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2009 DIGILAW 893 (KAR)

Commissioner of Income Tax v. Wipro Systems

2009-11-23

ARAVIND KUMAR, K.L.MANJUNATH

body2009
JUDGMENT K.L. Manjunath, J.— The revenue has come up in these two appeals being aggrieved by the order of the Tribunal, Bangalore Bench in ITA No. 1000/Bang/1997 and ITA No. 1025/Bang/1997, dated 20-8-2003 respectively. 2. The respondent-assessee filed the returns of income for the asst. yrs. 1995-96 and 1994-95. The returns were perused by the assessing officer. The assessing officer while perusing the returns noticed that the assessee had provided its employees attire allowances and travel accessories allowance and so also the club membership subscriptions. The assessing officer treating that the assessee has failed to deduct the tax at source in respect of the perquisites given to its employees passed an order holding that there was a short recovery of tax deduction at source and an addition was made. In addition to that, interest under Section 201(1A) of the Act was also levied. This order was challenged by the assessee by filing an appeal before the Commissioner (Appeals), which appeal came to be allowed in part and confirmed the order of the assessing officer in part. Being aggrieved by the order passed by the Commissioner (Appeals), the assessee filed an appeal before the Tribunal, which appeal has been allowed. Being aggrieved by the same, the revenue has come up in these appeals raising the following substantial questions of law: (1) Whether the Tribunal was correct in setting aside the order of the assessing officer that the assessee is in default under Section 201(1) of the Act and consequently liable to pay interest under Section 201(1A) of the Act on account of the assessee failing to deduct tax at source from its employees in respect of perquisites provided i.e., attire allowance and travel accessories allowance ? (2) Whether the Tribunal was correct in holding that the attire allowances and travel accessory allowance paid to the employees cannot be treated as perquisite under Section 17 of the Act ? 3. We have heard the learned Counsel for the parties. 4. The dispute in these two appeals are pertaining to the club expenses/membership incurred by the assessee for the benefit of its employees. 5. According to the revenue that the membership card obtained in the name of the employees, subscription paid by the company on behalf of the employees falls under Section 17(2)(iv) of the Act. 4. The dispute in these two appeals are pertaining to the club expenses/membership incurred by the assessee for the benefit of its employees. 5. According to the revenue that the membership card obtained in the name of the employees, subscription paid by the company on behalf of the employees falls under Section 17(2)(iv) of the Act. It is also the case of the Revenue that, the company is spending huge money under the heading, attire expenses, thereby permitting its officers to purchase the cloths of their choice with an understanding to reimburse the actual expenses incurred by the officer. Similarly, the company has permitted the employees to purchase the travel suitcase, calculating machine and expenses incurred by such employees towards printing of letterheads, visiting cards, greeting cards, etc. Therefore, it contends that the said facility also falls under Section 17(2)(iv). 6. According to the learned Counsel for the revenue, the Tribunal did not consider the provision of Section 17(2)(iv) of the Income Tax Act, in proper perspective. He further contends that these are incidental to the employment. Therefore, there is no necessity for the assessee to reimburse the amount. He further submits that under the guise of business promotion, the assessee is providing the facilities to its employees which falls under Section 17(2)(iv) of the Act. Therefore, the assessee was required to deduct tax at source in regard to the amount spent on these expenses. 7. Per contra, the learned Counsel for the assessee contends that whenever a corporate membership is available, the assessee-company is purchasing the club membership on its own -and whenever such membership is not available or found to be uneconomical, the company authorises its senior selected employees to become members of such club for and on behalf of the company. For the purpose of business meeting and entertainment, the company reimburses the amount spent by such officers whenever they entertain official guests of the company. Therefore, he contends that expenses incurred under this head does not fall under Section 17(2}(iv) of the Act and that such business is required in the interest of the assessee-company. 8. So far as this point is concerned, we cannot accept the arguments advanced by the learned Counsel for the respondent in toto. Therefore, he contends that expenses incurred under this head does not fall under Section 17(2}(iv) of the Act and that such business is required in the interest of the assessee-company. 8. So far as this point is concerned, we cannot accept the arguments advanced by the learned Counsel for the respondent in toto. We can understand, if the company has purchased the club membership on its own and permitted its senior officers to entertain the official guests of the company and reimbursing the expenditure incurred by such officer whenever guests of the company were taken to the clubs and if such expenses are incurred and reimbursed, we can certainly appreciate that the company in order to entertain the company guests is required to spend the amount on behalf of the company. If the company has provided money to an officer to purchase the club membership and if the subscription and the amount incurred by the officer for his personal benefit is reimbursed by the company, such amounts spent by the officers of the company cannot be considered as business promotion. In such event, that would fall under Section 17(2)(iv) of the Act. Accordingly, the said point is answered by us. 9. So far as the attire expenses are concerned, after hearing the arguments of the learned Counsel appearing for both the sides, it cannot be made out from the records that what type of attire expenses are reimbursed to the officers of the company. Even, according to the learned Counsel for the assessee, it is not an uniform. According to him, considering the status of the officers as they are required to meet the guests of the company or whenever they visit the customers of the company for business promotion, the officers are required to wear a suitable dress. Therefore, the company is in the habit of reimbursing the attire expenses. But considering the nature of salary paid to such higher officers as these officers are required to go in a proper and decent dress and if the reimbursement is made on the attire expenses, the same cannot be considered as an attire expenses as it is not an uniform. However, how the attire expenses are incurred by the assessee and the category of the officers to whom such reimbursement is made, has to be examined by the assessing officer. However, how the attire expenses are incurred by the assessee and the category of the officers to whom such reimbursement is made, has to be examined by the assessing officer. In order to find out whether the amount spent by the company would fall under the definition, attire expenses and the same has to be reconsidered by the assessing officer. Accordingly, we answer the said point. 10. So far as the expenses incurred by the company for providing travel accessories or communication and other accessories are concerned, we are of the view that such expenses are required to be incurred by the officers for the business promotion and for the benefit of the assessee, if the officers have spent money and if the same is reimbursed by the company, we are of the view that such expenses is for the benefit of the assessee and not for the benefit of its employees. Therefore, the said category does not fall under Section 17(2)(iv) of the Act. 11. In the result, without answering the substantial questions of law framed, by setting aside the orders passed by all the authorities, we remand the matter to the assessing officer to find out whether the expenses incurred by the company towards the club membership for entertaining the guests are for the benefit of the assessee or not, has to be examined based on the records to be produced by the assessee. In view of our finding on the point No. 1, the assessing officer shall pass an appropriate order of assessment on point No. 1 is concerned. Similarly, based on our observation in regard to attire allowance is concerned, the company shall produce the document and the assessing officer shall look into it and pass an appropriate order in accordance with law. So far as travel accessories or office accessories are concerned, we concur with the views of the Tribunal. Accordingly, the same is answered in favour of the assessee. 12. With the above observation, both the appeals are allowed in part and the matter is remanded to the assessing officer for fresh consideration, in accordance with law.