CIPLA LTD, MUMBAI V. ACIT CEN CIR 2, MUMBAI

ITA 1491/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88627 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2015
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 11-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 22-02-2013
• Court: TRIBUNAL
• Section: 143(3); 28; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI VK;DJ VIHYH; VF/KDJ.K] LH U;K;IHB EQACBZ BEFORE SHRI VIJAY PAL RAO , JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER JH FOT; IKY JKO] U;KF;D LNL; ,OA JH JKTSUNZ] YS[KK LNL; DS LE{K ITA NO . 1491 /MUM/2013 ASSESSMENT YEAR: 2009 - 10 CIPLA LIMITED MUMBAI CENTRAL MUMBAI - 400 008. VS.` DCIT CENTRAL CIRCLE 2, CGO BUIDLING, 9 TH FLOOR, M K MARG, MUMBAI 400 020. PAN: AABCT4143P APPELLANT / VIHYKFKHZ RESPONDENT / IZR;FKHZ ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 24.12.2012 OF CIT ( A) FOR A.Y. 2009 - 10. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS: - 1 THE COMMISSIONER OF INCOME - TAX (APPEALS), CENTRAL I, MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] ERRED IN REJECTING THE CONTENTION OF YOUR APPELLANT THAT FRINGE BENEFIT TAX SHOULD NOT BE CHARGED IN RESPECT OF SUCH EXPENSES WHICH ARE NOT MEANT FOR AND WHICH DO NOT RESULT IN PROVISION OF ANY PRIVILEGE, SERVICE, FACILITY OR AMENITY TO ITS EMPLOYEES. ASSESSEE BY / FU/KKZFJRH FD VKSJ LS SHRI DILIP P. BAPAT REVENUE BY / JKTLP DH VKSJ LS SHRI H.P. HAOKIP DATE OF HEARING 11.03.2015 DATE OF PRONOUNCEMENT 11 .03.2015 ITA NO . 1491/MUM/2013 ASSESSMENT YEAR: 2009 - 10 2 | P A G E 2. THE CIT(A) COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN REJECTING THE CONTENTION OF YOUR APPELLANT THAT FRINGE BENEFIT TAX SHOULD NOT BE CHARGED IN RESPECT OF THE EXPENSES ON MEDICAL REIMBURSEMENT TO THE EXTENT THAT THEY ARE NOT CHARGED TO TAX IN THE HAN DS OF THE EMPLOYEES. 2. GROUNDS NO. 1 IS REGARDING FRINGE BENEFIT TAX IN RESPECT OF EXPENSES WHICH ARE NOT MEANT FOR EMPLOYEES OF THE ASSESSEE. 3. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2006 - 07 TO 2008 - 09 VIDE ORDER DATED 17.10.2014 I N PARA 8 TO 10 AS UNDER: - 8. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND CAREFUL PERUSAL OF THE RELEVANT MATERIAL ON RECORD, WE NOTE THAT THE AUTHORITIES BELOW HAVE NOT DISPUTED THE FACT THAT SOME OF THE EXPENDITURES WHICH ARE PART OF THE FRINGE BENEFIT RETURN ARE NOT IN RELATION TO THE EMPLOYEES OF THE ASSESSEE, BUT THE SAME ARE IN RELATION TO THE OTHER PARTIES/PERSONS, NOT FALLING IN THE CATEGORY OF THE EMPLOYEES. IT IS PERTINENT TO NOTE THAT THE CASE OF THE ASSESSEE MAY BE EXAMINED FROM ANOTHER ANGLE, AS TO WHETHER THE ASSESSEE IS TAKING UNDUE ADVANTAGE BY INCLUDING CERTAIN EXPENSES IN THE FRINGE BENEFIT RETURN AND THEREBY GETTING THE BENEFIT OF ALLOWANCE OF THIS CLAIM IN THE INCOME TAX ASSESSMENT ON THE GROUND THAT SUCH EXPENSES ARE ALREADY INCLUDED I N THE FRINGE BENEFIT RETURN FILED BY THE ASSESSEE. IN SUCH A SITUATION IF THE ASSESSING OFFICER ALLOWED THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE WITHOUT EXAMINING THE ALLOWABILITY OF THE CLAIM UNDER THE PROVISIONS OF SECTION 28 TO 44 OF THE INCOME TAX ACT ONLY ON THE GROUND THAT THOSE EXPENSES ARE ALREADY CONSIDERED BY THE ASSESSEE FOR FRINGE BENEFIT TAX, THEN THE QUESTION ARISES WHETHER AFTER AVAILING THE BENEFIT IN THE INCOME TAX ASSESSMENT THE ASSESSEE CAN BE PERMITTED TO TAKE A STAND THA T THE EXPENDITURE WHICH IS INCLUDED IN THE FRINGE BENEFIT RETURN IS NOT LIABLE FOR FRINGE BENEFIT TAX DUE TO THE REASON THAT THE SAME ARE IN RELATION TO THE PERSONS OTHER THAN EMPLOYEES. IN THE CASE IN HAND, TO VERIFY WHETHER THESE EXPENDITURES WERE ALLOWE D BY THE ASSESSING OFFICER IN THE INCOME TAX ASSESSMENT WITHOUT ANY EXAMINATION, WE DIRECTED THE PARTIES TO FILE THE RELEVANT RECORD. AFTER EXAMINATION OF THE ASSESSMENT ORDERS PASSED UNDER SECTION 143(3), WE FIND THAT THE ASSESSING OFFICER HAD DULY EXAMIN ED THE ALLOWABILITY OF THESE EXPENDITURES IN THE INCOME TAX ASSESSMENT BY NOTING THE FACT THAT THESE EXPENDITURES WERE IN RELATION TO THE OUTSIDE THIRD PARTIES AND NOT FOR THE EMPLOYEES. EVEN PART OF THE EXPENDITURE WAS DISALLOWED BY THE AO IN THE ASSESSME NT U/S 143(3) OF INCOME TAX ACT. ACCORDINGLY, THE STAND OF THE ASSESSEE THAT CERTAIN EXPENDITURES ARE IN RELATION TO THE OUTSIDE PARTIES AND NOT FOR THE EMPLOYEES IS NOT A NEW OR AFTERTHOUGHT BUT IT WAS EXPLAINED AND CONSIDERED BY THE ITA NO . 1491/MUM/2013 ASSESSMENT YEAR: 2009 - 10 3 | P A G E ASSESSING OFFICER IN THE INCOME TAX ASSESSMENT PROCEEDINGS. PRIMA - FACIE IT APPEARS THAT SOME OF THE EXPENDITURES ARE NOT IN A RELATION TO THE EMPLOYEES OF THE ASSESSEE AS PER THE PROVISIONS OF SECTION 115W(A) AND 115W(B). THE FRINGE BENEFIT TAX IS CHARGED TO THE BENEFIT PROVID ED OR DEEMED TO HAVE BEEN PROVIDED BY AN EMPLOYER TO HIS EMPLOYEES DURING THE PREVIOUS YEAR. 8.1 FURTHER, FOR THE PURPOSE OF CHAPTER (XII - H) FRINGE BENEFIT TAX MEANS ANY CONSIDERATION FOR EMPLOYMENT PROVIDED BY WAY OF THE VARIOUS MEANS AND PROVISIONS STIPU LATED UNDER SECTION 115WB BY THE EMPLOYER TO THE EMPLOYEES. THUS, FOR ATTRACTING THE PROVISIONS OF SECTION 115WA TO CHARGE THE FRINGE BENEFIT TAX IT IS A PRECONDITION THAT SUCH BENEFIT IS PROVIDED OR DEEMED TO HAVE BEEN PROVIDED BY AN EMPLOYER TO THE EMPLO YEES. THE DELHI TRIBUNAL, IN THE CASE OF T.V. TODAY NETWORK LTD. VS. DEPUTY COMMISSIONER OF INCOME - TAX (SUPRA), HAS CONSIDERED AN IDENTICAL ISSUE AND HELD IN PARAGRAPHS 6 TO 11 AS UNDER: 6. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BOTH THE SIDES A ND PERUSED THE MATERIAL PLACED BEFORE US. FRINGE BENEFIT TAX WAS LEVIED FOR THE FIRST TIME BY THE FINANCE ACT, 2005 BY INTRODUCING CHAPTER XII - H I.E. SECTIONS 115W TO 115WL TO THE INCOME - TAX ACT, 1961. SECTION 115WB(2)(D) UNDER WHICH THE DEPARTMENT HAS COV ERED THE PAYMENT OF CHANNEL PLACE CHARGES READS AS UNDER: - '115WB. (2) THE FRINGE BENEFITS SHALL BE DEEMED TO HAVE BEEN PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES, IF THE EMPLOYER HAS, IN THE COURSE OF HIS BUSINESS OR PROFESSION (INCLUDING ANY ACTIVITY WHE THER OR NOT SUCH ACTIVITY IS CARRIED ON WITH THE OBJECT OF DERIVING INCOME, PROFITS OR GAINS) INCURRED ANY EXPENSE ON, OR MADE ANY PAYMENT FOR, THE FOLLOWING PURPOSES, NAMELY: - (A)_________ (B)_________ (C) ________ (D) SALES PROMOTION INCLUDING PUBLICI TY:_____________ PROVIDED THAT ANY EXPENDITURE ON ADVERTISEMENT, - (I) BEING THE EXPENDITURE (INCLUDING RENTAL) ON ADVERTISEMENT OF ANY FORM IN ANY PRINT (INCLUDING JOURNALS, CATALOGUES OR PRICE LISTS) OR ELECTRONIC MEDIA OR TRANSPORT SYSTEM; (II) BEING THE EXPENDITURE ON THE HOLDING OF OR THE PARTICIPATION IN, ANY PRESS CONFERENCE OR BUSINESS CONVENTION, FAIR OR EXHIBITION; (III) BEING THE EXPENDITURE ON SPONSORSHIP OF ANY SPORTS EVENT OR ANY OTHER EVENT ORGANIZED BY ANY GOVERNMENT AGENCY OR TRADE ASSOCIATION OR B ODY; (IV) BEING THE EXPENDITURE ON THE PUBLICATION IN ANY PRINT OR ELECTRONIC MEDIA OF ANY NOTICE REQUIRED TO BE PUBLISHED BY OR UNDER ANY LAW OR BY AN ORDER OF A COURT OR TRIBUNAL; BEING THE EXPENDITURE ON ADVERTISEMENT BY WAY OF SIGNS, ART WORK, PAINTING, BAN NERS, AWNINGS, DIRECT MAIL, ELECTRIC SPECTACULARS, KIOSKS, HOARDINGS, ITA NO . 1491/MUM/2013 ASSESSMENT YEAR: 2009 - 10 4 | P A G E BILLBOARDS [DISPLAY OF PRODUCTS] OR BY WAY OF SUCH OTHER MEDIUM OF ADVERTISEMENT; (V) BEING THE EXPENDITURE BY WAY OF PAYMENT TO ANY ADVERTISING AGENCY FOR THE PURPOSES OF CLAUSES (I) TO (V) ABO YE; [[(VII) BEING THE EXPENDITURE ON DISTRIBUTION OF SAMPLES EITHER FREE OF COST OR AT CONCESSIONAL RATE; AND] (VIII) BEING THE EXPENDITURE BY WAY OF PAYMENT TO ANY PERSON OF REPUTE FOR PROMOTING THE SALE OF GOODS OR SERVICES OF THE BUSINESS OF THE EMPLOYER,] SHALL NOT BE CONSIDERED AS EXPENDITURE ON SALES PROMOTION INCLUDING PUBLICITY; 7. FROM THE ABOVE, IT IS EVIDENT THAT SECTION 115WB(2) IS A DEEMING PROVISION WHICH PROVIDES THAT THE FRINGE BENEFIT SHALL BE DEEMED TO HAVE BEEN PROVIDED BY THE EMPLOYER TO HIS EMPLOYEE IF THE EMPLOYER HAS INCURRED THE EXPENSES PROVIDED IN VARIOUS CLAUSES OF THE ABOVE SUBSECTION. CLAUSE (D) OF THE ABOVE SUB - SECTION COVERS SALES PROMOTION INCLUDING PUBLICITY. PROVISO TO ABOVE CLAUSE EXCLUDES VARIOUS TYPES OF EXPENDITURE ON ADVERTISEMENT FROM THE PURVIEW OF CLAUSE (D). THE ASSESSEE HAS ARGUED THAT NEITHER THERE IS AN EMPLOYER - EMPLO YEE RELATIONSHIP NOR THE EXPENDITURE IS IN THE NATURE OF SALES PROMOTION AND PUBLICITY. IN CONTRAST, THE LEARNED CIT - DR HAS STATED THAT IF THE EXPENDITURE AS PROVIDED IN ANY OF THE CLAUSES OF SECTION 115WB(2) IS INCURRED BY THE ASSESSEE, THE FRINGE BENEFIT TAX WOULD BE CHARGEABLE, WHETHER OR NOT THERE IS AN EMPLOYER - EMPLOYEE RELATIONSHIP. IN THIS REGARD, WE FIND THAT THE CBDT HAS ISSUED CIRCULAR NO.8 DATED 2911 AUGUST, 2005 WHICH IS PUBLISHED IN 277 HR (STATUTES) 20. IN PARAGRAPH 2 OF THE CIRCULAR, OBJECTIV E FOR INTRODUCTION OF FRINGE BENEFIT TAX IS EXPLAINED WHICH READS AS UNDER: - '2. OBJECTIVE 2.1 THE TAXATION OF PERQUISITES OR FRINGE BENEFITS IS JUST/FLED BOTH ON GROUNDS OF EQUITY AND ECONOMIC EFFICIENCY. WHEN FRINGE BENEFITS ARE UNDERTAXED, IT VIOLATES BOTH HORIZONTAL AND VERTICAL EQUITY. A TAXPAYER RECEIVING HIS ENTIRE INCOME IN CASH BEARS A HIGHER TAX BURDEN IN COMPARISON TO ANOTHER TAXPAYER WHO RECEIVES HIS INCOME PARTLY IN CASH AND PARTLY IN KIND, THEREBY VIOLATING HORIZONTAL EQUITY. FURTHER, FRINGE BENEFITS ARE GENERALLY PROVIDED TO SENIOR EXECUTIVES IN THE ORGANIZATION. THEREFORE, UNDER - TAXATION OF FRINGE BENEFITS ARE VIOLATES VERTICAL EQUITY. IT ALSO DISCRIMINATES BETWEEN COMPANIES WHICH CAN PROVIDE FRINGE BENEFITS AND THOSE WHICH CANNOT THEREBY A DVERSELY AFFECTING MARKET STRUCTURE. HOWEVER, THE TAXATION OF FRINGE BENEFITS RAISES SOME PROBLEMS PRIMARILY BECAUSE (A) ALL BENEFITS CANNOT BE INDIVIDUALLY ATTRIBUTED TO EMPLOYEES, PARTICULARLY IN CASES WHERE THE BENEFIT IS COLLECTIVELY ENJOYED; ITA NO . 1491/MUM/2013 ASSESSMENT YEAR: 2009 - 10 5 | P A G E (B) OF THE PRE SENT WIDESPREAD PRACTICE OF PROVIDING PERQUISITES, WHEREIN MANY PERQUISITES ARE DISGUISED AS REIMBURSEMENTS OR OTHER MISCELLANEOUS EXPENSES SO AS TO ENABLE THE EMPLOYEES TO ESCAPE/REDUCE THEIR TAX LIABILITY; AND (C) OF THE DIFFICULTY IN THE VALUATION OF THE BE NEFITS. 2.2 IN INDIA, PRIOR TO THE ASSESSMENT YEAR 1998 - 99, SOME PERQUISITES/FRINGE BENEFITS WERE INCLUDED IN SALARY IN TERMS OF SECTION 17 AND ACCORDINGLY TAXED UNDER SECTION 15 OF THE INCOME - TAX ACT IN THE HANDS OF THE EMPLOYEE AND A LARGE NUMBER OF FRI NGE BENEFITS WERE TAXED BY THE EMPLOYER - BASED DISALLOWANCE METHOD WHERE THE QUANTUM OF THE DISALLOWANCE WAS ESTIMATED ON A PRESUMPTIVE BASIS. IN PRACTICE, TAXATION OF FRINGE BENEFITS BY THE EMPLOYER - BASED DISALLOWANCE METHOD RESULTED IN LARGE SCALE LITIGA TION ON ACCOUNT OF AMBIGUITY IN DEFINING THE TAX BASE. THEREFORE, THE TAXATION OF FRINGE BENEFITS BY THE EMPLOYER - BASED DISALLOWANCE METHOD WAS WITHDRAWN BY THE FINANCE ACT, 1997. HOWEVER, THE WITHDRAWAL OF THE PROVISIONS RELATING TO TAXATION OF FRINGE BEN EFITS BY THE EMPLOYER - BASED DISALLOWANCE METHOD RESULTED IN SIGNIFICANT EROSION OF THE TAX BASE. THE FINANCE ACT, 2005 HAS INTRODUCED A NEW LEVY, NAMELY, THE FBT AS A SURROGATE TAX ON EMPLOYERS, WITH THE OBJECTIVE OF RESOLVING THE PROBLEMS ENUMERATED IN PA RA. 2.1 ABOVE, EXPANDING THE TAX BASE AND MAINTAINING EQUITY BETWEEN EMPLOYERS.' 8. AT PAGE 25 PARAGRAPH 11, FREQUENTLY ASKED QUESTIONS ARE GIVEN. QUESTION NO.2 THEREOF AND REPLY IS AS UNDER: - '2. WHETHER EMPLOYER - EMPLOYEE RELATIONSHIP IS A PREREQUISITE F OR THE LE VY OF FB T? ANSWER: YES.' 9. THUS, IN THE CIRCULAR ISSUED BY THE CBDT EXPLAINING THE NEWLY INTRODUCED PROVISIONS OF FBT, THE CBDT ITSELF HAS CLARIFIED THAT EMPLOYER - EMPLOYEE RELATIONSHIP IS A PREREQUISITE FOR LEVY OF FBT. HON'BLE APEX COURT HAS CONSIDERED THE ABOVE CIRCULAR IN THE CASE OF R & B FALCON (A) PTY.LTD. (SUPRA) AND HELD AS UNDER: - 'THE INTERPRETATION OF THE CBDT IN ITS CIRCULARS BEING IN THE REALM OF EXECUTIVE CONSTRUCTION, SHOULD PRIMARILY BE HELD TO BE BINDING, SAVE AND EXCEPT WHERE IT VIOLATES ANY PROVISIONS OF LAW OR IS CONTRARY TO ANY JUDGMENT RENDERED BY THE COURTS. THE REASON FOR GIVING EFFECT TO SUCH EXECUTIVE CONSTRUCTION IS NOT ONLY THE SAME AS CONTEMPORANEOUS WHICH WOULD COME WITHIN THE PURVIEW OF THE MAXIM TEMPORANIA CASTE PESTO, EVEN IN A CERTAIN SITUATION A REPRESENTATION MADE BY AN AUTHORITY LIKE THE MINISTER PRESENTING THE BILL BEFORE PARLIAMENT MAY ALSO BE FOUND BOUND THEREBY. WHERE A REPRESENTATION IS MADE BY THE MAKER OF LEGISLATION AT THE TIME OF INTRODUCTION OF THE BILL OR CONSTRUCTION THEREUPON IS PUT BY ITA NO . 1491/MUM/2013 ASSESSMENT YEAR: 2009 - 10 6 | P A G E THE EXECUTIVE ON ITS COMING INTO FORCE THE SAME CARRIES GREAT WEIGHT. 10. THAT THE HONBLE BOMBAY HIGH COURTBLE JURISDICTIONAL HIGH COURT HAS ALSO EXPRESSED THE SIMILAR VIEW IN THE CASE OF T & T MOTORS LTD. AND HEL D AS UNDER: - 'A CAREFUL READING OF CLAUSES (I), (II), (IV), (V), (VI) AND (VII) OF SECTION 115WB(2)(D) ELUCIDATES THAT THE LEGISLATURE HAS EXCLUDED FROM FRINGE BENEFIT EXPENDITURE IN THE FORM OF PAYMENTS TO THIRD PERSONS BECAUSE THIS IS NOT A FRINGE BENEFI T WHICH IS ENJOYED BY THE 'EMPLOYEE/RECIPIENT' BUT IT IS AN EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS AND IN THE HANDS OF THE RECIPIENT THE EXPENDITURE IS TAXABLE AS INCOME EARNED. THAT IN THE CASE UNDER APPEAL BEFORE US, ADMITTEDLY, THE EXPENDITU RE WAS INCURRED BY THE ASSESSEE FOR CHANNEL PLACEMENT WHICH IS MADE TO THIRD PERSONS AND THERE IS NO EMPLOYER - EMPLOYEE RELATIONSHIP BETWEEN THE ASSESSEE AND THE RECIPIENT. THEREFORE, THE CIRCULAR OF THE CBDT AS WELL AS THE DECISION OF HON'BLE APEX COURT IN THE CASE OF R & B FALCON (A) PTY.LTD. (SUPRA) WOULD BE SQUARELY APPLICABLE. MOREOVER, HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF T & T MOTORS LTD. (SUPRA) HAS STATED THAT IN RESPECT OF PAYMENT TO THIRD PERSONS, FBT IS NOT APPLICABLE BECAUSE NO FRING E BENEFIT IS ENJOYED BY THE EMPLOYEE/RECIPIENT. THE RATIO OF THE ABOVE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT WOULD ALSO BE SQUARELY APPLICABLE TO THE FACTS OF THE ASSESSEE'S CASE BECAUSE PAYMENT HAD BEEN MADE FOR CHANNEL PLACEMENT. BY SUCH PAYMENT, NO FRINGE BENEFIT IS ENJOYED BY THE EMPLOYEE/RECIPIENT. THE PAYMENT IS IN THE NATURE OF EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS BY THE ASSESSEE AND IN THE HANDS RECIPIENT, THE EXPENDITURE IS TAXABLE AS INCOME. MOREOVER, THE EXPENDITURE INCURRED B Y THE ASSESSEE IS NOT IN THE NATURE OF EXPENDITURE FOR SALES PROMOTION. THE ASSESSEE HAS INCURRED THE EXPENDITURE FOR BROADCASTING OF ITS CHANNELS ON THE DESIRED BANDS. THEREFORE, THE EXPENDITURE IS FOR THE BROADCASTING OF ITS CHANNELS AND NOT FOR SALES PR OMOTION OR PUBLICITY. 9. THE DELHI TRIBUNAL HAS GIVEN THE FINDING BY RELYING UPON THE VARIOUS DECISIONS INCLUDING THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF T&T MOTORS LTD. V. ASSTT. CIT [2012] 341 ITR 332/208 TAXMAN 100 (MAG.)/19 TAXMAN N.COM 229 (DELHI) WHEREIN THE HONBLE HIGH COURT HAS CONSIDERED THE QUESTION REGARDING THE EXPENDITURE INCURRED ON THE ACCESSORY WHICH WAS SUPPLIED TO THE CUSTOMERS WHO HAD PURCHASED CAR COULD BE TREATED AS SALES PROMOTION AS PER THE PROVISIONS OF SECTION 115WB(2)(D). THIS QUESTION HAS BEEN ANSWERED BY THE HONBLE HIGH COURT IN PARAGRAPH 17 AS UNDER: ITA NO . 1491/MUM/2013 ASSESSMENT YEAR: 2009 - 10 7 | P A G E 17. A CAREFUL READING OF CLAUSES (I), (II), (IV), (V), (VI) AND (VIII) OF SECTION 115WB(2)(D) ELUCIDATES THAT THE LEGISLATURE HAS EXCLUDED FROM FBT EXPENDITU RE IN FORM OF PAYMENTS TO THIRD PERSONS. THE EXEMPTION IN THESE CLAUSES, IT IS APPARENT, HAS BEEN GRANTED BECAUSE THIS IS NOT A FRINGE BENEFIT WHICH IS ENJOYED BY THE 'EMPLOYEE/RECIPIENT' BUT IT IS AN EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS AND TH E PAYMENT IS INCOME EARNED BY THE THIRD PARTY. IN THE HANDS OF THE SAID RECIPIENT THE EXPENDITURE IS TAXABLE AS INCOME EARNED. 10. FURTHER, AS IT WAS CONSIDERED BY THE DELHI BENCHES THAT IN CASE OF R&B FALCON (A) (P.) LTD. V. CIT [2008] 301 ITR 309/1 69 TAXMAN 515 (SC), THE HONBLE SUPREME COURT HAS HELD THAT THE INTERPRETATION OF CENTRAL BOARD OF DIRECT TAXES IN ITS CIRCULAR BEING IN THE REALM OF EXECUTIVE CONSTRUCTION SHOULD PRIMARILY HAD TO BE BOUNDED SAFE AND EXCEPT WHERE IT VIOLATES ANY PROVISION OF LAW OR IS CONTRARY TO ANY JUDGMENT RENDERED BY ANY COURT, THEREFORE, IF THE INTERPRETATION/CONSTRUCTION OF CBDT IN THE CIRCULAR IS VIOLATION OF THE PROVISION ITSELF THE SAME CANNOT OVERWRITE THE PROVISIONS OF THE ACT. THE DECISION RELIED UPON BY THE LD. D.R. IS NOT APPLICABLE IN VIEW OF THE DECISION OF HONBLE DELHI HIGH COURT (SUPRA) AS WELL AS DECISION OF HONBLE SUPREME COURT HAS CONSIDERED BY THE DELHI BENCHES OF THIS TRIBUNAL IN THE CASE OF T.V. TODAY NETWORK LTD. VS. DEPUTY COMMISSIONER OF INCOME - TAX (SUPRA). EVEN OTHERWISE, A SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN THE SERIES OF DECISIONS AS RELIED UPON BY THE ASSESSEE. ACCORDINGLY, THIS ISSUE IS SET ASIDE TO THE RECORD OF THE ASSESSING OFFICER TO VERIFY AND EXAMINE THE EXPENSES WHICH ARE NOT IN RELATION TO THE EMPLOYEES OF THE ASSESSEE AND THEN DECIDED THE ISSUE AS PER ABOVE OBSERVATION. 4. FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL, WE SET ASIDE THIS ISSUE TO THE RECORD OF ASSESSING OFFICER TO VERIFY AND EXAMINE THE EXPENSES WHICH ARE NOT IN RELATION TO THE EMPLOYEES OF THE ASSESSEE AND THEN DECIDE THE ISSUE AS PER THE OBSERVATIONS MADE IN THE SAID ORDER. THE LD. AUTHORIZED REPRESENTATIVE HAS POINTED OUT THAT IN THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT, THE ASSESSIN G OFFICER HAS DULY VERIFIED THE EXPENDITURE AND ALSO TAKEN INTO NOTE OF THE FACT THAT SOME OF THE EXPENDITURE WERE IN RELATION TO THE OUTSIDE THIRD P ARTIES AND NOT FOR THE EMPLOYEES. THE SAID VERIFICATION AND EXAMINATION OF THE FACT HAS TO BE CONSIDERED BY THE ASSESSING OFFICER WHILE DECIDING THE ISSUE OF FRINGE BENEFIT TAX ASSESSMENT. ITA NO . 1491/MUM/2013 ASSESSMENT YEAR: 2009 - 10 8 | P A G E 5. GROUND NO. 2 IS REGARDING FRINGE BENEFIT TAX CHARGED IN RESPE CT OF EXPENSES ON MEDICAL REIMBURSEMENT. 6. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. WE NOTE THAT AN IDENTICAL ISSUE WAS CONSIDERED AND DECIDED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2006 - 07 TO 2008 - 09 IN PARA 13 AS UNDER: - 13. HAVING CO NSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD, WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN THE CASE OF GODREJ PROPERTIES LTD. (SUPRA) IN PARAGRAPHS 6 TO 10 AS UNDER: 6. THE UNDISPUTED FACT IN THIS CASE IS THAT THE ASSESSEE, WITH EFFECT FROM L APRIL, 2002 IS PAYING, A FIAT AMOUNT BY WAY OF A 'MEDICAL ADVANCE' THROUGH THE SALARY EVERY MONTH. THE AMOUNT PAID FOR THE VICE PRESIDENTS,/GENERAL MANAGERS/DY. GENERAL MANAGERS ETC. IS RS. I 250/ - PER MONTH. WHEREVER THE EMPLOYEES SUBMITTED MEDICAL BILLS FOR DOMICILIARY TREATMENT OR FOR GENERAL CHECK - UP, EVERY THREE MONTHS, BENEFIT OF (V) PROVISO TO SECTION 17(2) COULD BE AVAILED. NOW WE EXAMINE THE EXEMPTION IN THE PROVISO TOY CLAUSE (V) OF SECTION 1 7(2) OF THE ACT. SECTION 17(1)(IV) STATES THAT 'SALARY' INCLUDES PERQUISITES. SECTION 17(2) PROVISO (V) READS AS FOLLOWS '(V) ANY SUM PAID BY THE EMPLOYER IN RESPECT OF ANY EXPENDITURE ACTUALLY INCURRED BY THE EMPLOYEE ON HIS MEDICAL TREATMENT OR TREATME NT OF ANY MEMBER OF HIS FAMILY [OTHER THAN THE TREATMENT REFERRED TO IN CLAUSES (I) AND (II); SO, HOWEVER, THAT SUCH SUM DOES NOT EXCEED [FIFTEEN] THOUSAND RUPEES IN THE PREVIOUS YEAR; THIS SUB - CLAUSE TREATS THE EXPENDITURE ACTUALLY INCURRED BY THE EMP LOYEE ON MEDICAL TREATMENT FOR HIMSELF OR HIS FAMILY, AND WHICH IS PAID BY THE EMPLOYEE, IN EXCESS OF RS.L 5,000/ - , WOULD BE A PERQUISITE WHICH WOULD BE TAXABLE AS SALARY. IT IS CLEAR THAT REIMBURSEMENT OF MEDICAL EXPENDITURE AS IN THE CASE REFERRED ABOVE, IS NOT CHARGEABLE TO TAX AS A PERQUISITE IF THE AMOUNT DOES NOT EXCEED RS.15,000/ - P.A. 7. SECTION 1 15WB(3) READS AS FOLLOWS: FOR THE PURPOSES OF SUB - SECTION (1), THE PRIVILEGE, SERVICE, FACILITY OR AMENITY DOES NOT INCLUDE PERQUISITES IN RESPECT OF WHI CH TAX IS PAID OR PAYABLE BY THE EMPLOYEE[OR ANY BENEFIT OR AMENITY IN THE NATURE OF FREE OR SUBSIDIZED TRANSPORT OR ANY SUCH ALLOWANCE PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES FOR JOURNEYS BY THE EMPLOYEES FROM THEIR RESIDENCE TO ITA NO . 1491/MUM/2013 ASSESSMENT YEAR: 2009 - 10 9 | P A G E THE PLACE OF WORK OR SUC H PLACE OF WORK TO THE PLACE OF RESIDENCEL' (EMPHASIS OURS). IN THE MEMORANDUM EXPLAINING THE PROVISO TO THE FINANCE BILL, IT IS STATED AS FOLLOWS 'THEREFORE, IT IS PROPOSED TO ADOPT A TWO PRONGED APPROACH FOR THE TAXATION OF FRINGE BENEFITS UNDER THE I NCOME - TAX ACT. PERQUISITES WHICH CAN BE DIRECTLY ATTRIBUTED TO THE EMPLOYEES WILL CONTINUE TO BE TAXED IN THEIR HANDS IN ACCORDANCE WITH THE EXISTING PROVISIONS OF SECTION 17(2) OF THE INCOME TAX ACT AND SUBJECT TO THE METHOD OF VALUATION OUTLINED IN RULE 3 OF THE INCOME - TAX RULES.' (EMPHASIS OURS). IN THE BUDGET SPEECH AT PARA 160 REPORTED IN 273 ITR (ST.) 25, AT PAGE 56, IT IS OBSERVED AS FOLLOWS: 'I HAVE LOOKED INTO THE PRESENT SYSTEM OF TAXING PERQUISITES AND I HAVE FOUND THAT MANY PERQUISITES ARE DI SGUISED AS FRINGE BENEFITS, AND ESCAPE TAX. NEITHER THE EMPLOYER NOR THE EMPLOYEE PAYS ANY TAX ON THESE BENEFITS WHICH ARE CERTAINLY OF CONSIDERABLE MATERIAL VALUE. AT PRESENT WHERE THE BENEFITS ARE FULLY ATTRIBUTABLE TO THE EMPLOYEE THEY ARE TAXED IN THE HANDS OF THE EMPLOYEE THAT POSITION WILL CONTINUE. IN ADDITION, I NOW PROPOSE THAT WHERE THE BENEFITS ARE USUALLY ENJOYED COLLECTIVELY BY THE EMPLOYEES AND CANNOT BE ATTRIBUTED TO INDIVIDUAL EMPLOYEES, THEY SHALL BE TAXED IN THE HANDS OF THE EMPLOYER.' (EM PHASIS OURS) 8. FROM THE ABOVE, IT IS CLEAR THAT WHERE PERQUISITES/BENEFITS WHICH ARE FULLY ATTRIBUTABLE TO THE EMPLOYEE AND ARE TAXED IN THEIR HANDS, WOULD BE CONTINUED TO BE TAXED UNDER THE EXISTING PROVISIONS OF SECTION 17(2) OF THE ACT. ONLY IN CASE W HERE THE BENEFITS ARE USUALLY ENJOYED COLLECTIVELY BY THE EMPLOYEES AND CANNOT BE ATTRIBUTED TO AN INDIVIDUAL EMPLOYEE, THEY SHALL BE TAXED IN THE HANDS OF THE EMPLOYER. 9. IN SUB - SECTION (3) OF SECTION 11 5WB IT IS MADE CLEAR THAT SECTION 1 15WB(1)(A), DOES NOT INCLUDE, SUCH PERQUISITE IN RESPECT OF WHICH TAX IS PAID OR PAYABLE BY THE EMPLOYEES. IN THE CASE ON HAND, TAX IS PAYABLE ON MEDICAL ADVANCE AND IN CERTAIN CASES TAX HAS BEEN PAID. ONLY WHERE BILLS HAVE BEEN PRODUCED BY THE EMPLOYEE TO THE EMPLOYE R IT WAS A CASE OF REIMBURSEMENT AND TO THE EXTENT OF THE BENEFIT GIVEN IN 17(2) PROVISO (V) THE EMPLOYEE NEED NOT PAY TAX. THIS IS NOT A CASE WHERE THE ATTRIBUTION OF PERSONAL BENEFITS DIRECTLY TO AN EMPLOYEE POSES OF PROBLEM OR A CASE WHERE IT IS NOT FEA SIBLE TO TAX THE BENEFIT IN QUESTION IN THE HANDS OF THE EMPLOYEE. IT IS ONLY A CASE WHERE A BENEFIT ABOVE A CERTAIN SPECIFIED AMOUNT ONLY IS LIABLE TO BE TAXED IN THE HANDS OF THE EMPLOYEE. SUCH CASE, IN OUR HUMBLE ITA NO . 1491/MUM/2013 ASSESSMENT YEAR: 2009 - 10 10 | P A G E OPINION, DOES NOT CONSTITUTE FRINGE BEN EFIT AS DEFINED IN SECTION 1 I5WB OF THE ACT. THUS WE AGREE WITH THE SUBMISSIONS OF MRS. SONALEE GODBOLE AND ALLOW THIS APPEAL OF THE ASSESSEE. 7. FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE A SSESSEE IN THE SAME TERMS. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSING OFFICER HAS ALREADY EXCLUDED THE MEDICAL REIMBURSEMENT WHICH IS CHARGED TO TAX IN THE HANDS OF THE EMPLOYEES AND THE DISPUTE IS REGARDING THE MEDI CAL EXPENSES REIMBURSED TO THE EMPLOYEES WHICH ARE NOT CHARGED TO TAX. SINCE THE IDENTICAL ISSUE WAS DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN THE ABSENCE OF ANY AMENDMENT OF THE EARLIER ORDER, WE REFRAIN TO TAKE ANY DIVERGENT VIEW . 8 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUCNED IN THE OPEN COURT ON THIS 18 TH TH DAY OF MARCH 2015 VKNS'K DH ?KKS'K.KK [KQYS U;K;KY; ES FNUKAD 18 EKPZ 2015 DKS DH XBZA SD/ - SD/ - ( RAJENDRA ) (VIJAY PAL RAO) ( ACCOUNTANT MEMBER / YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; ) MUMBAI DATED 18 .03.2015 SKS SR. P.S, ITA NO . 1491/MUM/2013 ASSESSMENT YEAR: 2009 - 10 11 | P A G E COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI