Commissioner of Income Tax and Another vs Hyundai Heavy Industries Co. Ltd.

S.H. Kapadia, C.J.—This group of appeals raises a common question of law and fact. Hence, the three appeals are decided by this common judgment.

For the sake of convenience, the facts in Income Tax Appeal No. 12 of 2003 are mentioned hereinbelow ;

Facts :

Hyundai Heavy Industries Company Ltd., the assessee, was charged with interest u/s 201(1A) of the Income Tax Act, 1961, for short payment of tax deducted at source from the salary of its employee for the assessment year 1994-95. Being aggrieved by the order of the Assessing Officer, the said assessee went in appeal to the Commissioner of Income Tax (Appeals). The order of the Assessing Officer was confirmed and the appeal was dismissed. Being aggrieved the assessee carried the matter in appeal to the Income Tax Appellate Tribunal which took the view that in the quantum appeals it has been held that free boarding on the rigs was not a perquisite u/s 17(2)(iii) and those decisions have not been challenged by the Department and therefore interest u/s 201(1A) of the Income Tax Act was not leviable on Hyundai Heavy Industries Co. Ltd. Being aggrieved by the decision of the Tribunal, the Department has come by way of appeal u/s 260A of the Income Tax Act. In all the three appeals we are concerned with the same issue.

The assessee-company had employed technicians on the rigs, these technicians were required to work during the on period continuously for 35/28 days. During this period they were given free meals and free boarding which was treated as a perquisite by the Department u/s 17(2)(iii) of the Income Tax Act. Being aggrieved, the matter was carried in appeal to the Tribunal in which it was held that free meals and free boarding did not constitute a perquisite and therefore its value cannot be added to the income of the assessee. The decision of the Tribunal was not challenged by the Department. However, on April 27, 1998, notice was issued u/s 201 of the Income Tax Act to Hyundai Heavy Industries Co. Ltd.--assessee to show cause why interest should not be levied u/s 201(1A) of the Act from the date of deduction of tax deducted at source till payment. On that notice the Assessing Officer passed an order on July 21, 1999, u/s 201(1A) of the Income Tax Act charging interest on Hyundai Heavy Industries Co. Ltd. (employer) for short payment of the tax deducted at source to the revenue on the ground that free boarding constituted a perquisite u/s 17(2)(iii) of the Income Tax Act and on that perquisite the assessee had failed to collect the tax. This decision of the Department has been set aside by the Tribunal and therefore the Department has come by way of appeal to the High Court u/s 260A of the Income Tax Act.

On the above facts two questions of law have been framed. They are as follows :

Questions :

"(1) Whether, on the facts and in the circumstances of the case, the learned Income Tax Appellate Tribunal was legally justified in holding that free accommodation facility provided by the employer to its employees on board the rig in high seas cannot be construed to be perquisite ?

(2) Whether, on the facts and in the circumstances of the case, the learned Income Tax Appellate Tribunal was legally correct in holding that no perquisite arose on account of free accommodation facility provided by the employer to its employees and the Assessing Officer was not justified in charging interest u/s 201/201(1A) of the Income Tax Act ?"

Answer :

For reasons given hereinafter we are answering both the questions in the affirmative, i.e., in favour of the assessee and against the Department.

Reasons :

We do not find any merit in this appeal filed by the Department. Firstly, in the quantum appeals, the Tribunal had taken the view that free boarding did not constitute a perquisite u/s 17(2)(iii). This decision of the Tribunal was not challenged by the Department. Therefore, it is not open to the Department to levy interest u/s 201(1A) on the employer, i.e., Hyundai Heavy Industries Co. Ltd. Secondly, in the judgment recently delivered by this High Court in Income Tax Appeal No. 57 of 2002, in the case of Commissioner of Income Tax and Another Vs. Sedco Forex International Drilling Co. Ltd., , it has been held that free boarding and free meals given to the technicians on the rigs cannot constitute a perquisite u/s 17(2)(iii) and therefore their value cannot be added to the salary income of the technician. Consequently, the Department cannot levy interest on Hyundai Heavy Industries Co. Ltd. (employer) u/s 201/201(1A) of the Income Tax Act.

For the aforestated reasons all the above three appeals are dismissed with no orders as to cost.