O/TAXAP/549/2013 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 549 of 2013 With TAX APPEAL NO. 550 of 2013 With TAX APPEAL NO. 1095 of 2014 With TAX APPEAL NO. 1096 of 2014 With TAX APPEAL NO. 1097 of 2014 With TAX APPEAL NO. 1098 of 2014 With TAX APPEAL NO. 1099 of 2014 With TAX APPEAL NO. 1100 of 2014 With TAX APPEAL NO. 1101 of 2014 With TAX APPEAL NO. 1102 of 2014 With TAX APPEAL NO. 1103 of 2014 With TAX APPEAL NO. 1104 of 2014 With TAX APPEAL NO. 1105 of 2014 With TAX APPEAL NO. 1106 of 2014 With TAX APPEAL NO. 1094 of 2014 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and Page 1 of 21 O/TAXAP/549/2013 JUDGMENT HONOURABLE MR.JUSTICE K.J.THAKER 1 Whether Reporters of Local Papers may be allowed to see judgment ? 2 To be referred to Reporter or not ? 3 Whether their Lordships wish to see fair copy of judgment ? 4 Whether this case involves substantial question of law as to interpretation of Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to civil judge? COMMISSIONER OF INCOME TAX (TDS) Appellant(s) Versus OIL & NATURAL GAS CORPORATION (INDIA) LTD. Opponent(s) Appearance: MRS MAUNA M BHATT, ADVOCATE for Appellant(s) No. 1 MR B S SOPARKAR, ADVOCATE for Opponent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Date : 05/12/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By way of these appeals, appellant- Revenue has challenged (1) judgment and order dated 16.11.2012 passed in ITA No. 184/Ahd/2010 for AY 2009-10, (2) ITA No. 609, 611/Ahd/2010 for Page 2 of 21 O/TAXAP/549/2013 JUDGMENT AY 2009-10, (3) ITA No. 1343/Ahd/2010 for AY 2009-10, (4) ITA No. 185/Ahd/2010 for AY 2009-10, and (5) judgment and order dated 11.1.2013 passed in ITA Nos. 153/2012 for AY 2007-08, (6) ITA No. 154/2012 for AY 2008-09, (7) ITA No. 156/2012 for AY 2006-07, (8) ITA No. 157/2012 for AY 2007-08, (9) ITA No. 158/2012 for AY 2008- 09, (10) ITA No. 283/2012 for AY 2006-07, (11) ITA No. 284/2012 for AY 2007-08, (12) ITA No. 285/2012 for AY 2008-09, (13) ITA No. 286/2012 for AY 2009-10, (14) ITA No. 329/2012 for AY 2006-07, (15) ITA No. 330/2012 for AY 2007-08, (16) ITA No. 331/2012 for AY 2008-09, (17) for ITA No. 152/2012 for AY 2006-07. 2. While admitting these appeals, this Court has framed following substantial question of law: Whether on facts and in law ITAT was right in holding that payment of uniform allowance etc. to employees by assessee is liable for FBT and by holding so it did not consider fact that payment of uniform allowance was nothing but additional salary paid in form of allowance within meaning of section 17(1) (iv) attracting TDS provisions of section 192 of IT Act ? 3. facts of present case are that for verification of compliances of TDS provisions Page 3 of 21 O/TAXAP/549/2013 JUDGMENT survey were conducted in offices Oil and Natural Gas Corporation Limited at its following offices: 1.ONGC workshop at Baroda 2.ONGC Basin office at Baroda, and 3.ONGC Ankleshwar Asset, falling under jurisdiction of this office. 4. At time of survey, besides details of contract payments and other miscellaneous payments, salary payments to employees was asked for, and verification was focused on salary and contract expenses incurred by respective offices of ONGC. That during survey/verification of salary details, it was informed that salary are prepared on computer and therefore, concerned officers were requested to produce details of payment of salaries to employees and to produce form no. 16 for preceding year for understanding and to provide salary slips for month of January, 2009. 4.1 salary slips shown for employees for January, 2009 reflected that besides salary there was substantial amount of money has paid to each employee against item CMRE under column of Earnings . cumulative receipts of above CMRE amount were reflected under column YTD Earning and this amount was exceeding Rs. 50 thousands in each case. Below above CMRE amount, there were other allowances under Page 4 of 21 O/TAXAP/549/2013 JUDGMENT earnings named as OTHER (T) and OTHER (NT). amount of earnings reflected under above allowances was substantial (in range of Rs. 1 lakh). 5. On enquiring it was told that amount of allowances shown as OTHER(NT) was presenting amount of uniform allowance. On verification from Form 16 produced for test check for FY 2007-08, it was observed that amount of (NT) allowances was not reflected in Form 16 for relevant FY i.e. 2007-08. 5.1 above facts were enquired for FY 2008-09 as well (as Form 16 was not yet due for this year). But no evidence was produced to justify non inclusion of these allowances in salary and no reasonable explanation was offered in support of not including allowances reflected as CMRE and OTHER (NT) in pay slip of salary income, therefore, assessee was informed that it has been observed that in your ONGC office employees are being paid certain allowances in form of uniform allowances CMRE (Conveyance Maintenance Allowance) and some other allowances which are termed as NT (Non Taxable) and these are not included in total salary of employee. And tax is not deducted on this allowances, therefore, this was enquired at time of survey verification and also as per order sheet entry dated 25.2.2009 (in case of ONGC Baroda-Basin Office), vide order sheet dated Page 5 of 21 O/TAXAP/549/2013 JUDGMENT 23.2.2009 & show case dated 24.2.2009 (for ONGC Ankleshwar Asset) and vide order sheet dated 18.2.2009 (for ONGC Baroda Workshop), employer was asked to explain following points and to furnish reasons and necessary evidence as to:- a) What are NT termed allowances, please specify. Give list of all employee of your organization showing their salary and allowances, all taxable and non taxable for FY 2007-08 & 2008-09. b) Why NT termed allowances are not included in Form 16 issued for FY 207-08 to employees ? Please produce copies of Form 16. c) In Form-16, no deduction have been claimed for expenses on account of CMRE and uniform allowances (NT) u/s 10, therefore, assessee was requested to specify under what provisions of Income Tax Act, these allowances has been claimed as exempted and was requested to provide details and copy of such provisions. Also to show cause as to why order u/s. 201 and 201(1A)may not be passed. 6. All offices of ONGC in reference covered for verification of compliances of TDS provisions filed their written replies on above points. Page 6 of 21 O/TAXAP/549/2013 JUDGMENT As ONGC is big corporation and all offices covered for verification fall under same management at higher level and as all offices are expected to be governed by same guidelines, therefore, all replies received from offices of ONGC placed in common chart. On going through replies different offices of ONGC has filed, shows that these offices has taken similar stand, as regards CMRE and Uniform allowance. 7. In connection with CMRE (NT) payments made to employees, it has been claimed by ONGC (Baroda-Basin office) and ONGC (Baroda- workshop) that CMRE (subject to FBT) that this payment being reimbursement of conveyance expenses incurred by employees is taxable only as fringe benefit (FBT) in employers hand u/s 115WA of IT Act, 1961. It was further claimed that ONGC is paying FBT on this, and hence, same is not taxable in employees hand by virtue of exclusion contained in Section 17(2)(vi) of IT Act. 8. It was also claimed that CMRE (Non-taxable) paid at rate of Rs. 800/- per month, which is exempt u/s. 10(14) r.w.r. 2BB of IT Rules. Whereas, ONGC, Ankleshwar office has claimed that it may be pointed out that allowances which are exempt u/s. 10(14) r.w.r. 2BB of IT Rules are not included in salary for Page 7 of 21 O/TAXAP/549/2013 JUDGMENT purpose of deduction of tax at source u/s. 192, therefore, same are not shown in Form No. 16. 9. Further, it was claimed that it was only those allowances, which are specifically excluded from taxability by Rule 2BB, that are treated as exempt in hands of employees. After considering replies filed by assessee and material on record, assessment order came to be filed. assessee has challenged said assessment order by way of appeals before CIT(A) which came to be partly allowed. Being aggrieved and dissatisfied with said order of CIT(A), Revenue preferred appeal before ITAT which came to be partly allowed, against which, present Tax Appeals are preferred by Revenue. 10. Heard learned advocates appearing for respective parties and considered submissions. Learned advocate for appellant has taken us through Circular of CBDT being No. 8/2005. Clause 74 of said Circular reads as under: 74. Whether FBT is payable on expenditure incurred on providing safety shoes or uniforms or equipments to employees or for purposes of reimbursement of washing charges ? Page 8 of 21 O/TAXAP/549/2013 JUDGMENT Ans. Any expenditure incurred for meeting employers statutory obligations under Employment Standing Orders Act, 1948, fall within scope of exclusion in Explanation to clause (E) of sub-section (2) of Section 115 WB. Therefore, expenditure incurred on providing safety shoes or uniform or equipment to employees or incurred for purposes of reimbursement of washing charges, is exempt from FBT to extent such expenditure is incurred to meet such statutory obligation. 11. Mr. Bhatt has also taken us through para 4.1, 4.3 of order of CIT(A). 12. Mr. Bhatt has made endeavour that Tribunal has not decided issues as contended by Department that uniform allowance is part of salary under section 17(1), and even if it is considered to be perquisite, in view of statutory provisions, same will be part of salary, and therefore, TDS was required to be deducted. 13. He has taken us through provisions of section 10(14)(i), which reads as under: Page 9 of 21 O/TAXAP/549/2013 JUDGMENT Sec.10(14)(i) any such special allowance or benefit, not being in nature of perquisite within meaning of clause (2) of section 17, specifically granted to meet expenses wholly, necessarily and exclusively incurred in performance of duties of office or employment of profit, [as may be prescribed], to extent to which such expenses are actually incurred fore that purpose; 14. Mr. Bhatt has thereafter contended that in view of this exclusion clause will fall under perquisite, and therefore, it will form part of salary and deduction granted is bad. 15. Mr. Soparkar learned advocate for assessee has taken under through section 192 of Income Tax Act which makes it obligatory on part of employer to deduct TDS provided it is salary. He has taken us through same provisions of section 17(1)(vi) and sec. 17(20(vi), and contended that this will not fall within section 115WB(2)(E), and therefore, it is not part of salary and since employer is governed by FBT,is not required to pay tax or not required to deduct TDS under section 194. 16. He has taken us through para-9, 10 and 12 of Tribunal. Tribunal accepting Page 10 of 21 O/TAXAP/549/2013 JUDGMENT contention of assessee has held as under: 9. We have considered rival submissions and perused material on record and gone through orders of authorities below and judgments cited by both sides. First,we deal with this aspect that whether FBT was payable by assessee-company on this expenditure or not and if it is found that FBT was payable by assessee on this expenditure, which was actually paid also, whether there is liability of assessee to deduct TDS from this expenditure incurred for welfare of employees. In this regard, we feel that provisions of section 17(2)(vi) and section 115 WB 2E with explanation are relevant and same are reproduced below: 17. (1) (2) (vi) value of any other fringe benefit or amenity (excluding fringe benefits chargeable to tax under Chapter XII-H) as may be prescribed; 115WB(1) (2) fringe benefit purposes, Page 11 of 21 O/TAXAP/549/2013 JUDGMENT namely :- (E) employees welfare. [Explanation For purposes of this clause, any expenditure incurred or payment made to- (i) fulfill any statutory obligation; or (ii) mitigate occupational hazards; or (iii) provide first is facilities in hospital or dispensary run by employer; or (iv) provide creche facility for children of employee; or (v) sponsor sportsmen, being employee; or (vi) organize sports events for employees, shall not be considered as expenditure for employees welfare;] 10. From provisions of section 17(2) (vi), we find that perquisites does not include fringe benefit chargeable to tax under Chapter-XIIH. In Chapter-XIIH, relevant section regarding liability to pay FBT on employees benefits welfare is as per clause-E of sub- section 2 of section 115WB which has been reproduced above. As per same, Page 12 of 21 O/TAXAP/549/2013 JUDGMENT FBT is payable on any expenditure incurred on employees welfare excluding those expenditures which are incurred to fulfill any statutory obligation or to mitigate occupational hazards etc. This is not in dispute that FBT was paid by assessee-company on this expenditure and this is also admitted position that this expenditure is in nature of employees welfare. One more contention was raised by Ld. DR of Revenue that in present case, these allowances are given to each employee separately and benefit arising to each employee is ascertainable and therefore on such benefit, FBT is not payable and only those expenditures in respect of employees welfare are liable to FBT,which are common expenditure and benefit obtained by each employee is not ascertainable. We do not find any merits in this contention of Ld. DR of Revenue because there is no such restriction provided in section 115WB that only common expenditure on employees welfare is liable to FBT and not those expenditures which are attributable to employee directly and whose benefit enjoyed by employee is ascertainable. Only exception carved out from liability of FBT is as per Page 13 of 21 O/TAXAP/549/2013 JUDGMENT Explanation to Clause-E of this Section as reproduced above which includes those expenditures which are incurred to fulfill any statutory obligation or to mitigate occupational hazards etc. impugned expenditure which is in dispute before us does not fall in any of exclusion clause of explanation. second argument of Ld. DR of Revenue is this that actual expenditure was not incurred by employees of assessee because at time of survey also, no employees was found wearing any uniform. Regarding this contention also, we find that there is no exclusion provided in section 115WB to exclude those expenditures incurred by assessee company for employees welfare which were not actually incurred by employees as per intention for which expenditure was incurred. As per sub-section 1 of section 115WB,any privilege service,facility or amenity directly or indirectly provided by employer whether by way of reimbursement or otherwise to his employees is covered within definition of fringe benefit on which FBT is payable. Asper sub- section 2 of section 115WB, it is provided that fringe benefit shall be deemed to have been provided by Page 14 of 21 O/TAXAP/549/2013 JUDGMENT employer to its employee if employer has in course of business incurred any expenditure on or made any payment for various purpose which includes employees welfare. As per clause-E of this sub-section, it does not come out that it has to be enquired and looked into whether employee has incurred amount given to him by employer for same purpose for which it was given to employee. In our considered opinion, for this reason that employer has paid FBT on particular expenditure, it is considered as payment of income tax only on deemed income of employee out of various expenditures incurred by employer and hence, this is not relevant as to whether employee has actually incurred those expenditures as intended by employer. 12. Now, we examine applicability of CBDT Circular No. 8 of 2005 dated 29.8.2005 (supra). From relevant question of this Circular i.e. question No. 74 as per which, question was as to whether FBT is payable on expenditure incurred on providing safety shoes or uniforms or equipments to employees or for purpose of Page 15 of 21 O/TAXAP/549/2013 JUDGMENT reimbursement of washing charges. Reply was this that any expenditure incurred for meeting employer s statutory obligation under Employment Standing Order Act, 1948 fall within scope of exclusion in explanation to clause-E of subsection 2 of 115WB and, therefore, to extent, such expenditure is covered by this exclusion, FBT is not required to be paid. In present case, we have seen that expenditure incurred by assessee in respect of uniform,washing charges etc. is not statutory obligation of assessee- company and therefore it is not covered by exclusion clause of Explanation to clause-E of sub-section 2 of section 115WB. consequence of this is that same is not perquisites asper section 17(2)(vi) of IT Act. Now, we examine applicability of judgment of Hon ble apex court rendered in case of R & B Falcon (A) Pty. Ltd. (supra). In para-17 of this judgment, it is noted by Hon ble Apex Court that FBT is new concept and tax is to be levied on fringe benefit provided or deemed to have been provided by any employer to employee @ 30% on value of such fringe benefit. It is further noted by Hon ble apex Page 16 of 21 O/TAXAP/549/2013 JUDGMENT court that intention of Parliament to tax employer on one hand for expenditure for benefit of employees including entertainment etc., and on other, when employee is getting perks are not to be taxed. Those who get direct or indirect benefit from expenditure incurred by employer, no tax is leviable. In para-30 of judgment, it is also noted by Hon ble apex court that Parliament, in introducing concept of fringe benefit, was clear in its mind that in so far as on one hand, it has avoided imposition of double taxation i.e. tax both in hands of employee and employer and on other hand, it is intended to bring succor to employer for offering some privilege, service facility or amenity, which was otherwise though to be necessary or expedient. From this observation of Hon ble apex court in this judgment and also from relevant provisions of section 17(2)(vi) and 115WB(2) as reproduced above, it becomes very clear that on fringe benefit like uniform and washing allowance etc. provided by assessee to its employees otherwise than for statutory obligation, is liable to FBT and same is not liable to income tax Page 17 of 21 O/TAXAP/549/2013 JUDGMENT in hands of employee because same cannot be considered as perquisites as per provisions of section 17(2) (vi) of Act. Once we come to this conclusion, it is abundantly clear that no TDS is required to be deducted by employer from such expenditure incurred by employer for benefits of employees. Accordingly, in present case, we hold that TDS was not required to be deducted by assessee-company from this expenditure incurred by it on providing uniform, washing charges and washing allowances etc., So this ground of assessee s appeal is allowed. 17. Mr. Soparkar has placed reliance on decision of Hon ble Supreme Court in case of R & B Falcon (A) PTY. Ltd. v. Commissioner of Income-tax, reported in [2008] 301 ITR 309(SC), more particularly, para-17, which reads as under: Fringe benefit tax is new concept. tax to be levied on fringe benefit provided or deemed to have been provided by employer to employees during previous year is at rate of 30 per cent on value of such fringe benefits. object of Page 18 of 21 O/TAXAP/549/2013 JUDGMENT imposition of said tax, as is evident from said circular dated August 29, 2005, was to bring about equity. intention of Parliament was to tax employer who, on one hand, deducts expenditure for benefit of employees getting perks are to be taxed, those who get direct or indirect benefits from expenditure incurred by employer, no tax is leviable. As stated in objective, it is for bringing about horizontal equity and not vertical equity. 18. Mr. Soparkar learned advocate has contended that in view of provisions of section 115WB(E), welfare of employees is liability of employer and therefore, he has pointed out that question as envisaged under section 10(14) of Act, Tribunal has not opined anything and this Court should only examine whether TDS is required to be deducted. 19. We have heard Mr. MR Bhatt learned advocate for appellant-Revenue and Mr. SN Soparkar learned advocate appearing for respondent- assessee. facts which emerges from record is that respondent is Government undertaking, operating all over India, and there Page 19 of 21 O/TAXAP/549/2013 JUDGMENT is nothing on record that this issue had arisen in any State other then State of Gujarat. In that view of matter, it is required to be looked very seriously inasmuch as benefits which are conferred to other employees of respondent-company throughout country are accepted by Revenue as benefit deductible and has not been considered as part of salary. Since assessee was governed FBT provision and applicability of provision for salary will not apply and contention raised by assessee is rightly accepted by Tribunal. 20. We have gone through provisions of section 12H and benefits which are conferred under section 115WB(2)(E) of Income Tax Act. While reading clause(E), provisions of section 17(2)(vi) whether payment made under FBT is excluded or not, in our view, it is excluded. 21. In that view of mater, concurring with view taken by Tribunal, we answer question against department and in favour of assessee. All these tax Appeals are dismissed. We have not examined question regarding whether payment made is exempted under sec. 10(14) or not. (K.S.JHAVERI, J.) Page 20 of 21 O/TAXAP/549/2013 JUDGMENT (K.J.THAKER, J) mandora Page 21 of 21 Commissioner of Income-tax (TDS) v. Oil & Natural Gas Corporation (India) Ltd