Commissioner of Income Tax vs Nestle India Ltd.

D.K. Jain, J.—By this common petition u/s 256(2) of the Income Tax Act, 1961 (for short "the Act"), in respect of the assessment years 1987-88 to 1995-96, the Revenue seeks a direction to the Income Tax Appellate Tribunal (for short "the Tribunal"), to state the case and refer the following questions, said to be questions of law, arising out of the consolidated order of the Tribunal in ITAs No. 5975 to 5992/Delhi of 1996, for the opinion of this court :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in coming to the conclusion that the assessed was under a bona fide belief that no tax is deductible at source from the conveyance allowance reimbursed to the employees when the same were not exempt u/s 10(14) of the Income Tax Act and were also not disclosed by the assessed in Form No. 16 which contains a specific column for allowance exemption u/s 10(14) of the Income Tax Act ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding a view that reimbursement of conveyance expenses to cover expenditure for the purpose of office does not form part of salary unless it is found that salary is paid in the garb of conveyance expenses when the claim of exemption u/s 10(14) of the Income Tax Act, is dependent on fulfillment of conditions as prescribed in the section and the same were not fulfilled in the case of the assessed ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Department could not successfully show that the assessor�s conduct in not deducting tax at source was a mala fide one for which the penalty was livable in its hand and deleting short deduction determined u/s 201(1) and interest levied u/s 201(1A) of the Income Tax Act ?"

Briefly stated, the material facts giving rise to this petition, are that on perusal of the annual return filed by the assessee-company u/s 206 of the Act, the Assistant Commissioner of Income Tax, TDS, noticed that the assessed had made short deduction of tax at source, inasmuch as while computing the income of its employees chargeable under the head "Salaries", the conveyance allowance/reimbursement granted to them had not been included in their taxable salary. He called upon the assessee-company to explain as to why the said conveyance allowance had not been treated as taxable. In response thereto the assessee, inter alia, explained that the conveyance allowance was being paid as reimbursement to those employees who had not been provided with company vehicle, against declaration that they had actually incurred the said amount for the purpose of conveyance from office to residence ; it was being paid at a fixed amount every month due to administrative convenience for saving the assessee-company and its employees from the cumbersome and heavy work of maintaining detailed record of expenditure and, Therefore, it was exempt u/s 10(14) of the Act. It was pleaded that the said allowance could not be treated as a perquisite within the meaning of Section 17(2) either and the same was also exempt under notification dated June 9, 1989.

However, the said Explanation did not find favor with the Assistant Commissioner. Accordingly, while observing that in fact the assessed was paying salary to its employees under the garb of conveyance allowance in order to avoid taxation, the Assistant Commissioner held the assessed to be in default in not treating the conveyance allowance as taxable and not deducting thereon tax at source as required u/s 192 of the Act. He calculated the short deductions for each of the financial years and directed the assessed to make payment of the same. He also levied interest u/s 201(1A) on the assessee.

Being aggrieved, the assessed preferred appeal to the Commissioner of Income Tax (Appeals) but without any success.

The assessed carried the matter further in appeal to the Tribunal. The Tribunal, without going into the question as to whether the conveyance allowance would be exempt u/s 10(14) of the Act or not, came to the conclusion that neither penalty u/s 201 nor interest u/s 201(1A) was leviable. While holding so the Tribunal observed as follows :

"The onus is on the assessed to show that on the facts and in the circumstances of the case the assessed could not have deducted tax from allowance as contemplated under the provisions of the Act. As stated earlier the assessed demonstrated that his belief was based on the various decisions of the Tribunal, High Courts and the clarification issued by the Central Board of Direct Taxes from time to time. It is also a fact that it is not a case where the assessed has not deducted tax from all the allowances. It is confined to conveyance allowance alone. In this context, it may be stated that whether the particular allowance is taxable or not, would depend on the view adopted by the Assessing Officer while framing the assessment in the case of the employee at the time of deduction of tax at source. The employer is required to have a broad picture of the estimated income which is to be subject to tax. The Department could not successfully show that the assessor�s conduct in not deducting tax at source was a mala fide one for which the penalty was livable in its hand. In view of the various decisions of the Tribunal, namely, Industrial Credit and Investment Corporation of India (supra) ; Great Eastern Shipping Co. Ltd. v. ACIT (ITA Nos. 6201 to 6203/Bom of 1989) Income Tax Appellate Tribunal ; Indian Airlines Ltd. v. ACIT (TDS Nos. 13 to 19/Delhi of 1995) Income Tax Appellate Tribunal, (Delhi) Mahindra and Mahindra Limited v. Second ITO (ITA Nos. 9869 to 9870 and 9871/Bom of 1989) Income Tax Appellate Tribunal (Bombay) and Glaxo India Limited (ITA Nos. 106 to 107/Bom of 1990) Income Tax Appellate Tribunal (Bombay) and others as cited which are on the same point, we are of the view that penalty u/s 201 of the Act is not livable "

Thus, the Tribunal held that the assessed being under a bona fide belief that the conveyance allowance was not taxable, it had good and sufficient reasons for not deducting tax thereon.

Being aggrieved with the said order, the Revenue filed an application u/s 256(1) of the Act requiring the Tribunal to refer the aforenoted questions for the opinion of this court, The said application having been dismissed by the Tribunal, the present petition has been filed.

We have heard Mr. R. D. Jolly, learned senior standing counsel for the Income Tax Department and Mr. Dinesh Vyas, learned senior counsel for the assessee.

It is submitted by learned counsel for the Revenue that the finding of the Tribunal that the Department has failed to show that the assessor�s conduct in not deducting tax at source was mala fide is perverse inasmuch as the Tribunal has failed to appreciate in the correct perspective the factual aspect that the payments in the garb of reimbursement for the actual expenses incurred on conveyance were nothing but conveyance allowance not exempt u/s 10(14) of the Act. On the other hand, the stand of learned counsel for the assessed is that the aforenoted finding about the conduct of the assessed is a pure finding of fact, giving rise to no question of law.

In our view, the proposed questions are not fit for reference to this court. From the afore-extracted portion of the order of the Tribunal it is evident that the Tribunal''s finding that the assessed had a good and sufficient reason for not deducting tax at source on the said amount is founded on the fact that it was under a bona fide belief that the conveyance allowance was not to be included in the salary. The conclusion arrived at by the Tribunal is a pure finding of fact, which does not give rise to any question of law. The Tribunal has not examined, and rightly so, the question as to whether the said allowance would be exempt u/s 10(14) of the Act or not because that question has to be adjudicated at the time of assessment of the employee receiving the said allowance and he cannot be bound by the stand of his employer about the taxability or otherwise of a particular allowance. Deduction of tax at source by an employer is always a tentative deduction of Income Tax subject to regular assessment in the hands of the payee/recipient.

In this view of the matter, we do not find any infirmity in the impugned order passed by the Tribunal rejecting the Revenue''s application for reference on the questions set out hereinabove.

The petition is accordingly dismissed with no order as to costs.