By TIOL News Service

AHEMDABAD, MAY 10, 2018: THE ISSUE BEFORE THE COURT IS - Whether if an employer provides education subsidy to a school where children of its employees pay only part school fee, such subsidy is to be taxed in hands of employees as perquisite. NO IS THE VERDICT.

Facts of the case:

The assessee, Cooperative Milk Marketing Federation, having its dairy at Anand, had filed its return for relevant AY. During assessment AO noticed that the assessee had not treated amount paid towards part payment of tuition fees of children of its employees made to Anandalaya Education Society, which imparts education and therefore, it amounts to perquisite to that extent in the hands of the employees of the assessee, as per provision of Section 17(2) of the Act, and hence, liable for deduction of TDS. The AO issued a notice u/s 201(1) and 201 (1A) in this matter to assessee. The assessee replied that the contribution to Anandalaya Education Society was a concessional education facility given to the employees to facilitate education of their children, no perquisite arose in the hands of the employees, and therefore, no tax was deducted at source. This reply did not find favour with the AO, who ordered issuance of demand notice. The AO also charged penal interest. On appeal, CIT (A), and Tribunal upheld the order of AO.

High Court held that,

++ children of the employees of assessee are studying in Anandalaya Education Society and are paying fees at a subsidized rate. It is equally true that the recurring deficit of the Society is being recouped by the contributions made by the assessee based on number of students representing the employees’ wards, and it is under these circumstances that the assessee contributed Rs. 5,91,030/- and Rs. 6,43,126/- for AY 2000-2001 and 2001-2002 respectively. Thus, the burden borne per child per month has never crossed Rs. 1,000/- by the assessee, and therefore, there would be no question of any perquisite arising in the hands of the employees of the assessee, and therefore, deduction of TDS would also be not permissible;

++ from the wordings of Rule 3(e) of income tax rules, it can be said that it would be applicable only for free educational facilities, as nothing is mentioned therein of concessional educational facilities. Contributions to the Anandalaya Education Society is towards the deficit of the fees towards wards of the employees, and therefore, rule 3(e) would not apply to the facts of this case and hence, no perquisite would arise in the hands of the employees for the assessment years in question. The legislation amended the said rule only for subsequent period to include even concessional education facility. Therefore, Rule 3 (2) read with Section 17 of the Act cannot be said to have been violated and the assessee cannot be held liable to recover tax u/s 201 [1] to the extent the tax is due from its employees. In the result, Tax Appeal is allowed.

(See 2018-TIOL-874-HC-AHM-IT)