By TIOL News Service

AHMEDABAD, JAN 07, 2015: THE issue before the Bench is - Whether grant of gift coupons to employees in nature of mementos to commemorate receipt of safety awards can be said to be in nature of salary. And the answer is NO.

Facts of the case

The assessee PSU is engaged in the business of polymers, synthetic fibres, solvents, surfactants, industrial chemicals and polysters. Consequent to filing of its return, scrutiny assessment was undertaken and it was noticed that the assessee had distributed gift coupons to its employees, which was not disclosed in its return and therefore, there was short deduction of tax. The AO, accordingly passed the order u/s 201(1). On appeal, the CIT(A) confirmed the order of AO, and in addition, levied penalty u/s 271C. On further appeal, the Tribunal reversed the order of AO and deleted the penalty.

Having heard the parties, the High Court held that,

++ it is noted that the assessee is bound by all kinds of audits and regulatory checks on the accounts, vouchers and records. Being governed by the Board of Directors, no one has any personal interest to deliberately treat a minor payment as nontaxable, which is, otherwise, believed to be taxable perquisite. The fact that the assessee was conferred various safety awards by international organizations has not been disputed. It was contended by the assessee that it held a bonafide belief that the payment made to its employees was not in the nature of salary. The fact that safety awards were conferred and gift coupons in question were linked to such safety awards and holding it as a bona fide belief on the part of the assessee cannot be called a farce. The Revenue has not controverted the fact of grant of gift awards and gift coupons being displayed by the assessee by way of hoardings, advertisement, celebration and company’s resolution. Therefore, it cannot be said that the assessee had suppressed or withheld any information in order to avoid tax;

++ the Apex Court in case of CIT vs. Eli Lilly and Co., held that the payment of home salary abroad by the foreign company to the expatriates had a connection or nexus with their rendition of services in India and therefore, such payment constituted income, which was deemed to accrue or arise to the recipient in India as salary earned in India in terms of Section 9(1)(ii). It was further held that since the assessee was under a genuine and bona fide belief that it was not under any obligation to deduct tax at source from the home salary paid by the foreign company, penalty u/s.271C was not leviable as reasonable cause was shown for not deducting tax at source. Considering the factual aspects of the present case and in view of the decision of Apex Court, this court is of the opinion that the assessee acted under the bona fide belief that the gift coupons, being in the nature of mementos to commemorate conferment of awards, were not in the nature of payment of salary. The salary of employees comes from the revenue of the PSU and when huge amount of TDS is made from regular salary, there seems no reasons as to why, a Central Government PSU, will commit default to pay TDS on such small payment. Therefore, the Tribunal is right in in reversing the order of CIT(A) and thereby cancelling the penalty of Rs.1,25,58,513/- levied u/s 271C for short deduction of tax in respect of gift coupons issued by the assessee to its employees.

(See 2015-TIOL-39-HC-AHM-IT)