BY TIOL News Service

ERNAKULAM, APR 26, 2018: THE ISSUE BEFORE THE BENCH is - Whether if the employer fails to provide any break-up of the payment made to its NRI employees towards boarding and lodging, such allowances will still fall within the exception of Sec. 10(14). And the answer is NO.

Facts of the case:

The assessee company, engaged in the business of software development, had returned income. In the course of the assessment proceeding, the AO noted that while executing the software projects in U.K., the assessee had deputed some local persons of Hyderabad to work in its branch office at London, U.K. and it had also employed local personnel (NRIs) in U.K. The AO found that the assessee had deducted TDS towards the salaries paid to its employees in India and reimbursed the same. However, the assessee failed to deduct TDS with regard to the staff deputed to U.K. and the salary payments made to the local personnel engaged in U.K. Therefore, the AO charged tax towards the payment made to the staff deputed to U.K. and on the salaries paid to the personnel engaged in U.K. by invoking the provisions u/s 201(1). Finally, the AO passed the order after levying interest for the AYs 2000-01, 2001-02, 2002-03 and 2003-04.

On appeal, the CIT set aside the demand raised under Ss 201(1) and 201(1A) towards the tax charged and interest levied on the payments made to the non-resident consultants working abroad. However, upheld the AO's action with regard to the allowances paid to the residents of India deputed to work in U.K. On further appeal, the Tribunal dismissed all the appeals.

the High Court held that,

++ the assessee has produced consultant's agreement which stated that the allowances paid to the employees while working in U.K. are towards boarding and lodging is clear. Therefore, the issue that needs to be considered is whether the allowances paid towards boarding and lodging of an employee fall within the definition of 'perquisite' u/s 17(2) or the same are exempted u/s 10(14) r/w Rule 2BB. Sec. 15 deals with salaries and the income enumerated thereunder shall be chargeable to income tax under the head – 'salaries'. Sec. 17 defines 'salary' as including several things. Under this provision, apart from salary, various other things, including perquisites are chargeable to tax. 'Perquisite' is an inclusive definition, which takes within its sweep, various things, including any sum paid by the employer in respect of any obligation, which, but for such payment, would have been payable by the assessee. Sec. 10 excludes such incomes which do not form part of total income. Sec. 10(14) thereto, excludes certain allowances;

++ we have no doubt that the lump sum payment made to the employees is by way of conferring additional advantage in order to make them to meet the high cost towards accommodation and other personal expenditure. Such expenditure in our opinion cannot be treated as having been incurred in connection with discharge of their duties within the meaning of Sec. 10(14). Further, as found, neither any break-up of the amounts payable to the employees in U.K. has been given nor is it envisaged that the expenses so incurred are reimbursable. Hence, we are entirely in agreement with the findings rendered by the FAA. We have no hesitation to hold that the amounts in dispute attract the definition of perquisite in Sec. 17(2) and they do not fall within the exception of Sec. 10(14);

++ u/s 201, if an employer does not deduct or does not pay or after so deducting fails to pay the whole or any part of the tax, as required by or under the Act, such person shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax. Such person is liable to pay tax as required u/s 201(1A) apart from simple interest at the rate prescribed therein. We are unable to understand as to how this judgment of Rajasthan High Court in Munni Lal would help the assessee as the case decided thereunder pertains to imposition of penalty un/s 194C(2) for non deduction of TDS. Under the second proviso to the said provision, where assessee proves to the satisfaction of the AO that the default or non-payment of tax was for good and sufficient reasons, no penalty shall be levied. As rightly argued by the Counsel for the Revenue, unlike Sec. 221, Section 201(1A) is not hedged in by any requirement such as good faith, wilful default. Therefore, for levying interest, mens rea or wilful conduct is wholly irrelevant. In view of the fact that the assessee failed to deduct tax on the payments made, Section 201(1A) is automatically attracted and even if the assessee is bona fide in not making such deduction, it is nevertheless liable to pay interest.

(See 2018-TIOL-790-HC-KERALA-IT)