In exercise of the powers conferred by sub-section (1F) of section 197A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that no deduction of tax under Chapter XVII of the said Act shall be made on the payments of the nature specified below, in case such payment is made by a person to a bank listed in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), excluding a foreign bank, namely:-
(i) bank guarantee commission;
(ii) cash management service charges;
(iii) depository charges on maintenance of DEMAT accounts;
(iv) charges for warehousing services for commodities;
(v) underwriting service charges;
(vi) clearing charges (MICR charges);
(vii) credit card or debit card commission for transaction between the merchant establishment and acquirer bank.
This notification shall come into force from the Ist day of January, 2013.
As regards the grossing up u/s 195A of the Income-tax Act is concerned, we find that the provision reads as under:
[In a case other than that referred to in subsection (1A) of sec. 192, where under an agreement] or other arrangement, the tax chargeable on any income referred to in the foregoing provisions of this Chapter is to be borne by the person by whom the income is payable, then, for the purposes of deduction of tax under those provisions such income shall be increased to such amount as would, after deduction of tax thereon at the rates in force for the financial year in which such income is payable, be equal to the net amount payable under such agreement or arrangement.
Thus, it can be seen that the income shall be increased to such amount as would after deduction of tax thereto at the rate in force for the financial year in which such income is payable, be equal to the net amount payable under such agreement or arrangement. A literal reading of sec. implies that the income should be increased at the rates in force for the financial years and not the rates at which the tax is to be withheld by the assessee. The Hon’ble Apex Court in the case of GE India Technology (cited Supra) has held that the meaning and effect has to be given to the expression used in the section and while interpreting a section, one has to give weightage to every word used in that section. In view of the same, we are of the opinion that the grossing up of the amount is to be done at the rates in force for the financial year in which such income is payable and not at 20% as specified u/s 206AA of the Act.
On the facts of the present case, we have noted that there is no finding by any of the authorities below that services are rendered to non-members. There is a reference to the services rendered to the outsiders in the orders of the authorities below, but it is in the context of analysis of judicial precedents, and, therefore, nothing turns on that. As long as services are rendered to the members, even for a remuneration, the same will be covered by the principles of mutuality. As far the allegation that members have deducted at source from payments to the assessee and for this reason, the receipt is to be taken as taxable receipt, it is only elementary that conduct on the part of the person making payment cannot determine character of receipt in the hand of recipient. That apart, it is also a fact of life that sometimes taxpayers err on the side of excessive caution and deduct taxes as a measure of abundant caution. The mere deduction of tax at source by person making the payment in our humble understanding, cannot lead to the conclusion that receipt was taxable in nature. It is too native to the accepted or to be even given a serious consideration. The factors relied upon by the authorities below, in rejecting assessee plea, are not germane to the context and devoid of legally sustainable merits. The plea of the assessee for tax exemption on the ground of mutuality, therefore, must succeed.
Section 192 deals with the deduction of tax at source. It is computed on the estimated income of the assessee under the head salary and the liability is at the time of payment of salary, if there is a perquisite, there is responsibility to deduct tax of the employer under section 192(1), 192(1A) and 192(1B). Perquisite is actually not a payment of salary but a benefit not in terms of money. There was no provision initially to deduct tax at source. It is provided by section 192(1B) by the Finance Act, 2002 with effect from 1-6-2002 and as to computation of income of perquisite, the provision in section 192(1A), also by the same Act with effect from the same date. This tax, at the option of the assessee, can be paid on the whole or part of such income without making any deduction there from at the time when it was otherwise deductible under section 192. A duty is also cast upon the person deducting tax under section 200. Rule 3 of Income-tax Rules, 1962 provides for the time and mode of payment to the Government account of tax deducted at source. As per the provisions of section 200, the tax deducted at source is a mode of payment of tax on the income of the person on whose income it is deducted i.e. employees in this case.
The issue raised by the assessee is squarely covered by the decision of the Bombay High Court in the case of Western Coal Field [IT Appeal Nos. 93 to 108 of 2008, dated 1-10-2010].