1998 Supreme(AP) 285

Andhra Pradesh High Court
Judges : S.V.MARUTHI, T.N.C.RANGA RAJAN
P.V.Rajgopal - Appellant
Versus
Union of India - Respondent
Decided On : 04-21-98

Headnote:

Income-tax Act - Sections 17 (2) (iii) , 197 (2a) ,194-1,201, 234 B and C, 197a, 234-B and C - Deduction of tax at source - income chargeable under head salaries - Research and Development Division of Bharat Heavy Electricals Limited - They obtained House Building Advance from H. D. F. C. L. I. C. , and other Financial Institutions in respect of which monthly instalments are deducted from their salary - Difference between rate of interest charged by Financial Institutions and rate of interest at which House Building loans are generally sanctioned by Company was reimbursed to petitioners - Central Board of Direct Taxes informed Chief Commissioner of Income-tax Hyderabad that where employer directly bears a part of interest burden of employees by reimbursing a portion of interest payable by employee in respect of building loans such reimbursement is taxable as income from salaries under Section 17 (2) (iii) of Income-tax Act - This was forwarded to Deputy Commissioner of Income-tax of each zone and circulated to Company - This writ petition challenges that letter by claiming that interest on reimbursement is not a perquisite and prays for a declaration that said letter is illegal and ultra vires provisions of Income-tax Act - Trade union of workers of Bharat Heavy Electricals Limited - It is stated that an order under Section 201 was passed against Company for assessment years raising a demand of with penalty of - Consequently Company issued a Circular intimating employees that interest subsidy will be treated as a perquisite for deducting tax at source - It is stated that a similar order for earlier year was set aside in revision and yet Income-tax Department was persisting and for that reason it is prayed that there should be a direction not to treat interest subsidy as a perquisite while deducting tax at source - Provisions are to be applied arises from a welfare measure by Central Government for providing funds for acquisition of houses by its employees - As far as Central Government employees arc concerned house building loans are sanctioned by Government at a concessional rate - As far as Public Sector Undertakings owned by Government arc concerned similar schemes were in vogue - It was found that Public Enterprises had to use available funds in their own enterprises and their internal resources were not large enough to meet weeds of employees for housing loans - At same time Financial Institutions were also granting loans for building houses but at a rate which was higher than rate at which Government was granting house building advances - Ministry of Industry considered this situation and by icltcr BPE (WC) decided that Public Enterprises should adopt a scheme of interest subsidy to pay difference between rate of interest charged by specialised agencies and rate of interest charged by Central Government under House Building Advance Rules - Consequently large Public Sector Undertakings framed their own rules providing for granting subsidy to employees who had taken loans from other Financial Institutions instead of being granted loans by Public Sector Undertaking itself - Legal Position question whether grant of house building advances at a rate of interest below market rate is a perquisite had been debated - Whether assessec is entitled to a particular deduction or not will depend on provisions of laws thereto and not on view which asscssee might take of his right - Whether a particular amount paid is taxable or not and Court view of attitude of Department with reference to Section 201 - Whether there is a scheme in company for giving interest subsidy and terms thereof - Any expenditure incurred by a Company for provision of a perquisite to an employee was subject to a ceiling whether convertibility into money or not - Whether there is any such lacuna - Held, Government itself was that statutory provisions did not treat it as aperquisite - Consequently Taxation Laws Act, 1984, introduced an amendment with effect from inserting sub-clause to include as a perquisite amount of interest where loan is given interest free and amount of difference between interest charged and notified rate where loan is given at a rate less than notified rate prescribed for Central Government House Building Advance - SECTION 207 provides for advance payment of tax - Advance tax is calculated as tax payable on total income computed on total estimated income of previous year computed in accordance with provisions of Act reduced by amount of income tax which is deductible at source - Such advance tax is payable in three instalments under Section 211 - Section 234-B provides for interest on defaults in payment of advance tax and Section 234-C for interest for deferment of advance tax at rate of per cent per month - If we look at these Sections it will be apparent that an assessee has to calculate his advance tax and pay it in time taking into account tax deducted at source - If less tax is deducted at source he will have to pay more advance tax as otherwise he will be liable to pay interest for deferment of advance tax inasmuch as advance tax is determined after reducing tax deductible at source - Person who deducts tax at source will be liable only if he fails to remit tax after deducting same - SECTION 203 provides for issue of a certificate for tax deducted which is to be given credit and Section 205 bars direct demand on assessee in respect of tax so deducted - SECTION 201 provides that if person so obliged to deduct docs not deduct or after deducting fails to pay tax he shall be deemed to be an assessee in default and liable to penalty under Section 221 as well as penal interest under 201 (1a ) - Court considered opinion action taken under Section 201 was wholly illegal and not authorised by statute - It amounted to an unreasonable coercion which has to be resisted only by invoking extra-ordinary jurisdiction of this Court - There is thus no loophole which requires to be plugged - Perhaps a better solution may be evolved - In this background contention of senior Standing Counsel for Revenue that there is an alternate remedy by way of assessment procedure is unacceptable - A Possible Solution - Court may refer to decision of Supreme Court in case of Oil and Natural Gas Corporation where it was that disputes between Government and Government Undertakings should not be taken to Court - Revenue would have been well advised to sort out this matter by a discussion with Undertakings - As it appears that such a discussion had taken place and Chairman CBDT had given an assurance in this regard - In spite of that Department had proceeded to instruct employers to treat interest subsidy as a perquisite for deducting tax at source - Comprehensive circular relating to TDS subsequently issued being silent on this point Court have to appreciate senior Standing Counsel for actually performing a public service by forcefully bringing out internal contradiction between letter of Chairman given in conformity with directions of Supreme Court and impugned letter of CBDT - Directions - Writ Petitions Allowed