ORDER
R.V. Easwar, Vice President
1. The following ground of appeal has been taken by the Department:
On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the addition made by the AO, as perquisite on account of expenses on social security plan (Rs, 4,69,608) paid by the employer on behalf of the employee.
2. The appeal relates to the asst. yr. 1996-97. The assesses is an individual. He is a foreign national. He was employed by M/s Matsushita Electric Industrial Company, Japan, hereinafter referred to as (MEI), as Vice President (services) with M/s National Panasonic India Ltd., of which company he was deputed by ‘MEI’. While completing this assessment under Section 143(3) of the Act, the AO made an addition of Rs. 4,69,608 under Section 17(2)(v) of the Act. The aforesaid amount represents the contributions made by MEI, which is a Japanese company, towards the following :
(i) Health insurance
(ii) Welfare pension insurance
(iii) Employment, insurance, and
(iv) Employment pension insurance
3. The above four types of contributions are collectively known as “Social Security Plan” and they are payable by the employer with regard to all the employees as per the laws of Japan. The social security schemes are administered by the Government of Japan and they include health insurance, welfare insurance, etc. The participation of both the employer and the employees is mandatory. The employment pension insurance is administered by ‘MEI’ of Japan and the contributions are made by them.
4. The AO took the view that the contributions made by the above company are taxable as perquisites under Section 17(2)(v) of the Act overruling the assessee’s objection that he did not obtain any benefit or right to receive the amount during the employment. On appeal, the CIT(A) held that since pension and insurance funds have been established outside India, the contributions made by the employer would be regarded as ‘contributions’ to unrecognized or unapproved funds and such contributions can be taxed in the hands of the employee only on receipt basis under Section 17(3)(ii) of the Act. He held that the assessee did not get any vested right at the time of contribution to the fund by the employer, that the amount standing to the credit of the pension fund account would remain invested till the assessee became entitled to receive the same and that it would become taxable only at the time when the assessee is conferred with the vested right to receive the payment under the plan. The CIT(A) referred to the judgment of Supreme Court in the case of CIT v. L.W. Russel to hold that the employee does not get any vested right at the time of contribution by the employer and that there would be no perquisite to an employee if he has no right to the same. He also referred to the judgment of the Hon’ble Delhi High Court in CIT v. Mehar Singh Sampuran Singh Chawla to hold that the contributions made by the employer towards a fund established for the welfare of the employees would not be treated as perquisite in the hands of the employees concerned, as they do not acquire any vested right in the sum contributed by the employer. The CIT(A) distinguished the judgment of the Hon’ble Patna High Court in CIT v. J.G. Keshwani on which considerable reliance was placed by the AO. In that case, the assessee was employed as a director of the company and in terms of the compensation package he was entitled to receive commission as percentage of the net profits computed in the manner laid down by the Companies Act subject to ceiling. Subsequently, the terms of payment were modified and the company, instead of paying commission, decided to purchase deferred policies of insurance from LIC on the life of the assessee and as per the annuity plan, the annuity payment was to commence from the date of retirement. The AO had taken the view that the arrangement was merely on different mode of payment of the commission to the assessee. The Patna High Court held that the amount contributed by the company towards the annuity plan had already accrued to the assessee in the year under consideration. It was further held that only the method of remunerating the director had changed. According to the CIT(A), the decision proceeded on the basis that the company and the assessee put into effect a device to escape taxation which was not permitted by the Hon’ble Patna High Court. He, therefore, held that the facts of the present case would continue to be governed by the judgment of the Supreme Court in the case of L.W. Russel (supra). He also noted that the provisions of Section 7(1) of the 1922 Act and those of Section 15 of the 1961 Act are not materially different; the 1961 Act is more clarificatory in nature. But still it cannot bring to tax an amount over which the employee has no vested right.
5. So far as the insurance plans are concerned, the CIT(A) noted that ‘MEI’ contributed to employment insurance, health insurance and welfare insurance in respect of all its employees to cover loss of employment, sickness, death, accident, etc. of the employee and that the benefit from the policies depend upon the contingency which may or may not take place, the intention of the employer in taking out such policies being to safeguard his own interest against the happening of such contingencies in future. The CIT(A) further noted that the assessee had no vested right to receive any payment under the insurance plans and that the contributions made by the employer are neither to effect any insurance on the life of the employee nor to secure the payment of any annuity to the employee. He also noted that the ratio of the Hon’ble Delhi High Court in CIT v. Lala Shri Dhar and that of the Hon’ble Gujarat High Court in CIT v. Cama Motors (P) Ltd. (1998) 147 CTR (Guj) 361 : (1998) 234
ITR 69 (Guj) was applicable to these facts.
6. For the above reasons, the CIT(A) deleted the entire addition made by the AO under Section 17(2)(v) of the Act.
7. The Revenue is in appeal to contend that the contributions are covered by Section 17(2)(v) of the Act and that the CIT(A) was in error in holding to the contrary. The learned Counsel for the assessee on the other hand, submitted that the controversy is fully covered in favour of the assessee by following the orders of the Delhi Benches of the Tribunal:
(1) Jt. CIT v. Thomas William Panel and Jt. CIT v. Lawrence Joseph Krammer ITA Nos. 2374/Del/2002 and
dt. April, 2005.
(2) Yoshio Kubo v. Dy. CIT in ITA No. 1551/Del/2002, dt. 30th April, 2003.
8. Several other decisions were also cited (list paced at the index of the paper book) and all these decisions were compiled and placed before us in the form of paper book.
9. We have carefully gone through the orders of the Tribunal in the case of Thomas William
Farrel (supra) and Yoshio Kubo (supra). The case of Thomas William Panel related to employees, who were nationals of United States of America and had been sent to India on employment. The payments concerned were similar to the payments with which we are concerned in the present appeal. The Tribunal found such payments to be part of the Social Security Scheme of USA. In the present case also, there is a finding recorded by the CIT(A) that the contributions made by the ‘MEI’ of Japan are part of the Social Security Plan formulated by the Government of Japan in which the participation of employers and the employees is mandatory. The Tribunal further found in the above orders that the benefits under the pension schemes vest with the employees only when they attain the age of superannuation. In fact, the case of
Yoshio Kubo (supra) was a case of a Japanese national, who was an employee of M/s Sony Corporation of Japan and was deputed to render services to M/s Sony India Ltd. It was noticed from the details of the welfare pension scheme that:
(a) The contribution was covered by the welfare pension law enacted by the Government of Japan;
(b) The employers having at least five employees were required to register with the pension fund authorities and both the employer and the employee were required to contribute to the pension insurance scheme;
(c) The monthly contribution of both the employer and the employees were to be deposited with the National Bank of Japan;
(d) The benefit from the scheme took the form of annuity payment until death and the individual employees were eligible to receive the first tier of benefits from the welfare pension plan only on attaining the age of 65 and not prior to it.;
(e) The contribution of the employer was not refundable,
10. It was on perusal of the social security scheme and after noticing the salient features thereof that the Tribunal held that before attaining the age of 65 or before death, neither the assessee nor his survivors were entitled to get any benefit from the scheme and at the most the employee only had a contingent right which cannot attract Section 17(2)(v) of the Act. The Tribunal also noticed the salient features of the welfare insurance scheme and held that any benefits actually obtained or received by the assessee under the scheme during the relevant previous year will have to be assessed as per provisions of Section 17(2)(v) of the Act. In all other respects, the decision otherwise was that the assessee did not get any vested right in such contributions when they were actually made.
11. It was the aforesaid order passed by the Tribunal in the case of Yoshio Kubo (supra) that was followed by the Tribunal in the case of Thomas William
Farrel and Lawrence Joseph Krammer (supra).
12. In the case of CIT v. Lala Shri Dhar (supra), the Delhi High Court was concerned with contributions made by the employers under policies of personal accident taken out by them for protecting themselves against the liability for payment of compensation to their employees. It was held by the Hon’ble High Court that the decision to take the policy was taken by the company, which paid the premium, that the assessee himself did not want to take out the insurance, that if the company had stopped paying the premium, the assessee would not have continued the same from year-to-year and, therefore, the contribution paid by the company to keep the policy in effect cannot be considered as a perquisite in the hands of the employee. This judgment of the Hon’ble Delhi High Court has been followed by the Gujarat High Court in CIT v. Cama Motors (P) Ltd. (supra). There it was held that the question whether the premium paid for a policy taken out in favour of the managing director would amount to perquisite was dependent upon the nature of policy, who had taken it out and whose obligation it was to pay the premium there under. It was held that if the employer takes out the policy to ensure itself in respect of liability towards the managing director, as a result of accident, then the premium paid would not amount to perquisite in his hands, but if the managing director himself took out the policy and paid the premia then though the premia were reimbursed by the employer to the managing director, they would constitute perquisite in the hands of the managing director. On the facts, it was held that since there was no evidence to show that managing director himself took out the policy and paid the premia, the payment of premium cannot be considered as a benefit or perquisite in the hands of the employee. Though this judgment relates to Section 40(c) of the Act, it would apply equally to Section 17(2)(v) of the Act, since the substance of both the provisions is same, viz., whether such contributions could amount to a benefit or perquisite to the employee.
13. In the present case, we have already referred to the finding recorded by the learned CIT(A), not challenged before us, that the assessee does not acquire any vested right over the payment at the time of contribution. Therefore, the aforesaid decisions, relied on by the learned Counsel for the assessee including the orders of the Delhi Benches of the Tribunal would apply. With regard to the insurance plans, the CIT(A) has found that the contributions are made to benefit the employer and to protect him from loss of employment, sickness, death, accident, etc. of the employee and that the policies themselves are contingent in nature, the benefit under’ which would depend on whether the contingency takes place or not. Therefore, the ratio of the above decision, is equally applicable to these contributions.
14. At the time of hearing, the learned Counsel for the assessee fairly stated that the amounts actually received by the assessee out of the policies taken out by the employer for health insurance would be taxable as perquisites and submitted that the actual amount received by the assessee may be directed to be verified by the AO so that they can be brought to tax as perquisite under Section 17(2)(v) of the Act. We take note of the statement made by the learned Counsel for the assessee. While, therefore, holding that the second, third and fourth type of contributions made by the employer are not taxable as perquisites, we also hold that the AO would tax the amounts actually received under the first type of policy. The assessee shall produce the relevant details before the AO to enable him to tax such amount received during the relevant year of account. The appeal of the Department is thus partly allowed.