1. These 12 appeals which arise from the respective orders of the learned CIT(A) in connection with the proceedings under Section 201(1) and 201(1A), involving common facts, are disposed of by this common order.
2. The facts, briefly stated, are that the assessee bank is a fully owned public sector undertaking of Government of India, with large number of employees. In its capacity as an employer, the assessee bank is obliged to deduct tax at source under Section 192 of the Act in respect of salaries and other amenities or perquisites granted to the employees. The dispute relevant for the present appeals pertains to the alleged default of non-deduction of tax on the value of the perquisites granted to the employees during the financial years 1995-96 to 2000-01 (referred to by the Assessing Officer as assessment years 1996-97 to 2001-02). During the above mentioned financial years, the assessee bank provided furniture to different categories of employees. The items of furniture included computer table & chair, vaccum cleaner, coir mattresses, cooking range, TV, washing machine, refrigerator, dining table with chairs, air conditioner etc. In respect of these various items of furniture and other appliances granted to the employees, the assessee bank charged standard rent based upon the first stage of pay scale of different categories of employees. During the financial years under appeal, the assessee bank was initially charging rent at the rate of 1 per cent of the first stage of the scale in which the employee was placed, on the basis of the internal circular dated 1-11-1992.
Subsequently, by another circular, the rent was reduced to 0.5 per cent with effect from 1-4-1998. The assessee bank also reimbursed to the employees, the expenditure incurred by them on daily wages for maintenance and proper upkeep of the residential accommodation, furniture and fixtures owned by the assessee bank and allotted to the employees. The reimbursement was at a fixed rate on the basis of internal circulars issued by the bank from time-to-time and the reimbursement was allowed on the strength of prescribed certificates filed by the concerned employees. The assessee bank also reimbursed to the employees, who were allotted residential accommodation and furniture etc., the expenditure incurred on cleansing material on production of certificates accompanied by bills by the concerned employees on monthly basis. This reimbursement was subject to the maximum limits fixed from time to time.
3. In respect of the aforesaid amenities provided by the bank to its employees, no tax was deducted at source. A survey under Section 133A was conducted by the Assessing Officer on 11-12-2001. During the course of survey, a statement of Shri M.N. Bandekar, Manager, Salary section was recorded. The Assessing Officer initiated proceedings under Section 201(1) and 201(1A) on the ground that the value of the furniture and other appliances allotted to the employees was a perquisite and value thereof should have been determined under rule 3 of IT Rules and tax should have been deducted on the value thus determined. The Assessing Officer was also of the view that the reimbursement of daily wages and expenditure on cleansing material was also in the nature of perquisite.
According to him, there was no evidence that daily wages were being paid by the employees and the cleansing material would have been used by the employees for personal purpose also.
4. During the course of proceedings before the Assessing Officer, it was explained on behalf of the assessee bank that furniture and other items are provided to various officers strictly in accordance with the service rules and the rent charged is determined on the basis of negotiations between the banking industry and the officers' association. Such agreement is subsequently approved by the Government of India. It was claimed that a uniform practice was adopted by the bank in respect of employees without any discrimination in charging of standard rent and, therefore, no concession was given to the employees in respect of rent. It was submitted that in these circumstances, there is no perquisite under Section 17(2) of the Act as held by the Hon'ble Calcutta High Court in the case of All India Vijaya Bank Officers' Association v. Vijaya Bank [2001] 250 ITR 5001 : [2003] 130 Taxman 296 (Cal). It was also submitted before the Assessing Officer that under Section 192, the assessee is required to deduct tax at source on the estimated income of an employee and that the only requirement of law is that such estimate should be honest and bona fide.
5. These submissions did not find favour with the Assessing Officer, who passed the impugned orders under Section 201(1) and 201(1A), treating the assessee bank as "assessee in default" and also charging interest. For the purpose of determining the value of perquisite in respect of furniture and other appliances, the Assessing Officer adopted the value as per the maximum entitlement of the employees, in view of the fact that no material was filed to show the cost of the furniture. The orders have been confirmed by the respective CIT (A) and that is why the assessee is before us.
6. On behalf of the assessee-bank Shri S.E. Dastoor attended, assisted by Sri Nilesh Joshi, Shri Dastoor opened up his arguments by making the following preliminary propositions: (a) the orders passed by the Assessing Officer for the financial years 1995-96 to 1997-98 [assessment years 1996-97 to 1998-99]; are barred by limitation of time as these orders have been passed by the Assessing Officer after expiry of four years from the end of the relevant financial years.
(b) Section 201(1) and 201(1A) do not apply to a case of short deduction of tax and these sections come into operation only if any person does not deduct or after deduction fails to pay the tax as required under the Income-tax Act, 1961.
(c) Section 201(1) and 201(1A) cannot be invoked in a case where tax has been deducted on the basis of honest and bona fide estimate.
7. The proposition at (a) above, is relevant only for the financial years 1995-96 to 1997-98. Shri Dastoor pointed out that a specific ground, in this regard, has been raised for the financial year 1996-97; assessment year 1997-98; Shri Dastoor raised similar additional grounds in respect of financial years 1995-96 and 1997-98; assessment years 1996-97 and 1998-99 respectively. Such additional grounds have also been filed in writing and it is requested that the same, being purely legal, should be admitted. Considering the facts, we admit the additional grounds raised for the financial years 1995-96 and 1997-98.
The learned Counsel pointed out that for the above mentioned three financial years, the orders under Section 201(1) and 201(1A) have been passed by the Assessing Officer as under: The orders have been passed by the Assessing Officer after expiry of the period of four years from the end of the relevant financial year.
The learned Counsel contended that even-though no time-limit has been prescribed for passing orders under Section 201(1) and 201(1A), various Benches of the Tribunal have held that even though no time-limit is prescribed under the Act for passing of an order under Section 201(1) and 201(1A), the Assessing Officer cannot be permitted to pass such order after undue delay and that some reasonable time-limit must be prescribed within which the income-tax authorities should pass an order. Sri Dastoor relied on the order of IT AT, Mumbai 'B' Bench dated 8-6-2005 in the case of Wockhardt Life Sciences Ltd. for the assessment year 1999-2000. The No. 2 Counsel pointed out that the Tribunal has considered the following decisions of the Tribunal: The learned Counsel pointed that after a detailed discussion, the Tribunal in the case of Wockhardt Life Sciences Ltd. (supra), recorded its finding at para 17 in the following manner: After taking into consideration of the ratio of the above decisions and taking into consideration the submissions of both the parties, we find that the orders passed by the Assessing Officer under Section 201(1) and 201(1A) are barred by limitation. Undisputedly the tax was to be deposited before 31st March, 1994. However, the proceedings under Section 201(1) and 201(1A) were initiated by the Assessing Officer in 2000. As the order was passed on 24-1-2000. It is beyond the period of limitation of 4 years, which has been held as reasonable period for deciding such issues. Therefore, following the decision of the Tribunal, we hold that the orders of the Assessing Officer are barred by limitation.
The learned Counsel submitted that in the present cases, the orders passed after expiry of period of four years should be held to be null and void as they were time-barred.
8. The second proposition is that the relevant sections are not applicable in a case of short deduction. The learned Counsel appearing for the assessee invited our attention to the Hon'ble Andhra Pradesh High Court decision in the case of P.V. Rajagopal v. UOI . It is submitted that at page 694 of the report, the Hon'ble Andhra Pradesh High Court had reproduced the relevant sections and observed as under: This section has two limbs, one is where the employer does not deduct tax and the second where after deducting tax, the employer fails to remit it to the Government. There is nothing in this section to treat the employer as the defaulter where there is a shortfall in the deduction. The Department assumes that where the deduction is not as required by or under the Act, there is a default. But the fact is that this expression "as required by or under this Act" grammatically refers only to the duty to pay the tax that is deducted and cannot refer to the duty to deduct the tax.
Since this is a penal section, it has to be strictly construed and it cannot be assumed that there is a duty to deduct the tax strictly in accordance with the computation under the Act and if there is any shortfall due to any difference of opinion as to the taxability of any item, the employer can be declared to be an assessee in default.
9. It is pointed out that similar view has been taken by the Tribunal in the case of Associated Cement Co. Ltd. v. ITO (TDS) [2004] 74 ITD 369 : 111 Taxman 251 (Mum.) (Mag.) (SMC-II). SriDastoor pointed out that the relevant sections have been amended by the Finance Act, 2001 with retrospective effect from 1-4-1962 so as to bring short deduction of tax within the ambit of the Section 201(1) and 201(1A). He, however, argued that the assessee cannot be saddled with a financial liability in respect of such years, where tax was deducted at source before the assessee was aware of the amendment.
10. The third proposition of the learned Counsel is that if the assessee has deducted tax on the basis of a honest and bona fide estimate, provisions of Section 201(1) and 201(1A) cannot be invoked.
It is argued that this is a settled position of law and he placed relevance on the following judicial pronouncements:CIT v. Nestle India Ltd [2001] 243 ITR 435 : 109 TaxmanHindustan Lever Ltd 403 (Delhi) IT Appeal No. 1957 1960/B/89 order dated 12-4-1997 11. The learned Counsel invited our attention to the ratio of Hon'ble Madhya Pradesh High Court in the case of Gwalior Rayon & Silk Co. Ltd. (supra), which is reproduced below from the head notes: The provisions of Section 201 of the Act are attracted in the case of an employer only when that employer does not deduct tax at once or after deducting fails to pay the tax as required by the Act. A duty is cast on an employer to form an opinion about the tax liability of his employee in respect of the salary income. While forming this opinion, the employer is undoubtedly expected to act honestly and fairly. But if it is found that the estimate made by the employer is incorrect, this fact alone without anything more, would not inevitably lead to the inference that the employer has not acted honestly and fairly. Unless that inference, can be reasonably raised against an employer, no fault can be found with him. It cannot be held that he has not deducted tax on the estimated income of the employee.
Held, that in the instant case it had not been found by the ITO or the Tribunal that the assessee's estimate was not honest and fair.
The assessee had deducted tax from the salary of the employees on the salary income honestly estimated by it and had also paid the tax as required by Section 200. It could not be held to be an assessee in default in respect of the tax. Therefore, the provision of Section 201(1A) also were not attracted.
12. It is pointed out that similar view has been taken by the Hon'ble Delhi High Court in the case of Nestle India Ltd. (supra) and by the ITAT, Mumbai in the case of Hindustan Lever Ltd. (supra). The learned Counsel appearing for the assessee elaborated by submitting that the assessee bank has been following same system of alloting furniture and charging standard rent from the employees for the last around 50 years and no objection was ever raised by the department. The assessee could have never imagined that all of a sudden, it will be held responsible for short deduction of tax, whereas the assessee acted on bona fide belief.
The learned Counsel contended that even on merits, the assessee's case is strong as several High Courts have held that no taxable perquisite arises under Section 17(2), if a uniform practice is adopted by the employer for charging rent from all employees. In such situations, it cannot be said that the employer has given any concession while charging rent for furniture allotted to the employees. The learned Counsel submitted that rule 3 of the IT Rules, will come into operation only after a liability arises under Section 17(2). The question of valuation of a perquisite would arise only when there is a perquisite as defined under Section 17(2). The learned Counsel relied on the following cases: (1) All India Vijaya Bank Officers' Association's v. Vijaya Bank (2) Officers' Association, Bhilai Steel Plant v. Union of India [1983] 139 ITR 937 : [1981] 6 Taxman 281 (MP) (3) ITO v. All India Vijaya Bank Officers' Association (4) Steel Executives Association v. Rashtriya Ispat Nigam Ltd. (5) Indian Bank Officers' Association v. Indian Bank 13. The learned Counsel has invited our attention to pages 55, 56 of the PB which contain copy of assessee's letter dated 7-8-2003 addressed to the CIT(A), the text of this letter may be reproduced below: State Bank of India was established by an Act of Parliament that is State Bank of India Act, 1955. Section 43 of the State Bank of India Act inter alia provides as follows: 43(1) The State Bank may appoint such number of Officers, advisers and employees as it considers necessary or desirable for the efficient performance of its functions, and determine the terms and conditions of their appointment and service.
(2) The officers, advisers and employees of the State Bank shall exercise such powers and perform such duties as may by general or special order, be entrusted or delegated to them by the Central Board.
That the State Bank of India Supervising the Staff Service Rules were framed under the aforesaid enabling provision ie., Section 43 of the State Bank of India Act which provides the terms and conditions of service. The said rule was substituted by State Bank of India Officers (Determination of Terms & Conditions of Service) Order, 1979. Rule 25 thereof inter alia reads as under: 25(3) wherever possible, the Bank may at its discretion provide essential furniture in the houses provided by the Bank on such scale as may be prescribed from time-to-time by the Managing Director with the approval of the Chairman, subject to the recovery of a monthly rental of 2 1/2 per cent of his basic pay.
The said rules have the force of law as they are framed under the provisions of the State Bank of India Act.
That the said service rules were replaced by the State Bank of India Officer's Service Rules which came into effect from 1st Day of January, 1992. Rule 25(3) provides that "the monthly rental of 1 1/2 per cent of the pay in the first stage of the scale pay is to be recovered from the officers for providing the essential furniture in the accommodation provided by the Bank." The salary of the officer of the Bank was again revised w.e.f.
1-11-1992 with the approval of the Government. In the said revision of the salary, it was provided that furniture rent to be recovered shall be at the rate of 1 per cent of the first stage of the scale to which the officer is placed. Extract of the provision is stated below: House Rent recovery shall be at the rate of 4 per cent of the stage of the scale in which the officer is placed or the standard rent for the accommodation whichever is less.
Furniture rent recovery shall be at the rate of 1 per cent of the first stage of the scale in which the officer is placed.
The salary of the officers next revised on and from 1-4-1998. At the time of said revision it was provided in Clause 4 as follows: (i) House rent recovery shall be at the rate of 2.50 per cent of the first stage of the scale of pay in which the officer is placed or the standard rent for the accommodation whichever is less.
(ii) Furniture rent recovery shall be at the rate of 0.50 per cent of the first stage of the scale in which the officer is placed.
We crave leave to refer to the said service rules and the circulars issued by Bank from time-to-time at the time of hearing.
There is no compulsion on the part of the Bank to provide accommodation. However, Bank may provide accommodation to the officers.
The said accommodation may be furnished or unfurnished. It is the discretion of the employee officer whether he will take the furniture or not. Entitlement to the furniture up to certain amount varies from grade to grade of the officers. In any one grade, the officers are entitled to the furniture up to a specific amount.
Uniform rent is collected from all officers who are similarly situated. There is no case of provision of amenity at concessional rate. The Calcutta High Court in the Vijaya Bank's case held that the provision of furniture to the Bank officer is not a perquisite.
It relied on several cases including the judgment of the Division Benches.
The bona fide belief of the Bank that it was not required to deduct tax at source on furniture provided to employees is on the basis of the decision of the Calcutta High Court in the case of All India Vijaya Bank Officers' Association v. Vijaya Bank 250 ITR 500 and other High Court decisions. It is submitted that the facts in the case of Vijaya Bank is identical with those of the Bank.
Accordingly, the Bank cannot be treated as an assessee in default under Section 201 of the Income-tax Act, 1961.
14. It is contended that the assessee bank has been following uniform policy regarding charging of standard rent from different categories of officers and full explanation was submitted before the learned CIT(A).
It is also pointed out that the officers normally did not get the furniture at their full entitlement. He invited our attention to pages 62 and 63 of PB, where the concerned employees have stated that they have taken furniture at 1/3 of their entitlement. The learned Counsel also argued that the reimbursement of daily wages for casual labourer and for cleansing material was entirely for the maintenance and upkeep of the residential accommodation, furniture and fixtures etc. allotted to the employees and there can be no element of perquisite. The assessee-bank has taken all precautions to ensure that these reimbursements are not mis-used by the employees. He invited our attention to pages 58-61 of the PB, which contain sample copies of the claim for reimbursement for cleansing material made by the employees.
At page 58 is the prescribed certificate signed by the employee claiming the reimbursement of a sum of Rs. 260 for the month of February, 1998. This certificate is accompanied by a bill dated 27-2-1998 in respect of purchase of the cleansing material. The daily wages are reimbursed by the assessee bank on the basis of certificates given by the employees, sample copies of which are at pages 62-63 of the PB. The learned Counsel contended that in any case, the assessee was under bona fide belief that there was no liability of deducting tax at source with regard to furniture, and reimbursement of casual labour charges and cleansing material. All such reimbursements were regulated and governed by internal circulars. The learned Counsel invited our attention to pages 28 and 29 of the PB, which contain copy of letter dated 2-6-2003 filed before the learned CIT(A). With regard to casual labour charges, the following submissions were made in this letter: In respect of reimbursement of casual labour payments to officers, we enclose herewith internal Circular No. ADM : 11681, dated 22nd March, 1978, Circular DO No. ADM/3110, dated 24th January, 1983, DO No. ADM/SPL/2830, dated 18th September, 1992 and CD0/PM/16/CIR/1, dated 12th April, 2001 of the Bank (copies enclosed Annexures V, VI, VII & VIII respectively), which deals with reimbursement of casual labour expenses to the officers of the Bank. The circular states that the casual labourer provided to officers is not by way of perquisites to the officer, i.e., in the nature of personal servant for the officer but is in the nature of casual labourer employed for proper upkeep of the official residence, furniture, fittings etc.
provided to him by the Bank.
15. Ms. Rubby Srivastava, DR attending on behalf of the department, forcefully supported the orders of the revenue authorities. With regard to the claim that the orders for the assessment years 1996-97 to 1998-99 have become time-barred, she submitted that the peculiar circumstances under which, action has been taken by the Assessing Officer have to be kept in mind. It is pointed out that relevant orders have been passed consequent to the survey conducted by the department on 11-12-2001. It is argued that only during the course of survey, the department came to know that tax was not being properly deducted by the assessee-bank and therefore, action was taken under Section 201(1) and 201(1A). It is submitted that after the survey, the relevant orders have been passed latest by 25-10-2002. The learned DR submitted that this issue has been examined by the learned CIT(A) on the basis of various judicial pronouncements. She invited our attention to para 27.2 of the order of the learned CIT(A) for the assessment years 1997-98 to 2000-01, which is reproduced below: I have carefully considered the arguments made by and on behalf of the appellant as regards the limitation of the order passed under Section 201(1) for assessment year 1997-98 and also gone through the judgment cited by the appellant. In fact, the judgments cited by the appellant have been delivered for the assessment years prior to assessment year 1989-90 when the provision of Section 231 were on statute and the courts have not examined the effect of deletion of the said provisions with effect from 1-4-1989. The Calcutta High Court in the case of Grindlays Bank Ltd. v. CIT 193 ITR 457 has held that the proceedings under Section 201(1) can be initiated and continue where the assessee fails to deduct the tax at soruce under Section 192 of the Act. It is a fact that after deletion of Section 231, there is no provision in the Income-tax Act, which prescribes any limitation for passing the order under Section 201(1) of the Act. As regards the order under Section 201(1A) for levy of interest, the Kerala High Court in the above mentioned decision in 261 ITR 364 has held that there is no limitation for passing such order and as such the order under Section 201(1A) does not get barred by limitation. Moreover, the important fact to be noted is that it was in the course of survey action under Section 133A conducted on 11-12-2001 that the Assessing Officer found that the appellant had not deducted tax properly on certain items which constituted perquisites of the employees and annual salary return filed in Form No. 24 was not correct. Consequently, a remedial action was taken by the Assessing Officer by making a scrutiny of annual salary return vis-a-vis the adverse material collected in the course of survey action. The assessment of TDS liability under Section 201(1) and 201(1A) has been completed within a period of one year after the date of survey action, which is very reasonable period for completing any assessment proceeding. In view of the aforesaid facts and observations, I am not inclined to agree with the appellant's contention that the impugned order for assessment year 1997-98 has become barred by limitation. Therefore, this ground is also decided against the appellant for assessment year 1997-98.
16. Deriving support from the order of the learned CIT(A), the learned DR submitted that the orders passed by the Assessing Officer cannot be said to be time-barred.
17. Regarding the contention that Section 201(1) and 201(1A) are not applicable in a case where the default is only for short deduction, the learned DR submitted that the law has been amended with retrospective effect from 1-4-1962 and therefore, the assessee cannot escape its liability. It is pointed that the cases relied upon by the learned Counsel for assessee are related to pre-amendment period and therefore, the same are not applicable. The learned DR also vehemently contended that there is no question of the assessee being under any bona fide belief. It is argued that Rule 3 of the IT Rules is mandatory as held by the Hon'ble Supreme Court in the case of K.S. Sundaram v. CIT . The learned DR also pointed out that under Rule 3(B), where accommodation is furnished, the fair rent for furniture (including TV sets, radio sets, refrigerator and other household appliances etc.) has to be calculated at 10 per cent per annum of the original cost of such furniture, which is owned by the employer. It is submitted that the assessee bank was well aware of the cost of the furniture and various other appliances allotted to the employees and the value of the perquisite was required to be determined at 10 per cent of such cost. The Rule is mandatory as held by the Hon'ble Supreme Court and therefore, there is no basis whatsoever for any bona fide belief on the part of the assessee. The assessee recovered nominal rent at the rate of 1.0 per cent or 0.5 per cent of the first stage of salary of the concenred employee's pay-scale and thus, it-flouted the provisions of law. Regarding reimbursemnt of expenditure on casual labourer and reimbursement of expenditure incurred on cleansing material, the learned DR contended that taking certificates from the employees is not sufficient. There is no evidence or any other material to show that the reimbursement of expenditure was only for maintenance of the residential accommodation, furniture and fixtures owned by the assessee-bank. It is, therefore, contended that the assessee has committed defaults and the tax authorities are fully justified in passing orders under Section 201(1) and 201(1A).
18. We have given a careful consideration to the rival submissions made before us by both the parties and have gone through the relevant facts.
We have also considered various judicial pronouncements with which, we have been assisted. The first issue to be considered is as to whether the orders passed by the Assessing Officer for the financial years 1995-96 to 1997-98 (assessment years 1996-97 to 1998-99)have become time-barred. On behalf of assessee, reliance is placed on ITAT, Mumbai Bench decision in the case of Wockhardt Life Sciences Ltd. (supra). In this case, identical question arose and the contention raised was that the orders passed by the Assessing Officer under Section 201(1) and 201(1A) after expiry of four years from the end of relevant financial year, were time-barred. This issue, has been considered by the Coordinate Bench elaborately after considering various other decisions of the Tribunal, which have already been referred to above. After considering the entire facts and the legal position, a clear finding has been recorded by the Tribunal to the effect that orders passed, beyond limitation period of four years, would be time-barred and therefore, will be rendered bad in law. The learned DR has urged that facts of the present case are different and therefore, the decision of the Coordinate Bench is not applicable. The first argument on this point is that the relevant orders have been passed consequent to a survey conducted by the Department on 11-12-2001. In our view, merely because a survey was conducted by the department, the orders passed by the Assessing Officer after the expiry of the period of limitation, cannot be validated. All the material facts were already available with the department as the assessee bank has consistently, followed the same method over a period of almost 50 years. The details relating to TDS in respect of employees have to be filed by the employer every year in the prescribed form as required under Section 206 of the Act. Thus, for each financial year the prescribed return of TDS has to be filed by the tax deductor within the prescribed time-limit. The Assessing Officer was free to scrutinize these annual returns and to raise any queries if he had any doubt about the proper deduction of tax on the part of the assessee. In our view, the survey conducted on 11-12-2001 will not alter the legal position with regard to the time-limit for passing of orders under Section 201(1) and 201(1A).
19. The learned DR has also relied on the discussion given by the learned CIT(A) while rejecting the assessee's claim that the order, for the assessment year 1997-98, has been passed beyond the limitation period. The relevant part of the order has already been reproduced by us above. The learned CIT(A) has referred to the Hon'ble Kerala High Court decision in the case of Secretary, Sultan Battery Co-op. Housing Society Ltd. v. CIT . Drawing support from this case, the learned CIT(A) has observed that after deletion of Section 231 from the statute, there is no time-limit for passing orders under Section 201(1) and 201(1A). In our view, this line of reasoning has no relevance for deciding the issue of limitation. The ratio of the judgment of Hon'ble Kerala High Court may be reproduced below from the head note: The assessee made payment amounting to Rs. 50,02,730 to a contractor during the period from April 1, 1986 to March 31, 1990, without deduction and payment of income-tax at source in time in terms of Section 194C of the Income-tax Act, 1961. However, the assessee made the payment on March 13, 1990, obviously with substantial delay. The Assessing Officer demanded interest amounting to Rs. 28,834 under Section 201(1A). The assessee contended that the demand was barred by limitation. The Tribunal rejected the contention. On further appeal to the High Court.
Held, that Section 231 could not be applied to the assessee because Section 201 speaks about treating the assessee as a defaulter only in respect of an amount payable by the assessee. This obviously does not include interest for default in payment of tax. So long as the assessee was bound to deduct and remit tax under Section 194C, the default under Section 201 was only in respect of tax and, therefore, the assessee could be treated as an assessee in default in terms of Section 201 only in respect of tax payable. So far as interest was concerned, the same had to be demanded by the officer under Section 201(1A) of the Income-tax Act. It was only after payment of tax by the assessee, that the officer demanded interest by order dated August 16, 1991. Therefore, the limitation under Section 231 so far as the interest was concerned applied only with reference to the date of demand. Since the date of demand itself was taken as the proceedings for recovery, the question of limitation did not apply at all in this case.
20. Section 231, prior to its omission by the Direct Tax Laws (Amendment) Act, 1987, with effect from 1-4-1989, stood as under: Save in accordance with the provisions of Section 173 or Sub-section (7) of Section 220, no proceedings for the recovery of any sum payable under this Act shall be commenced after the expiration of three years from the last day of the financial year in which the demand is made, or, in the case of a person who is deemed to be an assessee in default under any provision of this Act, after the expiration of three years from the last day of the financial year in which the assessee is deemed to be in default.
21. A conjoint reading of the aforesaid section and the Hon'ble Kerala High Court's decision in the case of Secretary, Sultan Battery Co-op.
Housing Society Ltd. (supra) makes it clear that Section 231 imposed a bar on any recovery of any sum payable under the Income-tax Act after the expiry of the prescribed period. A recovery can commence only pursuant to any orders passed under Section 201(1) and 201(1A). After deletion of Section 231, such action for recovery can be taken at any time. However, Hon'ble Kerala High Court decision cannot be interpreted so as to mean that there is no time-limit for passing orders under Section 201(1) and 201(1A). We, therefore, hold that the assessment orders passed under Section 201(1) and 201(1A) for three assessment years 1996-97 to 1998-99 are time-barred and are accordingly, liable to be quashed on this ground.
22. The second legal issue to be adjudicated is as to whether Section 201(1) and 201(1A) have any applicability in case of short deduction of tax. The aforesaid section have been amended with retrospective effect from 1-4-1962 by the Finance Act, 2001. The amended sections read as under: 201. (1) If any such person referred to in Section 200 and in the cases referred to in Section 194, the principal officer and the company of which he is the principal officer does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax: Provided that no penalty shall be charged under Section 221 from such person, principal officer or company unless the Assessing Officer is satisfied that such person or principal officer or company, as the case may be, has without good and sufficient reasons failed to deduct and pay the tax.
(1A) Without prejudice to the provisions of Sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax/or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at fifteen per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid.
(2) Where the tax has not been paid as aforesaid after it is deducted, the amount of the tax together with the amount of simple interest thereon referred to in Sub-section (1A) shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in Sub-section (1).
23. The learned Counsel for assessee has contended that the assessee cannot be saddled with substantial financial liability in respect of the deduction of tax at source during the financial years, which are subject-matter of these appeals. It has been argued that the amendment has been introduced by the Finance Act, 2001 whereas the assessee had already deducted tax at source for all these years prior to that amendment. We are unable to accept the arguments raised by the learned Counsel for assessee. The Legislature has amended the relevant sections and the amended provisions have been consciously made effective with retrospective effect from 1-4-1962 ie., right from the commencement of the Income-tax Act, 1961. In our view, whatever may be consequences, the law laid down by the Legislature has to be given effect. We, therefore, hold that for the assessment years under appeal short deduction of tax at source would also attract the provisions of Section 201(1) and 201(1A).
24. We now go to the merits as also the arguments raised by Sri Dastoor that under Section 192, the assessee is obliged to deduct tax at source on the estimated income of the employees and if such estimate is honest and bona fide, the provisions of Section 201(1) and 201(1A) cannot be invoked. One of the alleged perquisites is furniture and other appliances allotted to the bank officers at standard rent, which is claimed by the department to be in the nature of benefit or amenity granted to the employees at concessional rate. On the basis of this reasoning, the department claims that provision of such benefit at concessional rate is a perquisite as defined under Section 17(2)(iii) of the Act. The case of the department is that the value of such perquisite has to be mandatorily computed by applying the Rule 3 of the IT Rules. Rule 3 requires that if any furniture etc. is allotted to the employee free of cost or at concessional rate, the value of the perquisite has to be determined at the rate of 10 per cent of the original cost of such furniture and fixtures. The learned Counsel for assessee has contended that before Rule 3 can be applied, the benefit or amenity, if any, allowed by the employer to the employee must come under the definition of perquisite. In other words, the first requirement is to establish that any benefit or amenity has been granted or provided by the employer to its employees at concessional rate. This issue has come up for the Hon'ble Calcutta High Court in the case of ITO v. All India Vijaya Bank Officers' Association . The ratio of this case is reproduced below from the head notes: Section 17(2) of the Income-tax Act, 1961 authorises the employer concerned to deduct at source on account of tax on the value of any benefit or amenity granted or provided free of cost or at a concessional rate in any of cases mentioned in Clauses (a), (b) and (c).
The petitioner, an association of officers employed in the respondent bank, challenged the action of the bank authorities in recovering tax on perquisites on account of supply of furniture at a concessional rate: Held, that there was no concession in providing amenities by letting out the furniture at a uniformly standard rate so as to bring it within the pursuer of the definition of perquisites. The rate charged for realization of rent by the bank concerned from all the employees who were similarly situate and placed was uniform and there was no discrimination. Therefore, the recovery of tax was unjustified and deductions already made had to be adjusted.
25. In the above case, the Hon'ble Calcutta High Court recorded a clear finding that if the rate charged by the employer from all the employees, who were similarly placed, was uniform and there was no discrimination, it cannot be said that there was a concession in providing the amenity. The Hon'ble Calcutta High Court referred to its earlier decision in the case of All India VijayaBank Officers 'Association (supra). In this case, the applicability of Rule 3(b) was also considered by the Hon'ble Calcutta High Court. It would be appropriate to reproduce below the ratio of this decision from the head notes: The respondent was a nationalised bank which provided residential accommodation to some of its officers charging standard rent as fixed under the Regulations framed by the bank. By a circular dated October 14, 1992, the bank informed its branches that the standard rent recovered by the bank in the case of accommodation provided to the employees, was not a fair rent value that it was a perquisite to be calculated in accordance with Rule 3(b) of the Income-tax Rules, 1962. On a writ petition filed by the association of officers of the bank, a single Judge held in favour of the employees. On appeal to a Division Bench by the Department.
Held, dismissing the appeal, that Rule 3(b) was for the purpose of valuation of the perquisite provided to the employee and if there was no perquisite, the question of valuation did not arise. Rule 3(b) of the Income-tax Rules could only be applied where the accommodation had been given to the employees at a concessional rate and if there was no concession, Rule 3(b) of the Rules was not applicable. The question of concession depended on the nature of accommodation provided to the employee, namely, the normal rent for such accommodation, provided by the employer, payable by other employees similarly situated and employed by the same employer and the actual rent paid by the assessee employee concerned. The rent paid by all the employees of the bank was at a uniform rate and there was no departure of any kind in favour of any of the employees. In fact, the rent had been in accordance with the Regulations and employees similarly situated paid the rent in accordance with the Regulations. Therefore, the provision of accommodation to the employees on payment of standard rent was not a concession so as to be included within the meaning of perquisite.
26. Earlier to that, similar issue came up for adjudication before the Hon'ble Calcutta High Court (SMB) in the case of Indian Bank Officers' Association (supra). The relevant observations of the High Court in this case may be reproduced below from pages 75 and 76 of the Report: That the standard rent as fixed by the Government or other authority is acceptable as the normal rent for the purpose of determining the question of concession is apparent from the language eg. Rule 3(a)(i)(1). Rule 3 provides for the valuation of perquisites. In other words, either there is a concession or perquisite, such perquisite is to be computed in the manner provided by the rules.
The rules themselves do not seek to fix any liability which has not been so done under Section 17(2) of the Act. Under Rule 3(a)(i)(1) if a Government official is occupying rent-free accommodation, the valuation of the perquisite is to be determined "in accordance with the rules framed by the Government for allotment of residences to its officer". The argument sought to be put forward by learned Counsel on behalf of the income-tax authorities that under Rule 3(a)(ii)(B)(1), the petitioners must be held to be enjoying perquisite because they were paying less than 10 per cent of the salary, is putting the cart before the horse. The question of perquisite must be determined before the question of computing the value of such perquisite arises. By following the method of valuation provided, the income-tax authorities cannot then determine the existence of the perquisite. Furthermore, to read a portion of the rule relied upon by the income-tax authorities in the manner contended, would be at variance with the provisions of Section 17(2) of the Act. The rule cannot be permitted to be read in a manner beyond the powers conferred under the substantive provision of the Act.
27. The aforesaid Single Judge decision has been confirmed by the Hon'ble Calcutta High Court in the case of All India Vijaya Bank Officers' Association (supra). The Hon'ble Madhya Pradesh High Court in the case of Officers' Association, Bhilai Steel Plant (supra) and the Hon'ble Andhra Pradesh High Court in case of Steel Executives Association (supra) have also taken similar view. In all the above mentioned cases, it has been consistently held that no perquisite would arise under Section 17(2)(iii), if uniform standard rent is charged from employees similarly placed. It has also been clearly held that Rule 3 of the IT Rules can be applied only in a situation where there is a perquisite chargeable to tax under Section 17(2). If there is no perquisite, question of valuation thereof under Rule 3 would not arise.
28. The present case may be examined in the light of the legal position, which emerges from the above-mentioned judicial pronouncements. The facts have already been stated above in detail. The furniture and other appliances are allotted to the bank officers who would have been allotted residential accommodation also. Such furniture and appliances are allotted on the basis of entitlement of each category of officers in accordance with the circulars issued by the bank from time-to-time. In respect of this facility, the bank charges standard rent which is also fixed in accordance with periodical circulars issued by the bank. As per these circulars, rent is charged at certain percentage of the first stage of the pay scale of the concerned officer. During the year under appeal, the rent was 1.0 per cent, which was subsequently revised to 0.5 per cent. Such rent is uniformly charged from the officers falling in one category and there is no discrimination or concession in favour of any particular officer of that category. In our view, considering the entire facts and circumstances, the cases relied upon by the learned Counsel for assessee squarely apply to the present case. There is no dispute about the proposition of the learned DR that Rule 3 of the IT Rules is mandatory. However, the applicability of Rule 3 would arise only when there is a perquisite under Section 17(2) of the Act and the value of such perquisite is, therefore, required to be determined. In the present case, it cannot be said that any benefit or amenity was granted or provided by the assessee bank at concessional rate. Therefore, there would be no perquisite as defined under Section 17(2)(iii). When there is no perquisite, the question of valuation of such perquisite cannot arise under Rule 3.
29. Coming to some other amenities in the form of reimbursement of wages to casual labourer and reimbursement of cleansing material, in our view, the assessee bank has taken precautions before such reimbursement was granted to the employees. Under the Rules framed, the aforesaid reimbursement is for proper maintenance and upkeep of the residential accommodation, furniture, fixture and other appliances, which are owned by the assessee-bank. In our view with regard to allotment of the furniture and reimbursement of expenditure as mentioned above, the assessee bank was clearly under a bona fide belief that it was properly complying with the provisions of Section 192. We have already referred to Hon'ble Madhya Pradesh High Court decision in the case of Gwalior Rayon Silk Co. Ltd. (supra) and Hon'ble Delhi High Court decision in the case of Nestle India Ltd. (supra) and to the ITAT's decision in the case of Hindustan Lever Ltd. (supra). In these cases, it has been held that a duty is cast on an employer to form an opinion about the tax liability of his employees in respect of salary income. The employer is expected to act honestly and fairly. Unless any inference can be drawn that the employer did not act honestly and fairly, it cannot be said that the employer has not deducted proper tax on the estimated income of the employees. The employer is required to have a broad picture of the estimated income, which is to be subjected to tax. The department must show by bringing some material on record, that non-deduction of tax at source was mala fide on the part of the employer. In the present case, as already discussed by us above, there is no sufficient material or evidence to show that the assessee-bank had not acted under a bona fide belief and therefore, we hold that the assessee-bank cannot be treated to be an assessee in default under Section 201(1) and interest cannot be charged under Section 201(1A).
We, therefore, reverse the orders of the respective CIT(A)'s for the assessment years under appeal and quash the orders of the Assessing Officer treating the assessee to be an assessee in default under Section 201(1) and charging the interest under Section 201(1A).
30. In the result, all the appeals of the assessee are treated as partly allowed.