M/s. Cognizant Technology Solutions India Pvt.Ltd., CHENNAI V. DCIT, CHENNAI

ITA 1094/CHNY/2012

• Counselvise Citation: 109421714 RSA 2012
• Duration Of Justice: 1 year(s) 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 28-08-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 18-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T N BETGERI IRS
• Assessee Lawyers: DR ANITA SUMANTH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI S.S.GODARA, JUDICIAL MEMBER ITA NO.1094(MDS)/2012 ASSESSMENT YEAR : 2008-09 M/S.COGNIZANT TECHNOLOGY SOLUTIONS INDIA PVT. LTD., 226, CATHEDRAL ROAD, CHENNAI 600 086. PAN AAACD3312M. VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, LARGE TAXPAYER UNIT, CHENNAI (APPELLANT) (RESPONDENT) APPELLANT BY : DR. ANITA SUM ANTH, ADVOCATE RESPONDENT BY : SHRI T.N.BETGERI, IRS, JCIT DATE OF HEARING : 28 TH AUGUST, 2013 DATE OF PRONOUNCEMENT : 28 TH AUGUST, 2013 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT THIS APPEAL FILED BY THE ASSESSEE RELATES TO THE ASSESSMENT YEAR 2008-09. THE APPEAL IS DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS), L ARGE TAXPAYER UNIT AT CHENNAI, DATED 20-2-2012. THIS IS A FRINGE - - ITA 1094 OF 2012 2 BENEFIT TAX APPEAL FILED BY THE ASSESSEE IN THE CON TEXT OF THE ORDER PASSED UNDER SECTION 115WE(3) OF THE INCOME- TAX ACT, 1961. 2. THE FIRST GROUND RAISED BY THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN RE JECTING THE CONTENTION OF THE ASSESSEE THAT THE EXPENDITURE INC URRED TO THE EXTENT OF ` 41,20,798/- IS TAXABLE IN TERMS OF THE PROVISIONS OF SECTION 115WB(2)(E) AND IN ACCEPTING THE CONCLUSION OF THE ASSESSING OFFICER THAT THE EXPENDITURE IS TAXABLE I N TERMS OF SECTION 115WB(2)(M) AND (N). IT IS THE CASE OF THE ASSESSEE THAT THE EXPENDITURE HAS BEEN INCURRED IN RELATION TO PR OVIDING FACILITIES TO ITS EMPLOYEES AND ACCORDINGLY WOULD H AVE TO BE DEALT WITH UNDER THE HEAD STAFF WELFARE. 3. ON GOING THROUGH THE DETAILS AVAILABLE ON RECOR D REGARDING THE COMPOSITION OF THE ABOVE AMOUNT OF EX PENDITURE, WE FIND THAT THE ENTIRE AMOUNT WAS SPENT FOR THE BE NEFIT OF THE EMPLOYEES OF THE ASSESSEE-COMPANY. THE EXPENSES WE RE NOT MADE AS PERQUISITES OR FRINGE BENEFITS OR ANY OTHER PERSONAL - - ITA 1094 OF 2012 3 PRIVILEGES TO INDIVIDUAL EMPLOYEES. THE EXPENSES W ERE INCURRED FOR CARRYING OUT SPORTS AND RECREATION ACTIVITIES O F THE EMPLOYEES IN COMMON AS PART OF ITS STAFF WELFARE ACTIVITIES. THE ASSESSEE- COMPANY IS EMPLOYING MORE THAN 50,000 EMPLOYEES IN ITS OPERATING CENTRES IN INDIA. IT IS NECESSARY FOR SU CH A BIG EMPLOYER TO CARRY OUT RECREATIONAL ACTIVITIES FOR T HE BENEFIT OF THE EMPLOYEES AS A WHOLE. ULTIMATELY, THESE EXPENSES A RE INCURRED FOR THE ASSESSEE-COMPANY ITSELF BY KEEPING THE WORK FORCE IN ACTIVE MODE. THEREFORE, IT IS NOT POSSIBLE TO HOLD THAT THIS EXPENDITURE IS IN THE NATURE OF ANY FRINGE BENEFIT TO THE EMPLOYEES. THIS DISALLOWANCE IS ACCORDINGLY DELETE D. 4. THE SECOND GROUND RAISED BY THE ASSESSEE IS THA T THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED I N HOLDING THAT THE EXPENDITURE INCURRED ON ACCOUNT OF VISA IM MIGRATION CHARGES OF ` 9,07,11,017/- OUGHT TO BE INCLUDED FOR THE VALUATI ON OF FRINGE BENEFITS. 5. THE ASSESSEE-COMPANY HAS INCURRED VISA IMMIGRATION CHARGES NOT FOR THE INDIVIDUAL BENEFITS OF THE - - ITA 1094 OF 2012 4 EMPLOYEES. THE EMPLOYEES ARE VISITING FOREIGN COUN TRIES FOR DIFFERENT DURATIONS, NOT IN THEIR PERSONAL CAPACITY OR ENJOYMENT, BUT FOR CARRYING OUT THE WORK ENTRUSTED BY THE ASSE SSEE. THE ASSESSEE IS DEPUTING ITS EMPLOYEES TO OVERSEAS ASSI GNMENTS IN THE COURSE OF CARRYING ON OF ITS BUSINESS. THE VIS AS ISSUED BY THE CONSULATES ARE NOT VISITING VISAS OR OTHER BUSI NESS VISAS. THE VISAS ARE ISSUED FOR THE SPECIFIC PURPOSE OF ATTEND ING THE WORK OF THE ASSESSEE-COMPANY ABROAD, RETAINING THE RELATION SHIP OF EMPLOYER EMPLOYEE. THEREFORE THIS EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR CARRYING ON OF ITS OWN BUSINESS AND NOT FOR THE ENJOYMENT OF THE INDIVIDUAL EMPLOYEES. THE DISALLOWANCE IS NOT JUSTIFIED. IT IS DELETED. 6. THE THIRD ISSUE RAISED BY THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN RE JECTING THE SUBMISSIONS OF THE ASSESSEE PERTAINING TO THE CANCE LLATION OF INTEREST LEVIED UNDER SECTION 115WJ(3). THE ASSESS ING OFFICER HAS WORKED OUT THE INTEREST ON THE BASIS OF THE ADV ANCE TAX LIABILITY IMPUTED ON THE BASIS OF THE VALUE OF ` 27,58,91,166/-, RELATING TO EMPLOYEES STOCK OPTION PLAN. ACCORDING TO THE - - ITA 1094 OF 2012 5 ASSESSEE, THE QUANTIFICATION OF THE VALUE OF EMPLOY EES STOCK OPTIONS HAD TO BE MADE ON THE BASIS OF AN APPROVED METHOD. IN FACT, THE RULES GOVERNING THE VALUATION OF STOCK OP TION WERE NOTIFIED ONLY IN DECEMBER, 2007. BY THAT TIME THE DATES FOR MAKING THE PAYMENT OF THREE INSTALMENTS OF ADVANCE TAX WERE ALREADY OVER. FOR PAYING THE ADVANCE TAX FOR THE F IRST THREE INSTALMENTS, THE ASSESSEE HAS VALUED THE EMPLOYEES STOCK OPTION ON A METHOD CONSIDERED TO BE REASONABLE BY I T. ON THE BASIS OF ITS OWN VALUATION, IN FACT, THE ASSESSEE H AS WORKED OUT THE ADVANCE TAX LIABILITY ALSO INCLUDING THE VALUE OF EMPLOYEES STOCK OPTION. THERE WAS NO OPTION FOR THE ASSESSEE , BUT TO VALUE THE STOCK OPTIONS ON THE BASIS OF THE METHOD DEPLOY ED BY IT, AS THE RULES WERE FRAMED ONLY SUBSEQUENTLY IN DECEMBER , 2007. IT WAS NOT POSSIBLE FOR THE ASSESSEE TO VALUE THE STOC K OPTION EXACTLY ON THE BASIS OF RULES, AS THE RULES THEMSEL VES WERE NOT AVAILABLE TO THE ASSESSEE PRIOR TO DECEMBER, 2007. 7. AT THE SAME TIME, THE ASSESSEE HAS NOT ABSTAINE D FROM ITS DUTY OF VALUING THE STOCK OPTION FOR THE P URPOSE OF ASCERTAINING THE ADVANCE TAX LIABILITY. ULTIMATELY , WHAT WAS - - ITA 1094 OF 2012 6 REFLECTED IN THE QUANTUM OF ADVANCE TAX IS ONLY A D EFICIENCY. WHEN THE STOCK OPTION WAS VALUED AS PER THE RULES P ROCLAIMED IN DECEMBER, 2007, THE VALUATION GOT INCREASED AND TO THAT EXTENT THE ADVANCE TAX LIABILITY OF THE ASSESSEE ALSO INCR EASED. HERE IT IS NOT A CASE WHERE THE ASSESSEE HAS NOT AT ALL CON SIDERED THE VALUATION OF EMPLOYEES STOCK OPTION FOR THE PURPOSE OF CALCULATING THE ADVANCE TAX LIABILITY. 8. FURTHER, IT IS TO BE SEEN THAT ONCE THE RULES W ERE PROCLAIMED IN DECEMBER, 2007, THE ASSESSEE HAS REVI SED THE VALUATION OF STOCK OPTION EXERCISED EARLIER AND WOR KED OUT THE EXCESS AMOUNT OF ADVANCE TAX LIABILITY AND PAID THE DIFFERENTIAL AMOUNT ALONGWITH THE LAST INSTALMENT OF ADVANCE TAX DUE IN THE PREVIOUS YEAR. THEREFORE, WHAT HAS HAPPENED IN THE PRESENT CASE IS AN INNOCENT DEFICIENCY CAUSED IN THE QUANTU M OF ADVANCE TAX PERTAINING TO THE VALUE OF EMPLOYEES ST OCK OPTION. THIS DEFICIENCY WAS CAUSED FOR REASONS BEYOND THE C ONTROL OF THE ASSESSEE. THE ASSESSING OFFICER, ON THE OTHER HAND , WHILE COMPUTING THE INTEREST, DEPLOYED THE PERIOD EVEN PR IOR TO THE NOTIFICATION OF RULES IN DECEMBER, 2007. IN OTHER WORDS, THE - - ITA 1094 OF 2012 7 ASSESSING OFFICER LEVIED INTEREST ON THE DEFICIENCY FOR THE ENTIRE PERIOD OF THE PREVIOUS YEAR. THAT IS WHY THE ASSES SEE WAS ASKED TO PAY A FURTHER AMOUNT OF INTEREST UNDER SEC TION 115WJ(3). 9. THE ACTION OF THE ASSESSING OFFICER IN COMPUTIN G THE INTEREST FOR THE WHOLE PREVIOUS YEAR IS NOT JUSTIFI ED IN LAW. THE ASSESSEE HAS ALREADY PAID ADVANCE TAX EVEN PERTAINI NG TO THE EMPLOYEES STOCK OPTION. BEFORE THE NOTIFICATION OF THE RULES IN DECEMBER, 2007, THE VALUATION WAS MADE ON AN ACCEPT ED PRINCIPLE OF VALUATION. ONCE THE RULES WERE PROMUL GATED IN DECEMBER, 2007, THE ASSESSEE-COMPANY REVISED ITS VA LUATION AND MADE GOOD THE DEFICIENCY IN THE ADVANCE TAX PAI D IN THE PREVIOUS YEAR ITSELF. THEREFORE, THE ASSESSEE HAD NO OCCASION TO COMPUTE THE DIFFERENTIAL INTEREST FOR THAT PART OF STOCK OPTION EXERCISED BEFORE DECEMBER, 2007. IN THESE CIRCUMST ANCES, WE FIND THAT THE ASSESSEE IS NOT LIABLE TO MAKE ANY PA YMENT OF INTEREST UNDER SECTION 115WJ(3). ACCORDINGLY, THE DEMAND RAISED BY THE ASSESSING OFFICER AGAINST THE DIFFERE NTIAL AMOUNT OF INTEREST IS DELETED. - - ITA 1094 OF 2012 8 10. IN RESULT, THIS APPEAL FILED BY THE ASSESSEE I S ALLOWED. ORDERS PRONOUNCED IN THE OPEN COURT AT THE TIME O F HEARING ON WEDNESDAY, THE 28 TH OF AUGUST, 2013 AT CHENNAI. SD/- SD/- (S.S.GODARA) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED, THE 28 TH AUGUST, 2013. V.A.P. COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GF.