Issues originating from a situation where non-resident assesses during the course of their employment by foreign companies were enjoying various perquisites
Delhi High Court in its recent finding dealt with issues originating from a situation where non-resident assesses during the course of their employment by foreign companies were enjoying various perquisites, including rent, household utilities, payment of domestic staff, driver etc.
The Division Bench of Delhi High Court was posed the following two questions:
Q. Whether the tax paid-on behalf of the employee, by the employer is a perquisite and if it is not, whether it is to be excluded from the definition of income, by virtue of Section 10 (10CC) of the Income Tax Act, 1961?
Q. Whether the social security, pension and medical insurance contributions are not perquisite within the meaning of expression, under Section 17 (1)(v) of the Income Tax Act, 1961?
Section 10(10CC) inter-alia provides in computing the total income of a previous year of any person, following would not be included (a) perquisite not provided for by way of monetary payment under Clause (2) of Section 17 and (b) the tax on such income actually paid by his employer, at the option of the employer, on behalf of such employee. A plain reading of these provisions reveal that if the perquisite that is “not provided by way of monetary payment”- under Section 17(2), the tax paid on such income would be excluded from the calculations of income altogether; it would not deem to be a perquisite.
It was held that Section 10 (10CC) stipulates that tax actually paid by the employer to discharge an employee‘s obligation does not amount to a monetary benefit and thus the same cannot be included as employees’ income. Monetary benefits which flows directly in the hands of the employee as a payment by the employer discharging obligation is to be excluded from Section 10 (10CC), which may be in the form of any tax are not excluded.
Where foreign employers make contributions in compliance with legal requirements in the country of its incorporation like payment towards social security benefits of the employee and their employees are seconded to India to serve in the Indian subsidiary, or assist in the Indian operations of the foreign company, the contribution made by the employee towards a fund established for their welfare would not be a perquisite in their hands as they do not acquire a vested right in the sum so contributed by the employer.
When the amount does not result in a direct benefit to the employee, who instead of enjoying the same only gets an assurance of future benefit on the happening of some event, the payment made by the employer, does not mean to vest in the employee. Such amounts as paid by employers are not perquisites under Section 17(1)(v) and therefore not taxable in the hands of employee-assessee.
The position is no different when computation is in respect of perquisite value of rent free accommodation provided to an employee, in view of Rule 3 of the Income Tax Rules, 1962 which is to be considered co-extensively with Section 17(2) of the Act. As long the assessee pays tax on actual salary received, he cannot be burdened by computing hypothetical tax.
Yoshio Kubo vs. CIT [along with other bunch appeals] (31.07.2013, Delhi High Court)