[aaykarbhavan] Judgments,

Delhi HC interprets sec. 80-I broadly; conditions stipulated by sec. 80-I to be satisfied only in initial A/Y

IT : Industrial undertaking which undertakes job work entitled to section 80-I deduction

• Workers employed on manufacturing/production process indirectly through another agency and not on assessee's payrolls also to be considered for ascertaining whether "10 or more workers" condition is satisfied

• Printing is manufacture or production of an article or thing

• A new undertaking would not be treated as formed by splitting, or reconstruction of a business already in existence and would not be disqualified under section 80-I(2)(i) of the Act simply for the reason that the activity carried on in a new undertaking was of a similar nature to one of the activities being carried on in the existing undertaking even though the new industrial undertaking is established in addition to the existing one without transfer of any assets to the newly formed undertaking

• The qualification as to whether any industrial undertaking fulfills the condition as specified under Section 80-I of the Act has to be determined in the year in which the new industrial undertaking is established

HELD

(A) Industrial undertaking which undertakes job work entitled to section 80-I deduction

• There is nothing in the language of Section 80-I(2)(iii) of the Act to suggest that the assessee claiming the benefit of Section 80-I of the Act must structure his business in any particular form.

• Carrying on job work is only a method of structuring one's business.

• An assessee owning an industrial undertaking may either choose to purchase raw material on its own and process the same or it may acquire raw material on job work basis and utilize the same for carrying on the industrial activity.

• In either event so long as the industrial undertaking owned by the assessee fulfills the conditions as specified under Section 80-I(2) of the Act, the benefit of Section 80-I of the Act cannot be denied to the assessee.

• "We are unable to read the condition that an industrial undertaking must not carry on the manufacturing process on job work basis in order to avail the benefit of section 80-I of the Act in the language of 80-I(2) of the Act."

• The idea that carrying on job work necessarily excludes carrying on an activity of manufacture or production is without any basis.

(B) Printing amounts to "manufacture or production of an article or thing"

• One cannot accept the contention that the printing does not alter the character of the paper used and there is no distinction between the raw paper and the resultant product.

• The purpose and usage of a blank paper is completely different from the use and purpose of a printed magazine or periodical.

• Once the blank paper undergoes a process of printing, the character of blank paper changes completely and the content of the printed material now becomes the identity of a printed paper.

• No one can say that blank paper and printed article are one and the same. It can hardly be said that printing carried out in an industrial undertaking would not amount to manufacturing.

• A printed magazine or periodical even if it is not bound has a definite identity and its usage is completely different from a blank paper on which it is printed.

• The expression used in Section 80-I (2)(iii) of the Act is "manufacture or produce any article or thing".

• The word 'produce' has wider meaning than the word "manufacture". The meaning of the word 'produce' is similar to the word "production"

• The expression used in Section 80-I(2)(iii) of the Act is much wider and, thus, would take in its sweep any article that may be manufactured or produced.

"Article or thing"

• The Shorter Oxford English Dictionary defines 'article' to mean "A particular material thing (of a specified class); a commodity; a piece of goods or property".

• The meaning of the word "thing" is wider and the meanings ascribed to the word "thing" by the shorter Oxford English Dictionary includes "an inanimate material object", "a material substance", "That which one possesses: property, wealth".

• It is apparent that the expression "article or thing" is extremely wide.

• There is no reason to exclude the printed paper produced by the assessee from the ambit of the expression 'article' or 'thing'.

• Since, in any event production of any article or thing by an industrial undertaking would be sufficient to entitle the industrial undertaking to claim that the condition under Section 80-I(2)(iii) of the Act was fulfilled.

• Indisputably, printed paper falls within the meaning of the expression "an article or thing" and whether the same is marketable as new product is not relevant.

(C) Condition of employment of 10 or more workers-Workers employed in manufacturing/production process not on rolls but employed through another agency also to be included to compute number of workers

• A plain reading of the language of Section 80-I (2)(iv) of the Act indicates that the condition of employing of 10 or more workers is not used in the context of an employer and employee relationship between the assessee and the workers carrying on the manufacturing process, but in the sense of quantifying the number of persons to be deployed in the manufacturing process.

• The expression "workers" is not defined in the Act and there is no reason to limit the expression "workers" as occurring in section 80-I(2)(iv) of the Act to only mean such workers as are employed directly by the assessee and ignore the workers who are engaged in the manufacturing process carried on by the industrial undertaking albeit employed through another agency.

• The workers in an industrial undertaking need not be on the rolls of assessee for availing the benefit under Section 80-I of the Act.

(D) Interpretation of the condition "industrial undertaking should not be formed by splitting, or reconstruction of a business already in existence"

• In order to qualify under Section 80-I(2)(i) of the Act, the newly established industrial undertaking should not be formed by splitting, or reconstruction of a business already in existence.

• The key word in the condition imposed under section 80-I(2)(i) of the Act is "formed".

• Thus, what is to be considered is whether formation of new industrial undertaking was a result of splitting up of business.

• One cannot agree that a new undertaking would be disqualified under section 80-I(2)(i) of the Act simply for the reason that the activity carried on in a new undertaking was of a similar nature to one of the activities being carried on in the existing undertaking even though the new industrial undertaking is established in addition to the existing one without transfer of any assets to the newly formed undertaking.

• The test to be applied is whether the new undertaking has been formed as an undertaking independent of the existing undertaking and is capable of carrying on its activity independent of the existing Unit.

• The test of whether new Units were independent undertakings or not is not to be adjudged on the basis whether the said Units were carrying on printing work for existing Unit but whether the Units were capable of independently carrying on the business for which they were formed.

• The assessee had contended that whereas Unit No.1 was publishing house Unit Nos.2 & 3 were printing houses and the work of printing carried out by through high speed printing machines was a business which could be carried out independent of Unit No.1.

• The assessee had also been given examples of entities who were engaged in carrying on the printing activity on a standalone basis and were not involved in publication.

• Indisputably, printing activity can be carried out by an entity for any person who may have a requirement for the same and it is not necessary that every person who engages in the business of printing should necessarily also be involved in publishing.

(E) The qualification as to whether any industrial undertaking fulfills the condition as specified under Section 80-I of the Act has to be determined in the year in which the new industrial undertaking is established

• Although the deduction under Section 80-I of the Act is available for the assessment years succeeding the initial assessment year, the conditions for availing the benefit are inextricably linked with the previous year relevant to the assessment year in which the new undertaking was formed.

• In such circumstances, it would not be possible for an Assessing Officer to reject the claim of an assessee for deduction under Section 80-I of the Act on the ground that the industrial undertaking in respect of which deduction is claimed did not fulfill the conditions as specified in Section 80-I(2) of the Act, without undermining the basis on which the deduction was granted to the assessee in the initial assessment year.

IT : Industrial undertaking which undertakes job work entitled to section 80-I deduction

• Workers employed on manufacturing/production process indirectly through another agency and not on assessee's payrolls also to be considered for ascertaining whether "10 or more workers" condition is satisfied

• Printing is manufacture or production of an article or thing

• A new undertaking would not be treated as formed by splitting, or reconstruction of a business already in existence and would not be disqualified under section 80-I(2)(i) of the Act simply for the reason that the activity carried on in a new undertaking was of a similar nature to one of the activities being carried on in the existing undertaking even though the new industrial undertaking is established in addition to the existing one without transfer of any assets to the newly formed undertaking

• The qualification as to whether any industrial undertaking fulfills the condition as specified under Section 80-I of the Act has to be determined in the year in which the new industrial undertaking is established

HELD

(A) Industrial undertaking which undertakes job work entitled to section 80-I deduction

• There is nothing in the language of Section 80-I(2)(iii) of the Act to suggest that the assessee claiming the benefit of Section 80-I of the Act must structure his business in any particular form.

• Carrying on job work is only a method of structuring one's business.

• An assessee owning an industrial undertaking may either choose to purchase raw material on its own and process the same or it may acquire raw material on job work basis and utilize the same for carrying on the industrial activity.

• In either event so long as the industrial undertaking owned by the assessee fulfills the conditions as specified under Section 80-I(2) of the Act, the benefit of Section 80-I of the Act cannot be denied to the assessee.

• "We are unable to read the condition that an industrial undertaking must not carry on the manufacturing process on job work basis in order to avail the benefit of section 80-I of the Act in the language of 80-I(2) of the Act."

• The idea that carrying on job work necessarily excludes carrying on an activity of manufacture or production is without any basis.

(B) Printing amounts to "manufacture or production of an article or thing"

• One cannot accept the contention that the printing does not alter the character of the paper used and there is no distinction between the raw paper and the resultant product.

• The purpose and usage of a blank paper is completely different from the use and purpose of a printed magazine or periodical.

• Once the blank paper undergoes a process of printing, the character of blank paper changes completely and the content of the printed material now becomes the identity of a printed paper.

• No one can say that blank paper and printed article are one and the same. It can hardly be said that printing carried out in an industrial undertaking would not amount to manufacturing.

• A printed magazine or periodical even if it is not bound has a definite identity and its usage is completely different from a blank paper on which it is printed.

• The expression used in Section 80-I (2)(iii) of the Act is "manufacture or produce any article or thing".

• The word 'produce' has wider meaning than the word "manufacture". The meaning of the word 'produce' is similar to the word "production"

• The expression used in Section 80-I(2)(iii) of the Act is much wider and, thus, would take in its sweep any article that may be manufactured or produced.

"Article or thing"

• The Shorter Oxford English Dictionary defines 'article' to mean "A particular material thing (of a specified class); a commodity; a piece of goods or property".

• The meaning of the word "thing" is wider and the meanings ascribed to the word "thing" by the shorter Oxford English Dictionary includes "an inanimate material object", "a material substance", "That which one possesses: property, wealth".

• It is apparent that the expression "article or thing" is extremely wide.

• There is no reason to exclude the printed paper produced by the assessee from the ambit of the expression 'article' or 'thing'.

• Since, in any event production of any article or thing by an industrial undertaking would be sufficient to entitle the industrial undertaking to claim that the condition under Section 80-I(2)(iii) of the Act was fulfilled.

• Indisputably, printed paper falls within the meaning of the expression "an article or thing" and whether the same is marketable as new product is not relevant.

(C) Condition of employment of 10 or more workers-Workers employed in manufacturing/production process not on rolls but employed through another agency also to be included to compute number of workers

• A plain reading of the language of Section 80-I (2)(iv) of the Act indicates that the condition of employing of 10 or more workers is not used in the context of an employer and employee relationship between the assessee and the workers carrying on the manufacturing process, but in the sense of quantifying the number of persons to be deployed in the manufacturing process.

• The expression "workers" is not defined in the Act and there is no reason to limit the expression "workers" as occurring in section 80-I(2)(iv) of the Act to only mean such workers as are employed directly by the assessee and ignore the workers who are engaged in the manufacturing process carried on by the industrial undertaking albeit employed through another agency.

• The workers in an industrial undertaking need not be on the rolls of assessee for availing the benefit under Section 80-I of the Act.

(D) Interpretation of the condition "industrial undertaking should not be formed by splitting, or reconstruction of a business already in existence"

• In order to qualify under Section 80-I(2)(i) of the Act, the newly established industrial undertaking should not be formed by splitting, or reconstruction of a business already in existence.

• The key word in the condition imposed under section 80-I(2)(i) of the Act is "formed".

• Thus, what is to be considered is whether formation of new industrial undertaking was a result of splitting up of business.

• One cannot agree that a new undertaking would be disqualified under section 80-I(2)(i) of the Act simply for the reason that the activity carried on in a new undertaking was of a similar nature to one of the activities being carried on in the existing undertaking even though the new industrial undertaking is established in addition to the existing one without transfer of any assets to the newly formed undertaking.

• The test to be applied is whether the new undertaking has been formed as an undertaking independent of the existing undertaking and is capable of carrying on its activity independent of the existing Unit.

• The test of whether new Units were independent undertakings or not is not to be adjudged on the basis whether the said Units were carrying on printing work for existing Unit but whether the Units were capable of independently carrying on the business for which they were formed.

• The assessee had contended that whereas Unit No.1 was publishing house Unit Nos.2 & 3 were printing houses and the work of printing carried out by through high speed printing machines was a business which could be carried out independent of Unit No.1.

• The assessee had also been given examples of entities who were engaged in carrying on the printing activity on a standalone basis and were not involved in publication.

• Indisputably, printing activity can be carried out by an entity for any person who may have a requirement for the same and it is not necessary that every person who engages in the business of printing should necessarily also be involved in publishing.

(E) The qualification as to whether any industrial undertaking fulfills the condition as specified under Section 80-I of the Act has to be determined in the year in which the new industrial undertaking is established

• Although the deduction under Section 80-I of the Act is available for the assessment years succeeding the initial assessment year, the conditions for availing the benefit are inextricably linked with the previous year relevant to the assessment year in which the new undertaking was formed.

• In such circumstances, it would not be possible for an Assessing Officer to reject the claim of an assessee for deduction under Section 80-I of the Act on the ground that the industrial undertaking in respect of which deduction is claimed did not fulfill the conditions as specified in Section 80-I(2) of the Act, without undermining the basis on which the deduction was granted to the assessee in the initial assessment year.

Payments made for Seismic survey by an entity engaged in oil and natural gas exploration would attract sec. 194J

IT : Where assessee had undertaken projects of exploration of oil and natural gas and made payment towards seismic survey and pre-mining activities, said payment would be liable to TDS under section 194J and not 194C

IT : Uniform and washing allowance paid to employees is liable to FBT, and not to TDS

IT : Conveyance and maintenance expenses paid to employees is not liable to TDS

■■■

[2013] 33 taxmann.com 368 (Ahmedabad - Trib.)

IN THE ITAT AHMEDABAD BENCH 'D'

Oil & Natural Gas Corpn. Ltd.

v.

Assistant Commissioner of Income-tax (TDS)*

A.K. GARODIA, ACCOUNTANT MEMBER
AND KUL BHARAT, JUDICIAL MEMBER

IT APPEAL NOS. 184, 185, 609, 611, 1066 & 1343 (AHD.) OF 2010
[ASSESSMENT YEAR 2009-10]

NOVEMBER  16, 2012 

I. Section 194J, read with sections 9, 194C and 194-I, of the Income-tax Act, 1961 - Deduction of tax at source - Technical services fees [Seismic survey, etc.] - Assessment year 2009-10 - Assessee had undertaken projects of exploration of oil and natural gas and made payment towards seismic survey and pre-mining activities - Whether same would not be covered under exception carved out in Explanation 2 to section 9(1)(vii) and would be considered as fees for technical service and therefore, liable to TDS under section 194J - Held, yes - Whether payment of hiring charges on availing services of vehicles is liable to TDS under section 194C - Held, yes - Whether for AMC paid for EPINET, VRC Hardware, PSDM sub-system, ACs, lifts and UPS facility, section 194C is applicable - Held, yes [Paras 38, 39 and 40] [In favour of assessee]

Circulars and Notifications : Instruction No. 1862, dated 22-10-1990

II. Section 115WB, read with section 17(2), of the Income-tax Act, 1961 - Fringe benefits [Employee's welfare] - Assessment year 2009-10 - Assessee paid uniform and washing allowance to its employees and paid fringe benefit tax on said expenditure - Whether on fringe benefit like uniform and washing allowance, etc. provided by assessee to its employees otherwise than for a statutory obligation, is liable to fringe benefit tax and same is not liable to income tax in hands of employee because same cannot be considered as perquisites as per provisions of section 17(2)(vi) and, therefore, there was no liability of deducting TDS on assessee-company - Held, yes [Para 12] [In favour of assessee]

Circulars and Notifications : Circular No. 8 of 2005 dated 29-8-2005

III. Section 17(2) of the Income-tax Act, 1961 - Salaries - Perquisites [Exclusion] - Assessment year 2009-10 - Assessee reimbursed conveyance and maintenance expenses (CMRE) to its employees and paid fringe benefit tax on same - This expenditure was neither incurred to fulfil any statutory obligation or to mitigate occupational hazards nor did it fall in any other exclusion as specified in Explanation to clause (E) of sub-section (2) of section 115WB - Whether there was no liability on assessee to deduct tax at source - Held, yes [Para 18] [In favour of assessee]

FACTS-I

 

■		The assessee had undertaken projects for carrying out drilling operation for exploration or exploitation of oil and natural gas and made payments towards (i) seismic survey and pre-mining activities, (ii) hiring charges of vehicles and equipments and (iii) AMC for EPINET, VRC Hardware, PSDM sub-system, ACs, Lifts and UPS facility and deducted TDS under section 194C.
■		The Assessing Officer was of opinion that tax at source was required to be deducted under section 194-I for hiring charges and under section 194J for remaining payments. He held assessee in default for short deduction of tax at source and raised demand under section 201(1) and 201(1A).
■		On appeal, Commissioner (Appeals) deleted the demand raised by the Assessing Officer.
■		On revenue's appeal:

HELD-I

 

(i) Seismic job service

■		As per Explanation 2 to section 9(1)(vii), consideration paid for any construction, assembly mining or like project undertaken by the recipient chargeable or receipts taxable under the head 'salary' are to be excluded from fees for technical services. In the instant case, this is not the case of anybody that paid for amount & seismic survey by assessee is income of the recipient under the head 'salary'. Hence, it is to be examined whether the impugned payment can be considered as consideration for any construction, assembly mining or like project undertaken by the recipient. In the instant case, the mining or like project is undertaken by the assessee and not by the recipient. This is clearly noted by the Commissioner (Appeals) that mining and exploration was business activity of the assessee and the parties to whom the payments has been made for rendering technical services are not in the business of mining but they are in business of providing technical services for pre-mining/preparing for mining i.e., conducting seismic survey and rendering connected services. Hence, the impugned payment is not covered under exception carved out in Explanation 2 to section 9(1)(vii). As per CBDT instruction No. 1862, dated 22-10-1990 also, it is opined by Attorney General of India that Explanation 2 to section 9(1)(vii) is covers rendering of services like in parking of training and carrying out drilling operations for exploration or exploitation of oil and natural gas. In the instant case, it is not the case of the assessee that impugned payment was made for imparting of training. The second point of this Board instruction is that whether extraction or production of mineral oil can be termed as mining operations and in this regard, it was opined by the Attorney General of India that term mining project or like project would cover carrying out drilling operation for exploration or exploitation of oil and natural gas but even then it has to be accepted that such project should have been undertaken by the recipient and in the instant case, such project of exploration of oil and natural gas is undertaken by the assessee and not by the recipient. The recipient has only provided technical services and therefore, even after considering CBDT instruction No. 1862 dated 22-10-1990, the impugned payment is not covered byExplanation 2 to section 9(1)(vii). [Para 35]
■		On this aspect of the matter, no case could be made out by the assessee that impugned payment is not for fees for technical services or that it falls within the Exclusionary clause as per Explanation 2 to section 9(1)(vii) of the Act. Hence, on this aspect, there is no reason to interfere in the order of Commissioner (Appeals) and this issue is decided against the assessee. [Para 38]

(ii) Hiring of vehicles

■

This issue is squarely covered in favour of assessee by two judgments of jurisdictional High Court rendered in the case of CIT (TDS) v. Swayam Shipping Services (P.) Ltd. [2011] 339 ITR 647/199 Taxman 249 (Mag.)/11 Taxmann.com 137 and also another rendered in the case of CIT v.Shree Mahalaxmi Transport Co. [2011] 339 ITR 484/[2012] 211 Taxman 232/19 taxmann.com 144 (Guj.) and hence, respectfully following these two judgments of the jurisdictional High Court, this aspect of the matter regarding hire charge paid for vehicle is decided in favour of assessee. [Para 39]

(iii) AMC for EPINET, VRC Hardware, PSDM sub-system; ACs; Lifts and UPS facility

■

This issue is covered in favour of assessee by Tribunal's decision rendered in the case of Kandla Port Trust v. Dy. CIT [2011] 16 taxmann.com 273 (Rajkot) and respectfully following this Tribunal's decision, the aspect is also decided in favour of assessee. [Para 40]

FACTS-II

 

■		The assessee-company paid uniform allowance to its employees. The Commissioner (TDS) in the course of survey found that the payment made towards re-imbursement of uniform items, stitching charges, washing expenses, etc. was not based on actual incurring of expenditure and deserved to be taxed as salary income. The Assessing Officer held the assessee in default for not deducting tax at source and raised demand under section 201(1) and 201(1A) of the Act.
■		On appeal, the Commissioner (Appeals) upheld the order of Assessing Officer.
■		On second appeal, the assessee submitted that expenditure incurred for employee welfare otherwise than for statutory obligation was subjected to fringe benefit tax which was duly paid and the same could not be considered as perquisites in the hands of employees and, hence, no tax at source was required to be deducted.

HELD-II

 

■		As per section 17(2)(vi), perquisites does not include the fringe benefit chargeable to tax under Chapter XIIH. This is not in dispute that Fringe Benefit Tax was paid by assessee-company on uniform allowance and this is also admitted position that uniform allowance is in the nature of employees welfare. Contention raised by Revenue that in the instant case, these allowances are given to each employee separately and the benefit arising to each employee is ascertainable and therefore, on such benefit, fringe benefit tax is not payable and only those expenditures in respect of employees welfare are liable to fringe benefit tax which are common expenditure and benefit obtained by each employee is not ascertainable. There is no such restriction provided in section 115WB that only common expenditure on employees welfare is liable to FBT and not those expenditures which are attributable to an employee directly and whose benefit enjoyed by an employee is ascertainable. Only exception carved out from the liability of FBT is as per Explanation to Clause E of this section as reproduced above which includes those expenditures which are incurred to fulfil any statutory obligation or to mitigate occupational hazards etc. The impugned expenditure which is in dispute does not fall in any of the exclusion clause of the explanation. The second argument of the Revenue is this that actual expenditure was not incurred by the employees of the assessee because at the time of survey also, no employees was found wearing any uniform. Regarding this contention, there is no exclusion provided in section 115WB to exclude those expenditures incurred by the assessee-company for employees' welfare which were not actually incurred by the employees as per the intention for which the expenditure was incurred. As per sub-section (1) of section 115WB, any privilege, service, facility or amenity directly or indirectly provided by an employer whether by way of reimbursement or otherwise to his employees is covered within the definition of fringe benefit on which FBT is payable. As per sub-section (2) of section 115WB, it is provided that fringe benefit shall be deemed to have been provided by the employer to its employee if the employer has in the course of business incurred by expenditure on or made any payment for various purpose which includes employees welfare. As per clause E of this sub-section, it does not come out that it has to be enquired and looked into whether the employee has incurred the amount given to him by the employer for the same purpose for which it was given to the employee. In our considered opinion, for the reason that the employer has paid FBT on a particular expenditure, it is considered as payment of income tax only on deemed income of the employee out of various expenditures incurred by the employer and hence, this is not relevant as to whether the employee has actually incurred those expenditures as intended by the employer. [Para 10]
■		Fringe benefit tax actually paid by the assessee-company on the impugned expenditure on uniform, washing allowance etc., the same cannot be considered as perquisites in the hands of the employees and therefore, there is no liability of the assessee-company to deduct TDS therefrom. [Para 11]
■		In the instant case, the expenditure incurred by the assessee in respect of uniform, washing charges etc., is not a statutory obligation of the assessee-company and therefore, it is not covered by the exclusion clause of Explanation to clause E of sub-section (2) of section 115WB. The consequence of this is that the same is not perquisites as per section 17(2)(vi).
■		It becomes very clear that on fringe benefit like uniform and washing allowance etc., provided by assessee to its employees otherwise than for a statutory obligation, is liable to FBT and same is not liable to income-tax in the hands of the employees because the same cannot be considered as perquisites as per the provisions of section 17(2)(vi). It is abundantly clear that no TDS is required to be deducted by the employer from such expenditure incurred by the employer for the benefits of the employees. Accordingly, in the instant case, TDS was not required to be deducted by the assessee-company from this expenditure incurred by it on providing uniform, washing charges and washing allowance etc. [Para 12]

FACTS-III

 

■		The assessee company reimburse the conveyance and maintenance expenses (CMRE) to its employees and paid fringe benefit tax on the same.
■		The Assessing Officer concluded the CMRE and transport allowance as part of salary in the hands of employees and treated the assessee-company in default for not deducting the tax at source from the amount of CMRE.
■		On appeal, the Commissioner (Appeals) deleted the order of Assessing Officer.
■		On revenue's appeal:

HELD-III

 

■

While deciding this issue in favour of assessee, this was stated by the Ld. Commissioner (Appeals) that the fact that employer is paying fringe benefit tax on CMRE cannot be ignored. Regarding conveyance & maintenance expenses, this could not be shown or established by the Revenue that fringe benefit tax is not payable on this expenditure. This expenditure is also not incurred to fulfil any statutory obligation or to mitigate occupational hazards or fall in any other exclusion as specified in Explanation to clause E of sub-section (2) of section 115WB. This also is an admitted fact that FBT was paid by the assessee-company on this expenditure also. Hence, this issue is decided in favour of assessee. [Para 18]

CASE REVIEW-I

 

R&B Fallon (A) Pty. Ltd. v. CIT [2008] 301 ITR 309/169 Taxman 515 (SC) (para 12) followed.

CASE REVIEW-II

 

Skycell Communications Ltd. v. Dy. CIT [2001] 251 ITR 53/119 Taxman 496 (Mad.) (para 36) and Gujarat State Electricity Corpn. Ltd. v. ITO[2004] 3 SOT 468 (Ahd.) (para 37) distinguished. CIT (TDS) v. Swayam Shipping Services (P.) Ltd. [2011] 339 ITR 647/199 Taxman 249 (Mag.)/11 taxmann.com 37 (Guj.) (para 39); CIT v. Shree Mahalaxmi Transport Co. [2011] 339 ITR 484/[2012] 211 Taxman 232/19 taxmann.com 144 (Guj.) (para 39) and Kandla Port Trust v. Dy. CIT [2011] 16 taxmann.com 273 (Rajkot) (para 40) followed.

CASES REFERRED TO

 

R&B Falcon (A) Pty. Ltd. v. CIT [2008] 301 ITR 309/169 Taxman 515 (SC) (para 4), CIT v. Oil & Natural Gas Corpn. Ltd. [2002] 254 ITR 121/125 Taxman 698 (Guj) (para 5), ITO v. Gujarat Narmada Valley Fertilizers Co. Ltd. [2001] 247 ITR 305/[2000] 113 Taxman 586 (Guj.)(para 5), CIT (TDS) v. Reliance Industries Ltd. [2009] 308 ITR 82/[2008] 175 Taxman 367 (Guj.) (para 5), Kandla Port Trust v. Dy. CIT [2011] 16 taxmann.com 293 (Rajkot) (para 32), Skycell Communications Ltd. v. Dy. CIT [2001] 251 ITR 53/119 Taxman 496 (Mad.) (para 33), Gujarat State Electricity Corpn. Ltd. v. ITO [2004] 3 SOT 468 (Ahd.) (para 33), CIT (TDS) v. Swayam Shipping Services (P.) Ltd. [2011] 339 ITR 647/199 Taxman 249 (Mag.)/11 taxmann.com 137 (Guj.) (para 33) and CIT v. Shree Mahalaxmi Transport Co. [2011] 339 ITR 484/[2012] 211 Taxman 232/19 taxmann.com 144 (Guj.) (para 39).

S.N. Soparkar and Mrs. Urvashi Shodhan for the Appellant. Ravinidra Kumar for the Respondent.

ORDER

 

1. These are cross-appeals filed by the assessee and Revenue and all are related to Assessment Year (AY) 2009-10 arising out of three separate orders of Commissioner of Income-tax (Appeals)-VI, Baroda ('CIT(A)' for short) of different dates i.e., 13-11-2099 and 09-12-2009 for various offices of the assessee-company. In all these appeals, issue involved is regarding the demand raised by the Assessing Officer (AO) u/s. 201(1) & 201(1A) of the Income-tax Act, 1961 ('the Act' hereinafter) on this allegation that Tax Deducted at Source (TDS) was not properly deducted by the assessee-company u/s 194-I, 194J etc., All these appeals were heard together and are being disposed of by way of this common order for the sake of convenience.

2. First we take up the appeal of the assessee with regards to allegation of the Assessing Officer that the assessee has not deducted TDS from the cost of uniform items, stitching charges, washing expenses etc., reimbursed to the employees. This appeal is ITA No. 184/Ahd/2010. The only ground raised by the assessee is as under:-

"1. The learned CIT(Appeals) has erred in law and in facts and circumstances of the case in upholding the order passed by ACIT, TDS, Baroda whereby the appellant was held to be an assessee in default for not deducting tax at source from the cost of Uniform items, Stitching Charges, Washing Expenses, etc. reimbursed to its employees and was called upon to pay the tax allegedly short deducted from its employees u/s. 201(1) addition interest thereon u/s. 201(1A) of the Income Tax Act, 1961."

3. Brief facts on this issue till the stage of passing of order by AO u/s. 201 & 201(1A) of the Act are noted by Ld. CIT(A) in para-4 and 4.1 of his order and these two Paras are reproduced below:-

"4. The second ground of appeal is that the Assessing Officer treated the appellant in default for not deducting the tax deducted at source from payments made towards reimbursement of cost of uniform items, stitching charges, washing expenses, etc.,

4.1 The survey action was carried by the T.D.S. Circle, Baroda at the premises of the appellant. During the course of survey/details of salary were verified and the ACIT came to the conclusion that the amount of uniform allowance has been paid to the employees in money in advance of the quarter and no evidence of having actually incurred the expenses was produced any time after wards. In view of these facts it can safely be concluded that the payment of the uniform allowance is clearly an allowance paid to pas an additional allowance in addition to salary. From the above discussion and circumstances it is proved that the uniform allowance is part of salary. The amount of money paid in the name of Uniform Allowance even when the amount is not incurred for the purpose for which it is paid shows hat the amount of this allowance is intended to make payment in addition to the amount of salary paid. Thus the payment not based on actual incurring of expenditure. As the payment of the Uniform allowance appears to have been made even when employee does not wearing uniform & also during the leave period, shows that the payment of uniform allowance is nothing but additional salary paid in form of an allowance and it deserves to be taxed as salary income u/s. 17(1) (iv) as it can not be allowed deduction under section 10(14) (vi) as expenditure is not proved as have been incurred. Before the Assessing Officer the assessee submitted that this being a reimbursement of expenses incurred by employee for the maintenance of uniform is not taxable in the employee's hands by virtue of the exclusion contained in section 10(14) of the Act read with Rule 2BB of the IT Rules, 1962. Further assessee is paying F.B.T. on the same."

Being aggrieved, assessee carried the matter in appeal before Ld. CIT (A) but without success and now the assessee is further appeal before us.

4. It was the submission of Ld. AR of the assessee that all these payments were made by the assessee-company to its employees on which Fringe Benefits Tax (FBT for short) was duly paid by the assessee-company. Therefore, as per the provisions of clause (vi) of sub-section 2 of section 17 as it was on the statute book before its amendment by the Finance No.2 Act 2009 with effect from 1-4-2010, perquisites did not include the fringe benefits chargeable to tax under Chapter-XIIH. He further submitted that as per section 115WB (2)E under Chapter-XIIH, any expenditure incurred for employees' welfare is considered as fringe benefit on which FBT is payable excluding these expenditure for employees' welfare which are incurred to fulfill any statutory obligation or to mitigate occupational hazard etc., It was further submitted by him that benefits given by the assessee-company to its employees by way of uniform, stitching charges and washing expenses etc., were not to fulfill any statutory obligation or to mitigate occupational hazard and this expenditure did not fall under exclusion as specified in the Explanation to clause-E of sub-section 2 of section 115WB and therefore, FBT is payable by the assessee-company on the benefits provided by the assessee-company to its employees and assessee has duly paid FBT on these payments to its employees and therefore, the same cannot be considered as perquisites and as a result, no TDS is required to be deducted by the assessee from this expenditure. Reliance was placed by him on the judgment of Hon'ble apex court rendered in the case of R & B Falcon (A) Pty. Ltd.v. CIT [2008] 301 ITR 309/169 Taxman 515 and in particular, our attention was drawn to para-17 and 30 of this judgment which are available on page No. 319 and 321 of 301 ITR.

5. One more submission was made by him that the assessee was under bona fide belief that no TDS is required to be deducted from this expenditure incurred for the welfare of the employees and therefore also, no demand for TDS and interest thereon can be raised on the assessee and in support of this contention, reliance was placed on various judgments as noted below:-

(a)		CIT v. Oil & Natural Gas Corpn. Ltd. [2002] 254 ITR 121/125 Taxman 698 (Guj.)
(b)		ITO v. Gujarat Narmada Valley Fertilizers Co. Ltd. [2001] 247 ITR 305/[2000] 113 Taxman 586 (Guj.)
(c)		CIT (TDS) v. Reliance Industries Ltd. [2009] 308 ITR 82/[2008] 175 Taxman 367 (Guj.)

He also submitted that as per the Board's Circular reported in 277 ITR (St) page 20 also, no TDS was required to be deducted in the facts of the present case.

6. As against this, Ld. CIT-DR of the Revenue supported the orders of authorities below on this issue. He further submitted that Question No. 74 as per CBDT Circular No.8 of 2005 dated 29-08-2005, which is available on page No. 57 and 58 of the paper book submitted by the assessee, FBT is not payable on any expenditure incurred for meeting the employer's statutory obligation under the Employment Standing Order Act, 1948 because it falls within the scope of the exclusion in the Explanation to Clause-E of sub-section-2 of section 115WB and therefore, this expenditure for providing stitching uniform or equipment to the employees or incurred for the purpose of reimbursement of washing charges is exempt from FBT to the extent such expenditure incurred to meet statutory obligation. He further submitted that it is not statutory obligation of the assessee-company to provide uniform and none of the employees has offered this income in their hands. He also submitted that in course of survey, it was found that no employee was wearing any uniform. He also submitted that this allowance was paid to the employees even when they were on leave. It has no relation to official work of the assessee. He also placed reliance on the judgment of Hon'ble jurisdictional High Court rendered in the case of Reliance Industries Ltd. (supra) although reliance on this judgment was placed by Ld. AR of the assessee also. Regarding reliance placed by the assessee on the judgment of Hon'ble apex court rendered in the case of R & B Falcon (A) Pty. Ltd. (supra), it was submitted that this judgment is not applicable in the present case because the Ld. AR has drawn inference from this judgment but the same is not correct. He further submitted that FBT is not payable on this expenditure and even if paid by the assessee, it will not alter legal position regarding requirement of deduction of TDS by the assessee.

7. Regarding this contention of the Ld. AR of the assessee that assessee was under the bona fide belief, it was submitted that no person can have bona fide belief in the absence of any control about actually incurring of expenditure by the employees.

8. In rejoinder, it was submitted by the Ld. AR of the assessee that there is no dispute on this aspect that FBT was paid by the assessee on this expenditure and if it is held that the FBT was not payable on this expenditure and therefore, TDS was required to be deducted, direction may be given for granting refund of the FBT paid by the assessee if the assessee's main contention is not accepted that TDS was not required to be deducted because FBT was payable for the expenditure and same was accordingly paid.

9. We have considered the rival submissions and perused the material on record and gone through the orders of authorities below and judgments cited by both the sides. First, we deal with this aspect that whether FBT was payable by the assessee-company on this expenditure or not and if it is found that FBT was payable by the assessee on this expenditure, which was actually paid also, whether there is a liability of the assessee to deduct TDS from this expenditure incurred for the welfare of the employees. In this regard, we feel that provisions of section-17(2) (vi) and section 115WB 2E with explanation are relevant and the same are reproduced below:-

"17.(1) and (2)**

**

**

"(vi) the value of any other fringe benefit or amenity (excluding the fringe benefits chargeable to tax under Chapter XII-H) as may be prescribed;"

"115WB (1)**

**

**

(2) The fringe benefit purposes, namely:-

(E) employees' welfare.

[Explanation. - For the purposes of this clause, any expenditure incurred or payment made to -

(i)		fulfil any statutory obligation; or
(ii)		mitigate occupational hazards; or
(iii)		provide first is facilities in the hospital or dispensary run by the employer; or
(iv)		provide crèche facility for the children of the employee; or
(v)		sponsor a sportsman, being an employee; or
(vi)		organize sports events for employees, shall not be considered as expenditure for employees' welfare;]

10. From the provisions of section 17(2)(vi), we find that perquisites does not include the fringe benefit chargeable to tax under Chapter-XIIH. In Chapter-XIIH, the relevant section regarding liability to pay FBT on employees' benefits welfare is as per clause-E of sub-section (2) of section 115WB which has been reproduced above. As per the same, FBT is payable on any expenditure incurred on employees' welfare excluding those expenditures which are incurred to fulfill any statutory obligation or to mitigate occupational hazards etc. This is not in dispute that FBT was paid by assessee-company on this expenditure and this is also admitted position that this expenditure is in the nature of employees' welfare. One more contention was raised by the Ld. DR of the Revenue that in the present case, these allowances are given to each employee separately and the benefit arising to each employee is ascertainable and therefore, on such benefit, FBT is not payable and only those expenditures in respect of employees' welfare are liable to FBT, which are common expenditure and benefit obtained by each employee is not ascertainable. We do not find any merit in this contention of Ld. DR of the Revenue because there is no such restriction provided in section 115WB that only common expenditure on employees' welfare is liable to FBT and not those expenditures which are attributable to an employee directly and whose benefit enjoyed by an employee is ascertainable. Only exception carved out from the liability of FBT is as per Explanation to Clause-E of this Section as reproduced above which includes those expenditures which are incurred to fulfil any statutory obligation or to mitigate occupational hazards etc. The impugned expenditure which is in dispute before us does not fall in any of the exclusion clause of the Explanation. The second argument of the Ld. DR of the Revenue is this that actual expenditure was not incurred by the employees of the assessee because at the time of survey also, no employees was found wearing any uniform. Regarding this contention also, we find that there is no exclusion provided in section 115WB to exclude those expenditures incurred by the assessee-company for employees' welfare which were not actually incurred by the employees as per the intention for which the expenditure was incurred. As per sub-section (1) of section 115WB, any privilege, service, facility or amenity directly or indirectly provided by an employer whether by way of reimbursement or otherwise to his employees is covered within the definition of fringe benefit on which FBT is payable. As per sub-section (2) of section 115WB, it is provided that fringe benefit shall be deemed to have been provided by the employer to its employee if the employer has in the course of business incurred any expenditure on or made any payment for various purpose which includes employees' welfare. As per clause-E of this sub-section, it does not come out that it has to be enquired and looked into whether the employee has incurred the amount given to him by the employer for the same purpose for which it was given to the employee. In our considered opinion, for this reason that the employer has paid FBT on a particular expenditure, it is considered as payment of income tax only on deemed income of the employee out of various expenditures incurred by the employer and hence, this is not relevant as to whether the employee has actually incurred those expenditures as intended by the employer.

11. In view of our above discussion and in view of this fact that FBT was actually paid by the assessee-company on the impugned expenditure on uniform, washing allowance etc., the same cannot be considered as perquisites in the hands of the employees and therefore, there is no liability of the assessee-company to deduct TDS therefrom.

12. Now, we examine the applicability of CBDT Circular No. 8 of 2005 dated 29-08-2005 (supra). From the relevant question of this Circular i.e., question No. 74 as per which, the question was as to whether FBT is payable on a expenditure incurred on providing safety shoes or uniforms or equipments to the employees or for the purpose of reimbursement of washing charges. Reply was this that any expenditure incurred for meeting the employer's statutory obligation under the Employment Standing Order Act, 1948 fall within the scope of exclusion in the Explanation to clause-E of sub-section-2 of 115WB and therefore, to the extent, such expenditure is covered by this exclusion, FBT is not required to be paid. In the present case, we have seen that the expenditure incurred by the assessee in respect of uniform, washing charges etc., is not a statutory obligation of the assessee-company and therefore, it is not covered by the exclusion clause of Explanation to clause-E of sub-section (2) of section 115WB. The consequence of this is that the same is not perquisites as per section 17 (2) (vi) of the IT Act. Now, we examine the applicability of the judgment of Hon'ble apex court rendered in the case of R & B Falcon (A) Pty. Ltd. (supra). In para-17 of this judgment, it is noted by Hon'ble apex court that FBT is new concept and the tax is to be levied on the fringe benefit provided or deemed to have been provided by any employer to employee @ 30% on the value of such fringe benefit. It is further noted by Hon'ble apex court that intention of the Parliament to tax the employer on the one hand for the expenditure for the benefit of the employees including entertainment etc., and on the other, when an employee is getting the perks are not to be taxed. Those who get direct or indirect benefit from the expenditure incurred by the employer, no tax is leviable. In para-30 of the judgment, it is also noted by the Hon'ble apex court that Parliament, in introducing the concept of fringe benefit, was clear in its mind that in so far as on the one hand, it has avoided imposition of double taxation i.e., tax both in the hands of employee and employer and on the other hand, it is intended to bring succor to the employer for offering some privilege, service facility or amenity, which was otherwise though to be necessary or expedient. From this observation of the Hon'ble apex court in this judgment and also from the relevant provisions of section 17 (2) (vi) and 115WB (2) as reproduced above, it becomes very clear that on fringe benefit like uniform and washing allowance etc., provided by assessee to its employees otherwise than for a statutory obligation, is liable to FBT and same is not liable to income tax in the hands of the employee because the same cannot be considered as perquisites as per the provisions of section 17(2)(vi) of the Act. Once we come to this conclusion, it is abundantly clear that no TDS is required to be deducted by the employer from such expenditure incurred by the employer for the benefits of the employees. Accordingly, in the present case, we hold that TDS was not required to be deducted by the assessee-company from this expenditure incurred by it on providing uniform, washing charges and washing allowance etc., So this ground of assessee's appeal is allowed.

13. In the result, the appeal of the assessee is allowed.

Now we take up the appeal of Revenue arising out of same order of Ld. CIT(A) in ITA No.609/Ahd/2010.

14. The ground raised by the Revenue is as under:-

"1. The Ld. CIT(A) erred in law as well as facts of the case in deleting the order passed u/s. 201(1) & interest charged u/s. 201(1A) of the IT Act of Rs.1,79,03,719/- for A.Y. 2009-10 by the AO even though during the course of verification it was noticed that the assessee company was paid conveyance, maintenance, reimbursement expenditure (CMRE) to its employees every month based on their status, designation. Despite the fact the payment of CMRE was taxable as salary and employer had not deducted TDS on the same."

15. Brief facts on this issue are noted by Ld. CIT (A) in para-3 and 3.1 of his order, which are reproduced below:-

"3. The first ground of appeal is that the Assessing Officer has treated the appellant as in default for not deducting the tax deducted at source from the amount of CMRE (Conveyance and maintenance of Expenses) reimbursed to employees.

3.1 The survey action was carried by the TDS Circle, Baroda at the premises of the appellant. During the course of survey details of salary were verified and the Assessing Officer came to the conclusion that the CMRE and the Transport Allowances are part of the salary and which are not based on any reimbursement nature. The Assessing Officer also contended that as a payment of CMRE is made even to employees provided a staff car, even if he does not keep his car at the station of posting and also when on leave, concluded that the payment of CMRE is nothing but additional salary paid in the form of allowances and it deserved to be taxed as salary income u/s. 17(1)(iv). Before the Assessing Officer the assessee submitted that CMRE is subject to FBT and being in the nature of reimbursement of conveyance expenses to employees is taxable only as a Fringe Benefit in the employer's hand U/s. 115 WA of the Income Tax Act. The Assessee has submitted that it is paying FBT on this and hence the same is not taxable in the employees' hands by virtue of the exclusions contain in Section 17(2) (vi) of the Act. The assessing officer was not convinced by the submissions of the assessee and held that assessee is in default for not deducting the tax deducted at source from the amount of CMRE (Conveyance and maintenance reimbursement expenses) reimbursed to employees and taxed as salary income u/s.17(1)(iv)."

16. Being aggrieved, the assessee carried the matter in appeal before Ld. CIT (A) who decided the issue in favour of assessee and now Revenue is in appeal before us.

17. On this issue, argument from both sides are same. Argument of Ld. AR of the assessee in this that FBT is paid and therefore, it cannot be covered in perquisites as per sub-section 17(2) (vi) and therefore no TDS is required to be deducted by the assessee from such expenditure and the submission of Ld. DR of the Revenue was this that FBT is not required to be paid on this expenditure also and therefore, order of Ld. CIT (A) should be reversed and the order of Assessing Officer should be restored.

18. We have considered the rival submissions and perused the material on record and gone through the orders of authorities below. We find that this issue was decided by Ld. CIT (A) as per para-3.3 of his order, which is reproduced:-

"3.3 I have considered the submission of the learned Authorized Representative, Remand Report of learned ACIT and reply of remand report of authorized representative and further considering the arguments of both the appellant and respondent and facts of the case. It is seen that the Conveyance Maintenance Reimbursement (CMRE) scheme was introduced in ONGFC to reimburse to employees the expenditure incurred by them on maintenance and use of their own vehicles in the performance of official duties and thereby reduce pressure on ONGC vehicles and maintenance cost thereof, thus saving a portion of expenditure, which otherwise could have been borne by the appellant. The CMRE is not blanket payment, but the reimbursement is for the actual amount incurred in maintaining and running the vehicle restricted to maximum amounts per month fixed by ONGC, taking various parameters into account. Each employee is required to submit his claim on monthly basis for the reimbursable running & maintenance expenditure incurred din the preceding month, in the prescribed form. The claims are submitted by employee on line by making necessary entries in the appellant's computerized system. It is also not true that all employees automatically become eligible for receiving CMRE payments. Rather, CMNRE is allowed only to those employees in respect of whom permission is granted by a competent authority to do so after applications are made by the employees and after such applications are approved by the employees' controlling officers, on a through scrutiny. In addition, employees are also allowed reimbursement once every year towards the cost of insurance incurred by them on the vehicles for which they have been allowed to claim CMRE. This reimbursement is allowed on production of receipt for payment of insurance premium and copy of insurance policy/cover note etc., Restrictions on payments when employees were on leave or absent from duties for more than 30 days and 60 days reveal that the contention of the AO that even when the vehicles were not used, the CMRRE was paid falls flat. There is a considerable merit in the submissions of the appellant that when the employees are on onshore duty for longer periods, then expenses like insurance, maintenance expenses etc., are necessary to be reimbursed to employees coming under the scheme is acceptable. Even though many checks and balances were in vogue like selection of the employees coming under this scheme, procedure for reimbursements, online claim by the employees etc, is there, for any shortcomings committed by the employees, the employee cannot be found fault with, rather it is for the AO assessing the employees to find out the correctness of the claim and in case of any default to take appropriate action. The fact that the employer is paying fringe benefit tax on CME cannot be ignored. Thus, taking the overall picture of the CMRE, there is no hesitation to hold such reimbursement to employees coming under the scheme as not part of the salary and accordingly no TDS is attracted in the hands of the employer. Hence, I am of the view that the Assessing Officer was no justified by treating the assessee in default u/s. 201(1) and 201(1A) of the Act. Hence, the assessing officer is directed to delete the same, i.e., the levies u/s. 201(1) and 201(1A)."

We find that while deciding this issue in favour of assessee, this was stated by the Ld. CIT (A) that that the fact that employer is paying fringe benefit tax on CMRE cannot be ignored. Regarding this expenditure also i.e., CMRE, this could not be shown or established by Ld. DR of the Revenue that FBT is not payable on this expenditure. This expenditure is also not incurred to fulfill any statutory obligation or to mitigate occupational hazards or fall in any other exclusion as specified in Explanation to clause-E of sub-section-2 of section 115WB. This also is an admitted fact that FBT was paid by the assessee-company on this expenditure also. Hence for the same reason for which, we have decided the issue raised by the assessee in its appeal in favour of assessee, this issue is also decided in favour of assessee and we decline to interfere in the order of Ld. CIT(A).

19. In the result, appeal of Revenue is dismissed.

20. Now we take up another appeal of assessee which is arising in ITA 185/Ahd/2010 in respect of ONGC Makarpura. The Cross Appeal of the Revenue is as per ITA No.610/Ahd/2010.

21. Ground raised by assessee is as under:-

"1. The learned CIT(Appeals) has erred in law and in facts and circumstances of the case in upholding the order passed by ACIT, TDS, Baroda whereby the appellant was held to be an assessee in default for not deducting tax at source from the cost of Uniform items, Stitching Charges, Washing Expenses, etc. reimbursed to its employees and was called upon to pay the tax allegedly short deducted from its employees u/s. 201(1) addition interest thereon u/s. 201(1A) of the Income Tax Act, 1961."

22. Both sides agreed that issue involved in this appeal is identical to the issue involved in ITA No. 184/Ahd/2010 and this can be decided on similar line. In ITA No.184/Ahd/2010, this issue was decided by us in favour of assessee as per Para - 9 to 12. Accordingly, in this appeal also, this issue is decided in favour of assessee on similar line.

23. In the result, assessee's this appeal is also allowed.

24. The ground in Revenue's appeal i.e. ITA 610/Ahd/2010 is identical to ITA No.609/Ahd/2010. This appeal was decided in favour of the assessee as per para-17 above. On similar line, in this year also, This issue is decided in favour of the assessee.

25. Now we take up third appeal of the assessee i.e., ITA No.1066/Ahd/2010, which is in respect of office of the assessee-company at Ankleshar. The ground raised by the assessee are as under:-

"1.		The learned CIT (Appeals) has erred in law and in facts and circumstances of the case in upholding the order passed by ACIT, TDS, Baroda whereby the appellant was held to be an assessee in default for not deducting tax at source from the cost of Uniform items, Stitching Charges, Washing Expenses, etc. reimbursed to its employees and was called upon to pay the tax allegedly short deducted from its employees u/s. 201(1) addition interest thereon u/s. 201(1A) of the Income Tax Act, 1961.
2.		The learned CIT (Appeals) has erred in law and in facts and circumstances of the case in upholding the order passed by ACIT, TDS, Baroda whereby the appellant was held to be as an assessee in default for short deducting tax at source from the payment of hiring charges of crane and was called upon to pay the tax allegedly short deducted from it contractors u/s. 201(1) and interest thereon u/s. 201(1A) of Income-tax Act, 1961."

26. It was agreed by both side that issue involved in ground No.1 of this appeal is similar to the issue involved in the remaining two appeals of assessee i.e., ITA No.184-185/Ahd/2010 and the same can be decided on similar line. While deciding those two appeals of the assessee, this issue was decided by us in favour of assessee as per Para No. 9 to 12 and on similar lines, in this appeal also, these issue as per ground No.1 is decided on similar basis in favour of assessee. Ground No.1 is allowed.

27. Regarding ground No.2 of this appeal of the assessee, it was submitted by AR of the assessee that finding of Ld. CIT (A) in para-5.3.4 of his order is this that since the assessee has not provided the details regarding hiring charges paid for CMRE and others during the assessment proceedings or during the appellate proceedings, the assessee is directed to do so now so as to enable the Assessing Officer to re-compute the liability of the assessee afresh now. He submitted that the assessee will comply with direction of the Ld. CIT (A)/AO and furnish the required details before the AO. Hence, AO should be directed to decide the issue afresh as per law after providing adequate opportunity of being heard to the assessee. As against this, Ld. DR of the Revenue supported the order of Ld. CIT (A).

28. We have considered the rival submissions and perused the material on record and gone through the orders of authorities below. We find that issue in dispute is this as to whether TDS was required to be deducted from hiring charges of CMRE u/s 194C of the IT Act @ 2% or u/s194I @ 10%. On this issue, Ld. CIT (A) has directed the Assessing Officer to re-compute the liability after the assessee provides the required details regarding charges paid for CMRE. Before us, the submission of the Ld. AR of the assessee is this that the A.O. may be directed to decide this entire issue afresh after necessary details are filed by the assessee before him and after providing reasonable opportunity of being heard to the assessee. We are of the considered opinion that in the interest of justice, the AO may be directed to do so and hence, we set aside this order of Ld. CIT(A) on this issue and restore this entire matter back to the file of AO for fresh decision. The assessee has to furnish necessary details before the AO regarding CMRE hiring charges paid by the assessee and thereafter, this entire issue will be decided by AO afresh and he has to pass necessary order as per law after providing reasonable opportunity of being heard to assessee. This ground of assessee is allowed for statistical purposes.

29. In the result, assessee's this appeal is allowed in the terms indicated above.

30. Now, we take up remaining appeal of Revenue ITA No. 611/Ahd/2010 in respect of Western Onshore Basin, Makarpura, Baroda. The ground raised by the Revenue is as under:-

"1. The Ld. CIT (A) erred in law as well as facts of the case in deleting the order passed u.s. 201(1) & interest charged u/s. 201(1A) of the IT Act of Rs.6,20,14,169/- for A.Y. 2009-10 by treating the various contract u/s. 194C of the Act as against 194I and 194J of the Act by the AO [Page-6 of A.O's order dated 20.03.2009]"

31. Brief facts are that certain payments were made by assessee and TDS was deducted by it u/s. 194C but the Assessing Officer was of the opinion that TDS was required to be deducted u/s. 194I in respect of payment for hiring of equipments i.e., xerox machine and hiring of car jeeps and for the remaining payments, TDS was to be deducted by the assessee u/s. 194J. The AO has noted in this manner that the assessee has deducted lesser amount of TDS and he worked out such short deduction of TDS by the assessee at Rs.5,84,47,382/- and he also worked out interest thereon u/s. 201A at Rs.35,66,787/- total Rs.6,20,14,169/-. Being aggrieved, assessee carried matter in appeal before Ld. CIT(A) who has deleted both these demands raised by the AO u/s. 201 and u/s. 201A and now, the Revenue is in appeal before us.

32. Ld. DR of the Revenue supported that order passed by Assessing Officer whereas Ld. AR of the assessee supported the order passed by Ld. CIT(A). He further submitted that as per page-1 of the order passed by Assessing Officer, three types payments are in dispute i.e. No.(i) seismic job service and short hole (ii) AMC-for EPINET, VRC Hardware, PSDM Sub System; ACs; Lifts and UPS, facility and (iii) Contracts for hiring of vehicles plant and equipments. Regarding item No.(ii) AMC-for EPINET, VRC Hardware, PSDM sub-system; ACs; Lifts and UPS facility, he submitted that this issue is covered in favour of assessee by the Tribunal's order rendered in the case of Kandla Port Trust v. Dy. CIT [2011] 16 taxmann.com 273 (Rajkot). Regarding hire charges of vehicles, Ld. AR of the assessee drawn our attention to page No. 31 and 32 of the order of Ld. CIT(A) in respect of Revenue's appeal in ITA No.1347/Ahd/2010. He submitted that a clear finding has been given by the Ld. CIT(A) that the car for vehicle was to transport employees of the assessee from place to place i.e. from residence to work-place and back as per time-schedule of the contractee and it may be used for any of the business purpose as deemed necessary by the assessee and there is no stipulation in the agreement that the same car or vehicle has been provided and it is enough if the mere type or model of the vehicle as specified is placed at the disposal of the assessee for the purpose for which the same has been hired and therefore, this is for rendering service and not vehicles given on hire. He further submitted that Ld. CIT(A) has rightly held that for such services availed by the assessee on payment of car hiring charges, section 194C is applicable and not section 194I of the Act and therefore, the order of Ld. CIT(A) on this aspect should be affirmed.

33. Regarding third aspect i.e. regarding seismic job service and short hole and hire of plant and equipments, he submitted that as per Explanation-2 to Section 9(1)(viii), professional service means services rendered by a person in the course of carrying on legal, medical, engineering or architectural or profession of accountancy or technical consultancy or such other profession as is notified by the Board for the purpose of u/s. 44AA of the Act. He submitted that as per this Explanation-2 of Section 9(1)(vii), the impugned payment cannot be considered as fees for technical services. He also drawn our attention to instruction No. 1862 dated 22-10-1990 which is available at page No.25 and 26 of the paper book and submitted that as per this instruction also, the impugned payment cannot be considered as fees for technical services because it does not fall within section as provided in Explanation-2 Section 9(1)(vii) of the Act. Reliance was also placed on the judgment of Hon'ble Madras High Court rendered in the case of Skycell Communications Ltd. v. Dy. CIT [2001] 251 ITR 53/119 Taxman 496 and also on one tribunal decision rendered in the case of Gujarat State Electricity Corpn. Ltd. v. ITO [2004] 3 SOT 468 (Ahd.). As against this, Ld. DR of the Revenue supported the orders of authorities below and he placed reliance on the judgment of Hon'ble jurisdictional High Court as rendered in CIT (TDS) v. Swayam Shipping Services (P.) Ltd. [2011] 339 ITR 647/199 Taxman 249 (Mag.)/11 taxmann.com 137 (Guj.).

34. We have considered the rival submissions and perused the materials on record and gone through the orders of authorities below and the judgments cited by both the sides. Regarding this aspect, we feel that provisions of Section 9(1)(vii) and Explanation-2 are very relevant and hence, the same are reproduced below:-

"**

**

**

(vii) income by way of fees for technical services payable by -

(a)		the Government ; or
(b)		a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or
(c)		a person who is a non-resident, where the fees are payable in respect of services utilized in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India

Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government.

Explanation 1 - For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date.

Explanation 2 - For the purposes of this clause, fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "salaries"."

35. From the above Explanation-2 to Section 9(1)(vii), we find that consideration paid for any construction, assembly mining or like project undertaken by the recipient chargeable or receipts taxable under the head "salary" are to be excluded from fees for technical services. In the present case, this is not the case of anybody that impugned amount is income of the recipient under the head "salary". Hence, we have to examine whether the impugned payment can be considered as consideration for any construction, assembly mining or like project undertaken by the recipient. In the present case, the mining or like project is undertaken by the assessee and not by the recipient. This is clearly noted by the Ld. CIT(A) at page-4 of his order that mining and exploration was business activity of the assessee and the parties to whom the payments has been made for rendering technical services are not in the business of mining but they are in business of providing technical services for pre-mining/preparing for mining i.e. conducting seismic survey and rendering connected services. Hence, in our considered opinion, the impugned payment is not covered under exception carved out in Explanation-2 to Section 9(1)(vii). As per CBDT instruction No. 1862 dated 22-10-1990 also, it is opined by Attorney General of India that Explanation-2 to Section 9(1) (vii) of the Act is covers rendering of services like in parking of training and carrying out drilling operations for exploration or exploitation of oil and natural gas. In the present case, it is not the case of the assessee that impugned payment was made for imparting of training. The second point of this Board instruction is that whether extraction or production of mineral oil can be termed as mining operations and in this regard, it was opined by the Attorney General of India that term mining project or like project would cover carrying out drilling operation for exploration or exploitation of oil and natural gas, but even then it has to be accepted that such project should have been undertaken by the recipient and in the present case, such project of exploration of oil and natural gas is undertaken by the assessee and not by the recipient. The recipient has only provided technical services and therefore, in our considered opinion, even after considering CBDT instruction No. 1862 dated 22-10-1990, the impugned payment is not covered by Explanation-2 to Section 9(1)(vii) of the Act.

36. Regarding reliance placed by the Ld. AR of the assessee on the judgment of Hon'ble Madras High Court rendered in the case of Skycell Communications Ltd. (supra), we find that this judgment is not applicable because facts are different. In that case, the facts were that cellular mobile telephone services were provided to the subscriber and under these facts, it was held by Hon'ble Madras High Court that when a person decides to subscribe to a cellular telephone service in order to have the facility of being able to communicate with others, he does not contract to receive a technical service. What he does agree to is to pay for the use of the airtime for which he pays a charge. The fact that the telephone service provider has installed sophisticated technical equipment in the exchange to ensure connectivity to its subscriber, it does not amount to rendering of technical services to its subscriber. In the present case, technical services were rendered by the recipient of the consideration and therefore, this judgment is not applicable in the present case.

37. Similarly, the reliance placed by Ld. AR of the assessee on the Tribunal's decision rendered in the case of Gujarat State Electricity Corpn. Ltd.(supra) is also of no help to the assessee because facts are different. In that case, payments were made by the assessee-company to Gujarat Electricity Board for entire operation and maintenance of power plant under a comprehensive contract and hence, it was held that it cannot be treated as payment of fees for professional services as contemplated in Section 194J because it comes within the limb of exclusionary part as per Explanation-2 to Section 9(1)(vii) of the Act. We have already seen that in the present case, the impugned payment does not fall within the exclusionary part as per Explanation-2 to Section 9(1)(vii) of the Act. Moreover, in the present case, the assessee has not granted entire operation and maintenance of oil exploration work project to the recipient as in that case, where the entire operation and maintenance of power plant was handed over to the recipient under a comprehensive contract. Hence, this judgment is not applicable in the present case.

38. As per above discussion, we find that on this aspect of the matter, no case could be made out by Ld. AR of the assessee that impugned payment is not for fees for technical services or that it falls within the Exclusionary clause as per Explanation-2 to Section 9(1)(vii) of the Act. Hence, on this aspect, we do not find any reason to interfere in the order of Ld. CIT(A) and this issue is decided against the assessee.

39. Regarding hiring of vehicles we find that this issue is squarely covered in favour of assessee by two judgments of Hon'ble jurisdictional High Court rendered in the case of Swayam Shipping Services (P.) Ltd. (supra) and also another rendered in the case of CIT (TDS) v. Shree Mahalaxmi Transport Co. [2011] 339 ITR 484/[2012] 211 Taxman 232/19 taxmann.com 144 (Guj.) and hence, respectfully following these two judgments of Hon'ble jurisdictional High Court, we decide this aspect of the matter regarding hire charge paid for vehicle in favour of assessee.

40. Regarding remaining one aspect i.e. amount paid for AMC-for EPINET, VRC Hardware, PSDM sub-system; ACs; Lifts and UPS facility, we find that this issue is covered in favour of assessee by Tribunal's decision rendered in the case of Kandla Port Trust (supra) and respectfully following this Tribunal's decision, we decide this aspect also in favour of assessee.

41. In the result, Revenue's appeal is partly allowed in the terms indicated above.

42. Now, we take up the appeal of Revenue in ITA No.1343/Ahd/2010. This is a cross-appeal of the Revenue and corresponding appeal of assessee in ITA No.1066/Ahd/2010 is already decided above.

43. The ground raised by Revenue is as under:-

"1.		The Ld. CIT(A) erred in law as well as facts of the case in deleting the order passed u/s. 201(1) & interest charged u/s. 201(1A) of the IT Act of Rs.3,90,114,538/- for A.Y. 2009-10 by the AO even though during the course of verification it was noticed that the assessee company was aid conveyance, maintenance, reimbursement expenditure (CMRE) to its employees every month based on their status, designation. Despite the fact the payment of CMRE was taxable as salary and employer had not deducted TDS on the same.
2.		The Ld. CIT(A) erred in law as well as facts of the case in deleting the order passed u/s. 201(1) & interest charged u/s.201(1A) of the IT Act of Rs.2,16,40,530/- for A.Y. 2009-10 by treating the various contract u/s. 194C of the Act as against 194J of the Act by the AO."

44. Regarding ground No.1 of this appeal, it was agreed by both sides that this issue is identical to ground No.1 raised by Revenue in ITA No.309/Ahd/2010 and the same can be decided on similar line. While deciding that appeal, we have already decided this issue in favour of assessee and accordingly, here also, we decide this issue in favour of assessee. Accordingly, ground No.1 is rejected.

45. Regarding ground No.2, Ld. DR of the Revenue supported the order passed by Assessing Officer whereas Ld. AR of the assessee supported the order passed by Ld. CIT(A). He further submitted that amount disputed by the Revenue as per this ground is after excluding TDS of Rs.26,80,578/- in respect of hiring of equipment and TDS of Rs.1,34,59,616/- in respect of hire of vehicles of all types and therefore, it includes the amount of TDS in respect of AMC contract, approval drilling installation of equipment O & M contract-Others, ONGC vehicles and amount of interest on entire amount of TDS and such amount is Rs. 20,39,940/-. He further submitted that question of interest amount which is related to hiring of equipment and hiring of vehicles of all types should not be included in this ground because when no ground is raised by Revenue in respect of TDS amount in respect of these two issues, interest thereon cannot be charged and same is rightly deleted by Ld. CIT(A). He further submitted that this ground is interconnected with ground No.2 of the appeal raised by assessee in its cross-appeal in ITA No.1066/Ahd/2010 and since the issue is required to be restored to the file of Assessing Officer/Ld. CIT(A), ground raised by revenue i.e. ground No.2 should also be restored back to AO/Ld. CIT(A) for fresh decision because order of Ld. CIT(A) is not a speaking order. On the other hand, Ld. DR of the Revenue strongly supported the order passed by Assessing Officer.

46. We have considered the rival submissions and perused the materials on record and gone through the orders of authorities below. We find that this issue is corrected with the issue raised by assessee raised as per ground No.2 raised in its cross-appeal in ITA No.1006/Ahd/2010 and while deciding that ground of the assessee's appeal, we have also restored back the entire matter to the file of Assessing Officer as per Para No. 28 above.

47. We also find that Ld. CIT(A) has discussed regarding this issue together with the issue raised for equipment along with CMRE hiring charges and thereafter, he has stated that Assessing Officer was justified in applying 10% TDS rate instead of 2% adopted by assessee in respect of this equipment. But since, the assessee has not provided the details regarding hire charges paid for CMRE at any stage, the assessee was directed to do so now so as to enable the AO to re-compute the liability of the assessee afresh now.

48. From this direction of Ld. CIT(A), it is not clear as to whether he has directed the Assessing Officer to re-compute the liability afresh in respect of ground of hire charges alone or regarding equipments etc. also and hence, we feel that this matter should go back to the file of Ld CIT (A) for fresh decision and accordingly, we set aside the order of Ld. CIT(A) on this aspect and restore this matter also back to his file for fresh decision. Ld. CIT(A) is directed to pass a fresh and speaking order as per law after providing adequate opportunity of being heard to both sides. This ground of Revenue's appeal is allowed for statistical purposes.

49. In the result, Revenue's appeal is allowed for statistical purposes.

50. In combined result, all three appeals of the assessee are allowed in the terms indicated above, Two appeals of the revenue i.e. ITA 609 & 610/Ahd/2010 are dismissed, Revenue's appeal in ITA 611/Ahd/2010 is partly allowed and the remaining appeal of the revenue in ITA 1343/Ahd/2010 is allowed for statistical purposes.

--

[IT Reporter] Payments made for Seismic survey by an entity engaged in oil and natural gas exploration would attract sec. 194J

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IT : Where assessee had undertaken projects of exploration of oil and natural gas and made payment towards seismic survey and pre-mining activities, said payment would be liable to TDS under section 194J and not 194C

IT : Uniform and washing allowance paid to employees is liable to FBT, and not to TDS

IT : Conveyance and maintenance expenses paid to employees is not liable to TDS

■■■

[2013] 33 taxmann.com 368 (Ahmedabad - Trib.)

IN THE ITAT AHMEDABAD BENCH 'D'

Oil & Natural Gas Corpn. Ltd.

v.

Assistant Commissioner of Income-tax (TDS)*

A.K. GARODIA, ACCOUNTANT MEMBER
AND KUL BHARAT, JUDICIAL MEMBER

IT APPEAL NOS. 184, 185, 609, 611, 1066 & 1343 (AHD.) OF 2010
[ASSESSMENT YEAR 2009-10]

NOVEMBER  16, 2012 

I. Section 194J, read with sections 9, 194C and 194-I, of the Income-tax Act, 1961 - Deduction of tax at source - Technical services fees [Seismic survey, etc.] - Assessment year 2009-10 - Assessee had undertaken projects of exploration of oil and natural gas and made payment towards seismic survey and pre-mining activities - Whether same would not be covered under exception carved out in Explanation 2 to section 9(1)(vii) and would be considered as fees for technical service and therefore, liable to TDS under section 194J - Held, yes - Whether payment of hiring charges on availing services of vehicles is liable to TDS under section 194C - Held, yes - Whether for AMC paid for EPINET, VRC Hardware, PSDM sub-system, ACs, lifts and UPS facility, section 194C is applicable - Held, yes [Paras 38, 39 and 40] [In favour of assessee]

Circulars and Notifications : Instruction No. 1862, dated 22-10-1990

II. Section 115WB, read with section 17(2), of the Income-tax Act, 1961 - Fringe benefits [Employee's welfare] - Assessment year 2009-10 - Assessee paid uniform and washing allowance to its employees and paid fringe benefit tax on said expenditure - Whether on fringe benefit like uniform and washing allowance, etc. provided by assessee to its employees otherwise than for a statutory obligation, is liable to fringe benefit tax and same is not liable to income tax in hands of employee because same cannot be considered as perquisites as per provisions of section 17(2)(vi) and, therefore, there was no liability of deducting TDS on assessee-company - Held, yes [Para 12] [In favour of assessee]

Circulars and Notifications : Circular No. 8 of 2005 dated 29-8-2005

III. Section 17(2) of the Income-tax Act, 1961 - Salaries - Perquisites [Exclusion] - Assessment year 2009-10 - Assessee reimbursed conveyance and maintenance expenses (CMRE) to its employees and paid fringe benefit tax on same - This expenditure was neither incurred to fulfil any statutory obligation or to mitigate occupational hazards nor did it fall in any other exclusion as specified in Explanation to clause (E) of sub-section (2) of section 115WB - Whether there was no liability on assessee to deduct tax at source - Held, yes [Para 18] [In favour of assessee]

FACTS-I

 

■		The assessee had undertaken projects for carrying out drilling operation for exploration or exploitation of oil and natural gas and made payments towards (i) seismic survey and pre-mining activities, (ii) hiring charges of vehicles and equipments and (iii) AMC for EPINET, VRC Hardware, PSDM sub-system, ACs, Lifts and UPS facility and deducted TDS under section 194C.
■		The Assessing Officer was of opinion that tax at source was required to be deducted under section 194-I for hiring charges and under section 194J for remaining payments. He held assessee in default for short deduction of tax at source and raised demand under section 201(1) and 201(1A).
■		On appeal, Commissioner (Appeals) deleted the demand raised by the Assessing Officer.
■		On revenue's appeal:

HELD-I

 

(i) Seismic job service

■		As per Explanation 2 to section 9(1)(vii), consideration paid for any construction, assembly mining or like project undertaken by the recipient chargeable or receipts taxable under the head 'salary' are to be excluded from fees for technical services. In the instant case, this is not the case of anybody that paid for amount & seismic survey by assessee is income of the recipient under the head 'salary'. Hence, it is to be examined whether the impugned payment can be considered as consideration for any construction, assembly mining or like project undertaken by the recipient. In the instant case, the mining or like project is undertaken by the assessee and not by the recipient. This is clearly noted by the Commissioner (Appeals) that mining and exploration was business activity of the assessee and the parties to whom the payments has been made for rendering technical services are not in the business of mining but they are in business of providing technical services for pre-mining/preparing for mining i.e., conducting seismic survey and rendering connected services. Hence, the impugned payment is not covered under exception carved out in Explanation 2 to section 9(1)(vii). As per CBDT instruction No. 1862, dated 22-10-1990 also, it is opined by Attorney General of India that Explanation 2 to section 9(1)(vii) is covers rendering of services like in parking of training and carrying out drilling operations for exploration or exploitation of oil and natural gas. In the instant case, it is not the case of the assessee that impugned payment was made for imparting of training. The second point of this Board instruction is that whether extraction or production of mineral oil can be termed as mining operations and in this regard, it was opined by the Attorney General of India that term mining project or like project would cover carrying out drilling operation for exploration or exploitation of oil and natural gas but even then it has to be accepted that such project should have been undertaken by the recipient and in the instant case, such project of exploration of oil and natural gas is undertaken by the assessee and not by the recipient. The recipient has only provided technical services and therefore, even after considering CBDT instruction No. 1862 dated 22-10-1990, the impugned payment is not covered byExplanation 2 to section 9(1)(vii). [Para 35]
■		On this aspect of the matter, no case could be made out by the assessee that impugned payment is not for fees for technical services or that it falls within the Exclusionary clause as per Explanation 2 to section 9(1)(vii) of the Act. Hence, on this aspect, there is no reason to interfere in the order of Commissioner (Appeals) and this issue is decided against the assessee. [Para 38]

(ii) Hiring of vehicles

■

This issue is squarely covered in favour of assessee by two judgments of jurisdictional High Court rendered in the case of CIT (TDS) v. Swayam Shipping Services (P.) Ltd. [2011] 339 ITR 647/199 Taxman 249 (Mag.)/11 Taxmann.com 137 and also another rendered in the case of CIT v.Shree Mahalaxmi Transport Co. [2011] 339 ITR 484/[2012] 211 Taxman 232/19 taxmann.com 144 (Guj.) and hence, respectfully following these two judgments of the jurisdictional High Court, this aspect of the matter regarding hire charge paid for vehicle is decided in favour of assessee. [Para 39]

(iii) AMC for EPINET, VRC Hardware, PSDM sub-system; ACs; Lifts and UPS facility

■

This issue is covered in favour of assessee by Tribunal's decision rendered in the case of Kandla Port Trust v. Dy. CIT [2011] 16 taxmann.com 273 (Rajkot) and respectfully following this Tribunal's decision, the aspect is also decided in favour of assessee. [Para 40]

FACTS-II

 

■		The assessee-company paid uniform allowance to its employees. The Commissioner (TDS) in the course of survey found that the payment made towards re-imbursement of uniform items, stitching charges, washing expenses, etc. was not based on actual incurring of expenditure and deserved to be taxed as salary income. The Assessing Officer held the assessee in default for not deducting tax at source and raised demand under section 201(1) and 201(1A) of the Act.
■		On appeal, the Commissioner (Appeals) upheld the order of Assessing Officer.
■		On second appeal, the assessee submitted that expenditure incurred for employee welfare otherwise than for statutory obligation was subjected to fringe benefit tax which was duly paid and the same could not be considered as perquisites in the hands of employees and, hence, no tax at source was required to be deducted.

HELD-II

 

■		As per section 17(2)(vi), perquisites does not include the fringe benefit chargeable to tax under Chapter XIIH. This is not in dispute that Fringe Benefit Tax was paid by assessee-company on uniform allowance and this is also admitted position that uniform allowance is in the nature of employees welfare. Contention raised by Revenue that in the instant case, these allowances are given to each employee separately and the benefit arising to each employee is ascertainable and therefore, on such benefit, fringe benefit tax is not payable and only those expenditures in respect of employees welfare are liable to fringe benefit tax which are common expenditure and benefit obtained by each employee is not ascertainable. There is no such restriction provided in section 115WB that only common expenditure on employees welfare is liable to FBT and not those expenditures which are attributable to an employee directly and whose benefit enjoyed by an employee is ascertainable. Only exception carved out from the liability of FBT is as per Explanation to Clause E of this section as reproduced above which includes those expenditures which are incurred to fulfil any statutory obligation or to mitigate occupational hazards etc. The impugned expenditure which is in dispute does not fall in any of the exclusion clause of the explanation. The second argument of the Revenue is this that actual expenditure was not incurred by the employees of the assessee because at the time of survey also, no employees was found wearing any uniform. Regarding this contention, there is no exclusion provided in section 115WB to exclude those expenditures incurred by the assessee-company for employees' welfare which were not actually incurred by the employees as per the intention for which the expenditure was incurred. As per sub-section (1) of section 115WB, any privilege, service, facility or amenity directly or indirectly provided by an employer whether by way of reimbursement or otherwise to his employees is covered within the definition of fringe benefit on which FBT is payable. As per sub-section (2) of section 115WB, it is provided that fringe benefit shall be deemed to have been provided by the employer to its employee if the employer has in the course of business incurred by expenditure on or made any payment for various purpose which includes employees welfare. As per clause E of this sub-section, it does not come out that it has to be enquired and looked into whether the employee has incurred the amount given to him by the employer for the same purpose for which it was given to the employee. In our considered opinion, for the reason that the employer has paid FBT on a particular expenditure, it is considered as payment of income tax only on deemed income of the employee out of various expenditures incurred by the employer and hence, this is not relevant as to whether the employee has actually incurred those expenditures as intended by the employer. [Para 10]
■		Fringe benefit tax actually paid by the assessee-company on the impugned expenditure on uniform, washing allowance etc., the same cannot be considered as perquisites in the hands of the employees and therefore, there is no liability of the assessee-company to deduct TDS therefrom. [Para 11]
■		In the instant case, the expenditure incurred by the assessee in respect of uniform, washing charges etc., is not a statutory obligation of the assessee-company and therefore, it is not covered by the exclusion clause of Explanation to clause E of sub-section (2) of section 115WB. The consequence of this is that the same is not perquisites as per section 17(2)(vi).
■		It becomes very clear that on fringe benefit like uniform and washing allowance etc., provided by assessee to its employees otherwise than for a statutory obligation, is liable to FBT and same is not liable to income-tax in the hands of the employees because the same cannot be considered as perquisites as per the provisions of section 17(2)(vi). It is abundantly clear that no TDS is required to be deducted by the employer from such expenditure incurred by the employer for the benefits of the employees. Accordingly, in the instant case, TDS was not required to be deducted by the assessee-company from this expenditure incurred by it on providing uniform, washing charges and washing allowance etc. [Para 12]

FACTS-III

 

■		The assessee company reimburse the conveyance and maintenance expenses (CMRE) to its employees and paid fringe benefit tax on the same.
■		The Assessing Officer concluded the CMRE and transport allowance as part of salary in the hands of employees and treated the assessee-company in default for not deducting the tax at source from the amount of CMRE.
■		On appeal, the Commissioner (Appeals) deleted the order of Assessing Officer.
■		On revenue's appeal:

HELD-III

 

■

While deciding this issue in favour of assessee, this was stated by the Ld. Commissioner (Appeals) that the fact that employer is paying fringe benefit tax on CMRE cannot be ignored. Regarding conveyance & maintenance expenses, this could not be shown or established by the Revenue that fringe benefit tax is not payable on this expenditure. This expenditure is also not incurred to fulfil any statutory obligation or to mitigate occupational hazards or fall in any other exclusion as specified in Explanation to clause E of sub-section (2) of section 115WB. This also is an admitted fact that FBT was paid by the assessee-company on this expenditure also. Hence, this issue is decided in favour of assessee. [Para 18]

CASE REVIEW-I

 

R&B Fallon (A) Pty. Ltd. v. CIT [2008] 301 ITR 309/169 Taxman 515 (SC) (para 12) followed.

CASE REVIEW-II

 

Skycell Communications Ltd. v. Dy. CIT [2001] 251 ITR 53/119 Taxman 496 (Mad.) (para 36) and Gujarat State Electricity Corpn. Ltd. v. ITO[2004] 3 SOT 468 (Ahd.) (para 37) distinguished. CIT (TDS) v. Swayam Shipping Services (P.) Ltd. [2011] 339 ITR 647/199 Taxman 249 (Mag.)/11 taxmann.com 37 (Guj.) (para 39); CIT v. Shree Mahalaxmi Transport Co. [2011] 339 ITR 484/[2012] 211 Taxman 232/19 taxmann.com 144 (Guj.) (para 39) and Kandla Port Trust v. Dy. CIT [2011] 16 taxmann.com 273 (Rajkot) (para 40) followed.

CASES REFERRED TO

 

R&B Falcon (A) Pty. Ltd. v. CIT [2008] 301 ITR 309/169 Taxman 515 (SC) (para 4), CIT v. Oil & Natural Gas Corpn. Ltd. [2002] 254 ITR 121/125 Taxman 698 (Guj) (para 5), ITO v. Gujarat Narmada Valley Fertilizers Co. Ltd. [2001] 247 ITR 305/[2000] 113 Taxman 586 (Guj.)(para 5), CIT (TDS) v. Reliance Industries Ltd. [2009] 308 ITR 82/[2008] 175 Taxman 367 (Guj.) (para 5), Kandla Port Trust v. Dy. CIT [2011] 16 taxmann.com 293 (Rajkot) (para 32), Skycell Communications Ltd. v. Dy. CIT [2001] 251 ITR 53/119 Taxman 496 (Mad.) (para 33), Gujarat State Electricity Corpn. Ltd. v. ITO [2004] 3 SOT 468 (Ahd.) (para 33), CIT (TDS) v. Swayam Shipping Services (P.) Ltd. [2011] 339 ITR 647/199 Taxman 249 (Mag.)/11 taxmann.com 137 (Guj.) (para 33) and CIT v. Shree Mahalaxmi Transport Co. [2011] 339 ITR 484/[2012] 211 Taxman 232/19 taxmann.com 144 (Guj.) (para 39).

S.N. Soparkar and Mrs. Urvashi Shodhan for the Appellant. Ravinidra Kumar for the Respondent.

ORDER

 

1. These are cross-appeals filed by the assessee and Revenue and all are related to Assessment Year (AY) 2009-10 arising out of three separate orders of Commissioner of Income-tax (Appeals)-VI, Baroda ('CIT(A)' for short) of different dates i.e., 13-11-2099 and 09-12-2009 for various offices of the assessee-company. In all these appeals, issue involved is regarding the demand raised by the Assessing Officer (AO) u/s. 201(1) & 201(1A) of the Income-tax Act, 1961 ('the Act' hereinafter) on this allegation that Tax Deducted at Source (TDS) was not properly deducted by the assessee-company u/s 194-I, 194J etc., All these appeals were heard together and are being disposed of by way of this common order for the sake of convenience.

2. First we take up the appeal of the assessee with regards to allegation of the Assessing Officer that the assessee has not deducted TDS from the cost of uniform items, stitching charges, washing expenses etc., reimbursed to the employees. This appeal is ITA No. 184/Ahd/2010. The only ground raised by the assessee is as under:-

"1. The learned CIT(Appeals) has erred in law and in facts and circumstances of the case in upholding the order passed by ACIT, TDS, Baroda whereby the appellant was held to be an assessee in default for not deducting tax at source from the cost of Uniform items, Stitching Charges, Washing Expenses, etc. reimbursed to its employees and was called upon to pay the tax allegedly short deducted from its employees u/s. 201(1) addition interest thereon u/s. 201(1A) of the Income Tax Act, 1961."

3. Brief facts on this issue till the stage of passing of order by AO u/s. 201 & 201(1A) of the Act are noted by Ld. CIT(A) in para-4 and 4.1 of his order and these two Paras are reproduced below:-

"4. The second ground of appeal is that the Assessing Officer treated the appellant in default for not deducting the tax deducted at source from payments made towards reimbursement of cost of uniform items, stitching charges, washing expenses, etc.,

4.1 The survey action was carried by the T.D.S. Circle, Baroda at the premises of the appellant. During the course of survey/details of salary were verified and the ACIT came to the conclusion that the amount of uniform allowance has been paid to the employees in money in advance of the quarter and no evidence of having actually incurred the expenses was produced any time after wards. In view of these facts it can safely be concluded that the payment of the uniform allowance is clearly an allowance paid to pas an additional allowance in addition to salary. From the above discussion and circumstances it is proved that the uniform allowance is part of salary. The amount of money paid in the name of Uniform Allowance even when the amount is not incurred for the purpose for which it is paid shows hat the amount of this allowance is intended to make payment in addition to the amount of salary paid. Thus the payment not based on actual incurring of expenditure. As the payment of the Uniform allowance appears to have been made even when employee does not wearing uniform & also during the leave period, shows that the payment of uniform allowance is nothing but additional salary paid in form of an allowance and it deserves to be taxed as salary income u/s. 17(1) (iv) as it can not be allowed deduction under section 10(14) (vi) as expenditure is not proved as have been incurred. Before the Assessing Officer the assessee submitted that this being a reimbursement of expenses incurred by employee for the maintenance of uniform is not taxable in the employee's hands by virtue of the exclusion contained in section 10(14) of the Act read with Rule 2BB of the IT Rules, 1962. Further assessee is paying F.B.T. on the same."

Being aggrieved, assessee carried the matter in appeal before Ld. CIT (A) but without success and now the assessee is further appeal before us.

4. It was the submission of Ld. AR of the assessee that all these payments were made by the assessee-company to its employees on which Fringe Benefits Tax (FBT for short) was duly paid by the assessee-company. Therefore, as per the provisions of clause (vi) of sub-section 2 of section 17 as it was on the statute book before its amendment by the Finance No.2 Act 2009 with effect from 1-4-2010, perquisites did not include the fringe benefits chargeable to tax under Chapter-XIIH. He further submitted that as per section 115WB (2)E under Chapter-XIIH, any expenditure incurred for employees' welfare is considered as fringe benefit on which FBT is payable excluding these expenditure for employees' welfare which are incurred to fulfill any statutory obligation or to mitigate occupational hazard etc., It was further submitted by him that benefits given by the assessee-company to its employees by way of uniform, stitching charges and washing expenses etc., were not to fulfill any statutory obligation or to mitigate occupational hazard and this expenditure did not fall under exclusion as specified in the Explanation to clause-E of sub-section 2 of section 115WB and therefore, FBT is payable by the assessee-company on the benefits provided by the assessee-company to its employees and assessee has duly paid FBT on these payments to its employees and therefore, the same cannot be considered as perquisites and as a result, no TDS is required to be deducted by the assessee from this expenditure. Reliance was placed by him on the judgment of Hon'ble apex court rendered in the case of R & B Falcon (A) Pty. Ltd.v. CIT [2008] 301 ITR 309/169 Taxman 515 and in particular, our attention was drawn to para-17 and 30 of this judgment which are available on page No. 319 and 321 of 301 ITR.

5. One more submission was made by him that the assessee was under bona fide belief that no TDS is required to be deducted from this expenditure incurred for the welfare of the employees and therefore also, no demand for TDS and interest thereon can be raised on the assessee and in support of this contention, reliance was placed on various judgments as noted below:-

(a)		CIT v. Oil & Natural Gas Corpn. Ltd. [2002] 254 ITR 121/125 Taxman 698 (Guj.)
(b)		ITO v. Gujarat Narmada Valley Fertilizers Co. Ltd. [2001] 247 ITR 305/[2000] 113 Taxman 586 (Guj.)
(c)		CIT (TDS) v. Reliance Industries Ltd. [2009] 308 ITR 82/[2008] 175 Taxman 367 (Guj.)

He also submitted that as per the Board's Circular reported in 277 ITR (St) page 20 also, no TDS was required to be deducted in the facts of the present case.

6. As against this, Ld. CIT-DR of the Revenue supported the orders of authorities below on this issue. He further submitted that Question No. 74 as per CBDT Circular No.8 of 2005 dated 29-08-2005, which is available on page No. 57 and 58 of the paper book submitted by the assessee, FBT is not payable on any expenditure incurred for meeting the employer's statutory obligation under the Employment Standing Order Act, 1948 because it falls within the scope of the exclusion in the Explanation to Clause-E of sub-section-2 of section 115WB and therefore, this expenditure for providing stitching uniform or equipment to the employees or incurred for the purpose of reimbursement of washing charges is exempt from FBT to the extent such expenditure incurred to meet statutory obligation. He further submitted that it is not statutory obligation of the assessee-company to provide uniform and none of the employees has offered this income in their hands. He also submitted that in course of survey, it was found that no employee was wearing any uniform. He also submitted that this allowance was paid to the employees even when they were on leave. It has no relation to official work of the assessee. He also placed reliance on the judgment of Hon'ble jurisdictional High Court rendered in the case of Reliance Industries Ltd. (supra) although reliance on this judgment was placed by Ld. AR of the assessee also. Regarding reliance placed by the assessee on the judgment of Hon'ble apex court rendered in the case of R & B Falcon (A) Pty. Ltd. (supra), it was submitted that this judgment is not applicable in the present case because the Ld. AR has drawn inference from this judgment but the same is not correct. He further submitted that FBT is not payable on this expenditure and even if paid by the assessee, it will not alter legal position regarding requirement of deduction of TDS by the assessee.

7. Regarding this contention of the Ld. AR of the assessee that assessee was under the bona fide belief, it was submitted that no person can have bona fide belief in the absence of any control about actually incurring of expenditure by the employees.

8. In rejoinder, it was submitted by the Ld. AR of the assessee that there is no dispute on this aspect that FBT was paid by the assessee on this expenditure and if it is held that the FBT was not payable on this expenditure and therefore, TDS was required to be deducted, direction may be given for granting refund of the FBT paid by the assessee if the assessee's main contention is not accepted that TDS was not required to be deducted because FBT was payable for the expenditure and same was accordingly paid.

9. We have considered the rival submissions and perused the material on record and gone through the orders of authorities below and judgments cited by both the sides. First, we deal with this aspect that whether FBT was payable by the assessee-company on this expenditure or not and if it is found that FBT was payable by the assessee on this expenditure, which was actually paid also, whether there is a liability of the assessee to deduct TDS from this expenditure incurred for the welfare of the employees. In this regard, we feel that provisions of section-17(2) (vi) and section 115WB 2E with explanation are relevant and the same are reproduced below:-

"17.(1) and (2)**

**

**

"(vi) the value of any other fringe benefit or amenity (excluding the fringe benefits chargeable to tax under Chapter XII-H) as may be prescribed;"

"115WB (1)**

**

**

(2) The fringe benefit purposes, namely:-

(E) employees' welfare.

[Explanation. - For the purposes of this clause, any expenditure incurred or payment made to -

(i)		fulfil any statutory obligation; or
(ii)		mitigate occupational hazards; or
(iii)		provide first is facilities in the hospital or dispensary run by the employer; or
(iv)		provide crèche facility for the children of the employee; or
(v)		sponsor a sportsman, being an employee; or
(vi)		organize sports events for employees, shall not be considered as expenditure for employees' welfare;]

10. From the provisions of section 17(2)(vi), we find that perquisites does not include the fringe benefit chargeable to tax under Chapter-XIIH. In Chapter-XIIH, the relevant section regarding liability to pay FBT on employees' benefits welfare is as per clause-E of sub-section (2) of section 115WB which has been reproduced above. As per the same, FBT is payable on any expenditure incurred on employees' welfare excluding those expenditures which are incurred to fulfill any statutory obligation or to mitigate occupational hazards etc. This is not in dispute that FBT was paid by assessee-company on this expenditure and this is also admitted position that this expenditure is in the nature of employees' welfare. One more contention was raised by the Ld. DR of the Revenue that in the present case, these allowances are given to each employee separately and the benefit arising to each employee is ascertainable and therefore, on such benefit, FBT is not payable and only those expenditures in respect of employees' welfare are liable to FBT, which are common expenditure and benefit obtained by each employee is not ascertainable. We do not find any merit in this contention of Ld. DR of the Revenue because there is no such restriction provided in section 115WB that only common expenditure on employees' welfare is liable to FBT and not those expenditures which are attributable to an employee directly and whose benefit enjoyed by an employee is ascertainable. Only exception carved out from the liability of FBT is as per Explanation to Clause-E of this Section as reproduced above which includes those expenditures which are incurred to fulfil any statutory obligation or to mitigate occupational hazards etc. The impugned expenditure which is in dispute before us does not fall in any of the exclusion clause of the Explanation. The second argument of the Ld. DR of the Revenue is this that actual expenditure was not incurred by the employees of the assessee because at the time of survey also, no employees was found wearing any uniform. Regarding this contention also, we find that there is no exclusion provided in section 115WB to exclude those expenditures incurred by the assessee-company for employees' welfare which were not actually incurred by the employees as per the intention for which the expenditure was incurred. As per sub-section (1) of section 115WB, any privilege, service, facility or amenity directly or indirectly provided by an employer whether by way of reimbursement or otherwise to his employees is covered within the definition of fringe benefit on which FBT is payable. As per sub-section (2) of section 115WB, it is provided that fringe benefit shall be deemed to have been provided by the employer to its employee if the employer has in the course of business incurred any expenditure on or made any payment for various purpose which includes employees' welfare. As per clause-E of this sub-section, it does not come out that it has to be enquired and looked into whether the employee has incurred the amount given to him by the employer for the same purpose for which it was given to the employee. In our considered opinion, for this reason that the employer has paid FBT on a particular expenditure, it is considered as payment of income tax only on deemed income of the employee out of various expenditures incurred by the employer and hence, this is not relevant as to whether the employee has actually incurred those expenditures as intended by the employer.

11. In view of our above discussion and in view of this fact that FBT was actually paid by the assessee-company on the impugned expenditure on uniform, washing allowance etc., the same cannot be considered as perquisites in the hands of the employees and therefore, there is no liability of the assessee-company to deduct TDS therefrom.

12. Now, we examine the applicability of CBDT Circular No. 8 of 2005 dated 29-08-2005 (supra). From the relevant question of this Circular i.e., question No. 74 as per which, the question was as to whether FBT is payable on a expenditure incurred on providing safety shoes or uniforms or equipments to the employees or for the purpose of reimbursement of washing charges. Reply was this that any expenditure incurred for meeting the employer's statutory obligation under the Employment Standing Order Act, 1948 fall within the scope of exclusion in the Explanation to clause-E of sub-section-2 of 115WB and therefore, to the extent, such expenditure is covered by this exclusion, FBT is not required to be paid. In the present case, we have seen that the expenditure incurred by the assessee in respect of uniform, washing charges etc., is not a statutory obligation of the assessee-company and therefore, it is not covered by the exclusion clause of Explanation to clause-E of sub-section (2) of section 115WB. The consequence of this is that the same is not perquisites as per section 17 (2) (vi) of the IT Act. Now, we examine the applicability of the judgment of Hon'ble apex court rendered in the case of R & B Falcon (A) Pty. Ltd. (supra). In para-17 of this judgment, it is noted by Hon'ble apex court that FBT is new concept and the tax is to be levied on the fringe benefit provided or deemed to have been provided by any employer to employee @ 30% on the value of such fringe benefit. It is further noted by Hon'ble apex court that intention of the Parliament to tax the employer on the one hand for the expenditure for the benefit of the employees including entertainment etc., and on the other, when an employee is getting the perks are not to be taxed. Those who get direct or indirect benefit from the expenditure incurred by the employer, no tax is leviable. In para-30 of the judgment, it is also noted by the Hon'ble apex court that Parliament, in introducing the concept of fringe benefit, was clear in its mind that in so far as on the one hand, it has avoided imposition of double taxation i.e., tax both in the hands of employee and employer and on the other hand, it is intended to bring succor to the employer for offering some privilege, service facility or amenity, which was otherwise though to be necessary or expedient. From this observation of the Hon'ble apex court in this judgment and also from the relevant provisions of section 17 (2) (vi) and 115WB (2) as reproduced above, it becomes very clear that on fringe benefit like uniform and washing allowance etc., provided by assessee to its employees otherwise than for a statutory obligation, is liable to FBT and same is not liable to income tax in the hands of the employee because the same cannot be considered as perquisites as per the provisions of section 17(2)(vi) of the Act. Once we come to this conclusion, it is abundantly clear that no TDS is required to be deducted by the employer from such expenditure incurred by the employer for the benefits of the employees. Accordingly, in the present case, we hold that TDS was not required to be deducted by the assessee-company from this expenditure incurred by it on providing uniform, washing charges and washing allowance etc., So this ground of assessee's appeal is allowed.

13. In the result, the appeal of the assessee is allowed.

Now we take up the appeal of Revenue arising out of same order of Ld. CIT(A) in ITA No.609/Ahd/2010.

14. The ground raised by the Revenue is as under:-

"1. The Ld. CIT(A) erred in law as well as facts of the case in deleting the order passed u/s. 201(1) & interest charged u/s. 201(1A) of the IT Act of Rs.1,79,03,719/- for A.Y. 2009-10 by the AO even though during the course of verification it was noticed that the assessee company was paid conveyance, maintenance, reimbursement expenditure (CMRE) to its employees every month based on their status, designation. Despite the fact the payment of CMRE was taxable as salary and employer had not deducted TDS on the same."

15. Brief facts on this issue are noted by Ld. CIT (A) in para-3 and 3.1 of his order, which are reproduced below:-

"3. The first ground of appeal is that the Assessing Officer has treated the appellant as in default for not deducting the tax deducted at source from the amount of CMRE (Conveyance and maintenance of Expenses) reimbursed to employees.

3.1 The survey action was carried by the TDS Circle, Baroda at the premises of the appellant. During the course of survey details of salary were verified and the Assessing Officer came to the conclusion that the CMRE and the Transport Allowances are part of the salary and which are not based on any reimbursement nature. The Assessing Officer also contended that as a payment of CMRE is made even to employees provided a staff car, even if he does not keep his car at the station of posting and also when on leave, concluded that the payment of CMRE is nothing but additional salary paid in the form of allowances and it deserved to be taxed as salary income u/s. 17(1)(iv). Before the Assessing Officer the assessee submitted that CMRE is subject to FBT and being in the nature of reimbursement of conveyance expenses to employees is taxable only as a Fringe Benefit in the employer's hand U/s. 115 WA of the Income Tax Act. The Assessee has submitted that it is paying FBT on this and hence the same is not taxable in the employees' hands by virtue of the exclusions contain in Section 17(2) (vi) of the Act. The assessing officer was not convinced by the submissions of the assessee and held that assessee is in default for not deducting the tax deducted at source from the amount of CMRE (Conveyance and maintenance reimbursement expenses) reimbursed to employees and taxed as salary income u/s.17(1)(iv)."

16. Being aggrieved, the assessee carried the matter in appeal before Ld. CIT (A) who decided the issue in favour of assessee and now Revenue is in appeal before us.

17. On this issue, argument from both sides are same. Argument of Ld. AR of the assessee in this that FBT is paid and therefore, it cannot be covered in perquisites as per sub-section 17(2) (vi) and therefore no TDS is required to be deducted by the assessee from such expenditure and the submission of Ld. DR of the Revenue was this that FBT is not required to be paid on this expenditure also and therefore, order of Ld. CIT (A) should be reversed and the order of Assessing Officer should be restored.

18. We have considered the rival submissions and perused the material on record and gone through the orders of authorities below. We find that this issue was decided by Ld. CIT (A) as per para-3.3 of his order, which is reproduced:-

"3.3 I have considered the submission of the learned Authorized Representative, Remand Report of learned ACIT and reply of remand report of authorized representative and further considering the arguments of both the appellant and respondent and facts of the case. It is seen that the Conveyance Maintenance Reimbursement (CMRE) scheme was introduced in ONGFC to reimburse to employees the expenditure incurred by them on maintenance and use of their own vehicles in the performance of official duties and thereby reduce pressure on ONGC vehicles and maintenance cost thereof, thus saving a portion of expenditure, which otherwise could have been borne by the appellant. The CMRE is not blanket payment, but the reimbursement is for the actual amount incurred in maintaining and running the vehicle restricted to maximum amounts per month fixed by ONGC, taking various parameters into account. Each employee is required to submit his claim on monthly basis for the reimbursable running & maintenance expenditure incurred din the preceding month, in the prescribed form. The claims are submitted by employee on line by making necessary entries in the appellant's computerized system. It is also not true that all employees automatically become eligible for receiving CMRE payments. Rather, CMNRE is allowed only to those employees in respect of whom permission is granted by a competent authority to do so after applications are made by the employees and after such applications are approved by the employees' controlling officers, on a through scrutiny. In addition, employees are also allowed reimbursement once every year towards the cost of insurance incurred by them on the vehicles for which they have been allowed to claim CMRE. This reimbursement is allowed on production of receipt for payment of insurance premium and copy of insurance policy/cover note etc., Restrictions on payments when employees were on leave or absent from duties for more than 30 days and 60 days reveal that the contention of the AO that even when the vehicles were not used, the CMRRE was paid falls flat. There is a considerable merit in the submissions of the appellant that when the employees are on onshore duty for longer periods, then expenses like insurance, maintenance expenses etc., are necessary to be reimbursed to employees coming under the scheme is acceptable. Even though many checks and balances were in vogue like selection of the employees coming under this scheme, procedure for reimbursements, online claim by the employees etc, is there, for any shortcomings committed by the employees, the employee cannot be found fault with, rather it is for the AO assessing the employees to find out the correctness of the claim and in case of any default to take appropriate action. The fact that the employer is paying fringe benefit tax on CME cannot be ignored. Thus, taking the overall picture of the CMRE, there is no hesitation to hold such reimbursement to employees coming under the scheme as not part of the salary and accordingly no TDS is attracted in the hands of the employer. Hence, I am of the view that the Assessing Officer was no justified by treating the assessee in default u/s. 201(1) and 201(1A) of the Act. Hence, the assessing officer is directed to delete the same, i.e., the levies u/s. 201(1) and 201(1A)."

We find that while deciding this issue in favour of assessee, this was stated by the Ld. CIT (A) that that the fact that employer is paying fringe benefit tax on CMRE cannot be ignored. Regarding this expenditure also i.e., CMRE, this could not be shown or established by Ld. DR of the Revenue that FBT is not payable on this expenditure. This expenditure is also not incurred to fulfill any statutory obligation or to mitigate occupational hazards or fall in any other exclusion as specified in Explanation to clause-E of sub-section-2 of section 115WB. This also is an admitted fact that FBT was paid by the assessee-company on this expenditure also. Hence for the same reason for which, we have decided the issue raised by the assessee in its appeal in favour of assessee, this issue is also decided in favour of assessee and we decline to interfere in the order of Ld. CIT(A).

19. In the result, appeal of Revenue is dismissed.

20. Now we take up another appeal of assessee which is arising in ITA 185/Ahd/2010 in respect of ONGC Makarpura. The Cross Appeal of the Revenue is as per ITA No.610/Ahd/2010.

21. Ground raised by assessee is as under:-

"1. The learned CIT(Appeals) has erred in law and in facts and circumstances of the case in upholding the order passed by ACIT, TDS, Baroda whereby the appellant was held to be an assessee in default for not deducting tax at source from the cost of Uniform items, Stitching Charges, Washing Expenses, etc. reimbursed to its employees and was called upon to pay the tax allegedly short deducted from its employees u/s. 201(1) addition interest thereon u/s. 201(1A) of the Income Tax Act, 1961."

22. Both sides agreed that issue involved in this appeal is identical to the issue involved in ITA No. 184/Ahd/2010 and this can be decided on similar line. In ITA No.184/Ahd/2010, this issue was decided by us in favour of assessee as per Para - 9 to 12. Accordingly, in this appeal also, this issue is decided in favour of assessee on similar line.

23. In the result, assessee's this appeal is also allowed.

24. The ground in Revenue's appeal i.e. ITA 610/Ahd/2010 is identical to ITA No.609/Ahd/2010. This appeal was decided in favour of the assessee as per para-17 above. On similar line, in this year also, This issue is decided in favour of the assessee.

25. Now we take up third appeal of the assessee i.e., ITA No.1066/Ahd/2010, which is in respect of office of the assessee-company at Ankleshar. The ground raised by the assessee are as under:-

"1.		The learned CIT (Appeals) has erred in law and in facts and circumstances of the case in upholding the order passed by ACIT, TDS, Baroda whereby the appellant was held to be an assessee in default for not deducting tax at source from the cost of Uniform items, Stitching Charges, Washing Expenses, etc. reimbursed to its employees and was called upon to pay the tax allegedly short deducted from its employees u/s. 201(1) addition interest thereon u/s. 201(1A) of the Income Tax Act, 1961.
2.		The learned CIT (Appeals) has erred in law and in facts and circumstances of the case in upholding the order passed by ACIT, TDS, Baroda whereby the appellant was held to be as an assessee in default for short deducting tax at source from the payment of hiring charges of crane and was called upon to pay the tax allegedly short deducted from it contractors u/s. 201(1) and interest thereon u/s. 201(1A) of Income-tax Act, 1961."

26. It was agreed by both side that issue involved in ground No.1 of this appeal is similar to the issue involved in the remaining two appeals of assessee i.e., ITA No.184-185/Ahd/2010 and the same can be decided on similar line. While deciding those two appeals of the assessee, this issue was decided by us in favour of assessee as per Para No. 9 to 12 and on similar lines, in this appeal also, these issue as per ground No.1 is decided on similar basis in favour of assessee. Ground No.1 is allowed.

27. Regarding ground No.2 of this appeal of the assessee, it was submitted by AR of the assessee that finding of Ld. CIT (A) in para-5.3.4 of his order is this that since the assessee has not provided the details regarding hiring charges paid for CMRE and others during the assessment proceedings or during the appellate proceedings, the assessee is directed to do so now so as to enable the Assessing Officer to re-compute the liability of the assessee afresh now. He submitted that the assessee will comply with direction of the Ld. CIT (A)/AO and furnish the required details before the AO. Hence, AO should be directed to decide the issue afresh as per law after providing adequate opportunity of being heard to the assessee. As against this, Ld. DR of the Revenue supported the order of Ld. CIT (A).

28. We have considered the rival submissions and perused the material on record and gone through the orders of authorities below. We find that issue in dispute is this as to whether TDS was required to be deducted from hiring charges of CMRE u/s 194C of the IT Act @ 2% or u/s194I @ 10%. On this issue, Ld. CIT (A) has directed the Assessing Officer to re-compute the liability after the assessee provides the required details regarding charges paid for CMRE. Before us, the submission of the Ld. AR of the assessee is this that the A.O. may be directed to decide this entire issue afresh after necessary details are filed by the assessee before him and after providing reasonable opportunity of being heard to the assessee. We are of the considered opinion that in the interest of justice, the AO may be directed to do so and hence, we set aside this order of Ld. CIT(A) on this issue and restore this entire matter back to the file of AO for fresh decision. The assessee has to furnish necessary details before the AO regarding CMRE hiring charges paid by the assessee and thereafter, this entire issue will be decided by AO afresh and he has to pass necessary order as per law after providing reasonable opportunity of being heard to assessee. This ground of assessee is allowed for statistical purposes.

29. In the result, assessee's this appeal is allowed in the terms indicated above.

30. Now, we take up remaining appeal of Revenue ITA No. 611/Ahd/2010 in respect of Western Onshore Basin, Makarpura, Baroda. The ground raised by the Revenue is as under:-

"1. The Ld. CIT (A) erred in law as well as facts of the case in deleting the order passed u.s. 201(1) & interest charged u/s. 201(1A) of the IT Act of Rs.6,20,14,169/- for A.Y. 2009-10 by treating the various contract u/s. 194C of the Act as against 194I and 194J of the Act by the AO [Page-6 of A.O's order dated 20.03.2009]"

31. Brief facts are that certain payments were made by assessee and TDS was deducted by it u/s. 194C but the Assessing Officer was of the opinion that TDS was required to be deducted u/s. 194I in respect of payment for hiring of equipments i.e., xerox machine and hiring of car jeeps and for the remaining payments, TDS was to be deducted by the assessee u/s. 194J. The AO has noted in this manner that the assessee has deducted lesser amount of TDS and he worked out such short deduction of TDS by the assessee at Rs.5,84,47,382/- and he also worked out interest thereon u/s. 201A at Rs.35,66,787/- total Rs.6,20,14,169/-. Being aggrieved, assessee carried matter in appeal before Ld. CIT(A) who has deleted both these demands raised by the AO u/s. 201 and u/s. 201A and now, the Revenue is in appeal before us.

32. Ld. DR of the Revenue supported that order passed by Assessing Officer whereas Ld. AR of the assessee supported the order passed by Ld. CIT(A). He further submitted that as per page-1 of the order passed by Assessing Officer, three types payments are in dispute i.e. No.(i) seismic job service and short hole (ii) AMC-for EPINET, VRC Hardware, PSDM Sub System; ACs; Lifts and UPS, facility and (iii) Contracts for hiring of vehicles plant and equipments. Regarding item No.(ii) AMC-for EPINET, VRC Hardware, PSDM sub-system; ACs; Lifts and UPS facility, he submitted that this issue is covered in favour of assessee by the Tribunal's order rendered in the case of Kandla Port Trust v. Dy. CIT [2011] 16 taxmann.com 273 (Rajkot). Regarding hire charges of vehicles, Ld. AR of the assessee drawn our attention to page No. 31 and 32 of the order of Ld. CIT(A) in respect of Revenue's appeal in ITA No.1347/Ahd/2010. He submitted that a clear finding has been given by the Ld. CIT(A) that the car for vehicle was to transport employees of the assessee from place to place i.e. from residence to work-place and back as per time-schedule of the contractee and it may be used for any of the business purpose as deemed necessary by the assessee and there is no stipulation in the agreement that the same car or vehicle has been provided and it is enough if the mere type or model of the vehicle as specified is placed at the disposal of the assessee for the purpose for which the same has been hired and therefore, this is for rendering service and not vehicles given on hire. He further submitted that Ld. CIT(A) has rightly held that for such services availed by the assessee on payment of car hiring charges, section 194C is applicable and not section 194I of the Act and therefore, the order of Ld. CIT(A) on this aspect should be affirmed.

33. Regarding third aspect i.e. regarding seismic job service and short hole and hire of plant and equipments, he submitted that as per Explanation-2 to Section 9(1)(viii), professional service means services rendered by a person in the course of carrying on legal, medical, engineering or architectural or profession of accountancy or technical consultancy or such other profession as is notified by the Board for the purpose of u/s. 44AA of the Act. He submitted that as per this Explanation-2 of Section 9(1)(vii), the impugned payment cannot be considered as fees for technical services. He also drawn our attention to instruction No. 1862 dated 22-10-1990 which is available at page No.25 and 26 of the paper book and submitted that as per this instruction also, the impugned payment cannot be considered as fees for technical services because it does not fall within section as provided in Explanation-2 Section 9(1)(vii) of the Act. Reliance was also placed on the judgment of Hon'ble Madras High Court rendered in the case of Skycell Communications Ltd. v. Dy. CIT [2001] 251 ITR 53/119 Taxman 496 and also on one tribunal decision rendered in the case of Gujarat State Electricity Corpn. Ltd. v. ITO [2004] 3 SOT 468 (Ahd.). As against this, Ld. DR of the Revenue supported the orders of authorities below and he placed reliance on the judgment of Hon'ble jurisdictional High Court as rendered in CIT (TDS) v. Swayam Shipping Services (P.) Ltd. [2011] 339 ITR 647/199 Taxman 249 (Mag.)/11 taxmann.com 137 (Guj.).

34. We have considered the rival submissions and perused the materials on record and gone through the orders of authorities below and the judgments cited by both the sides. Regarding this aspect, we feel that provisions of Section 9(1)(vii) and Explanation-2 are very relevant and hence, the same are reproduced below:-

"**

**

**

(vii) income by way of fees for technical services payable by -

(a)		the Government ; or
(b)		a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or
(c)		a person who is a non-resident, where the fees are payable in respect of services utilized in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India

Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government.

Explanation 1 - For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date.

Explanation 2 - For the purposes of this clause, fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "salaries"."

35. From the above Explanation-2 to Section 9(1)(vii), we find that consideration paid for any construction, assembly mining or like project undertaken by the recipient chargeable or receipts taxable under the head "salary" are to be excluded from fees for technical services. In the present case, this is not the case of anybody that impugned amount is income of the recipient under the head "salary". Hence, we have to examine whether the impugned payment can be considered as consideration for any construction, assembly mining or like project undertaken by the recipient. In the present case, the mining or like project is undertaken by the assessee and not by the recipient. This is clearly noted by the Ld. CIT(A) at page-4 of his order that mining and exploration was business activity of the assessee and the parties to whom the payments has been made for rendering technical services are not in the business of mining but they are in business of providing technical services for pre-mining/preparing for mining i.e. conducting seismic survey and rendering connected services. Hence, in our considered opinion, the impugned payment is not covered under exception carved out in Explanation-2 to Section 9(1)(vii). As per CBDT instruction No. 1862 dated 22-10-1990 also, it is opined by Attorney General of India that Explanation-2 to Section 9(1) (vii) of the Act is covers rendering of services like in parking of training and carrying out drilling operations for exploration or exploitation of oil and natural gas. In the present case, it is not the case of the assessee that impugned payment was made for imparting of training. The second point of this Board instruction is that whether extraction or production of mineral oil can be termed as mining operations and in this regard, it was opined by the Attorney General of India that term mining project or like project would cover carrying out drilling operation for exploration or exploitation of oil and natural gas, but even then it has to be accepted that such project should have been undertaken by the recipient and in the present case, such project of exploration of oil and natural gas is undertaken by the assessee and not by the recipient. The recipient has only provided technical services and therefore, in our considered opinion, even after considering CBDT instruction No. 1862 dated 22-10-1990, the impugned payment is not covered by Explanation-2 to Section 9(1)(vii) of the Act.

36. Regarding reliance placed by the Ld. AR of the assessee on the judgment of Hon'ble Madras High Court rendered in the case of Skycell Communications Ltd. (supra), we find that this judgment is not applicable because facts are different. In that case, the facts were that cellular mobile telephone services were provided to the subscriber and under these facts, it was held by Hon'ble Madras High Court that when a person decides to subscribe to a cellular telephone service in order to have the facility of being able to communicate with others, he does not contract to receive a technical service. What he does agree to is to pay for the use of the airtime for which he pays a charge. The fact that the telephone service provider has installed sophisticated technical equipment in the exchange to ensure connectivity to its subscriber, it does not amount to rendering of technical services to its subscriber. In the present case, technical services were rendered by the recipient of the consideration and therefore, this judgment is not applicable in the present case.

37. Similarly, the reliance placed by Ld. AR of the assessee on the Tribunal's decision rendered in the case of Gujarat State Electricity Corpn. Ltd.(supra) is also of no help to the assessee because facts are different. In that case, payments were made by the assessee-company to Gujarat Electricity Board for entire operation and maintenance of power plant under a comprehensive contract and hence, it was held that it cannot be treated as payment of fees for professional services as contemplated in Section 194J because it comes within the limb of exclusionary part as per Explanation-2 to Section 9(1)(vii) of the Act. We have already seen that in the present case, the impugned payment does not fall within the exclusionary part as per Explanation-2 to Section 9(1)(vii) of the Act. Moreover, in the present case, the assessee has not granted entire operation and maintenance of oil exploration work project to the recipient as in that case, where the entire operation and maintenance of power plant was handed over to the recipient under a comprehensive contract. Hence, this judgment is not applicable in the present case.

38. As per above discussion, we find that on this aspect of the matter, no case could be made out by Ld. AR of the assessee that impugned payment is not for fees for technical services or that it falls within the Exclusionary clause as per Explanation-2 to Section 9(1)(vii) of the Act. Hence, on this aspect, we do not find any reason to interfere in the order of Ld. CIT(A) and this issue is decided against the assessee.

39. Regarding hiring of vehicles we find that this issue is squarely covered in favour of assessee by two judgments of Hon'ble jurisdictional High Court rendered in the case of Swayam Shipping Services (P.) Ltd. (supra) and also another rendered in the case of CIT (TDS) v. Shree Mahalaxmi Transport Co. [2011] 339 ITR 484/[2012] 211 Taxman 232/19 taxmann.com 144 (Guj.) and hence, respectfully following these two judgments of Hon'ble jurisdictional High Court, we decide this aspect of the matter regarding hire charge paid for vehicle in favour of assessee.

40. Regarding remaining one aspect i.e. amount paid for AMC-for EPINET, VRC Hardware, PSDM sub-system; ACs; Lifts and UPS facility, we find that this issue is covered in favour of assessee by Tribunal's decision rendered in the case of Kandla Port Trust (supra) and respectfully following this Tribunal's decision, we decide this aspect also in favour of assessee.

41. In the result, Revenue's appeal is partly allowed in the terms indicated above.

42. Now, we take up the appeal of Revenue in ITA No.1343/Ahd/2010. This is a cross-appeal of the Revenue and corresponding appeal of assessee in ITA No.1066/Ahd/2010 is already decided above.

43. The ground raised by Revenue is as under:-

"1.		The Ld. CIT(A) erred in law as well as facts of the case in deleting the order passed u/s. 201(1) & interest charged u/s. 201(1A) of the IT Act of Rs.3,90,114,538/- for A.Y. 2009-10 by the AO even though during the course of verification it was noticed that the assessee company was aid conveyance, maintenance, reimbursement expenditure (CMRE) to its employees every month based on their status, designation. Despite the fact the payment of CMRE was taxable as salary and employer had not deducted TDS on the same.
2.		The Ld. CIT(A) erred in law as well as facts of the case in deleting the order passed u/s. 201(1) & interest charged u/s.201(1A) of the IT Act of Rs.2,16,40,530/- for A.Y. 2009-10 by treating the various contract u/s. 194C of the Act as against 194J of the Act by the AO."

44. Regarding ground No.1 of this appeal, it was agreed by both sides that this issue is identical to ground No.1 raised by Revenue in ITA No.309/Ahd/2010 and the same can be decided on similar line. While deciding that appeal, we have already decided this issue in favour of assessee and accordingly, here also, we decide this issue in favour of assessee. Accordingly, ground No.1 is rejected.

45. Regarding ground No.2, Ld. DR of the Revenue supported the order passed by Assessing Officer whereas Ld. AR of the assessee supported the order passed by Ld. CIT(A). He further submitted that amount disputed by the Revenue as per this ground is after excluding TDS of Rs.26,80,578/- in respect of hiring of equipment and TDS of Rs.1,34,59,616/- in respect of hire of vehicles of all types and therefore, it includes the amount of TDS in respect of AMC contract, approval drilling installation of equipment O & M contract-Others, ONGC vehicles and amount of interest on entire amount of TDS and such amount is Rs. 20,39,940/-. He further submitted that question of interest amount which is related to hiring of equipment and hiring of vehicles of all types should not be included in this ground because when no ground is raised by Revenue in respect of TDS amount in respect of these two issues, interest thereon cannot be charged and same is rightly deleted by Ld. CIT(A). He further submitted that this ground is interconnected with ground No.2 of the appeal raised by assessee in its cross-appeal in ITA No.1066/Ahd/2010 and since the issue is required to be restored to the file of Assessing Officer/Ld. CIT(A), ground raised by revenue i.e. ground No.2 should also be restored back to AO/Ld. CIT(A) for fresh decision because order of Ld. CIT(A) is not a speaking order. On the other hand, Ld. DR of the Revenue strongly supported the order passed by Assessing Officer.

46. We have considered the rival submissions and perused the materials on record and gone through the orders of authorities below. We find that this issue is corrected with the issue raised by assessee raised as per ground No.2 raised in its cross-appeal in ITA No.1006/Ahd/2010 and while deciding that ground of the assessee's appeal, we have also restored back the entire matter to the file of Assessing Officer as per Para No. 28 above.

47. We also find that Ld. CIT(A) has discussed regarding this issue together with the issue raised for equipment along with CMRE hiring charges and thereafter, he has stated that Assessing Officer was justified in applying 10% TDS rate instead of 2% adopted by assessee in respect of this equipment. But since, the assessee has not provided the details regarding hire charges paid for CMRE at any stage, the assessee was directed to do so now so as to enable the AO to re-compute the liability of the assessee afresh now.

48. From this direction of Ld. CIT(A), it is not clear as to whether he has directed the Assessing Officer to re-compute the liability afresh in respect of ground of hire charges alone or regarding equipments etc. also and hence, we feel that this matter should go back to the file of Ld CIT (A) for fresh decision and accordingly, we set aside the order of Ld. CIT(A) on this aspect and restore this matter also back to his file for fresh decision. Ld. CIT(A) is directed to pass a fresh and speaking order as per law after providing adequate opportunity of being heard to both sides. This ground of Revenue's appeal is allowed for statistical purposes.

49. In the result, Revenue's appeal is allowed for statistical purposes.

50. In combined result, all three appeals of the assessee are allowed in the terms indicated above, Two appeals of the revenue i.e. ITA 609 & 610/Ahd/2010 are dismissed, Revenue's appeal in ITA 611/Ahd/2010 is partly allowed and the remaining appeal of the revenue in ITA 1343/Ahd/2010 is allowed for statistical purposes.

--

Customs Valuation - Strictures against Deputy Commissioner, GATT Valuation Cell, Mumbai - High Court remands matter with a direction to Commissioner to assign job to some other officer for adjudication 

By TIOL News Service

MUMBAI, JUNE 04, 2013: THE issue involves valuation of goods imported by the Petitioner, a wholly owned subsidiary of Forbo Finanz AG, Switzerland, from their group companies. Since the transactions are between related parties, Special Valuation Branch initiated proceedings against the Petitioner.

A letter was addressed by the Deputy Commissioner of Customs, GATT Valuation Cell to the Petitioner calling upon it to submit relevant documents failing which, it was stated, that the revenue deposit of one percent would be increased to five percent. In response, the Petitioners submitted documents as required. The Deputy Commissioner of Customs passed the impugned order by which the disclosed transaction value was rejected and the value of the imported goods was loaded in terms of the directions contained in the order.

The Petitioner contended that the impugned order has been passed in violation of the principles of natural justice and without complying with the mandatory procedural requirements set out in Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. According to the Petitioners, Rule 12 mandates that when the proper officer has reason to doubt the truth or accuracy of the value declared in relation to any imported goods, the importer can be called upon to furnish further information. However, on the request of the importer, the proper officer is required to intimate to him in writing the grounds for doubting the truth or accuracy of the value declared in relation to the goods imported and provide a reasonable opportunity of being heard before taking a final decision. In the present case, there was a patent violation of the principles of natural justice because the mandatory requirement of disclosing the grounds for doubting the truth or accuracy of the value declared was not fulfilled and hence, the mere holding of a personal hearing would not comply with the requirement of Rule 12.

After hearing both sides, the High Court held:

The provisions of Rule 12 contain the procedure which the proper officer is required to follow before rejecting the declared value. In the first instance, when the proper officer has reason to doubt the truth or accuracy of the value, he may ask the importer to furnish further information including documents or other evidence. If upon a scrutiny of the information he is satisfied with the transaction value declared, then in such a case the provisions of rule 3(1) would come into operation. On the other hand, if the importer fails to supply information or if the proper officer still has reason to doubt the truth or accuracy of the value declared despite the information, sub rule (2) requires him to intimate the importer in writing of the grounds for doubting the truth or accuracy of the value declared, on the request of the importer. The object of doing so is to enable the importer to have a fair opportunity to meet the grounds of doubt entertained by the proper officer. Rule 12(2) stipulates a requirement of a reasonable opportunity of being heard. Such an opportunity can have meaning only if the importer is apprised of the grounds on the basis of which the transaction value is doubted by the proper officer. In the absence of a disclosure of the grounds on which the doubt is entertained, the importer would not know of the case against him nor would he be in a position to explain why the doubt which the proper officer entertains as to the truth or accuracy of the value is incorrect. Hence, before the proper officer proceeds to reject the declare value, he is under a mandate to furnish the grounds in writing for doubting the truth or accuracy of the value declared by the importer. Thereupon the importer must have a reasonable opportunity of being heard to enable him to urge such submissions as he may desire in writing in regard to the grounds which are set out by the proper officer. That is the scheme.

In the present case, the procedure which is laid down in Rule 12 was not followed. By failing to inform the importer of the grounds of his doubt and of allowing the importer an opportunity of being heard with reference to those grounds, there has been a clear breach of principles of natural justice.

In view of the above, the High Court remanded the matter, but on going through the affidavit filed by the Deputy Commissioner, the High Court held:

We also take serious note of the statement made in the affidavit in reply to the effect that even if this Court would direct the Deputy Commissioner of Customs to issue a notice to show cause, the grounds of the notice would be the same as those contained in the impugned order and that the quasi judicial order which the authority would pass would be the same as the order in original. This is clearly indicative of the fact that the Deputy Commissioner of Customs has a closed mind and treats a compliance with the principles of natural justice as a mere formality. Hence, while we are inclined to set aside the impugned order and remit the matter back for fresh decision after complying with the requirements of Rule 12, we direct the Commissioner of Customs to assign the case to some other officer, other than the officer by whom the impugned order is passed. We record our disapproval of the manner in which the affidavit in reply has been drafted. Counsel for the Revenue, in fact, stated during the hearing that the aforesaid addition was made by the Deputy Commissioner of Customs on his own accord, without reference to Counsel, and even suggested that the offending part may be expunged.

(See 2013-TIOL-458-HC-MUM-CUS)

ST : Section 66D(j) covers an activity in negative list only if an entertainment takes place in a specified place or locations and persons are admitted to such place on payment of a charge, DTH operation, which is not a place-related entertainment, cannot be covered in negative list

■■■

[2013] 33 taxmann.com 357 (SC)

SUPREME COURT OF INDIA

TATA Sky Ltd.

v.

State of M.P.*

AFTAB ALAM AND R.M. LODHA, JJ.

CIVIL APPEAL NOS. 3882 & 3888 TO 3892 OF 2013

APRIL  16, 2013 

I. Section 65B(44), read with sections 65B and 66D(j), of the Finance Act, 1994 and section 3 of the Transfer of Property Act, 1882 - Service - Exclusion of Transactions merely in Actionable Claim - Period from 5-5-2008 to 31-3-2011 - State of Madhya Pradesh demanded entertainment tax on DTH (direct to home) broadcast provided by assessee to its respective customers on payment of subscriptions under Madhya Pradesh Entertainment Duty and Advertisements Tax Act, 1936 - Assessee argued that it could not be charged to entertainment tax by States, as it was chargeable to service tax by Centre - Assessee also argued that it did not use any infrastructure from State for its DTH broadcasts, as entire infrastructure was centralized at one place - HELD : On a careful examination of State Act, as a whole, and more particularly sections 2(a) ["Admission to an entertainment"], 2(b) ["Entertainment"] and 2(d) ["Payment of admission"] along with section 3 creating charge and section 4 providing collection machinery, it is clear that provisions of State Act are applicable only to place-related entertainment i.e., they cover an entertainment which takes place in a specified physical location to which persons are admitted on payment of some charge - Hence, DTH was not liable to entertainment tax under provisions of State Act - Issues whether DTH was 'entertainment' and whether it could, constitutionally, be charged to entertainment tax given that it was charged to service tax under Finance Act, 1994, were not gone into [Paras 35 to 44] [In favour of assessee]

II. Section 66B of the Finance Act, 1994 - Charge of service tax - State Entertainment Tax Department argued that since valuation provisions provided for inclusion of connections charges in amount liable to entertainment tax, hence, DTH connection charges were liable to tax - HELD : Valuation provision provides only measure of tax and it does not create charge - Question of going to measure of tax would arise only if it is found that charge of tax is attracted - Since charging provision provides charge or levy of tax only if an entertainment takes place in a specified place or locations and persons are admitted to such place on payment of a charge, DTH operation, which is not a place-related entertainment, cannot be charged to tax [Para 37] [In favour of assessee]

III. Section 66B of the Finance Act, 1994 - Charge of service tax - State Entertainment Tax Department sought levy of entertainment tax on DTH operations - Provisions relating to collection provided that tax shall be collected based on State Stamps affixed on tickets relating to entry at place of entertainment - HELD : Collection mechanism under State Act was based on revenue stamps stuck to tickets issued by proprietor for entry to specified place where entertainment was held - Machinery for collection of tax provided under State Act had no application to DTH - It is well settled that if collection machinery provided under Act is such that it cannot be applied to an event, it follows that event is beyond charge created by taxing statute - Hence, State Act could not be extended to cover DTH operations being carried out by assessee [Paras 38 & 39] [In favour of assessee]

IV. Section 66D(j), read with section 65B(24), of the Finance Act, 1994 - Negative list of services - Admission to Entertainment Events - Since section 66D(j) covers an activity in negative list only if an entertainment takes place in a specified place or locations and persons are admitted to such place on payment of a charge, DTH operation, which is not a place-related entertainment, cannot be covered in negative list [Para 37] [In favour of revenue]

V. Section 66B of the Finance Act, 1994 - Charge of service tax - A notification issued in exercise of powers under an Act cannot amend such Act - A notification merely prescribing rate of tax cannot enlarge either charging section or amend provision of collection - If no tax can be levied on an activity under charging section, no tax can be levied on such activity even after issuance of notification prescribing rate of tax thereon [Para 41] [In favour of assessee]

EDITOR'S NOTE

 

1.		New State Law - Not dealt with : This judgment deals with the period prior to coming into force of the new Act, called the Madhya Pradesh Vilasita, Manoranjan, Amod Evam Vigyapan Kar Adiniyam, 2011. The judgment is not concerned with the legal position arising after the new Act came into force w.e.f. 1-4-2011.
2.		Scope of Entry 62 of State List - Whether DTH is 'entertainment', not dealt with : Para 19 of the judgment provides that :
		"..Here it needs to be clearly understood that the issue in this case is not whether direct to home broadcast is "entertainment" in the broader sense. Entry 62 of list 2 of schedule 7 to the constitution may indeed be wide enough to include DTH as yet another form of entertainment but that is not the issue rising for consideration. The issue under consideration is whether the provisions of the 1936 Act have the necessary expanse and flexibility to include DTH as an "entertainment" chargeable to tax and whether the notification dated May 5, 2008 in any manner extended the scope of chargeability under the 1936 Act."
		Thus, the broader issue whether DTH is entertainment and can be charged to entertainment tax, constitutionally, was not dealt with/answered.
3.		Reference - Issue of Merits : This issue stands analysed in detail in judgment in Tata Sky Limited v. State of Tamil Nadu [2013] 31 taxmann.com 128 (Mad.). The readers may refer to that judgment along with Editor's Note thereon.
4.		DTH is not an actionable claim : Para 2.8.12 of CBEC Guidance Note dated 20-6-2012 reads as under :
		"Would recharge vouchers issued by service companies for enabling clients/consumers to avail services like mobile phone communication, satellite TV broadcasts, DTH broadcasts etc. be 'actionable claims?
		No. Such recharge vouchers do not create a 'beneficial interest' in a movable property but only enable a person to enjoy a particular service."
		Thus, DTH voucher is not an actionable claim. Nothing more has been clarified.

CASE REVIEW

 

CIT v. B.C. Srinivasa Setty [1981] 5 Taxman 1 (SC) (para 39) CIT v. Official Liquidator, Palai Central Bank Ltd. [1984] 150 ITR 539/19 Taxman 11 (SC) (para 39) and PNB Finance Ltd v. CIT [2008] 175 Taxman 242 (SC) (para 39) relied on.

CASES REFERRED TO

 

CIT v. B.C. Srinivasa Setty [1981] 5 Taxman 1 (SC) (para 39), CIT v. Official Liquidator, Palai Central Bank Ltd. [1984] 150 ITR 539/19 Taxman 11 (SC) (para 39) and PNB Finance Ltd v. CIT [2008] 175 Taxman 242 (SC) (para 39).

Sarvesh Singh Baghel, Abhijit Sengupta, Aniruddha P. Mayee, Rakesh K. Sharma and Sushil Balwada for the Appellant. Ms. Vibha Datta Makhija and B.S. Banthia for the Respondent.

JUDGMENT

 

Aftab Alam, J. - Leave granted in all the special leave petitions.

2. All these appeals relate to the demand of entertainment tax raised by the Government of Madhya Pradesh under the Madhya Pradesh Entertainment Duty and Advertisements Tax Act, 1936 (hereinafter referred to as "the 1936 Act") on DTH (direct to home) broadcast provided by the appellants to their respective customers on payment of subscriptions. The appellants in all the appeals challenged the demand by the State Government by filing writ petitions before the Madhya Pradesh High Court. The High Court dismissed the writ petitions, upholding the demand by the State Government by the judgment and order dated August 20, 2010. That judgment was rendered in a batch of three writ petitions, taking Writ Petition No. 10148 of 2009, filed on behalf of Tata Sky Limited (appellant in the appeal arising from SLP (C) No.2752 of 2011) as the lead case. The rest of the writ petitions were dismissed following the judgment dated August 20, 2010.

3. For the sake of convenience, we too have taken the facts from civil appeal arising out of special leave petition (civil) No.27595 of 2010.

4. The appellant operates under a licence from the Government of India under section 4 of the Indian Telegraph Act, 1885 and the Indian Telegraphy Act, 1933. It is, however, the case of the appellant that DTH broadcast is a "service" and it is chargeable to service tax. As a matter of fact, one of the several grounds on which the demand of entertainment tax by the State Government on DTH broadcasting is challenged by the appellant is that DTH broadcasting is one of the notified services under the Finance Act, 1994 and is chargeable to service tax by the Central Government. In that regard, it is stated on behalf of the appellant, that in 1991 the Government of India appointed a Tax Reform Committee under the Chairmanship of Dr. Chelliah. The recommendations made by the Tax Reform Committee were accepted and the service tax was introduced in the budget for the year 1994-1995 through the Finance Act, 1994 under the residuary entry 97 of List 1 of the 7th Schedule of the Constitution of India. Under the Act, service tax is levied on the notified services provided or to be provided.

5. For the purpose of levy of service tax on broadcasting, the expression "broadcasting" has been defined specifically under section 65(15) of the Finance Act. The broadcasting services were brought within the purview of the service tax under section 65(105)(zk) of the Finance Act, 1994 as amended with effect from July 16, 2011. Later on, DTH service was brought within the purview of the service tax with effect from June 16, 2006.

6. Under section 67 of the Finance Act, the value of taxable service is the gross amount charged by the service provider for provision of service.

7. On March 24, 2006, the appellant got a licence from the Government of India under section 4 of the Indian Telegraph Act, 1885 and the Indian Telegraphy Act, 1933 to establish, maintain and operate DTH platform for a period of 10 years on the terms and conditions stipulated in the licence agreement. The appellant paid Rs.10 crores as licence fee and furnished a bank guarantee for the sum of Rs.40 crores that is to remain valid for the entire duration of the licence. In terms of the licence the appellant is further required to pay an annual fee equivalent to 10 percent of its gross revenue as reflected in the audited accounts of the company for every financial year within one month from the end of the financial year. The appellant is also required to pay, in addition to licence fee, royalty for spectrum use as prescribed by the Wireless Planning and Coordination Authority (WPC) under the Department of Telecommunications.

8. The licence granted by the Central Government is for the whole of India and the appellant is not obliged to take any permission or any other licence from any other authority for making DTH broadcast.

9. In August 2006, the appellant launched its operations all over India, including the State of Madhya Pradesh. The appellant is having a single broadcasting centre at Chhattarpur, Delhi. This centre downlinks the signals from satellite and then uplinks those signals to the designated transponders for their transmission in Ku band. These signals are received by the dish antenna installed at the subscribers' premises. The TV signals transmitted from the broadcasting centre at Chhattarpur, Delhi, are in encrypted format and those are decrypted/decoded by the set top boxes and the viewing card inside the set top box supplied by the appellant to its subscribers. The subscribers are required to pay certain charges for viewing DTH broadcasts by the appellant on their TV sets.

10. The appellant does not use any infrastructure from the State for its DTH broadcasts.

11. On May 5, 2008, the State Government in exercise of powers conferred under section 3(1) of the 1936 Act, issued a gazette notification fixing 20 percent entertainment duty in respect of every payment made for admission to an entertainment other than cinemas, videos cassette recorders and cable service. As the aforesaid notification forms the basis of the demand raised by the State Government it is useful to reproduce it here in full:-

"No. (63) B-5-9-2006-2-V- In exercise of the powers conferred by sub-section (1) of Section 3 of the Madhya Pradesh Entertainment Duty and Advertisements Tax Act 1936 (No 30 of 1936) the State Government hereby prescribed the rate of Entertainment Duty at 20 percent in respect of every payment for admission to an Entertainment other than Cinema, Video Cassette Recorder and Cable service.

This notification shall come into force with effect from the date of publication.

By order and in the name of the Governor of Madhya Pradesh."

12. Following the notification dated May 5, 2008, a demand notice dated June 10, 2009 was issued by the Excise Commissioner Madhya Pradesh, Gwalior, to the appellant. The contents of the notice, insofar as relevant for the present, are as under:

"S.No.7-Ent./2009-10/173

Gwalior Date 10.06.2009

To,

Tata Sky,

...

...

Sub: Levy of Entertainment Duty on Direct to Home Entertainment Service You are providing entertainment in the State of Madhya Pradesh by Direct to Home (DTH) to registered consumers on monthly payment basis.

Whereas:

1. Under section 3(1) of the Madhya Pradesh Entertainment Duty and advertisements Tax Act, 1936 except cinema hall, videos and cable in all entertainments including entertainment provided through registered consumers through DTH on monthly subscription basis is included. In the aforesaid payment by the consumers, entertainment duty @ 20% is liable to be paid in advance in the treasury of the Government.

…"

13. The appellant was directed to provide the information as asked for in the notice failing which, the notice declared, an ex parte assessment would be made of the entertainment tax payable by it.

14. The appellant replied to the notice by its letter of July 22, 2009 stating that under the provisions of the 1936 Act, there is no specific entry with respect to DTH broadcasting and in absence of such an entry, the provisions of the Act are not applicable to DTH broadcasting and, therefore, the notice was illegal and without jurisdiction. The appellant also referred to a decision of the Uttarakhand High Court in a case relating to a similar demand raised by the Uttarakhand Government and the order of this Court in the special leave petition filed by the Uttrakhand Government against the judgment of the High Court.

15. On August 1, 2009, the State of Madhya Pradesh passed the Madhya Pradesh Entertainment Duty and Advertisements Tax (Amendment) Act, 2009. By the Amendment Act, the failure to produce accounts and documents as required by the Excise Commissioner or any officer authorized by the State Government was made a penal offence. The Amendment Act, however, did not introduce any provision in the Parent Act with respect to levy of entertainment duty on DTH broadcasting.

16. On August 18, 2009, the Excise Commissioner Madhya Pradesh wrote to the Deputy Commissioner Excise, Flying Squad, Gwalior Division, Gwalior, telling him that entertainment duty at the rate of 20 percent was payable on subscription amounts received by the DTH entertainment service provider and directing to ensure the realization of entertainment duty from DTH entertainment service providers. The direction of the Excise Commissioner was followed by a number of notices given to the appellant and on October 1, 2009, the Vice President (Operation) and Area Operation (Manager) of the appellant company were arrested and later released on bail for non-compliance with the provisions of section 5(E) of the 1936 Act.

17. On October 3, 2009, the appellant filed a writ petition, being Writ Petition No.10148 of 2009, challenging the demand and collection of entertainment duty at the rate of 20 percent under section 3(1) of the 1936 Act. The writ petition was eventually dismissed by the High Court by its judgment and order dated August 20, 2010 and the matter is now brought to this Court.

18. Before proceeding further, it needs to be stated that the controversy in all the appeals relates to the demand and realization of entertainment tax under the 1936 Act, which means for the period between the commencement of operation by the appellant in the year 2006 and March 31, 2011, i.e., the day prior to the coming into force of the new Act, called the Madhya Pradesh Vilasita, Manoranjan, Amod Evam Vigyapan Kar Adiniyam, 2011. Further, in course of hearing of the appeals Mr. Dave learned counsel appearing for the State of Madhya Pradesh submitted that he proposed to defend the demand and realization of the impugned tax only for the period between May 5, 2008, the date of the notification issued under section 3(1) of the 1936 Act and the coming into force of the new Act on April 1, 2011. It is, therefore, made clear that this judgment deals with the question of levy of entertainment tax on DTH broadcast under the 1936 Act for the period between the issuance of the notification (May 5, 2008) and the coming into force of the new Act (April 1, 2011). The judgment is not concerned with the legal position arising after the new Act came into force.

19. We now propose to examine whether on the basis of the provisions of the 1936 Act, it is permissible or possible for the State of Madhya Pradesh to levy on what in the lexicon of broadcasting is called direct-to-home or in short DTH. Here it needs to be clearly understood that the issue in this case is not whether direct to home broadcast is "entertainment" in the broader sense. Entry 62 of List 2 of Schedule 7 to the constitution may indeed be wide enough to include DTH as yet another form of entertainment but that is not the issue rising for consideration. The issue under consideration is whether the provisions of the 1936 Act have the necessary expanse and flexibility to include DTH as an "entertainment" chargeable to tax and whether the notification dated May 5, 2008 in any manner extended the scope of chargeability under the 1936 Act.

20. The preamble to the 1936 Act reads as under:-

"An Act to impose a duty in respect of admission to entertainments and a tax in respect of certain forms of advertisement exhibited at such entertainments in Madhya Pradesh."

21. Section 2 of the 1936 Act contains the definition clauses and clause (a) defines the expression "admission to an entertainment":

"2(a) "admission to an entertainment" includes admission to any place in which the entertainment is held;"

22. Clause (aaaa) was inserted in the Act with effect from May 1, 1999 to define

'Cable Operator", "Cable Service", "Cable Television Network" and "Subscriber".

"2(aaaa) "Cable Operator", "Cable Service", "Cable Television Network" and "Subscriber" shall have the same meaning as assigned to them in the Cable Television Network (Regulation) Act, 1995 (No.7 of 1995)"

23. Clause (b) defines "entertainment":

"2(b) "Entertainment" includes any exhibition, performance, amusement, game or sport to which persons are admitted for payment;"

24. Clause (c) defines "entertainment duty":

"2(c) "entertainments duty" means a duty levied under section 3;"

25. Clause (d) defines the expression "Payment for admission" as under:

"2(d) "Payment for admission" includes -

(i)		any payment for seats or other accommodation in any form in a place of entertainment;
(ii)		any payment for a programme or synopsis of an entertainment;
(iii)		any payment made for the loan or use of any instrument or contrivance which enables a person to get a normal or better view or hearing or enjoyment of the entertainment, which without the aid of such instrument or contrivance such person would not get;
(iv)		any payment made by a person by way of contribution or subscription or installation and connection charges or any other charges, by whatever name called, for providing access to any entertainment, whether for a specified period or on a continuous basis;
(v)		any payment, by whatever name called for any purpose whatever, connected with an entertainment, which a person is, required to make in any form as a condition of attending, or continuing to attend the entertainment, either in addition to the payment, if any, for admission to the entertainment or without any such payment for admission;
(vi)		any payment, made by a person, who having been admitted to one part of a place of entertainment is subsequently admitted to another part thereof, for admission to which a payment involving tax or more tax is required;

Explanation - I. - Any subscription raised or donation collected in connection with an entertainment in any form shall be deemed to be payment for admission;

[Explanation - II. - Where entertainment is provided as part of any service by any person, whether forming an integral part of such service or otherwise the charges received by such person for providing the service shall be deemed to include charges for providing entertainment or access to entertainment also];

26. Clause (f) defines "proprietor":

"2(f) "proprietor" in relation to any entertainment, includes any person responsible for or for the time being in-charge of the management thereof;"

27. "Video Cassette Recorder" and "Video Cassette Player" are defined in clauses (g) and (h) of section 2.

28. The charging provision is contained in Section 3 of the 1936 Act which, insofar as relevant for the present, is extracted hereunder:

"Entertainment Duty payable by proprietor of an entertainment - (1) Every proprietor of an entertainment other than proprietor of an entertainment by Video Cassette Recorder (hereinafter referred to as V.C.R.) or Video Cassette Player (hereinafter referred to as V.C.P.) or a Cable Operator, shall in respect of every payment for admission to the entertainment pay to the State Government a duty at the rate as prescribed by the State Government not exceeding seventy five per centum thereof:

Provided …

Provided further …

Provided also ….

Explanation …

(2)**

**

**

(3) Where the payment for admission to an entertainment is made by means of a lump sum paid as a subscription or contribution to any person, or for a season ticket or for the right of admission to a series of entertainments or to any entertainment during a certain period of time, or for any privilege, right, facility or thing combined with the right of admission without further payment or at a reduced charge, the entertainments duty shall be paid on the amount of such lump sum:

Provided that where the State Government is of opinion that the payment of a lump sum represents payment for other privileges, rights, or purposes besides the admission to an entertainment, or covers admission to the entertainment during any period for which the duty has not been in operation, the duty shall be charged on such an amount as appears to the State Government to represent the right of admission to entertainment in respect of which the entertainment duty is payable."

(4), (i) and (ii)**

**

**"

29. Section 3-A deals with entertainment duty payable by proprietor of V.C.R. or V.C.P. and this provision was inserted in the Act with effect from May 1, 1999.

30. Section 3-B was inserted in the 1936 Act with effect from April 1, 2001. Sub-section (1) of section 3-B deals with entertainment duty payable by cable operator and it makes a cable operator, providing access to entertainments through cable service to subscribers of such service, not being owner or occupants of rooms of hotel or lodging house, liable to pay duty at the rate of twenty rupees per month per subscriber in urban and cantonment areas. Sub-section (2) of section 3-B makes every proprietor of hotel or lodging house, providing access to entertainments in the rooms of a hotel or lodging house through the cable service of his own or obtained through any cable operator liable to pay a consolidated amount of duty per month determined on the basis of number of rooms.

31. Section 3-C deals with levy of Advertisement Tax.

32. The machinery for effectuating the charge created by section 3 is provided under section 4 of the 1936 Act which, insofar as relevant for the present, is quoted below:

"4. Method of levy - (1) Save as otherwise provided by this Act, no person shall be admitted to any entertainment other than entertainment by V.C.R., except with a ticket stamped with an impressed, embossed, engraved or adhesive stamp, (not before used) issued by the State Government, of nominal value equal to the duty payable under section 3.

(1A) Omitted.

(2) The State Government may, on the application of a proprietor of any entertainment other than entertainment by V.C.R. in respect of which entertainments duty is payable under section 3, allow such proprietor to pay by one of the modes specified hereunder as it may think fit, in such manner and subject to such conditions as may be prescribed, the amount of the duty due, namely:-

(a) by a consolidated payment of such percentage as determined by the State Government of the gross sum received by the proprietor on account of payments for admission to the entertainment and on account of the duty to be fixed by the State Government;

(b) in accordance with returns of the payments for admission to the entertainment and on account of the duty;

(c) in accordance with the results recorded by any mechanical contrivance which automatically registers the number of persons admitted;

(d), (e), (f) **

**

**

(3) and (4)**

**

**"

33. Section 4-B imposes restriction on admission without payment or at concession rates and provides as under:

"4-B. Restriction on admission without payment or at concession rates. - No proprietor shall admit any person to an entertainment other than entertainment by V.C.R. without payment for admission thereto or at concession rates unless the entertainments duty payable in respect thereof or on the full value of the ticket for the class to which such person is admitted has been paid.

Provided that nothing in this section shall apply in respect of admission at concessional rates -

(i)		to such class of persons; and
(ii)		to such entertainment or class of entertainments;

As the State Government may, by notification, specify."

34. Section 4-C gives the power to impose penalty and section 5 deals with penalties. 5-A deals with composition of offences and section 5-B deals with suspension or revocation of licence for entertainment. Section 8 provides the rule making powers. Section 9 gives the power of entry and inspection and section 9-A makes production and inspection of accounts and documents obligatory. Section 10 deals with recovery of arrears of entertainment duty. Section 10 provides protection to persons acting in good faith and bars any suit or prosecution or other proceedings against officers and servant of the Government. Section 11 deals with delegation of powers and section 12 bars imposition of entertainment duty by any local authority.

35. On a careful examination of the 1936 Act as a whole, and more particularly on a conjoint reading of clauses (a) ["Admission to an entertainment"], (b) ["Entertainment"] and (d) ["Payment of admission"] along with section 3 creating the charge and section 4 providing the collection machinery, we find ourselves in agreement with the submission made on behalf of the appellants that the provisions of 1936 Act are applicable only to place-related entertainment. In other words, the provisions of the 1936 Act cover an entertainment which takes place in a specified physical location to which persons are admitted on payment of some charge as defined under clause (d) of section 2 of the 1936 Act. The legislative history and the amendments introduced in the 1936 Act also show that it was how the scheme of the 1936 Act was viewed by the State itself. It was earlier found that the provisions of the 1936 Act were inadequate to bring shows by video cassette recorder or video cassette and player cable T.V. operations within the taxing net and hence, the legislature considered it necessary to amend the 1936 Act and to insert section 3-A and section 3-B respectively with effect from May 1, 1999 and April 1, 2001. In this regard, it is also very important to note that both in the case of shows by video cassette recorder or video cassette and player, cable T.V. operations, the collection machinery is in-built and provided within the respective provisions of section 3-A and section 3-B. and in those two cases the collection of duty does not take place under section 4 of the 1936 Act.

36. On behalf of the State the imposition of levy on DTH was sought to be justified on the basis of sub-clause (4) of clause (d) of section 2 which reads as under:

"(iv) any payment made by a person by way of contribution or subscription or installation and connection charges or any other charges, by whatever name called, for providing access to any entertainment, whether for a specified period or on a continuous basis;"

37. In our view, the submission is untenable for more reasons than one. First, section 2(d)(iv) is only the measure of tax and it does not create the charge which is created by section 3. The question of going to the measure of the tax would arise only if it is found that the charge of tax is attracted. Under section 3 read with section 2(d) and section 2(a), the charge or levy of tax is attracted only if an entertainment takes place in a specified place or locations and persons are admitted to the place on payment of a charge to the proprietor providing the entertainment. In the present case, as DTH operation is not a place-related entertainment, it is not covered by the charging section 3 read with section 2(a) and 2(b) of the 1936 Act. Consequently, the question of going to section 2(d)(iv) does not arise. Moreover, even if section 2(d)(iv) is to be read as an extension of section 3 and, thus, as a part of the charge, it does not make any difference at all because section 2(d)(iv) refers to "entertainment" which takes us back to section 2(b) and finally to section 2(a).

38. We have held that DTH is not covered by the provisions of section 3 read with section 2(a), 2(b) and 2(d) of the 1936 Act. The issue gets further settled on reference being made to the mechanism of collection of the charge as provided under section 4 of the 1936 Act. Section 4(1) mandates that no person shall be admitted to any entertainment other than entertainment by V.C.R. except with a ticket stamped with an impressed, embossed, engraved or adhesive stamp issued by the State Government of nominal value equal to the duty payable under section 3; sub-section (2) of section 4 provides for different modes specified thereunder for payment of the amount of duty due on the entertainment. Neither the provision of section 4(1) nor any of the modes provided under section 4(2) can be made applicable for collection of duty on DTH operation. Further, it is noted above that section 8 provides rule making powers. In exercise of the powers under that provision the Madhya Pradesh Entertainment Duty and Advertisement Tax Rules 1942 were framed. A perusal of the Rules makes it absolutely clear that the collection mechanism under the 1936 Act is based on revenue stamps stuck to the tickets issued by the proprietor for entry to the specified place where entertainment is held.

39. The machinery for collection of duty provided under the 1936 Act has no application to DTH. It is well settled that if the collection machinery provided under the Act is such that it cannot be applied to an event, it follows that the event is beyond the charge created by the taxing statute. See: CITv. B.C. Srinivasa Setty [1981] 5 Taxman 1 (SC), CIT v. Official Liquidator, Palai Central Bank Ltd. [1984] 150 ITR 539 (SC) 19 Taxman 11,PNB Finance Ltd. v. CIT [2008] 175 Taxman 242 (Sc).

40. In light of the discussions made above, we are clearly of the view that the 1936 Act cannot be extended to cover DTH operations being carried out by the appellants.

41. Coming now to the notification dated May 5, 2008, it is elementary that a notification issued in exercise of powers under the Act cannot amend the Act. Moreover, the notification merely prescribes the rate of entertainment duty at 20 percent in respect of every payment for admission to an entertainment other than cinema, video cassette recorder and cable service. The notification cannot enlarge either the charging section or amend the provision of collection under section 4 of the Act read with the 1942 Rules. It is, therefore, clear that the notification in no way improves the case of the State. If no duty could be levied on DTH operation under the 1936 Act prior to the issuance of the notification dated May 5, 2008 as fairly stated by Mr. Dave, we fail to see how duty can be levied under the 1936 Act after the issuance of the notification.

42. We have held that the 1936 Act does not cover DTH operations on an interpretation of the provisions of 1936 Act itself. We, therefore, see no need to refer to the cases relied upon by the appellants relating to demand of duty on DTH operations under the Uttar Pradesh Entertainments and Betting Tax Act, 1979 and under the Bihar Entertainment Tax Act.

43. Further, as we have held that the 1936 Act does not cover the DTH operations we need not go to the other submissions made on behalf of the appellants inter alia regarding the legislative competence of the statute legislature to impose tax on DTH operation as it was a notified service chargeable to service tax under the Finance Act, 1994.

44. In the result, the appeals are allowed but with no order as to costs.

--
Regards,

Pawan Singla

BA (Hon's), LLB

Audit Officer

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