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| DATE: | August 10, 2012 (Date of publication) |
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| Click here to download the judgement (sedco_forex_non_monetary_perk.pdf) |
Tax on employees’ salary is a “non-monetary” perquisite exempt u/s 10(10CC)
The assessee-employer entered into agreements with the employees pursuant to which it agreed to bear the income tax payable by the employees on their salary. The question was whether such tax payment was “income in the nature of a perquisite, not provided for by way of monetary payment, within the meaning of clause (2) of section 17” so as to be exempt in the hands of the employee. HELD by the High Court:
The tax on the salary paid by the employer was a “perquisite” u/s 17(2)(iv) because it was paid in respect of the employees’ obligation and it was not by way of monetary payment to the employees concerned but for or on their account to the Income-tax department. Consequently, it is a “non-monetary” payment of a perquisite to the employee which is eligible for exemption u/s 10(10CC).
The stance taken by, and the plea(s) made on behalf of, the taxpayer, and upheld by the HC,- to comment on in an inoffensive manner,- is too difficult to be readily understood, especially in the backdrop of the scheme of the applicable provisions of the Act, if read and understood as a whole.
The only argument advanced was that, though, admittedly, the amount in dispute was in the nature of a ‘monetary payment’, the payment made was not to the employee but directly to the government; hence was a ‘non-monetary payment’, so qualified for the tax exemption u/s 10 (10CC). Such an argument, in one’s well considered and out-of-box view, goes to prima facie offend the very well accepted and established proposition of law that, – nothing is to be read in, or to be implied.
Further, if one were to truly answer the call of courage of own conviction, it is strongly felt that, should the scheme of the related provisions as a whole been thoroughly gone into and understood in the normally expected right perspective, the taxpayer’s stance taken could only be regarded to suffer from the malady of faulty logic.
One is left regretfully wondering whether a different view could have been taken by the HC had the Revenue urged its case on all possible and merited grounds, on the first occasion itself; that is, in the first known one of its kind namely, RBF Rig Corporation LIC (RBFRC) versus Asstt. CIT, Dehradun, reported in (2007) 297 ITR 228, which has been cited and successfully relied on by the taxpayer in the subject HC case.
Add-on (KEY POINTS):
For an analytic study, to be focused on following:
S 10(10CC) is a provision for exemption; S 17(2)(iv) is a provision for taxing.
A. S 10 (10)(CC) inserted wef 1-4-2003; while S 17 (2) (iv) already there for long. Both on statute, and in force, requiring to be given effect.
B. S 17 (2) (iv) – in terms, beyond any doubt, envisages monetary payment, and by employer to, if not exclusively , also to a third party ; which, would, admittedly, cover within its ambit, tax on tax-free salary paid by employer to government.
S 10(10CC) is a provision for exemption; S 17(2)(iv) is a provision for taxing.
The legislature, in its wisdom, has inserted S. 10(10CC), fully knowing /being conscious of the fact that by virtue of S 17(2)(iv) a monetary payment made to a anyone else , also other than taxpayer, will be taxed. Had it really been the intention to tax exempt such payment, that would have been achieved by simply deleting S 17(2)(iv), without having to insert a new provision i.e. S. 10(10CC). In the alternative, in section 10(10CC) itself it could have been simply but clearly provided that a monetary payment made to one other than taxpayer, notwithstanding anything contained in section 17(2)(iv) be tax exempt. But, not done either. That can only mean the intention of S 10(10CC) was not to make a monetary payment made to other than to taxpayer (e.g. government as in the case herein) non-taxable.
Even otherwise, to say that a monetary payment, if made to a third party, will cease to remain so, but instead should be regarded as a ‘non-monetary payment’ is, bereft of any logic or sane reasoning. Besides, doing so is obviously offending the language itself; so also its grammar.
For the connotation of – ‘non-monetary’, for its ordinary meaning so also its legal meaning, attention is invited to the dictionaries; also to the material galore available in public domain. Incidentally, in section 10(10CC) the words actually used are , – ‘not provided by way of monetary payment’ NOT ‘non-monetary’; the former expression, it could be validly urged, has more clarity, hence is in favour of the Revenue.
For completeness of the discussion of the discussion herein, two crucial well established principles of ‘harmonious interpretation’ as enunciated by courts, need a special mention:
(a) One provision of the Act cannot be so construed as to defeat another provision of the Act; and
(b) the several provisions in the Act must be read together and as parts one larger scheme.
To fit the context herein, one is left with an irresistible temptation to sadly recall, with due respect to the so called law offices and courts, the saying, – law is an ass.
Also, more aptly, often quoted famous jurist, Oliver Wendell Holmes:
“Life and language are alike sacred. Homicide and verbicide – that is, violent treatment of a word with fatal results to its legitimate meaning, which is its life- are alike forbidden.”
Verbicide
http://www.sovereignfellowship.com/tos/13.1/
Be that as it should, it is, of course a matter of deep regret that Last not but not least, with similar experiences in the past, especially with wisdom gathered in hindsight, – reference being to a similar difficulty faced with in interpretation of a related provision because of user of a like clumsy expression i.e. ‘whether encashable or not’,- the legislature has failed once again to take the precaution of clearly spelling out what was intended by use of the expression in doubt. Historically, the income tax regime has experienced with no let-up or improvement as desired so as to render the law simple and controversy-proof.
By the way, in the DTC Bill, it appears, for taxing ‘income from employment’, no such exemption is going to be available as now u/s 10 (10CC).
What treatment to the item of dispute was, on the one side, being given by employers /employees and on the other, being accepted by the Revenue, under the FBT regime , though short-lived, is worthwhile looking into.
Sorry; the ‘like clumsy expression’ referred to herein above, is, – “whether convertible into money or not”. For knowing the controversy on the interpretation of the said expression, one may read the commentary and case law in text books.