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A.M. Awasthy Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1983)6ITD150(Delhi)
AppellantA.M. Awasthy
Respondentincome-tax Officer
Excerpt:
.....paid in iraq and added to it income-tax borne by ongc in iraq and, thus, he determined the total salary in iraq inclusive of income-tax at rs. 48,190. in respect of the perquisite value of the rent-free accommodation, the assessee had claimed that the foreign allowance and project allowance were in the nature of dearness allowance and could not be considered as salary for the purpose of determining the perquisite value of the rent-free accommodation. the ito did not accept this plea and took the perquisite value at 10 per cent of the market value as determined by him and also took the perquisite value of furniture and fixture at rs. 1,172. thus, he had taken rs. 5,991 as perquisite value of the rent-free furnished accommodation in iraq.5. it was against this determination of the.....
Judgment:
1. This appeal by the assessee is directed against the order of the AAC and relates to the assessment year 1976-77.

2. The appeal is noted to be late by one day and having perused the assessee's request for condonation of delay, we have admitted the appeal and condoned the delay.

3. The assessee is an employee of ONGC, Dehradun. In the relevant financial year up to 19-9-1975, the assessee was posted in Iraq where ONGC was having its project.. There were certain service conditions for the employees posted abroad and according to that the assessee was getting some foreign allowance and project allowance for his duty in Iraq. Besides this, the assessee was provided with free furnished accommodation in Iraq. The details of the furnishing were also determined in advance. One of the conditions of the service was that the income-tax payable in Iraq was to be borne by the employee, while the Indian income-tax, if any, accruing on and payable by him in India, during his tenure abroad, would be borne by ONGC. After his work in Iraq was over, the assessee came back to his job in India.

4. While making the assessment of the assessee's income, the 1TO determined the salary paid in Iraq and added to it income-tax borne by ONGC in Iraq and, thus, he determined the total salary in Iraq inclusive of income-tax at Rs. 48,190. In respect of the perquisite value of the rent-free accommodation, the assessee had claimed that the foreign allowance and project allowance were in the nature of dearness allowance and could not be considered as salary for the purpose of determining the perquisite value of the rent-free accommodation. The ITO did not accept this plea and took the perquisite value at 10 per cent of the market value as determined by him and also took the perquisite value of furniture and fixture at Rs. 1,172. Thus, he had taken Rs. 5,991 as perquisite value of the rent-free furnished accommodation in Iraq.

5. It was against this determination of the perquisite value of the rent-free accommodation that the assessee objected before the AAC. The AAC did not accept the plea of the assessee that the foreign allowance and the project allowance paid to him was in the nature of dearness allowance as given in Explanation 1 to Rule 3 of the Income-tax Rules, 1962. Under this rule, if the accommodation is furnished, 10 per cent of the salary due to a person during the period when the accommodation was occupied by him, and 10 per cent per annum of the original cost of furniture provided to him was to be taken. For this purpose, 'salary' includes the pay, allowance, bonus or commission payable monthly or otherwise, but does not include dearness allowance or dearness pay. The AAC also held that the tax paid by the employer on behalf of the appellant was also to be taken into consideration and the fact that the quantification of such liability was to take place later would not warrant exclusion of the amount which accrued to the appellant as a result of agreement of service. Thus, according to the AAC, inclusion of income towards the assessee's salary for the purposes of determining the perquisite value of the rent-free accommodation was rightly done by the ITO. That the Appellate Assistant Commissioner of Income-tax erred in law and on facts in holding that the Jncome-tax Officer was justified in calculating the perquisite value of rent-free accommodation provided in Iraq at Rs. 5,991 by considering that the foreign allowance and the project allowance paid to the appellant in Iraq as well as the perquisite by way of income-tax paid by the employer were to be included in the salary for the purpose of Rule 3{a) of the Income-tax Rules, 1962 He has further filed written submissions from time to time and in his submission it has been stated that the amount of inclusion of income-tax liability at Rs. 19,271 was wrong as that was calculated on tax basis. In this connection, reliance has been placed on the decision of the Orissa High Court in the case of CITv. American Consulting Corpn. [1980] 123 ITR 513. A reference has also been made to the decision of the Calcutta High Court in the case of N. Sciandra v. CIT [1979] 118 ITR 675. Further reliance has been placed on the order of the Tribunal, Delhi, in the case of Pipeline Technologist Ltd. [IT Appeal No. 3775 (Delhi) of 1980]. The assessee has further furnished his own working on the basis of the above cases and has submitted that if at all tax was to be included, it would come to be a much smaller figure of Rs. 9,130 and not the amount of Rs. 19,271 as included by the ITO.7. Before us the assessee has not appeared though he had appeared on earlier occasion. He has relied on his written submissions given from time to time and we proceed to decide the issue.

8. The first contention of the assessee is in respect of the treatment of foreign allowance and project allowance for the purpose of determination of the perquisite value of the rent-free furnished accommodation in Iraq. We do not find any material on the basis of which it can be held that these allowances were in the nature of dearness allowance. The purpose of the payment of these allowances are to help the assessee to have his establishment in foreign country and to maintain himself. The dearness allowance alone is not shown to be a factor determining these allowances. These allowances have, therefore, to be treated as part of the assessee's salary and cannot be equated to dearness allowance.

9. The second contention of the assessee has substantial force. In fact, we find that the AAC has not applied his mind to this aspect in greater detail and has not ascertained how the ITO has included an amount of Rs. 19,271. Considering the terms of the assessee's posting abroad, the income-tax payable in India was to be paid by the ONGC.Where the employer undertakes to pay the tax for a certain period, this can be considered as a perquisite in the hands of the assessee under the definition of perquisite in Section 17(2)(iv) of the Income-tax Act, 1961 ('the Act'). It says that the perquisite includes any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee. Thus, such a tax obligation paid by the employer is a part of perquisite and not a part of salary and the perquisite value has to be worked out only on the salary due to the assessee during the period when he occupies an accommodation. Thus, the tax perquisite cannot enter the determination of the perquisite value of the rent-free accommodation.

10. Apart from the above, liability undertaken by the ONGC is a simple liability for paying income-tax during the assessee's posting abroad.

The ITO could have very well ascertained this amount from ONGC. The ONGC has not given an undertaking that whole of income-tax liability would be payable by them. In such a case, there will be no justification for working the tax on grossing up basis or tax on tax basis. As these aspects of the matter have not been appreciated by the revenue authorities, we are inclined to set aside the order of the AAC as well as the order of the ITO and direct him to pass a fresh order after ascertaining full facts. The assessee is an employee of a Government organisation and the revenue should try to extend to him all the benefits which are available under the law.


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