My employer pays my Indian tax under a net of tax contract. Must the tax on that tax be grossed up again, or is it exempt under section 10(10CC)?
It is exempt, so there is only one round of grossing up. The Delhi Special Bench held that tax paid by an employer on an employee's behalf is a perquisite under section 17(2)(iv) - the discharge of an obligation which the employee would otherwise have had to meet - and is not a perquisite provided by way of monetary payment. Section 10(10CC) excludes only monetary payments to the assessee, and a payment to a third party, here the Government, is not one. So the tax borne by the employer is added to salary once, and no further tax on that tax is added. The earlier Delhi Bench decisions in B.J. Services and Western Geo were held to be wrong.
Decided by the ITAT (Income Tax Appellate Tribunal, Delhi - Special Bench constituted under section 255(3); order by Vimal Gandhi, President) on 2007-11-30, reported as [2008] 297 ITR 228 (Delhi ITAT); (2008) 113 TTJ (Delhi) 143. It bears on section 10(10CC), section 17(2), section 192(1A), section 195A of the Income Tax Act 1961, in Salary & Perquisites and Capital Gains Exemptions matters.
This is the decision that settled multiple stage grossing up for expatriate net of tax packages, and it is the reason a single grossing up is now the norm. The distinction it draws is the useful one: a payment of money to the employee is a monetary payment, but a payment made to a third party to discharge the employee's obligation is a perquisite and nothing else. On that footing the earlier High Court decisions the Revenue relied on - Frank Beaton, Dennis and T.P.S. Scott - do not decide the question, because they held only that the employer-borne tax is a perquisite includible in salary, which nobody disputes; they never asked whether it was a monetary or a non-monetary perquisite, and could not have, since section 10(10CC) came in only from 1 April 2003. The Special Bench also expressly reviewed and departed from two earlier Delhi Bench orders that had given no reasons for calling the payment monetary.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The appellants were non-resident foreign nationals employed in India in assessment year 2004-05 by RBF Rig Corporation LLC, a non-resident engaged in providing services and facilities for oil exploration and extraction in India, which was treated as their statutory agent. Under the Expatriate Secondment Agreement their salary was payable net of taxes, with taxes borne by the employer. In the returns filed by the employer in a representative capacity, the tax borne by the employer was added to salary as a perquisite and tax was computed on the resulting figure, but no further tax on that tax was offered, the assessees relying on section 10(10CC), inserted by the Finance Act 2002 with effect from 1 April 2003. The employer paid tax under section 192(1A) without including tax on tax. The Assessing Officer held the employer-borne tax was a monetary perquisite requiring multiple stage grossing up, relying on sections 192, 198 and 195A, and added the further tax perquisite. The Commissioner (Appeals) upheld him, relying on Frank Beaton v. CIT, CIT v. H.D. Dennis and T.P.S. Scott v. CIT, and distinguishing the Uttaranchal High Court decision in ONGC. Two earlier Delhi Bench decisions, in B.J. Services Co. Middle East Ltd and in Western Geo International Ltd, had also gone against the assessee. On the assessees' application the President constituted a Special Bench under section 255(3), on the recommendation of a regular Bench, both to decide the question and to review those two decisions. The parties agreed the real controversy was whether the tax actually paid by the employer is a monetary payment within section 17(2).
The question was answered in favour of the assessees and their appeals, and those of the interveners, were allowed on the issue. Tax paid by an employer on behalf of an employee is a perquisite within section 17(2) of the Act which is not provided by way of monetary payment, and is therefore excluded from the employee's total income by section 10(10CC). The tax borne by the employer is to be added to the employee's salary once only; tax on that perquisite is not to be added again. The two earlier Delhi Bench decisions, which had treated the payment as part of salary and as a monetary payment, were held to have taken an incorrect view, no reasons having been given for calling it monetary and important provisions and circulars not having been placed before those benches. Grounds on interest under sections 234 and 235 were treated as consequential and the Assessing Officer was directed to recompute; grounds challenging initiation of penalty under section 271(1)(c) were not pressed and were dismissed.
The Special Bench built its answer on the distinction between a payment to the employee and a payment to a third party. Section 17(2)(iv) treats as a perquisite any sum paid by the employer in respect of an obligation which, but for such payment, would have been payable by the employee. Tax on the employee's salary is exactly such an obligation, and when the employer pays it to the Government it is discharging the employee's obligation, not handing money to the employee. Section 10(10CC) excludes from its benefit a perquisite provided by way of monetary payment to the assessee, and the emphasis is on direct monetary payment to the employee; a payment to a third party cannot be one. The Bench noted the Supreme Court's own treatment of the expression perquisite in section 17(2) and the distinction it drew between cash payments, which may be assessable as salary but are not a benefit, amenity or perquisite, and non-cash advantages; the wider view of the Kerala Full Bench in Commonwealth Trust Ltd had not been approved. It accepted, as T.P.S. Scott holds, that employer-borne tax is a perquisite includible in salary - that had never been in dispute - but pointed out that the High Court decisions relied on by the Revenue never asked whether the perquisite was monetary or non-monetary, and did not hold that multiple stage grossing up was required. CIT v. American Consulting Corporation supported the characterisation as a perquisite or benefit rather than a receipt of money. The payment may be a monetary gain, benefit or allowance, but it is not a monetary payment to the assessee, and the Board's circular together with section 192(1A), section 40(a)(v) and section 195A supported the assessees' construction.
It is not money, which is paid to the assessee when taxes are paid on his behalf. It is discharge of his obligation.
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Handle my notice → Ask a CA on WhatsAppIt is exempt, so there is only one round of grossing up. The Delhi Special Bench held that tax paid by an employer on an employee's behalf is a perquisite under section 17(2)(iv) - the discharge of an obligation which the employee would otherwise have had to meet - and is not a perquisite provided by way of monetary payment. Section 10(10CC) excludes only monetary payments to the assessee, and a payment to a third party, here the Government, is not one. So the tax borne by the employer is added to salary once, and no further tax on that tax is added. The earlier Delhi Bench decisions in B.J. Services and Western Geo were held to be wrong. This was decided by the ITAT (Income Tax Appellate Tribunal, Delhi - Special Bench constituted under section 255(3); order by Vimal Gandhi, President) and bears on section 10(10CC), section 17(2), section 192(1A), section 195A of the Income Tax Act 1961. It is reported as [2008] 297 ITR 228 (Delhi ITAT); (2008) 113 TTJ (Delhi) 143. This is the decision that settled multiple stage grossing up for expatriate net of tax packages, and it is the reason a single grossing up is now the norm. The distinction it draws is the useful one: a payment of money to the employee is a monetary payment, but a payment made to a third party to discharge the employee's obligation is a perquisite and nothing else. On that footing the earlier High Court decisions the Revenue relied on - Frank Beaton, Dennis and T.P.S. Scott - do not decide the question, because they held only that the employer-borne tax is a perquisite includible in salary, which nobody disputes; they never asked whether it was a monetary or a non-monetary perquisite, and could not have, since section 10(10CC) came in only from 1 April 2003. The Special Bench also expressly reviewed and departed from two earlier Delhi Bench orders that had given no reasons for calling the payment monetary. If it applies to you, the first step is this: Put the employment contract on record showing the salary is payable net of taxes and that the employer bears them; the obligation must be shown to be the employee's in the first place.
The appellants were non-resident foreign nationals employed in India in assessment year 2004-05 by RBF Rig Corporation LLC, a non-resident engaged in providing services and facilities for oil exploration and extraction in India, which was treated as their statutory agent. Under the Expatriate Secondment Agreement their salary was payable net of taxes, with taxes borne by the employer. In the returns filed by the employer in a representative capacity, the tax borne by the employer was added to salary as a perquisite and tax was computed on the resulting figure, but no further tax on that tax was offered, the assessees relying on section 10(10CC), inserted by the Finance Act 2002 with effect from 1 April 2003. The employer paid tax under section 192(1A) without including tax on tax. The Assessing Officer held the employer-borne tax was a monetary perquisite requiring multiple stage grossing up, relying on sections 192, 198 and 195A, and added the further tax perquisite. The Commissioner (Appeals) upheld him, relying on Frank Beaton v. CIT, CIT v. H.D. Dennis and T.P.S. Scott v. CIT, and distinguishing the Uttaranchal High Court decision in ONGC. Two earlier Delhi Bench decisions, in B.J. Services Co. Middle East Ltd and in Western Geo International Ltd, had also gone against the assessee. On the assessees' application the President constituted a Special Bench under section 255(3), on the recommendation of a regular Bench, both to decide the question and to review those two decisions. The parties agreed the real controversy was whether the tax actually paid by the employer is a monetary payment within section 17(2). The matter was decided on 2007-11-30 by the ITAT (Income Tax Appellate Tribunal, Delhi - Special Bench constituted under section 255(3); order by Vimal Gandhi, President). On those facts the ITAT held as follows. The question was answered in favour of the assessees and their appeals, and those of the interveners, were allowed on the issue. Tax paid by an employer on behalf of an employee is a perquisite within section 17(2) of the Act which is not provided by way of monetary payment, and is therefore excluded from the employee's total income by section 10(10CC). The tax borne by the employer is to be added to the employee's salary once only; tax on that perquisite is not to be added again. The two earlier Delhi Bench decisions, which had treated the payment as part of salary and as a monetary payment, were held to have taken an incorrect view, no reasons having been given for calling it monetary and important provisions and circulars not having been placed before those benches. Grounds on interest under sections 234 and 235 were treated as consequential and the Assessing Officer was directed to recompute; grounds challenging initiation of penalty under section 271(1)(c) were not pressed and were dismissed.
The Special Bench built its answer on the distinction between a payment to the employee and a payment to a third party. Section 17(2)(iv) treats as a perquisite any sum paid by the employer in respect of an obligation which, but for such payment, would have been payable by the employee. Tax on the employee's salary is exactly such an obligation, and when the employer pays it to the Government it is discharging the employee's obligation, not handing money to the employee. Section 10(10CC) excludes from its benefit a perquisite provided by way of monetary payment to the assessee, and the emphasis is on direct monetary payment to the employee; a payment to a third party cannot be one. The Bench noted the Supreme Court's own treatment of the expression perquisite in section 17(2) and the distinction it drew between cash payments, which may be assessable as salary but are not a benefit, amenity or perquisite, and non-cash advantages; the wider view of the Kerala Full Bench in Commonwealth Trust Ltd had not been approved. It accepted, as T.P.S. Scott holds, that employer-borne tax is a perquisite includible in salary - that had never been in dispute - but pointed out that the High Court decisions relied on by the Revenue never asked whether the perquisite was monetary or non-monetary, and did not hold that multiple stage grossing up was required. CIT v. American Consulting Corporation supported the characterisation as a perquisite or benefit rather than a receipt of money. The payment may be a monetary gain, benefit or allowance, but it is not a monetary payment to the assessee, and the Board's circular together with section 192(1A), section 40(a)(v) and section 195A supported the assessees' construction. In the words reproduced by the source cited on this page: "It is not money, which is paid to the assessee when taxes are paid on his behalf. It is discharge of his obligation."
It was decided by the ITAT on 2007-11-30 and is reported as [2008] 297 ITR 228 (Delhi ITAT); (2008) 113 TTJ (Delhi) 143. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 10(10CC), section 17(2), section 192(1A), section 195A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The question was answered in favour of the assessees and their appeals, and those of the interveners, were allowed on the issue. Tax paid by an employer on behalf of an employee is a perquisite within section 17(2) of the Act which is not provided by way of monetary payment, and is therefore excluded from the employee's total income by section 10(10CC). The tax borne by the employer is to be added to the employee's salary once only; tax on that perquisite is not to be added again. The two earlier Delhi Bench decisions, which had treated the payment as part of salary and as a monetary payment, were held to have taken an incorrect view, no reasons having been given for calling it monetary and important provisions and circulars not having been placed before those benches. Grounds on interest under sections 234 and 235 were treated as consequential and the Assessing Officer was directed to recompute; grounds challenging initiation of penalty under section 271(1)(c) were not pressed and were dismissed. It arises in Salary & Perquisites and Capital Gains Exemptions matters, on section 10(10CC), section 17(2), section 192(1A), section 195A of the Income Tax Act 1961, and was decided by Income Tax Appellate Tribunal, Delhi - Special Bench constituted under section 255(3); order by Vimal Gandhi, President. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Gross up once, add the employer-borne tax to salary as a perquisite, and claim exemption under section 10(10CC) on the tax on that perquisite. Meet the Revenue's reliance on Frank Beaton, Dennis and Scott by pointing out that they predate section 10(10CC) and decide only that the payment is a perquisite. Show the tax was paid to the Government and not to the employee, since payment to a third party is the whole basis of the non-monetary characterisation. Check what the High Courts have since held on section 10(10CC) before relying on this Special Bench order.
Still good law. A citedby: search returns 14 documents, several of which are unrelated Ahmedabad trust registration orders picked up on a template match. The genuine application is Transocean Discoverer 534 LLC (as agent) v ACIT (ITAT Delhi, 13 August 2009): the Bench went through the Special Bench order and held, in its own words, 'In view of the decision of the Special Bench in the above referred case, we hold that the tax borne by the employer on perquisites of the employees would constitute non-monetary benefit', allowing the s.10(10CC) exemption and reversing the authorities below. Sh. Rakesh Pandey (ITAT Chandigarh, 28 May 2012) takes the same line. Nothing overruling, doubting or confining the Special Bench was found, and no appellate decision against it was traced. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The harvested page is clipped: a large part of the middle of the order is missing, including the detailed discussion of Frank Beaton, Dennis and the other authorities, the text of section 10(10CC) and section 17(2), and the Board circular relied on. The framed question, the facts, the concluding reasoning and the operative answer were read. The order names only Vimal Gandhi, President, so the other members of the Special Bench are not recorded here. The batch line and the source page title give the employer's name as RBF Rig Corporation LIC; the body of the order gives it as LLC, and that is used. The order refers to sections 234 and 235 without sub-clauses. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The question was answered in favour of the assessees and their appeals, and those of the interveners, were allowed on the issue. Tax paid by an employer on behalf of an employee is a perquisite within section 17(2) of the Act which is not provided by way of monetary payment, and is therefore excluded from the employee's total income by section 10(10CC). The tax borne by the employer is to be added to the employee's salary once only; tax on that perquisite is not to be added again. The two earlier Delhi Bench decisions, which had treated the payment as part of salary and as a monetary payment, were held to have taken an incorrect view, no reasons having been given for calling it monetary and important provisions and circulars not having been placed before those benches. Grounds on interest under sections 234 and 235 were treated as consequential and the Assessing Officer was directed to recompute; grounds challenging initiation of penalty under section 271(1)(c) were not pressed and were dismissed.
TaxSphere, “RBF Rig Corporation LLC v ACIT”, https://taxnotice.vittsphere.com/caselaw/case/rbf-rig-corporation-lic-v-acit/ (validity last checked 2026-08-29)
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