was not prescribed as fringe benefit for the purpose of section 17(2)(iv) of the Act and the same was not taxed as perquisite in employees' hands and wherever not actual and fully utilised, the same would constitute taxable salary. However, for the assessment years 2008-09 and 2009-10, the 'Holiday Home Scheme' could not be considered as perquisite under section 17(2)(iv) of the Act in the hands of the employees, was held righty acceptable. This was essentially on account of introduction of Rule 3(7)(ii) of the Income-tax (Fourteen Amendment) Rules, 2007 with effect from April 01, 2008 in respect of those employers who were not liable to pay FBT under Chapter XII-H of the Act.

7.6 Even otherwise when this very scheme was examined, it appears clearly that once the claim is made by the employee concerned, the same was to be scrutinised by the authority and on due examination when certified, the amount was being reimbursed.

7.7 We are also convinced that both the authorities have concurrently for all the assessment years considered justifiably the entire issue and concluded aptly that the payment in question towards the 'Holiday Home Scheme' if not utilised actually, the same can be held to be taxable salary of the employees. In these appeals, what we are concerned essentially is the taxable receipts and not the payment of tax by the employer. Moreover, till the FBT regime was in existence, the respondent-assessee has already paid the FBT under section 115WB of the Act. Therefore, rightly no default was considered on the part of the respondent-assessee under section 201(1) of the Act. The issue has, thus, been correctly answered by both the authorities below and the same does not deserve any further consideration.