COMMISSIONER OF INCOME TAX Vs. MARUTI UDYOG LTD

JUDGEMENT

(1.) These cases pertain to assessment year 2002-03. While carrying out the assessment, it had come to the knowledge of the Department that the assessee company had introduced voluntary retirement scheme during the year, in pursuance to which, as per the details filed, the assessee had paid a sum of 73.60 crore to the employees which had been amortized under Section 35 DDA of the Income Tax Act, 1961 (hereinafter referred to as the Act). On perusal of the Scheme, the assessing officer observed that the assessee company had paid certain additional benefits also alongwith VRS after analyzing the features of VRS and discussing the provisions of Section 35DDA, Section 10(10C) and Rule 2BA of Income Tax Rules, the assessing officer arrived at a conclusion that the scheme floated by the assessee was not in conformity with Rule 2BA of the Income Tax Rules and, therefore, benefit of Section 10(10C) was not available. Since Section 10(10C) was not available, the assessee was liable to deduct the tax at source on the payments made to the employees. As the assessee had failed to deduct the tax at source, assessing officer determined the short deduction at 13,94,55,417/- and interest at 986,64,707/- under Section 201(1A) of the Act.

(2.) The assessee assailed the aforesaid order of the assessing officer before the CIT(A). The CIT(A) allowed the appeal holding that the assessee could not be treated as an assessee in default? under Section 201(1A) of the Act. The CIT(A) relied upon the judgment of Gujarat High court in the case of Arun Kumar T. Makwana v. Income Tax Officer, 2006 286 ITR 502 and held that the scheme floated by the company was in conformity with Rule 2BA and provisions of the Act. The payments made by the company under VRS cannot be treated as profit in lieu of salary. It was observed that as per the claim of the assessee, wherever any payment is made in excess of 5 lacs and payment in regard to early bird incentive, the tax had been deducted and paid to the Government. Accordingly, CIT(A) directed the assessing officer to verify the quantum of such amount and ascertain whether TDS had been deducted as per the provisions of relevant section and then to charge interest under Section 201(1A) for any delay or short deduction. CIT(A) also held that the assessee cannot be treated as an assessee-in-default? under Section 201(1A) as the conduct of the assessee in not deducting tax at source under Section 192 from VRS payment was honest and bonafide. Tax at source shad been deducted on such payment on the basis of fair estimate. It is not the case of the assessing officer that the assessee had failed to deduct and pay tax for good and sufficient reasons.

(3.) Learned ITAT confirmed the order passed by CIT(A) who had relied upon the aforesaid judgment of Gujarat High Court and on the judgment of jurisdictional High Court in the case of CIT v. Nestle India Pvt. Ltd., 2000 243 ITR 435. Learned ITAT observed that the CIT(A) had already remitted the matter back to the assessing officer to verify the veracity of the statement made by the assessee that wherever any payment was made in excess of 5 lacs in regard to early bird incentive, the tax had been deducted on such payment and had been paid to the Government. Thus, it is not the case of the assessing officer that company had failed to deduct any pay and tax for good and sufficient reasons. Assessee had clearly demonstrated that it had good and sufficient reasons for non-deduction of tax for payment of VRS upto 5 lacs.