JOINT COMMISSIONER OF INCOME TAX v. PRAMOD BHASIN
[Citation -2006-LL-0120-4]

Citation 2006-LL-0120-4
Appellant Name JOINT COMMISSIONER OF INCOME TAX
Respondent Name PRAMOD BHASIN
Court ITAT
Relevant Act Income-tax
Date of Order 20/01/2006
Assessment Year 1996-97
Judgment View Judgment
Keyword Tags approved superannuation fund • recognized provident fund • contingent interest • contingent payment • income from salary • executive director • colourable device • managing director • deferred annuity • social security • vested interest • annuity policy • receipt basis • coal mines • mehar
Bot Summary: After considering the assessee s submissions, the learned CIT(A) vide para 5.5 of the impugned order held that the AO was not justified in adding an amount of Rs. 99,382 as employer s contribution to pension plan as perquisite in t h e hands of the assessee under s. 17(2)(v) of the Act and he accordingly deleted the same. Subsequently, the terms of the appointment of the assessee were varied and the company instead of paying commission decided to purchase deferred policies from the Life Insurance Corporation on the life of assessee as per the annuity plan, the annuity payment would commence from the date of retirement. According to the learned counsel for the assessee, in the instant case, the employee has no right to receive the payments after 5 years of service. The Tribunal Delhi Bench A relying on the decision of the Hon ble Supreme Court in the case of L.W. Russel held as under: 4.5 We have considered the rival submissions and perused the record carefully and also gone through the case law referred to by the learned counsel for the assessee and have also gone through the order of the AO which is a detailed one. Admittedly, the assessee or any other employee who is registered with the pension fund authority can get the benefit of the scheme only after attaining the age of 65 years and after putting in 25 years of service. Their Lordships have concluded that assessee is having only contingent interest in the pension scheme for employee and the same will be available after completing the service tenure and upon attaining the age of superannuation and until and employee attains the age of superannuation he does not acquire any vested right in the employer s share of contribution towards the premium. In view of the decision of the Hon ble Supreme Court in the case of L.W. Russel, it can be safely held that in the instant case, assessee is having only contingent interest in the pension scheme for employee and the same will be available after fulfilling certain conditions mentioned in the GEPP. In view of the above discussions, we are of the considered opinion that the learned CIT(A) was fully justified in deleting the addition made by the AO as perquisite on account of expenses of pension plan paid by the employer on behalf of the employee.


This is appeal by Revenue and is directed against order of CIT(A)-XXV, New Delhi dt. 10th Feb., 2000 relating to asst. yr. 1996-97. only effective ground raised by Revenue in this appeal reads as under: "On facts and circumstances of case and in law, learned CIT(A) erred in deleting addition made by AO as perquisite; on account of expenses on Pension Plan (Rs. 99,382) paid by employer on behalf of employee." Briefly stated, facts of case are that assessee is foreign* national working as managing director of GE Capital Services India. assessee filed return of his income on 28th June, 1996 declaring total income of Rs. 1,70,14,850 comprising of income from salary of Rs. 1,71,39,570, income from capital gains of Rs. 1,24,720 and income from other sources of Rs. 15,241. During assessment proceedings, AO required assessee to show cause why contribution of employer to pension fund, insurance fund and other schemes should not be taxed as perquisites under s. 17(2) of Act. assessee vide letter dt. 22nd Dec., 1998 filed detailed reply. In this regard, assessee submitted that GE Capital, as policy contributes to GE Expatriate Pension Plan which is in nature of social security plan. employee, who has continuously served for more than 5 years, becomes eligible to benefit of pension fund contribution made by GE. It was also submitted that pension is receivable only after retirement subject to vesting in plan. contribution to these funds has been claimed as exempt from taxation. AO did not find any merit in above submissions of assessee and took view that contribution made by employer towards pension plan is perquisite under s. 17(2)(v) of Act. AO has relied on decision of Patna High Court in case of CIT vs. J.G. Keshwani (1993) 115 CTR (Pat) 343: (1993) 202 ITR 391 (Pat), where premium paid to buy deferred annuity policy was held to be part of salary income. AO has further held that contribution of employer to pension fund and insurance plan are payments made to un-recognized funds "since based outside India" and is essentially payment to effect contract for annuity for employee. He further held that payment to insurance plan is essentially to effect assurance on life of assessee and same is covered under s. 17(2)(v) of Act. According to AO, as group insurance plan is not approved by Central Government under s. 36(1)(ib), no exemption referred to in cl. (iii) of proviso to s. 17(2) will be available and payments will be covered as perquisite under s. 17(2)(v) of Act. Aggrieved by order of AO, assessee carried matter in appeal before CIT(A). Before CIT(A), it was argued on behalf of assessee that s. 15 of Act provides that salary is taxable on due or receipt basis, whichever is earlier and same is charging section for determining taxability under head "Salary". It was also submitted by assessee that in order to attract liability under s. 15 of Act, employee should have some vested interest in amounts paid by employer. Mere contingency of getting some benefit from payments made by employer would not justify if being taxed under this provision. Accordingly, it was submitted by assessee before CIT(A) that benefit in money for which pension is being made liable to tax, should be vested in person, who is being charged under this section. It was also submitted that reading of s. 17(2) of Act in conjunction with s. 15 of Act makes it clear that benefit may be termed "perquisite" only if, right is conferred on employee to receive same from employer. In short, contingent payments (to which employee has no right till occurrence of contingency) cannot be termed as "perquisite" under Act. Reliance was placed on judgment of Hon ble Supreme Court in case of CIT vs. L.W. Russel (1964) 53 ITR 91 (SC). It was also submitted by assessee before CIT(A) that provisions of ss. 15 and 17 of Act when read together do not in any way detract from fact that deferred/contingent benefits (to extent not due) are not liable to be charged under head "Income from salary". It was specifically argued by assessee before CIT(A) that provisions of s. 17(2)(v) of Act seek to tax any sum paid in order to effect contract for "annuity" on assessee. assessee also submitted before CIT(A) that reading of s. 17(2) alongwith s. 15 would make it clear that in order that benefit or payment may be termed as perquisite, right is conferred on employee in respect of that perquisite to receive it from his employer. One cannot be said to allow perquisite to receive it from his employer. One cannot be said to allow perquisite to employee if employee has no right to same. It was specifically pleaded before CIT(A) by assessee that it cannot apply to contingent payment to which assessee has no right till contingency occurs. Thus, employee must have vested right therein. assessee also submitted before CIT(A) that reliance placed by AO on judgment of Hon ble Patna High Court is misplaced as facts of case were entirely different. It was submitted by assessee before CIT(A) that as per pension plan of GR, employee becomes eligible for pension plan only upon completion of 5 years with organization. Thus, benefit is contingent in nature and benefit, which is dependent on occurrence of contingency, cannot be taxed. After considering assessee s submissions, learned CIT(A) vide para 5.5 of impugned order held that AO was not justified in adding amount of Rs. 99,382 as employer s contribution to pension plan as perquisite in t h e hands of assessee under s. 17(2)(v) of Act and he accordingly deleted same. learned CIT(A) observed that in instant case, since pension funds have been established outside India, same could not be considered as recognized or approved fund for purpose of IT Act. According to him, contributions thus made by employer would be regarded as contribution to unrecognized or non-approved fund in Indian tax laws. He further observed that in case of contribution to unrecognized provident fund, employee s contribution is taxable in hands of employee concerned on receipt basis in accordance with provisions of cl. (ii) of sub- s. (3) of s. 17 of Act. He further observed that assessee does not get vested right at time of contribution to fund by employer. amount standing to credit of pension fund account would continue to remain invested till assessee becomes entitled to receive same. According to him, amount will become taxable only at time when assessee is conferred with vesting right to receive same under pension plan. learned CIT(A) has also relied on decision of Hon ble Supreme Court in case of L.W. Russel (supra) wherein Hon ble Supreme Court held that one cannot be said to allow perquisite to employee if employee has no right to same. It cannot apply to contingent payments to which employee has no right till contingency occurs. employee must have vested right therein. CIT(A) has also relied on decision of Hon ble Delhi High Court in case of CIT vs. Mehar Singh Sampuran Singh Chawla (1973) 90 ITR 219 (Del) wherein it has been held that contribution made by employee towards fund established for welfare of employees would not be deemed to be perquisite in hands of employees concerned as they do not acquire vested right in sum contributed by employer. learned CIT(A) has also held that reliance placed by AO on judgment of Patna High Court in case of J.G. Keshwani (supra) is misplaced as facts of that case were entirely different. He observed that in Patna High Court case, assessee was holding employment as director of company and in terms of compensation package, he was entitled to receive commission as percentage of net profits computed in manner laid down under Company s Act subject to maximum ceiling. Subsequently, terms of appointment of assessee were varied and company instead of paying commission decided to purchase deferred policies from Life Insurance Corporation on life of assessee as per annuity plan, annuity payment would commence from date of retirement. AO had held that arrangement was merely change in mode of payment of commission to assessee. According to CIT(A), Hon ble High Court observed that amount contributed towards annuity plan had already accrued t o assessee in year under consideration. It was merely that instead of paying amount as commission, same was contributed by company for acquiring annuity plan for employee. CIT(A) observed that "The Hon ble Court, it appears, was guided by fact that sum contributed by company towards annuity plan was already due to employee concerned and merely, changed method of payment was being introduced through annuity. It was colourable device adopted at instance of assessee, who is deemed to have derived vested interest in amount so contributed by company". CIT(A) also observed that assessee has in present case no vested interest in amount and, therefore, judgment of Hon ble Supreme Court in L.W. Russel s case (supra) will still be applicable. In view of above, learned CIT(A) deleted addition of Rs. 99,382. Before us, Shri Ram Mohan Singh, learned Departmental Representative kly supported order of AO. He further relied on decision of Hon ble Patna High Court in case of CIT vs. J.G. Keshwani (supra). Shri V.S. Rastogi, while appearing for assessee reiterated submissions made before lower authorities. He further relied on following decisions: CIT vs. L.W. Russel (supra); CIT vs. Lala Shri Dhar (1972) 84 ITR 192 (Del); CIT vs. G. Hyatt (1971) 80 ITR 177 (SC); Gallotti Raoul vs. Asstt. CIT (1997) 61 ITD 453 (Bom); Yoshio Kubo vs. Dy. CIT (ITA No. 1551/Del/2001 for asst. yr. 1998-99, order dt. 30th April, 2003); CIT vs. J.N. Vas (2000) 159 CTR (Mumbai) 42: (1999) 240 ITR 101 (Mumbai); Asstt. CIT vs. Dr. Jan Nuyten (2000) 112 TAXMAN 238 (Cal)(Mag); Jt. CIT vs. Thomas William Raffel (ITA No. 2374/Del/2002, for asst. yr. 1996-97, order dt. April, 2005); Jt. CIT vs. Anil Kumar Misra (ITA No. 2378/Del/2000, for asst. yr. 1996-97 order dt. 3td June, 2005). We have considered rival submissions and have also carefully gone through material available on record. In this case, assessee vide letter dt. 22nd Dec., 1998, addressed to AO, explained precise nature of contribution to GE Expatriate Pension Plan (GEPP) as under: "GEPP is in nature of Social Security Plan. employer contributes to plan to provide for target pension to employee after his retirement. employee benefit changes according to increase in salary, service years and age. If any employee leaves organization before he becomes entitled to pension, then contributions made by employer on his behalf are forfeited unless employee has been vested in plan and then these contributions accrue to benefit of existing employees. In order to become vested in plan, employee must complete 5 years of continuous service within GE System (means GE, its affiliates and/or correspondent companies) including at least one year of expatriate service. As per terms of plan, employee is entitled to receive benefit from plan only after retirement subject to vesting in plan as stated above. Normal retirement age is 65. If employee retires earlier and he fulfils certain other conditions, he would be entitled to receive pension but at reduced amount. This reduced amount is again dependent on age when he retires. Further, employee also has option to take retirement and draw retirement benefits as late as at age of 70 which is termed as late retirement . amount receivable at time of retirement is also not certain as it changes according to increase in salaries, increase in number of service years and also increase in age at which assessee attains retirement. In case employee becomes totally and permanently disabled before he attains age of 60 while working as expatriate, he can elect for disability retirement after he reaches age of 60 but before age of 65. In case of death of employee, beneficiaries get benefit out of plan. It may be appreciated that contributions made by employer to GEPP do not vest in employee and he does not have any right in contribution made by employer at point of time when contribution is made." learned counsel for assessee submitted that normal retirement age is 65 years and that there are only certain exceptional circumstances, as indicated in para captioned "Earlier Retirement" in GEPP document. When employee can receive pension earlier even then age can never be below 55 years. He has also brought to our notice that there is no question of person receiving his pension under GEPP before he retires from company. According to him, question of "vesting" is really significantly for those, who leave services of company, because in their case, they would be entitled to pension under . scheme only if they have completed 5 years of service in company. He also submitted that AO is not correct when he says that "the contribution to pension fund is essentially payment to effect contract for annuity for employee". According to learned counsel for assessee, in instant case, employee has no right to receive payments after 5 years of service. He further pointed out that pension as calculated in accordance with provisions of GEPP would become payable to assessee only when he retires. Sec. 15 of IT Act reads as under: "15. following income shall be chargeable to income-tax under head Salaries (a) any salary due from employer or former employer to assessee in previous year, whether paid or not; (b) any salary paid or allowed to him in previous year by or on behalf of employer or former employer though not due or before it became due to him; (c) Any arrears of salary paid or allowed to him in previous year by or on behalf of employer or former employer, if not charged to income-tax for any previous year." Sec. 17(2)(v) of IT Act provides as under: "For purposes of ss. 15 and 16 and of this section, (1) ** ** ** (2) perquisite includes (i) to (iv) (v) any sum payable by employer, whether directly or through fund, other than recognized provident fund or approved superannuation fund or Deposit-linked Insurance Fund established under s. 3G of Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948 (46 of 1948), or, as case may be, s. 6C of Employee s Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952), to effect, assurance on life of assessee or to effect contract for annuity;" Sec. 15 provides that salary is taxable on due or receipt basis, whichever is earlier and same is charging section for determining taxability/under head "Salary". In our view, perquisite paid or payable may be in cash or kind or in money or money s worth. Sec. 17(2) of Act gives inclusive definition of perquisite reading of s. 17(2) along with s. 15 would make it clear in order that benefit may be termed as "perquisite" only if right is conferred on employee in respect of that perquisite to receive it from his employer. One cannot be said to allow perquisite to employee if employee has no right to same. In our opinion, it cannot apply to contingent payment to which employee has no right till contingency occurs. In case of Yoshio Kubo (supra), issue before Tribunal was that AO taxed employers contribution to pension fund as "perquisite" in hands of assessee under s. 17(2) of IT Act and CIT(A) confirmed same. Tribunal Delhi Bench relying on decision of Hon ble Supreme Court in case of L.W. Russel (supra) held as under: "4.5 We have considered rival submissions and perused record carefully and also gone through case law referred to by learned counsel for assessee and have also gone through order of AO which is detailed one. So far as welfare pension scheme is concerned, AO as discussed in detail on material furnished by learned counsel for assessee before him. Admittedly, assessee or any other employee who is registered with pension fund authority can get benefit of scheme only after attaining age of 65 years and after putting in 25 years of service. other contingencies are also there but broad feature which is not in dispute is that benefit of scheme will accrue to assessee or any other employee upon attaining age of 65 years. view of Hon ble Supreme Court in case of CIT vs. L.W. Russel (supra) is quite specific. Their Lordships have concluded that assessee is having only contingent interest in pension scheme for employee and same will be available after completing service tenure and upon attaining age of superannuation and until and employee attains age of superannuation he does not acquire any vested right in employer s share of contribution towards premium. Their Lordships further concluded that at best he was having contingent right therein and same will not be taxable. learned Departmental Representative was not able to point out as to what is material difference in between s. 7(1) of IT Act, 1922 and provisions of ss. 15 to 17 of IT Act, 1961 on this point. Fact remains that assessee was not going to get any benefit under welfare pension scheme till he attains age of 65 years or in case of death. Both these eventualities alone will be making assessee or his survivors as case may be, entitled to get benefit. Before these eventualities assessee is not getting any vested right and assessee/employee at most have contingent right and in absence of any vested right to receive amount, same cannot be made taxable under s. 17(2)(v) of Act. view taken by AO and CIT(A) is contrary to view of Hon ble Supreme Court referred to above and thus not sustainable. It is concluded that amount of employer s contribution towards welfare pension scheme was not perquisite under s. 17(2)(v) of Act." In case of Thomas William Raffel (supra), Tribunal Delhi Bench held that amount of employers contribution made to pension fund cannot be considered as perquisite under s. 17(2)(v) of Act for year under consideration. In case of Anil Kumar Misra (supra), Tribunal, Delhi Bench held that amount of employers contribution made to pension fund cannot be considered as "perquisite" under s. 17(2)(v) of Act for year under consideration. At this stage, we may state here that learned CIT(A) was fully justified in holding that decision of Hon ble Patna High Court in J.G. Keshwani s case (supra) relied on by AO is not applicable to facts of present case. In said case, assessee was executive director of company. assessee in addition to his monthly payment was also entitled to receive commission @ 0.2 per cent of profits of company. Subsequently, it was agreed that in lieu of commission, company would contribute every year towards purchase of deferred annuity policy from LIC on his life. During previous year pertaining to each of asst. yrs. 1972-73, 1973-74, 1974-75 and 1975-76, company had spent Rs. 20,000 in purchasing deferred annuity policies from LIC. In said case, terms of remuneration of assessee in regard to payment to commission were varied, ostensibly with view to defer payment of tax. In that case, therefore, Court took view that purchase of annuity was covered by provisions of s. 17(2)(v) of Act. In instant case, it is clear that no sum was paid or payable by employer to effect assurance on life of assessee or to effect contract of annuity. We, therefore, are of opinion that s. 17(2)(v) can have no application whatsoever to facts of case. As we have already stated hereinabove that benefit is contingent in nature depending upon fulfilment of certain conditions. We may also observe here that nothing is due to assessee at time of contributions are made. There is no vesting of right at time of contribution and benefit, if at all, is deferred to happening of contingency in future. In our view, ratio laid down by Hon ble Supreme Court in case of L.W. Russel (supra) is squarely applicable to facts of present case. Hon ble Supreme Court has held (head note) as under: "Held, (i) that until employee attained age of superannuation he did not acquire any vested right in employer s share of contributions towards premiums; at best he had contingent right therein; (ii) that expression perquisites which are allowed to him by or are due to him, whether paid or no, from, or are paid by or on behalf of,... company in s. 7(1) of Indian IT Act, 1922, applied only to such sums in regard to which there was obligation on part of employer to pay and vested right on part of employee to claim; it could not apply to contingent payments to which employee had no right till contingency occurred. employer s contribution towards premiums were not perquisites allowed to employee by employer or amounts due to him from employer within meaning of s. 7(1) r/w cl. (v) of Explanation thereof." In view of decision of Hon ble Supreme Court in case of L.W. Russel (supra), it can be safely held that in instant case, assessee is having only contingent interest in pension scheme for employee and same will be available after fulfilling certain conditions mentioned in GEPP. In view of above discussions, we are of considered opinion that learned CIT(A) was fully justified in deleting addition made by AO as perquisite on account of expenses of pension plan paid by employer on behalf of employee. We, therefore, do not see any merit in this appeal and accordingly, dismiss same. In result, appeal of Revenue is dismissed. *** JOINT COMMISSIONER OF INCOME TAX v. PRAMOD BHASIN
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