M/s Jeypore Sugars Ltd., Chagallu v. The ITO, Ward-1., Tanuku

ITA 210/VIZ/2008 | 2003-2004
Pronouncement Date: 05-08-2010 | Result: Allowed

Appeal Details

RSA Number 21025314 RSA 2008
Assessee PAN ASPER1991C
Bench Visakhapatnam
Appeal Number ITA 210/VIZ/2008
Duration Of Justice 2 year(s) 4 month(s) 3 day(s)
Appellant M/s Jeypore Sugars Ltd., Chagallu
Respondent The ITO, Ward-1., Tanuku
Appeal Type Income Tax Appeal
Pronouncement Date 05-08-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 05-08-2010
Date Of Final Hearing 04-05-2010
Next Hearing Date 04-05-2010
Assessment Year 2003-2004
Appeal Filed On 02-04-2008
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH: VISAKHAPATNAM BEFORE: SRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SRI B.R. BASKARAN ACCOUNTANT MEMBER I.T.A. NO.209 TO 211/VIZAG/2008 FINANCIAL YEARS : 2002-03 TO 2004-05 THE JEYPORE SUGARS CO. LTD CHAGALLU VS. ITO WARD-I TANUKU (APPELLANT) (RESPONDENT) PAN NO.AAACT 9942R I.T.A. NO.505 TO 506/VIZAG/2007 FINANCIAL YEAR : 2005-06 THE JEYPORE SUGARS CO. LTD CHAGALLU VS. A.C.IT CIRCLE-1(1) VIJAYAWADA (APPELLANT) (RESPONDENT) PAN NO.AAACT 9942R APPELLANT BY : SHRI G.V.N. HARI CA RESPONDENT BY : SHRI G.S.S. GOPINATH DR O R D E R PER SHRI B.R. BASKARAN ACCOUNTANT MEMBER : THESE APPEALS ARE PREFERRED BY THE ASSESSEE AGAINS T THE ORDERS PASSED BY THE CIT(A) ON COMMON GROUNDS. AS SUCH THESE APPEAL S WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF THROUGH THIS CONSOLIDATED OR DER. 2. THOUGH VARIOUS GROUNDS ARE RAISED IN THESE APPEA LS BUT THEY RELATE TO THE DEMANDS RAISED BY THE A.O. U/S 201(1) AND 201(1A) O F THE I.T. ACT AFTER TREATING THE ASSESSEE COMPANY AS AN ASSESSEE IN DEFAULT FOR SHORT DEDUCTION OF TAX U/S 192 OF THE ACT IN RESPECT OF THE SALARY INCOME. 2 3. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. DURING THE COURSE OF VERIFICATION OF RECORD PERTAINING TO DEDUCTION OF T AX AT SOURCE U/S 192 OF THE ACT FROM THE SALARIES PAID TO THE EMPLOYEES OF THE ASSE SSEE COMPANY IT WAS NOTICED BY THE A.O. THAT THE ASSESSEE COMPANY HAS NOT TAKEN INTO CONSIDERATION THE CORRECT VALUE OF PERQUISITE IN TERMS OF RULE 3 OF I NCOME TAX RULES ON THE RENT FREE UNFURNISHED ACCOMMODATION PROVIDED TO ITS EMPLOYEES . THE ASSESSEE COMPANY HAD TAKEN THE FAIR RENTAL VALUE ADOPTED BY THE GRAM PANCHAYAT FOR THE PURPOSE OF LEVY OF PROPERTY TAX. HOWEVER ACCORDING TO A.O . THE VALUE OF RENT FREE UNFURNISHED ACCOMMODATION HAS TO BE TAKEN AT THE PR ESCRIBED PERCENTAGE AS PROVIDED UNDER RULE 3 OF INCOME TAX RULES. HENCE THE ASSESSING OFFICER CALLED FOR RELEVANT DETAILS IN THIS REGARD COMPUTED THE T AX SHORT DEDUCTED U/S 192 OF THE ACT AND ACCORDINGLY DETERMINED THE AMOUNT PAYAB LE BY THE ASSESSEE U/S 201(1) AND ALSO INTEREST U/S 201(1A) OF THE ACT IN ALL THESE FOUR FINANCIAL YEARS. THE ASSESSEE COULD NOT WIN ITS CASE BEFORE LEARNED CIT(A). HENCE THE ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE RECORD. FROM THE ORDERS PASSED BY THE LEARNED CIT (A) WE N OTICE THAT THE FIRST APPELLATE AUTHORITY HAS ANALYSED THE PROVISIONS REGARDING COM PUTATION OF TAXABLE VALUE OF RENT FREE ACCOMMODATION PROVIDED TO THE EMPLOYEES B Y AN ASSESSEE. IN OUR OPINION THERE CANNOT BE ANY DISPUTE THAT THE TAX I S PAYABLE BY AN ASSESSEE IN ACCORDANCE WITH THE INCOME TAX ACT AND RULES MADE T HERE UNDER ON THE PERQUISITE VALUE OF RENT FREE ACCOMMODATION PROVIDE D TO HIM. HOWEVER THE ISSUE BEFORE US IS NOT WITH REGARD TO THE TAXABILIT Y OF THE ABOVE SAID PERQUISITE. THE CRUX OF THE ISSUE IS WHETHER UNDER THE FACTS A ND CIRCUMSTANCES OF THE CASE THE ASSESSEE CAN BE TREATED AS AN ASSESSEE IN DEFA ULT IN TERMS OF THE PROVISIONS OF SEC.201 VIS--VIS SEC. 192 OF THE ACT . 5. THE LEARNED AUTHORISED REPRESENTATIVE HAS PL ACED RELIANCE ON THE ORDER DATED 12-11-2009 PASSED BY THIS BENCH IN THE CASE O F RASHTRIYA ISPAT NIGAM LIMITED IN ITA NO.472 AND 473/VIZAG/2008. IN THAT C ASE THE ASSESSEE THEREIN DID NOT DEDUCT TAX ON THE HOUSING ACCOMMODATION PROVID ED TO THE EMPLOYEES AT 3 CONCESSIONAL RENT IN ACCORDANCE WITH THE PROVISION S OF SEC. 17 (2) (II) OF THE ACT. WHEN THE QUESTION WHETHER THE ASSESSEE THEREIN CAN BE TREATED AS AN ASSESSEE IN DEFAULT CAME BEFORE THE ITAT THIS BENCH DECIDE D THE ISSUE IN THE FOLLOWING WAY. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFUL LY PERUSED THE RECORD. THE LD CIT (A) HAS HELD THAT THE AMENDM ENT CARRIED TO SEC. 17(2)(II) BY THE FINANCE ACT 2007 WITH RETROS PECTIVE EFFECT FROM 1.4.2002 IS A CLARIFICATORY ONE AND HENCE IT WILL HAVE RETROSPECTIVE EFFECT. ACCORDINGLY HE HAS UPHELD TH E ORDER OF THE AO IN RAISING DEMAND U/S 201. THERE CANNOT BE ANY DISPUTE THAT TAX IS PAYABLE ON THE PERQUISITE AMOUNT CALCULATED AS PER SECTION 17(2)(II) OF THE ACT. HOWEVER THE ISSUE BEFORE IS N OT WITH REGARD TO THE TAXABILITY OF THE PERQUISITE. THE CRUX OF THE ISSUE IS - WHETHER UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE ASSESSEE CAN BE TREATED AS AN ASSESSEE IN DEFAULT IN TERMS OF THE PROVISIONS OF SEC. 201 VIS--VIS SEC.192 OF THE ACT. FOR THE SA KE OF CONVENIENCE WE EXTRACT BELOW SEC. 192(1) WHICH RE ADS AS UNDER: 192 (1) ANY PERSON RESPONSIBLE FOR PAYING ANY INCO ME CHARGEABLE UNDER THE HEAD SALARIES SHALL AT THE TIME OF PAY MENT DEDUCT INCOME TAX ON THE AMOUNT PAYABLE AT THE AVERAGE RAT E OF INCOME- TAX COMPUTED ON THE BASIS OF THE (RATES IN FORCE) F OR THE FINANCIAL YEAR IN WHICH THE PAYMENT IS MADE ON THE ESTIMATED INCOME OF THE ASSESSEE UNDER THIS HEAD FOR THAT FINANCIAL YEA R 5.1 IN THIS CONNECTION THE ASSESSEE HAS PLACED ITS RELIANCE ON THE ORDER DATED 31.10.2008 PASSED BY THIS BENCH OF THE TRIBUNAL IN THE CASE OF OIL & NATURAL GAS CORPORATION LTD. RAJ AHMUNDRY VS. ITO WARD-5 (TDS) IN ITA NO. 703/V/04. IN THE ABOV E SAID CASE THE EMPLOYEES OF OIL AND NATURAL GAS CORPORATION OB TAINED STAY FROM THE HONBLE HIGH COURT OF MADRAS FOR NON-DEDUC TION OF TAX AT SOURCE ON CERTAIN AMENITIES PROVIDED TO THEM. IN VI EW OF THE STAY THE ASSESSEE THEREIN DID NOT DEDUCT TAX ON THOSE AM ENITIES. SUBSEQUENTLY THE HONBLE MADRAS HIGH COURT DISMISSE D THE WRIT PETITION FILED BY THE EMPLOYEES. THE REVENUE RAISED DEMAND U/S 201 FOR NON DEDUCTION OF TDS. THE TRIBUNAL ACCEPTED THE PLEA OF THE ASSESSEE THAT (A) IT IS UNDER AN OBLIGATION NOT TO DEDUCT TAX ON THE AMENITIES DURING THE PERIOD OF OPERATION OF STAY. (B) DEDUCTION U/S 192 HAS TO BE MADE ON AN ESTIMATED FI GURE AND NOT ON AN ADJUDICATED FIGURE AS HELD BY THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF P V RAJAGOPAL AND OTHERS VS. UNION OF INDIA (1998) (233 ITR 678). 4 (C) THE ESTIMATION OF SALARY INCOME HAS BEEN MADE FAIR LY AND HONESTLY. IN THE SAID ORDER THE TRIBUNAL HAD AN OCCASION TO INTERPRET THE PROVISIONS OF SEC. 192(1). FOR THE SAKE OF CONVENI ENCE WE EXTRACT BELOW THE PARAGRAPHS 14 & 15 OF THE SAID ORDER. 14. THE NEXT QUESTION ARISING FOR CONSIDERATION IS WHETHER IT IS DUTY ON THE ASSESSEE TO DEDUCT TAX UN DER S. 192 FOR THE FINANCIAL YEAR 2002-03 AFTER THE IN TERIM STAY WAS VACATED BY THE MADRAS HIGH COURT ON 30.4.2003. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF S.192 OF THE ACT. S.192(1) MAKES IT OBLIGATORY FOR ANY PERSON RESPONSIBLE FOR PAYING AN Y INCOME CHARGEABLE UNDER THE HEAD SALARIES TO DEDU CT INCOME TAX ON THE AMOUNT PAYABLE AT THE AVERAGE RAT E OF INCOME-TAX COMPUTER ON THE BASIS OF THE RATES PRESCRIBED FOR THE FINANCIAL YEAR IN WHICH THE PAYMENT IS MADE ON THE ESTIMATED INCOME OF THE ASSESSEE UNDER THE HEAD SALARY FOR THAT FINANCIAL YEAR. THE LANGUAGE OF S.192 IS VERY CLEAR THAT THE ASSESSEE HAS TO DEDUCT TAX ON THE ESTIMATED INCOME OF THE EMPLOYEE UNDER THE HEAD SALARY FOR THAT FINANCIAL YEAR IN WHICH PAYMENT WAS MADE . FOR THE FINANCIAL YEAR 2002-03 THE PAYMENTS HAVE ALREA DY BEEN MADE BEFORE 31.3.2003 ON WHICH DATE THE INTERIM STAY OF THE MADRAS HIGH COURT WAS IN OPERATION. IT IS NOT THE CASE OF THE REVENUE THAT A NY PART OF ARREARS RELATED TO FINANCIAL YEAR 2002-03 I .E. RELEVANT TO ASSESSMENT YEAR 2003-04 WAS PENDING TO BE PAID BY THE ASSESSEE TO ITS EMPLOYEES. IN THESE CIRCUMSTANCES STRICTLY SPEAKING AS CONTENDED BY T HE LEARNED COUNSEL FOR THE ASSESSEE THE PROVISIONS OF S.192(1) OF THE ACT DO NOT MAKE IT OBLIGATORY FOR T HE ASSESSEE TO DEDUCT IN THE SUBSEQUENT ASSESSMENT YEAR. 15. WE HAVE ALSO CAREFULLY GONE THROUGH THE JUDGMENTS OF VARIOUS HIGH COURTS REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE. ALL THE HIGH COURTS SAY THAT THE EMPLOYER HAS TO ESTIMATE THE INCOME OF THE YEAR FAIRLY AND HONESTLY AND DEDUCT TAX THEREON. ONCE THE INCOME OF THE EMPLOYEES UNDER THE HEAD SALARY WAS ESTIMATED HONESTLY AND FAIRLY MERELY BECAUSE THERE WAS SHORT DEDUCTION OF TAX THE PROVISIONS OF S.201 ARE NOT ATTRACTED. THE ANDHRA PRADESH HIGH COURT IN THE CASE OF P.V. RAJAGOPAL (SUPRA) EXAMINED THIS ISSUE ELABORATELY AND FOUND THAT THE 5 EMPLOYEE WHO IS IN RECEIPT OF OTHER INCOME MAY SE ND TO THE EMPLOYER A VERIFIED STATEMENT TO TAKE THAT A LSO INTO ACCOUNT FOR DEDUCTION OF TAX AT SOURCE. IN DOI NG SO THE EMPLOYEE WILL BE TAKING A GREAT RESPONSIBIL ITY BECAUSE IF THE INCOME IS OTHERWISE TAXABLE HE WILL BE LIABLE TO PAY LARGER ADVANCE TAX AND FOR DEFAULT OR DEFERMENT SUCH ADVANCE TAX WILL BE LIABLE TO PAY INTEREST UNDER SECTIONS 234B AND 234C. THE A.P HIGH COURT FURTHER OBSERVED THAT DEDUCTION OF TAX AT SOURCE IS NOT ON ANY ADJUDICATED FIGURE BUT ON AN ESTIMATED FIGURE OF SALARY INCOME . IN THE CASE BEFORE US THE ASSESSEE ESTIMATED THE SALARY INCOME OF ITS EMPLOYEES EXCLUDING THE VALUE OF PERQUISITES/AMENITIES IN VIEW OF THE OPERATION OF THE INTERIM STAY GRANTED BY THE MADRAS HIGH COURT. THEREFORE THE ASSESSEE HAS FAIRLY AND HONESTLY ESTIMATED THE INCOME. IT IS NOT THE CASE OF THE REVENUE THAT THE ESTIMATION OF THE ASSESSEE IS NOT FAIR OR HONEST. WHEN THE ASSESSEE ESTIMATED THE INCOME FAIRLY AND HONESTLY IN COMPLIANCE WITH THE ORDER OF THE MADRAS HIGH COURT WE CANNOT SAY THAT THE ASSESSEE HAS COMMITTED A DEFAULT IN DEDUCTING TAX. IN OUR OPINION THE ASSESSEE HAS ESTIMATED THE INCOME HONESTLY AND FAIRLY AND ALSO COMPLIED WITH THE INTE RIM ORDER OF THE MADRAS HIGH COURT. SO THE ASSESSEE CANNOT BE TREATED AS AN ASSESSEE IN DEFAULT FOR THE ASSESSMENT YEAR 2003-04. 5.2 IN THE INSTANT CASE THOUGH THE FACTS ARE SLIGH TLY DIFFERENT YET AS PER THE PRINCIPLES LAID DOWN IN THAT CASE I T IS NOT IN DISPUTE THAT THE HONBLE ANDHRA PRADESH HIGH COURT IN THE C ASE OF STEEL EXECUTIVES ASSOCIATION SUPRA HAS HELD THAT THERE C AN BE NO CONCESSION IN RESPECT OF ACCOMMODATION PROVIDED TO THE EMPLOYEES WHEN STANDARD RENT IS CHARGED FROM THEM. HENCE ON THE DATE OF DEDUCTION THE ASSESSEE HEREIN WAS UNDE R AN OBLIGATION TO ABIDE BY THE DECISION OF THE HONBLE ANDHRA PRAD ESH HIGH COURT. AS OBSERVED BY THE TRIBUNAL IN THE CASE OF OIL AND NATURAL GAS CORPORATION FOR THE PURPOSE OF SECTION 192 THE AS SESSEE HAS TO DEDUCT TAX ON THE ESTIMATED INCOME AND NOT ON AN AD JUDICATED FIGURE. THEN THE NEXT QUESTION IS WHETHER THE ASSE SSEE HAS MADE A FAIR AND HONEST ESTIMATE. BARRING THE NON DEDUCTI ON OF TAX ON PERQUISITE RELATING TO RENT CONCESSION THE REVENUE HAS FAILED TO SHOW THAT THE ASSESSEE DID NOT MAKE FAIR AND HONEST ESTIMATE OF SALARY INCOME OF EACH EMPLOYEE FOR THE PURPOSE OF M AKING DEDUCTION U/S 192 OF THE ACT. EVEN OTHERWISE THE AMENDMENT MADE BY FINANCE ACT 2007 COULD NOT BE FORESEEN BY THE ASSESSEE COMPANY IN AN EARLIER YEAR. IN VIEW OF THE FOREGO ING DISCUSSION WE ARE OF THE VIEW THAT UNDER THE FACTS AND CIRCUM STANCES OF THE 6 CASE THE ASSESSEE CANNOT BE TREATED AS AN ASSESSE E IN DEFAULT. ACCORDINGLY WE SET ASIDE THE ORDER OF LD CIT(A) AN D DIRECT THE ASSESSING OFFICER TO CANCEL THE DEMAND RAISED U/S 2 01 OF THE ACT FOR BOTH THE YEARS UNDER APPEAL BEFORE US. 6. THE HON'BLE ITAT HYDERABAD IN THE CASE OF STAT E BANK OF INDIA VS. DY. COMMISSIONER OF INCOME TAX REPORTED IN (2010) 5 TA XMANN.COM 30 (HYD.-ITAT) HAS TAKEN A VIEW THAT NON-DEDUCTION OF TAX AT SOURC E ON THE PERQUISITE VALUE OF RESIDENTIAL ACCOMMODATION ON THE BASIS OF RETROSPEC TIVE AMENDMENT CANNOT BE A GROUND FOR TREATING THE ASSESSEE AS ASSESSEE IN DEF AULT U/S 201 OF THE ACT. SIMILARLY IN THE CASE OF SOL PHARMACEUTICALS LTD. VS. ITO (HYD.) REPORTED IN 83 ITD 72 (HYD.) IT HAS BEEN HELD THAT IT IS NOT POSS IBLE TO HOLD AN ASSESSEE AS AN ASSESSEE IN DEFAULT IN RESPECT OF ITEMS OF SALARIES WHICH ARE CONTROVERSIAL. IN ARRIVING AT THIS DECISION THE HON'BLE ITAT HYDERAB AD HAS FOLLOWED THE DECISION OF HON'BLE MADHYA PRADESH HIGH COURT IN THE CASE OF GW ALIOR RAYON SILK CO. LTD. VS. CIT (1983) 140 ITR 832 AND THE ITAT HAS EXTRACT ED THE FOLLOWING PORTION OF THE HEAD NOTES OF THAT CASE. THE PROVISIONS OF SECTION 201 OF THE ACT ARE ATTRA CTED IN THE CASE OF AN EMPLOYEE ONLY WHEN THAT EMPLOYER DOES NO T DEDUCT TAX AT SOURCE OR AFTER DEDUCTING FAILS TO PAY THE T AX AS REQUIRED BY THE ACT. A DUTY IS CASE ON AN EMPLOYER TO FORM A N OPINION ABOUT THE TAX LIABILITY OF HIS EMPLOYEE IN RESPECT OF THE SALARY INCOME. WHILE FORMING THIS OPINION THE EMPLOYER IS UNDOUBTEDLY EXPECTED TO ACT HONESTLY AND FAIRLY. BUT IF IT IS F OUND THAT THE ESTIMATE MADE BY THE EMPLOYER IS INCORRECT THIS FA CT ALONE WITHOUT ANYTHING MORE WOULD NOT INEVITABLY LEAD TO THE INFERENCE THAT THE EMPLOYER HAS NOT ACTED HONESTLY AND FAIRLY . UNLESS THAT INFERENCE CAN BE REASONABLY RAISED AGAINST AN EMPLO YER NO FAULT CAN BE FOUND WITH HIM. IT CANNOT BE HELD THAT HE HA S NOT DEDUCTED TAX ON THE ESTIMATED INCOME OF THE EMPLOYE R. 7. WE NOTICE THAT THE RULE WHICH PROVIDE FOR THE ME THOD OF VALUATION OF PERQUISITE VALUE OF RENT FREE RESIDENTIAL ACCOMMODA TION WAS SUBJECTED TO FREQUENT CHANGES BY THE GOVERNMENT. UP TO 31-3-200 1 THE VALUE OF RENT FREE ACCOMMODATION PROVIDED BY A PRIVATE SECTOR EMPLOYER WAS ORDINARILY TAKEN AS A SUM EQUAL TO 10% OF THE SALARY. HOWEVER AS PER EXP LANATION 2 TO RULE 3 THEN EXISTING IT WAS PROVIDED THAT THE FAIR RENTAL VALU E OF ACCOMMODATION WHICH IS NOT FURNISHED SHALL BE THE RENT WHICH A SIMILAR ACCOMMO DATION WOULD REALIZE IN THE 7 SAME LOCALITY OR MUNICIPAL EVALUATION IN RESPECT OF THE ACCOMMODATION WHICHEVER IS HIGHER. IN ACCORDANCE WITH THE SAID EXPLANATION -2 UP TO 31.3.2001 THE ASSESSEE HEREIN WAS ADOPTING THE VALUE FIXED BY THE MUNICIPAL AUTHORITY AS THE PERQUISITE VALUE OF ACCOMMODATION PROVIDED TO ITS E MPLOYEES AS THE ACCOMMODATION PROVIDED TO THE EMPLOYEES WERE LOCATE D IN A VILLAGE. RULE 3 WAS AMENDED SUBSEQUENTLY BY PROVIDING FOLLOWING METHOD OF VALUATION W.E.F. 1-4- 2001. WHERE THE ACCOMMODATION IS PROVIDED BY ANY OTHER EMPLOYER AND A- WHERE THE ACCOMMODATION IS OWNED BY THE EMPLOYER (I) 10% OF SALARY IN CITIES HAVING POPULATION EXCEEDING 4 LACS AS PER 1991 CENSUS; (II) 7.5% OF SALARY IN OTHER CITIES SUBSEQUENTLY THE IT (SEVENTH AMENDMENT) RULES 2005 MODIFIED THE METHOD OF VALUATION W.E.F. 1-4-2005 AS UNDER: WHERE THE ACCOMMODATION IS PROVIDED BY ANY OTHER EMPLOYER AND A)WHERE THE ACCOMMODATION IS OWNED BY THE EMPLOYER OR I)20% OF SALARY IN CITIES HAVING POPULATION EXCEEDING 4 LACS AS PER 2001 CENSUS; II)15% OF SALARY IN OTHER CITIES AGAIN THE IT (FOURTEENTH AMENDMENT) RULES 2007 MODI FIED THE METHOD OF VALUATION WITH RETROSPECTIVE EFFECT FROM 1.4.2006 A S UNDER: WHERE THE ACCOMMODATION IS PROVIDED BY ANY OTHER EMPLOYER AND A) WHERE THE ACCOMMODATION IS OWNED BY THE EMPLOYER O R I) 15% OF SALARY IN CITIES HAVING POPULATION EXCEEDING 25 LAKHS AS PER 2001 CENSUS; II) 10% OF SALARY IN CITIES HAVING POPULATION EXCEEDING 10 LAKHS BUT NOT EXCEEDING 25 LAKHS AS PER 2001 CENSUS III) 7.5% OF SALARY IN OTHER AREAS HOWEVER THE ASSESSEE HEREIN CONTINUED TO ADOPT THE FAIR RENTAL VALUE FIXED BY THE LOCAL PANCHAYAT FOR THE PURPOSE OF LEVYING THE HOUSE TAX DURING THE YEARS UNDER CONSIDERATION ALSO. HENCE THE ASSESSING OFFI CER HAS INITIATED THE PROCEEDINGS U/S 201 OF THE ACT. 8 8. BY INVITING OUR ATTENTION TO THE CHRONOLOGICAL E VENTS OF AMENDMENTS CARRIED TO RULE-3 WITH REGARD TO THE VALUATION OF R ENT FREE ACCOMMODATION PROVIDED TO THE EMPLOYEES THE LEARNED AUTHORISED R EPRESENTATIVE SUBMITTED THAT W.E.F. 1-4-2001 THE RULES PROVIDED FOR VALUATION OF ACCOMMODATION ACCORDING TO THE POPULATION OF THE CITY IN WHICH THE SAID ACCOMMODATION WAS LOCATED. IT GAVE AN IMPRESSION THAT THE ACCOMMODATION WHICH ARE LOCATED IN THE AREAS WHICH CANNOT BE TAKEN AS A CITY WILL NOT BE SUBJ ECTED TO METHOD OF VALUATION PROVIDED UNDER RULE-3. SUBSEQUENTLY ONLY BY WAY O F AMENDMENT MADE THROUGH IT (FOURTEENTH AMENDMENT) RULES 2007 THE ACCOMMODA TIONS LOCATED IN OTHER AREAS WERE ALSO BROUGHT UNDER THE AMBIT OF RULE-3. ACC ORDINGLY THE ASSESSEE EMPLOYER HEREIN WAS UNDER BONAFIDE BELIEF THAT THE ACCOMMODATION PROVIDED BY IT TO ITS EMPLOYEES BEING LOCATED IN A VILLAGE WIL L NOT COME UNDER THE AMBIT OF RULE-3 AS THE SAID LOCATION CANNOT BE TREATED AS C ITY. HENCE THE ASSESSEE CONTINUED THE OLD METHOD OF ADOPTING THE FAIR RENTA L VALUE FOR THE PURPOSE OF DEDUCTION OF TAX AT SOURCE. THE LEARNED AUTHORISED REPRESENTATIVE FURTHER SUBMITTED THAT THE ASSESSING OFFICER ALSO IN THE I NSTANT CASES HAS INITIATED THE PROCEEDINGS U/S 201 OF THE ACT ONLY AFTER THE AMEND MENT MADE BY THE IT (FOURTEENTH AMENDMENT) RULE 2007. ACCORDINGLY LEARN ED AUTHORISED REPRESENTATIVE CONTENDED THAT THE ASSESSEE HEREIN C ANNOT BE TREATED AS AN ASSESSEE IN DEFAULT SINCE THE ASSESSEE COMPANY WA S UNDER THE BONAFIDE BELIEF THAT RULE-3 SHALL NOT APPLY TO THE ACCOMMODATION PR OVIDED TO ITS EMPLOYEES IN A VILLAGE. 9. WE FIND FORCE IN THE ARGUMENT ADVANCED BY THE LE ARNED COUNSEL FOR THE ASSESSEE. CERTAINLY IN COMMON PARLANCE A VILLAGE CANNOT BE TAKEN AS A CITY. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT TH E ACCOMMODATIONS PROVIDED BY THE ASSESSEE COMPANY TO ITS EMPLOYEES ARE LOCATED I N A VILLAGE. THE LEARNED CIT (A) ALSO HAS OBSERVED IN PAGE 9 OF THE ORDER THAT T HERE APPEARS TO BE SOME APPARENT AMBIGUITY WHEN RULE-3 (1) IS CONSIDERED IN ISOLATION TO THE FIRST PROVISO. AS CAN BE SEEN THE RULE-3 ORIGINALLY BIFURCATED TH E ACCOMMODATIONS ACCORDING TO THE POPULATION OF THE CITIES FOR THE PURPOSE OF VA LUATION OF PERQUISITE. THUS IT HAS GIVEN AN IMPRESSION THAT THE RULE 3 SHALL APPLY ONL Y TO THE ACCOMMODATION 9 LOCATED IN CITIES. ONLY BY WAY OF LATEST AMENDMENT MADE IN 2007 WITH RETROSPECTIVE EFFECT FROM 1-4-2006 ACCOMMODATIONS SITUATED IN OTHER AREAS HAVE BEEN INCLUDED IN RULE-3. THUS IT CAN BE SEEN THAT THERE WAS AN AMBIGUITY ABOUT THE APPLICABILITY OF RULE-3 IN RESPECT OF ACCOMMODA TIONS LOCATED IN A VILLAGE. IN THIS KIND OF SITUATION THE BELIEF ENTERTAINED BY T HE ASSESSEE HEREIN CAN ONLY BE TAKEN AS AN HONEST AND BONAFIDE BELIEF. THE HON'BL E ANDHRA PRADESH HIGH COURT IN THE CASE OF PV RAJAGOPAL & OTHERS VS. UNION OF I NDIA (1998) (233 ITR 678) HAS OBSERVED THAT THE DEDUCTION OF TAX AT SOURCE FROM T HE SALARY INCOME IS NOT ON ANY ADJUDICATED FIGURE BUT ON AN ESTIMATED FIGURE OF SALARY INCOME. WHEN SUCH AN ESTIMATE IS MADE WHAT IS REQUIRED TO BE SEEN IS WHETHER THE ASSESSEE HAS MADE A FAIR AND HONEST ESTIMATE. IN THE FACTS OF T HE CASE THE ASSESSEE WAS UNDER HONEST BELIEF THAT THE ACCOMMODATION PROVIDED BY IT SHALL NOT COME UNDER THE PURVIEW OF RULE-3 AS THEY ARE LOCATED IN A VIL LAGE. HENCE WE ARE OF THE VIEW THAT THE ASSESSEE HEREIN CANNOT BE TREATED AS AN AS SESSEE IN DEFAULT IN THE FACTS AND CIRCUMSTANCES OF THE CASE DISCUSSED ABOVE. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE BY PLA CING RELIANCE ON THE ORDER DATED 2-6-2010 PASSED BY THIS BENCH IN THE CASE OF ANDHRA SUGARS LTD. IN ITA NOS. 213 TO 217/VIZAG/2008 SUBMITTED THAT THE LEAR NED CIT (A) IN THAT CASE HAS PASSED IDENTICAL ORDERS AS IN THE PRESENT CASE AND THE TRIBUNAL HAS CONFIRMED THE SAID ORDERS. HOWEVER WE MAY STATE THAT THE QUESTI ON WHETHER AN ASSESSEE CAN BE TREATED AS AN ASSESSEE IN DEFAULT HAS TO BE ANSW ERED IN THE FACTS AND CIRCUMSTANCES PREVAILING IN A PARTICULAR CASE. MOR EOVER WE HAVE ALREADY STATED THAT THE LEARNED CIT (A) HAS MAINLY ANALYSED THE IS SUES FROM THE POINT OF VIEW OF TAXABILITY OF THE PERQUISITE VALUE OF RENT FREE ACC OMMODATION PROVIDED BY THE ASSESSEE COMPANY TO ITS EMPLOYEES. AS STATED EARLIE R THE QUESTION IS NOT ABOUT THE TAXABILITY OF THE PERQUISITE BUT ABOUT TREATIN G THE ASSESSEE AS AN ASSESSEE IN DEFAULT. THE SAID QUESTION HAS TO BE DEALT IN ACCOR DANCE WITH THE FACTS PREVAILING IN A PARTICULAR CASE. 10 11. IN VIEW OF THE FOREGOING DISCUSSIONS WE SET AS IDE THE ORDER OF THE LEARNED CIT (A) AND DIRECT THE ASSESSING OFFICER TO CANCEL THE DEMAND RAISED UNDER SECTION 201 OF THE ACT IN ALL THE YEARS UNDER CONSI DERATION. 12. IN THE RESULT ALL THE APPEALS OF THE ASSESSEE A RE ALLOWED. PRONOUNCED ACCORDINGLY ON 5 TH AUGUST 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE : 05-08-2010. A COPY OF THIS ORDER IS FORWARDED TO : 01 THE JEYPORE SUGAR CO. LTD. CHAGALLU-534 342 W. G. DIST. 02 ITO WARD-1 TANUKU 03 A.C.IT CIRCLE 1(1) VIJAYAWADA 04 THE CIT RAJAHMUNDRY 05 THE CIT (A) RAJAHMUNDRY 06 THE DR ITAT VISAKHAPATNAM 07 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY ITAT VISAKHAPATNAM BENCH