income tax
The Delhi Income Tax Tribunal has established that an assessee cannot be deemed an assessee-in-default solely on the basis of their interpretation of the Taxman’s Direct Taxes Ready Reckoner for the valuation of perquisites. As a result, interest under Section 201(1A) was deemed inapplicable, even though the tribunal found the methodology of valuation to be questionable.
In the case under consideration, the assessee calculated the taxable value of a perquisite allocated to an employee by deducting ₹1,000 per month per child (PMPC) from the total cost of educational facilities provided at no charge. This deduction was derived from the guidelines provided in the reckoner.
The Assessing Officer (AO), however, referenced the Income-Tax Rules, 1962, and determined that if the value of the educational benefit exceeded ₹1,000 PMPC, the entire amount should be classified as a perquisite. Consequently, the AO concluded that the assessee was in default due to under-deduction of tax.
The tribunal found that the assessee had a rationale—though potentially flawed—justifying their decision to refrain from deducting tax on the specified amount. It noted that unless there is compelling evidence indicating that the assessee's reliance on the reckoner was only superficial or entirely unfounded, they cannot be categorized as an assessee-in-default. Thus, the imposition of interest under Section 201(1A) was considered inappropriate.
Interest is automatically charged for under-deduction but can be waived if the assessee demonstrates reasonable cause.
This ruling underscores the significance of an assessee having a valid rationale, even if incorrect, for their tax deduction choices. It clarifies that mere reliance on external resources, such as the Taxman’s Direct Taxes Ready Reckoner, can safeguard an assessee from being classified as in default, unless there is substantial evidence to the contrary.