2007-VIL-325-ITAT-DEL

Equivalent Citation: ITD 112, 188, TTJ 110, 001, [2008] 112 ITD 188 (DELHI)

Income Tax Appellate Tribunal DELHI

IT APPEAL NOS. 2310 TO 2316 AND 2384 TO 2386 (DELHI) OF 2006 C.O. NOS. 283 TO 285 (DELHI) OF 2006

Date: 25.06.2007

INCOME-TAX OFFICER, TDS WARD, FARIDABAD.

Vs

DIRECTOR, DELHI PUBLIC SCHOOL.

BENCH

Member(s)  : VIMAL GANDHI., R. C. SHARMA.

JUDGMENT

Per Vimal Gandhi, President.- The first set of appeals of the revenue and cross-objection of the assessee, Delhi Public School involves a common point relating to interpretation of rule 3(5) of Income-tax Rules.

2. The second set of appeals relating to M/s. Cambridge Foundation School also involves interpretation of above rule and, therefore, these were heard together and are being disposed of through this common consolidated order.

3. The assessees are running public schools and are liable to deduct tax at source from salary and remuneration paid to its teaching staff. On perusal of Form No. 12BA, annexed with Form No. 16, providing information on tax deducted at source in the case of Delhi Public School. The Assessing Officer found that the assessee, while calculating amount of perquisites assessable in the hands of teachers, staff in respect of free/concessional educational facility provided to the wards, a deduction at the rate of Rs. 1,000 per month per child has been claimed. The Assessing Officer accordingly raised a query. In reply thereto, the assessee claimed that above deduction was claimed under rule 3(5) of the Income-tax Rules. The Assessing Officer did not agree with the contention of the assessee. He passed a detailed order holding that deduction claimed by the assessee was not permissible and, therefore, assessee was a defaulter in terms of section 201(1)/201(1A) of the Income-tax Act for not deducting proper tax from salary paid to teachers/staff. He, accordingly, held that there was shortfall in deduction of tax at source by the assessee @ Rs. 12,000 per annum per child from the salary subjected by the TDS under section 192 of the Income-tax Act. After holding the assessee to be a defaulter, demand under section 201(1)/201(1A) was raised in each of the assessment years as per Annex. 'B' of the order passed by the Assessing Officer.

3. The assessee impugned above levies in appeal before the CIT(A). In the course of appellate hearing, assessee relied upon decision of his colleague CIT(A) XXX, New Delhi dated 28-6-2005 in Appeal No. 78/2005-06 in the case of Delhi Public School, Vasant Kunj, New Delhi. In the said case, the learned CIT(A) held as under:

"The value of perquisite as per rule 3(5) of the Income-tax Rules, provided by the employer in this case resulting from the provision of free education facilities for the wards of the employees of the school would be total fees (including transportation charges) plus other fees/charges (per annum) less amount recovered, which would otherwise have been payable by the employees in case their wards were studying in this school without getting free/concessional education facilities. It may be re-emphasized here that the P.R. has wrongly allowed a deduction of Rs. 1,000 per month per child, while calculating the amount of taxable perquisites in Form No. 12BA on this account in the hands of the employees the P.R. has grossly misinterpreted the provisions provided in the proviso contained in this rule 3(5). This proviso clearly provides that where the cost of such education per child does not exceed Rs. 1,000 per month, the provisions of rule 3(5) shall not apply and as such the value of the perquisites would be taken as nil. Thus, where the cost of such expenditure of education per child exceeds Rs. 1,000 per month, the provisions of rule 3(5) shall apply and the proviso carving exception in cases of value of benefit not exceeding Rs. 1,000 is not applicable. In other words, the whole of the value of benefit to the employees resulting from the provisions of free education facilities to the wards of employees would be taken as the value of perquisites in the hands of the employees without giving exemption of Rs. 1,000 per month per child."

4. Learned CIT(A), in the impugned order, noted (that the Assessing Officer has accepted the working of perquisites on account of free education facilities provided to the children of the school employees as worked out by the employer. He further found that the employer had calculated the perquisite value on the basis of fee charged by a similar institution in the nearby locality for calculating the perquisite value and, thereafter, reduced the same by Rs. 1,000 per month per child. On the basis of the above working, the assessee claimed that as perquisite value was less than Rs. 1,000, no tax was to be deducted and, therefore, no deduction was made. The Assessing Officer did not change the perquisite value provided by the assessee but disallowed and added back deduction of Rs. 1,000 per month, i.e., Rs. 12,000 per annum while calculating tax deductible at source for which action was taken under section 201(1)/201(1A).

5. Learned CIT(A) obtained comment of the Assessing Officer on the claim of the assessee under rule 3(5) on 'cost' of free education etc., and not cost of running an establishment providing education. Learned representative of the assessee further submitted that as per the working given by the assessee, average monthly cost per student worked out to Rs. 902.27. This being less than Rs. 1,000, no tax was deductible by the assessee.

6. Learned CIT(A) reproduced relevant rule 3(5) of the Income-tax Rules and agreed with his colleague CIT(A)-XIII, New Delhi that the basis of working out the value of perquisite free and concessional education given by the school has to be cost of education and not the fees charged by other schools as is adopted by the assessee and accepted by the Assessing Officer. He, however, did not agree that the perquisite value of facility of free education in the hands of the employee is to be worked out on the basis of actual amount of the expenditure considering only direct expenditure incurred in providing education. There was no scope to consider only 50 per cent of establishment expenses, educational expenses and electricity expenses and this way work out the cost of education at Rs. 798 per child. Learned CIT(A) found that total expenditure claimed by the assessee in P&L account was Rs. 6,33,90,432 for 3,401 students. This way, the average monthly cost per student was worked out to be Rs. 1,053.23 for the period relevant to financial year 2002-03. The Assessing Officer was directed to work out short deduction of tax on the above basis. Likewise, for the financial years 2003-04 and 2004-05, the cost per student was worked out to Rs. 1,660 and Rs. 2,121 respectively.

7. The revenue is aggrieved and has challenged the order by raising following common ground:

"The learned CIT(A) has erred in law in directing the Assessing Officer to amend the assessment order to the extent of recalculating the value of perquisites on account of free education facilities provided to the wards of employees/staff of school and to then calculate the short deduction of tax and interest under section 201, which is not in consonance with rule 3(5) of the Income-tax Rules, 1962.-

8. The assessee, in the cross-objection, has taken two grounds as under:

"1. That the learned CIT(A) was not justified in calculating the cost of education in the manner he has done by including all the expenses of the appellant as appearing in the income and expenditure account.

2. That the learned CIT(A) was not justified in law and on facts in not granting the deduction of Rs. 1,000 per child per month in accordance with rule 3(5) of the Income-tax Rules."

9. In the other case of Cambridge Foundation School, the revenue authorities on survey found that the assessee did not add any perquisite value in the hands of the employees whose children were having similar free educational facilities. The Assessing Officer, accordingly, took proceedings against the assessee for not properly deducting tax at source from the salaries paid to the employees under section 192 and consequently treated the assessee as assessee-in-default and initiated proceedings under sections 201(1) and 201(1A). After rejecting the contention of the assessee that they were not liable to add perquisite for free education and deduct tax at source, he found number of students who were provided free educational facilities in different assessment years. The number is recorded in para A-6 of order for financial years 1998-99 to 2004-05 dated 3-6-2005. While calculating total value of perquisite at Rs. 4,84,993, the Assessing Officer accepted that above tax has been paid by the payees and was not recoverable. The Assessing Officer only imposed interest and penalties for not deducting above amount of tax on the assessee.

10. The assessees impugned above addition in appeal before the CIT(A), who, after considering the facts of the case in the light of rule 3(5) of IT Rules, held that the aforesaid rule was entitled to a liberal construction. He further held that the word "cost" in the said rule should be distinguished from word "price" and exemption of Rs. 1,000 per ward per month should also be allowed while computing the perquisite value in respect of free educational facilities. Accordingly, it was held that the Assessing Officer was in error in denying deduction/exemption of Rs. 1,000 per month per child. He further directed that recoveries made from employees/teachers, etc., should be given credit and only net amount in respect of concession be considered as perquisite for taxation purposes.

11. The aforesaid findings of learned CIT(A) are subject-matter of appeal by the revenue and direction to deduct Rs. 1,000 per child per month while computing value of taxable perquisite is under challenge. The revenue has also disputed the interpretation put by learned CIT(A) on rule 3(5) including its proviso.

12. We have heard both the parties. Learned Departmental Representative relied upon the order of the Assessing Officer and had contended that the working given by the assessee was adopted by the Assessing Officer except for addition of Rs. 12,000 per annum per child and, therefore, there was no justification on the part of the learned CIT(A) to interfere with the order of the Assessing Officer.

13. Learned counsel for the assessee, on the other hand, submitted that as per working given by the assessee, from the perquisite value, the assessee was entitled to deduction of Rs. 1,000 per month per child on correct interpretation of rule 3(5) and that deduction was wrongly not allowed to the assessee. In support of his argument, the learned counsel placed reliance on the decision of Tribunal 'H' Bench in the case of ITO v. Delhi Public School in IT Appeal No. 482/Delhi of 2006 and other appeals decided on 23-3-2007 wherein the Tribunal held as under:

"Since learned CIT(A) has held that as per the accounts maintained by the assessee, the cost of education comes to Rs. 902.27, nothing is to be considered as perquisite in the hands of employee. Even otherwise, the benefit of expenditure of Rs. 1,000 per month per child is to be given as per the intention of the Legislature. We accordingly do not find any infirmity in the order of learned CIT(A)."

14. It was also observed that when estimate of salary is bona fide and there is small shortfall due to bona fide impression regarding assessment, deduction, etc., the assessee should not be treated as an assessee-in-default.

15. Shri Rakesh Gupta, learned counsel for M/s. Cambridge Foundation School supported the impugned order of CIT(A). He submitted that any amount paid or recovered from the employee has to be reduced while taking the cost or value of benefit and in case after such reduction, the value of perquisite is less than Rs. 1,000, then, in the light of proviso, nothing is to be added. In support of the claim that deduction of Rs. 1,000 per month per child is to be allowed in all cases, Shri Gupta placed reliance on Circular No. 15, dated 12-12-2001 [(2002) 172 CTR (St.) 65] issued by CBDT explaining and clarifying provisions of Finance Act, 2001. He argued that in respect of similar provisions relating to free meals, the circular has provided that deduction of perquisite for free meal is to be charged only where it exceeds Rs. 50. Likewise, in case of aggregate value of gifts, vouchers or token in lieu of gift to be taken as taxable perquisite, only where gifts beyond Rs. 5,000 would only be taxed as perquisite. He read out articles IX and X of sub-para (4) of para 5.1 of the circular.

 

16. We have given careful thought to the rival submissions of the parties. The assessee, in all the assessment years, claimed rebate of Rs. 12,000 per annum per child for calculation of salary paid to the staff, which was subjected to deduction of tax at source under section 192 of the IT Act. That was held to be wrongly claimed by the Assessing Officer and that was the issue which had emerged from the order of the Assessing Officer. Before the learned CIT(A), it was also contended that perquisite value of benefit of free or concessional education to staff, etc. is to be worked out on the basis of fees charged by other schools similarly situated. Learned CIT(A), on the other hand, held that the basis of working out the perquisite value has to be the "cost" of education. The aforesaid questions are subject-matter of dispute before us. In order to resolve the issue raised, we may straightaway refer to provisions of rule 3(5) which are as under:

"The value of benefit to the employee resulting from the provision of free or concessional educational facilities for any member of his household shall be determined as the sum equal to the amount of expenditure incurred by the employer-in that behalf or where the educational institution is itself maintained and owned by the employer or where free educational facilities for such member of employees' household are allowed in any other educational institution by reason of his being in employment of that employer, the value of the perquisite to the employee shall be determined with reference to the cost of such education in a similar institution in or near the locality. Where any amount is paid or recovered from the employee on that account, the value of benefit shall be reduced by the amount so paid or recovered:

Provided that where the educational institution itself is maintained and owned by the employer and free educational facilities are provided to the children of the employee or where such free educational facilities are provided in any institution by reason of his being in employment of that employer, nothing contained in this sub-rule shall apply if the cost of such education or the value in such benefit per child does not exceed Rs. 1,000 per month:

17. It is clear from above that perquisite value of free or educational facilities to any member of staff, etc. is to be calculated as under:

(a) The amount of expenditure incurred by the employer in that behalf;

or

(b) Where educational institution is maintained and owned by the employer, or free facilities are allowed by reason of employment, the value of perquisite to similar institution in or nearby locality;

(c) If any amount is paid or recovered from the employees for free or concessional educational facilities, then value of benefit is to be reduced by the amount so paid or recovered.

(d) The proviso would be attracted and rule 3(5) shall not apply if the following conditions are fulfilled:

(i) If the cost of such education "free or concessional educational facilities" does not exceed Rs. 1,000;

(ii) The educational institution itself is owned by the employer where free educational facilities are provided to the children of the employee or such facilities are provided in any institution by reason of employment of that employee.

18. In support of claim for deduction of Rs. 1,000 per month per child for concessional treatment in all cases, reliance was placed on decision of Tribunal 'H' Bench, New Delhi in the case of Delhi Public School and also on Circular No. 15, dated 12-12-2001. After great deal of deliberation, we are of the view that neither the circular of the Board nor the decision of the Tribunal dated 23-3-2007 render any help to the assessees. Dealing first with the decision of the Tribunal, we find that in the cases before the Tribunal, perquisite value per child per month under rule 3(5) of IT Rules was found by the assessee at Rs. 902.27, the amount being less than Rs. 1,000, which is clearly exempt under proviso to rule 3(5). It was not the issue before the learned Bench whether in all cases, exemption of Rs. 1,000 per month per child is to be allowed where cost/value of perquisite exceeds Rs. 1,000. Therefore, the observation of the Bench "Even otherwise, the benefit of expenditure of Rs. 1,000 per month per child is to be given as per the intention of the Legislature" is not the ratio of the decision and, therefore, not binding. These are passing observations on an issue not before the Bench. We further find that the decision of the Hon'ble Supreme Court in the case of CED v. Kantilal Trikamlal [1976] SCC 1935 or decision in the case of Gwalior Rayon Silk Co. Ltd. v. CIT[1983] 140 ITR 832 (MP) cannot help the assessee.

19. In our considered opinion, the proviso here is an exception to the rule laid down in the main sub-rule. It is to be so read. The Legislature or rule making authorities wished to give benefit to persons where the cost or perquisite value of free educational facility did not exceed Rs. 1,000 per month per child. There is nothing in the proviso to show that benefit was to be extended in all cases. The intention is to be gathered from the plain and simple language used in the proviso. Those who laid down the policy did not permit deduction of Rs. 1,000 universally and in fall cases even where the value of perquisite exceeded Rs. 1,000. The benefit can only be allowed by twisting the language and by adding words to the proviso, which are not there.

20. The Hon'ble Supreme Court, in the case of Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345, approved the observations in the case of Cape Brandy Syndicate v. IRC [1921] 1 KB 64 (KB) by observing as under:

"To us, there appears no justification to depart from the normal rule of construction according to which the intention of the Legislature is primarily to be gathered from the words used in the statute. It will be well to recall the words of Rowlatt, J. in Cape Brandy Syndicate v. IRCs (1921) 1 KB 64 (KB) at p.71, that:

'...in the taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.'

Once it is shown that the case of the assessee comes within the letter of the law, he must be taxed, however, great the hardship may appear to the judicial mind to be."

In the case of Keshavji Ravji & Co. v. CIT [1990] 183 ITR 1 the Apex Court observed as under:

"As long as there is no ambiguity in the statutory language, resort to any interpretative process to unfold the legislative intent becomes impermissible. The supposed intention of the Legislature cannot then be appealed to whittle down the statutory language which is otherwise unambiguous. If the intendment is not in the words, it is nowhere else. The need for interpretation arises when the words used in the statute are, on their own terms, ambivalent and do not manifest the intention of the Legislature."

In the case of Guru Devdata VKSSS Maryadit v. State of Maharashtra AIR 2001 SC 1980, their Lordships of the Apex Court held as under:

"It is a cardinal principle of interpretation of statute that the words of a statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning, unless there is something in the context or in the object of the statute to suggest to the contrary. The golden rule is that the words of a statute must prima facie be given their ordinary meaning. It is yet another rule of construction that when the words of the statute are clear, plain and unambiguous, then the Courts are bound to give effect to that meaning irrespective of consequences. It is said that the words themselves best declare the intention of the law give. The Courts have adhered to the principle that effort should be made to give meaning to each and every word used by the Legislature and it is not a sound principle of construction to brush aside words in a statute as being inapposite surplus if they can have a proper application in circumstances conceivable within the contemplation of the statute."

Though there are various judgments upholding the above principle but we may only mention that Constitution Bench of the Hon'ble Supreme Court in the case of CIT v. Anjum M.H. Ghaswala [2001] 252 ITR 1 (SC), has endorsed the above view by observing as under:

"This exercise of purposive interpretation by looking into the object and scheme of the Act and the legislative intendment would arise, in our opinion, if the language of the statute is either ambiguous or conflicting or gives a meaning leading to absurdity."

Similarly in the case of Prakash Nath Khanna v. CIT [2004] 266 ITR 1 (SC), their Lordships have observed as under:

"It is well-settled principle in law that the Court cannot read anything into a statutory provision which is plain and unambiguous. A statute is an edict of the Legislature. The language employed in a statute is the determinative factor of legislative intent. The first and primary rule of construction is that the intention of the legislation must be found in the words used by the Legislature itself. The question is not what may be supposed and has been intended but what has been said. 'Statutes should be construed, not as theorems of Euclid'. Judge learned Hand said, 'but words must be construed with some imagination of the purposes which lie behind them'. While interpreting a provision the Court only interprets the law and cannot legislate it. If a provision of law is misused and subjected to the abuse of process of law, it is for the Legislature to amend, modify or repeal it, if deemed necessary. The legislative casus omissus cannot be supplied by judicial interpretative process. Two principles of construction-one relating to casus omissus and the other in regard to reading the statute as a whole-appear to be well-settled. Under the first principle a casus omissus cannot be supplied by the Court except in the case of clear necessity and when reason for it is found in the four corners of the statute itself but at the same time a casus omissus should not be readily inferred and for that purpose all the parts of a statute or section must be construed together and every clause of a section should be construed with reference to the context and other clauses thereof so that the construction to be put on a particular provision makes a consistent enactment of the whole statute."

21. Now, turning to Circular No. 15, dated 12-12-2001 of CBDT, we have considered carefully articles IX and X of sub-para (4) of the Circular. We are unable to agree with the assessee that in respect of perquisite of free meals and gifts, universal exemption is granted up to Rs. 50 or up to Rs. 5,000 in all cases in the circular of CBDT. Such concession, in our considered opinion, is not really spelt out and argument of the learned counsel for the assessee is based on misreading of the circular. Even if the argument is accepted, it cannot be allowed, as provision relating to free or concessional educational facility is also explained in the same circular at article V of the same sub-para of the circular. No such concession of Rs. 1,000 has been permitted in all cases where value of such facility exceeds Rs. 1,000. Therefore, in the given circumstances of the case and on the plain language of the provision, we are of the opinion that under proviso to rule 3(5), perquisite value is not to be added in case it is less than Rs. 1,000 per month per child. In that situation, rule 3(5) is not applicable at all. This is a concession given by laying down exception to the principle of the rule. However, in case, cost or perquisite value exceeds Rs. 1,000 per month per child, then the entire amount is to be added and taxed as a perquisite in the hands of the employee. This follows from the plain language. Those who are enjoined with the duty to interpret are to give simple meaning to the words used which are unambiguous here. The mandate of the Legislature is required to be carried. It is open to the people laying down the policy to allow benefit in cases where perquisite value exceeds Rs. 1,000 per child per month. Such benefit cannot be allowed by twisting the language and under the guise of giving it a liberal construction. We, therefore, decide this issue against the assessees.

22. The other claim that any amount paid or recovered from the employee is to be deducted and value of benefit is to be reduced is well-founded and is required to be accepted in both rule 3(5) and its proviso. In other words, if part of cost of teaching is paid or recovered from the employee, then there is no question of treating that part of facility as a perquisite. Only the perquisite for which payment is not made or recovered, can be treated as a perquisite. Therefore, if after giving benefit for the amount paid or recovered from the employee, the cost of education or value of perquisite does not exceed Rs. 1,000 per month per child, then nothing is to be added on account of concessional treatment. Rule 3(5) of IT Rules would have no application in the light of proviso to the said rule. It is really not material as to how and in what manner, the amount has been paid or recovered from the employee. This follows from plain reading of sub-rule including the proviso. Accordingly, we decide this issue in favour of the assessees.

23. Another contention was advanced before us that cost of free or concessional education is different from value of perquisite. We do not find any force in this contention. It is clear from the above that different methods of computing perquisite value of free or concessional educational facilities to staff are provided under the sub-rule. If the amount of expenditure actually incurred is available, then that amount is to be taken. If such actual expenditure incurred is not available, then perquisite value of cost in similar institution in or near the locality where educational institution in question is situated can be taken. Different computations are separated by the word 'or'. Therefore, the words 'cost' or 'value of perquisite' are used alternatively. The assessee can always insist that revenue should adopt the mode of computation, which would put least burden on the assessee (employer/employee). We direct accordingly.

24. The assessees have also challenged computation of cost of education made by the learned CIT(A). Total cost, both direct and indirect, have been taken into account to work the cost per child. The learned counsel for Delhi Public School has given us chart as to why indirect costs like financial expenses, transport expenses, repair and maintenance expenses, depreciation, etc. cannot be taken into account. We are of the view that all expenses incurred in the running of the school where education is imparted to children are to be taken into account, both direct or indirect. Depreciation, being only a notional expenditure, can be excluded. Other expenditures are to be taken into account. During the course of hearing, learned counsel for the assessees could not find any specific defect in the computation. However, as the cost computed by learned CIT(A) was different from the cost or perquisite value declared by the assessee to the Assessing Officer, the assessees are at liberty to point out any error involved in the computation of cost/perquisite value. The Assessing Officer would objectively consider such objections and pass an appropriate order.

25. For the above reasons, we allow all the appeals in terms stated above.

 

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