DESAI BROTHERS LTD., Pune V. Addl.CIT,Range-1, Pune

ITA 168/PUN/2009

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9860 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2012
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 03-02-2009
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA
• Assessee Lawyers: MUKESH PATEL SHRI R S MEHTA
• Keywords: Gift; Salary income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER , AND SHRI G.S.PANNU, ACCOUNTANT MEMBER. ITA.NO.168/PN/2009 (ASSTT. YEAR : 2006-07) DESAI BROTHERS LTD. 1436, KASBA PETH, PUNE 411011. .. APPELLANT VS. ADDL.CIT, RANGE-1, PUNE. .. RESPONDENT APPELLANT BY : SHRI MUKESH PATEL/ SHRI R.S.MEHTA RESPONDENT BY : MS.ANN KAPTHUAMA DATE OF HEARING : 04.10.2012 DATE OF PRONOUNCEMENT : 31.10.2012 ORDER PER SHAILENDRA KUMAR YADAV, JM : THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER O F THE CIT(A)-I, PUNE, FOR THE ASSESSMENT YEAR 2006-07. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRM ING THE ADDITION OF RS.10,23,042/- AS THE TAXABLE AMOUNT OF FRINGE BENEFITS TO THE AMOUNT OF FRINGE BENEFITS DECLARED BY THE APPELLANT IN HIS RETURN OF FBT. 2. LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT FRING E BENEFIT TAX IS NOT LIABLE TO BE PAID BY THE APPELLANT IN RESPEC T OF THE FOLLOWING ITEMS OF EXPENDITURE AS THEY HAVE BEEN EI THER INCURRED ONLY WITH RELATION TO NON-EMPLOYEES AND/OR THOUGH I NCURRED THROUGH EMPLOYEES, BUT BEING PURELY FOR THE BUSINES S PURPOSES OF THE ASSESSEE AND THUS NOT RESULTING IN ANY BENEF IT TO THE EMPLOYEES- 2 PARTICULARS AMOUNT OF FBT AMOUNT EXPENDITURE % A. ENTERTAINMENT 1,17,883/- 20 23,577/- B. PROVISION OF HOSPITALITY 1,12,580/- 20 22,516/- C. SALES PROMOTION 35,06,332.98 20 7,01,267/- TRAVELLING & CONVEYANCE AUDITORS TRAVELLING 1,79,404/- 20 35,881/- MOTOR CAR EXPENSES- A. DRIVER SALARIES 2,73,172/- 20 54,634/- GIFTS 3,70,334/- 20 1,85,167 -------------- TOTAL RS. 10,23,042/- -------------- 3. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT THE ABOVE ITEMS OF EXPENDITURE FALL BEYOND THE SCOPE AND LEVY OF FRINGE BENEFIT TAX CONTAINED IN SECTION 115 WB(2) CONSIDERING THE LEGISLATIVE INTENT AND OBJECTIVES W HILE INTRODUCING THE FRINGE BENEFIT TAX AS EXPLAINED IN THE BUDGET SPEECH IN THE EXPLANATORY NOTES. 2. THE ENTIRE DISPUTE IN THIS APPEAL RELATES TO THE MANNER IN WHICH THE ASSESSEES LIABILITY TO PAY FRINGE BENEFIT TAX (IN SHORT FBT) AS PER SECTION 115WA OF THE ACT IS LIABLE TO BE COMPUT ED. 3. THE CONTENTION OF THE ASSESSEE IS THAT THE LEVY OF FBT IS TO BE CONFINED TO THE EXPENSES INCURRED ON PERSONS WHO A RE IN EMPLOYMENT OF THE ASSESSEE AND NOT WITH RESPECT TO EXPENSES IN CURRED ON PERSONS WHO ARE NOT EMPLOYEES OF THE ASSESSEE COMPANY. IN T HIS REGARD, AS PER THE ASSESSEE, THE LOWER AUTHORITIES HAVE IGNORED TH E PROVISIONS OF SECTION 115WA OF THE ACT WHICH, ACCORDING TO THE AP PELLANT, CONFINES THE CHARGEABILITY OF FBT IN RESPECT OF FRINGE BENEF ITS PROVIDED OR DEEMED TO HAVE BEEN PROVIDED TO EMPLOYEE OR EMPLOYE ES ALONE. 4. IN THIS CONNECTION, THE POINT MADE OUT BY THE AS SESSEE IS THAT, FOR INSTANCE, EXPENDITURE ON TRAVELLING OF NON-EMPL OYEES, I.E. CUSTOMERS/OUTSIDERS HAS ALSO BEEN CONSIDERED AS A D EEMED FRINGE BENEFIT IN TERMS OF SECTION 115WB(2) OF THE ACT, WH ICH IS WRONG. THE PLEA OF THE ASSESSEE IS THAT DEEMING PROVISION OF S UB-SECTION (2) OF SECTION 115WB WOULD OPERATE ONLY IF THE EXPENDITURE SPECIFIED THEREIN 3 IS INCURRED INCONSIDERATION FOR EMPLOYMENT OR IN OT HER WORDS, IT IS INCURRED IN CONNECTION WITH THE EMPLOYEES OF THE AS SESSEE, AND NOT OTHERWISE. 5. ON THE OTHER HAND, THE CONTENTION OF THE REVENUE AND, WHICH IS SUPPORTED BY THE IMPUGNED ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS), IS THAT SECTION 115WB(2) LAYS DOWN 16 IT EMS OF EXPENDITURE WHICH ARE DEEMED FRINGE BENEFITS AND THAT IF ANY OF SUCH EXPENSES IS INCURRED BY AN ASSESSEE, THE SAME IS LIABLE TO FBT AND THE PROVISION DOES NOT CONTAIN ANY QUALIFICATION TO THE EFFECT TH AT SUCH EXPENDITURE SHOULD BE INCURRED IN RELATION TO AN EMPLOYEE ALONE . 6. ON THIS ASPECT, WE HAVE CONSIDERED THE RIVAL SUB MISSIONS. CHAPTER XII-H OF THE ACT CREATING ADDITIONAL TAX LI ABILITY ON THE PRESCRIBED ASSESSEES IN THE FORM OF FBT WAS INSERTE D BY THE FINANCE ACT, 2005 WITH EFFECT FROM 1.4.2006. SECTION 115WA OF THE ACT PRESCRIBES THAT IN ADDITION TO THE INCOME-TAX CHARG EABLE UNDER THE ACT, THERE SHALL BE CHARGED FOR EVERY ASSESSMENT YE AR COMMENCING ON OR AFTER 1.4.2006, A FBT AT A SPECIFIED RATE ON THE VALUE OF THE FRINGE BENEFITS PROVIDED OR DEEMED TO HAVE BEEN PROVIDED B Y AN EMPLOYER TO HIS EMPLOYEES DURING THE RELEVANT PREVIOUS YEAR. SE CTION 115WB OF THE ACT ELUCIDATES THE FRINGE BENEFITS WHICH ARE LI ABLE FOR CHARGE OF FBT AS PRESCRIBED IN SECTION 115WA OF THE ACT. SUB- SECTION (1) OF SECTION 115WB PRESCRIBES THAT F OR THE PURPOSES OF THIS CHAPTER, FRINGE BENEFITS MEANS ANY CONSIDERATION FOR EMPLO YMENT PROVIDED BY WAY OF------ . THE PRESENCE OF THE EXPRESSION ANY CONSIDERATION FOR EMPLOYMENT IS SIGNIFICANT IN SECTION 115WB(1), INASMUCH AS T HE BENEFITS BY WAY OF CLAUSES (A) TO (D) LISTED THEREI N ARE DIRECTED TOWARDS THE EMPLOYEES OR THEIR FAMILIES INCLUDING FORMER EM PLOYEES. SUB- SECTION (2) OF SECTION 115WB, WHICH IS THE FOCUS OF CONTROVERSY BEFORE US READS AS UNDER: (2) THE FRINGE BENEFITS SHALL BE DEEMED TO HAVE BE EN PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES IF THE EMPLOYER HA S, IN THE COURSE OF HIS BUSINESS OR PROFESSION (INCLUDING ANY ACTIVITY WHETHER OR NOT SUCH ACTIVITY IS CARRIED ON WITH THE OBJECT OF 4 DERIVING INCOME, PROFITS OR GAINS) INCURRED ANY EXP ENSE ON, OR MADE ANY PAYMENT FOR, THE FOLLOWING PURPOSES, NAMEL Y:- (A) .(Q ) 7. SUB-SECTION (2) OF SECTION 115WB OF THE ACT ELUC IDATES THE FRINGE BENEFITS WHICH SHALL BE DEEMED TO HAVE BEEN PROVIDE D BY THE EMPLOYER TO HIS EMPLOYEES. IT IS PROVIDED THAT IF AN EMPLOYE R IN THE COURSE OF HIS BUSINESS OR PROFESSION INCURS ANY EXPENDITURE FOR T HE PURPOSES SET OUT THEREIN, IT SHALL BE DEEMED THAT FRINGE BENEFI T HAS BEEN PROVIDED BY THE EMPLOYER TO THE EMPLOYEES. THE MOOT POINT BE FORE US IS WHETHER THE MERE INCURRENCE OF THE EXPENDITURE LIST ED IN CLAUSES (A) TO (Q) OF SECTION 115WB(2) OF THE ACT IS ENOUGH TO TRIGGER THE DEEMING PRESCRIPTION CONTAINED IN THE SECTION OR THAT IT IS FURTHER REQUIRED TO BE ESTABLISHED THAT SPECIFIED EXPENDITURE HAS BEEN INCURRED ON ACCOUNT OF CONSIDERATION FOR EMPLOYMENT SO AS TO AT TRACT LEVY OF FBT CONTEMPLATED IN SECTION 115WA(1) OF THE ACT. 8. TO APPRECIATE THE LEGAL POSITION, WE MAY AGAIN R EFER TO THE MEANING OF THE EXPRESSION FRINGE BENEFITS, AS CON TAINED IN SECTION 115WB(1) OF THE ACT. AS NOTED EARLIER, SUB-SECTION (1) OF SECTION 115WB CONTAINS THE EXPRESSION MEANS ANY CONSIDERATION FOR EMPLOYMENT . THE PRESENCE OF THE AFORESAID EXPRESSION MEANS THAT THE FRINGE BENEFITS COVERED IN SECTION 115WB(1) A RE THOSE WHICH ARE IN CONSIDERATION FOR EMPLOYMENT. NOW, SECTION 115WB (2) CONTAINS FRINGE BENEFITS WHICH ARE DEEMED TO HAVE BEEN PRO VIDED BY THE EMPLOYER TO THE EMPLOYEES. SECTION 115WB(2) DOES NO T CONTAIN THE EXPRESSION . MEANS ANY CONSIDERATION FOR EMPLOYMENT AS CONTAINED IN SUB-SECTION (1) OF SECTION 115WB, AND THEREFORE, IT IS SOUGHT TO BE CANVASSED BY THE REVENUE THAT ANY PAYM ENT MADE BY AN ASSESSEE FOR THE PURPOSES CONTAINED IN CLAUSES (A) TO (Q) OF SUB- SECTION (2) OF SECTION 115WB SHALL RESULT IN FRING E BENEFITS DEEMED TO HAVE BEEN PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES . IN OTHER WORDS, AS PER THE REVENUE THE EXPENSES LISTED IN SECTION 1 15WB(2) NEED NOT BE INCURRED ON EMPLOYEES SO AS TO QUALITY FOR CHARG ING OF FBT. IN OUR 5 CONSIDERED OPINION, SUB-SECTION (1) OF SECTION 115W B ITSELF QUALIFIES THAT THE MEANING OF THE EXPRESSION FRINGE BENEFITS CONTAINED THEREIN IS F OR THE PURPOSES OF THIS CHAPTER ----- AND, THEREFORE, IT IMPLIES THAT THE OVERRIDING CONDITION OF THE INCURRENCE OF EXPEN DITURE IN CONSIDERATION FOR EMPLOYMENT IS EVEN RELEVANT FOR T HE PURPOSES OF ASSESSING OR ASCERTAINING FRINGE BENEFITS, WHICH AR E DEEMED TO HAVE BEEN PROVIDED BY THE EMPLOYER TO ITS EMPLOYEES IN T ERMS OF SUB- SECTION (2) OF SECTION 115WB OF THE ACT ALSO. THERE FORE, EVEN IN THE CIRCUMSTANCES PROVIDED IN SUB-SECTION (2) OF SECTIO N 115WB OF THE ACT FRINGE BENEFITS CAN BE DEEMED TO HAVE BEEN PROVID ED BY THE EMPLOYER TO HIS EMPLOYEES, ONLY IN CASES WHERE THE PRESCRIBE D EXPENDITURE IS INCURRED IN CONSIDERATION FOR EMPLOYMENT. SO, HOWEV ER, THE REVENUE HAS CONTENDED THAT THE CBDT HAS CLARIFIED BY WAY OF CIRCULAR NO. 8 OF 2005 THAT THE DEEMING PROVISION CONTAINED IN SUB-SE CTION (2) OF SECTION 115WB CANNOT BE RESTRICTED TO EXPENSES WHIC H ARE INCURRED ON EMPLOYEES ALONE AND, IN THIS CONTEXT THE ANSWER TO QUESTION NO. 14 OF THE CIRCULAR HAS BEEN REFERRED TO. ON THE STR ENGTH OF THE CIRCULAR OF THE CBDT, IT IS SOUGHT TO BE POINTED OUT THAT TH E INTERPRETATION PLACED BY THE REVENUE IS LIABLE TO SUCCEED. 9. THE INTERPRETATION SOUGHT TO BE ADVANCED BY THE REVENUE IS NOT BORNE OUT OF THE STATUTORY PROVISIONS. OSTENSIBLY, THE CLARIFICATION ISSUED BY THE CBDT VIDE QUESTION NO. 14 IN CIRCULAR NO. 8 OF 2005 (SUPRA) SEEKS TO ENLARGE THE SCOPE OF LEVY OF FBT, WHICH IS NOT SUPPORTED BY THE LANGUAGE OF THE STATUTE. THE HONB LE SUPREME COURT IN THE CASE OF KERALA FINANCIAL CORPORATION V. CIT 210 ITR 129 (SC) HAS CLEARLY OPINED THAT THE CIRCULARS ISSUED BY CBD T CANNOT OVERRIDE THE PROVISIONS OF THE ACT. IN ANY CASE, IT IS QUITE WELL-SETTLED THAT AN EXECUTIVE INSTRUCTION/CIRCULAR CANNOT CREATE ANY AD DITIONAL LIABILITY ON THE ASSESSEE. SECONDLY, IT IS ALSO TO BE APPRECIATE D THAT THE STAND OF THE REVENUE IS ALSO NOT IN CONSONANCE WITH THE LEGI SLATIVE INTENT. THE IMPORT AND INTENT OF INTRODUCING CHAPTER XII-H WAS TO TAX SUCH BENEFITS WHICH ARE COLLECTIVELY ENJOYED BY THE EMPL OYEES AND CANNOT BE ATTRIBUTED TO ANY INDIVIDUAL EMPLOYEE. SUCH BENE FITS ESCAPE TAXATION AS PERQUISITE IN THE HANDS OF THE INDIVIDU AL EMPLOYEES AS 6 THEY ARE NOT ATTRIBUTABLE TO ANY INDIVIDUAL EMPLOYE E. THEREFORE, SUCH BENEFITS WERE SOUGHT TO BE TAXED IN THE HANDS OF TH E CONCERNED EMPLOYER. THOUGH THE SPEECH OF THE HONBLE FINANCE MINISTER MAY NOT BE A DECISIVE TEST, SO HOWEVER, IT IS INDEED A RELE VANT AND CONTEMPORANEOUS EXPOSITION OF THE LEGISLATIVE INTEN T AND CAN BE RELIED UPON, AS PROPOUNDED BY THE HONBLE SUPREME COURT IN THE CASE OF K P VARGHESE V. ITO 131 ITR 597 (SC). CONSIDERED IN THA T LIGHT TOO, WE FIND THAT THE INTERPRETATION SOUGHT TO BE MADE OUT BY THE REVENUE WITH REGARD TO THE MEANING OF THE EXPRESSION FRING E BENEFITS FOR THE PURPOSES OF SECTION 115WB(2) OF THE ACT IS QUITE MI SPLACED. CONSIDERING THE AFORESAID, WE THEREFORE DO NOT SUBS CRIBE TO THE INTERPRETATION SOUGHT TO BE PLACED BY THE REVENUE O N SECTION 115WB(2) OF THE ACT AND INSTEAD, HOLD THAT THE EXPE NSES PRESCRIBED THEREIN ARE LIABLE TO BE CONSIDERED AS FRINGE BENEF ITS ONLY TO THE EXTENT THE SAME ARE INCURRED IN CONSIDERATION FOR EMPLOYME NT. TO THE SAME EFFECT IS ALSO THE VIEW OF OUR CO-ORDINATE BENCH IN THE CASE OF DCIT V. KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE LTD. 134 I TD 388 (MUM). 10. LET US ANALYSE DIFFERENT EXPENDITURES IN QUESTI ON. FIRST IS THE ISSUE OF ENTERTAINMENT EXPENDITURE. THE STAND OF T HE ASSESSEE IS THAT THE PROVISIONS OF FBT CAN BE INVOKED IN RESPECT OF EXPENSES WHICH ARE INCURRED ON EMPLOYEES OR THEIR FAMILY MEMBERS BUT I N THE PRESENT CASE, AS MENTIONED ON PAGE NO.5 OF THE PAPER BOOK, THE ENTERTAINMENT EXPENSES HAVE BEEN INCURRED FOR GUESTS OF THE COMPA NY, WHICH HAS NOT BEEN DISPUTED BY THE REVENUE. SO SAME ARE NOT LIABLE TO BE SUBJECTED TO PROVISIONS OF SECTION 115WB(2) OF THE ACT. THE NEXT ISSUE IS WITH REGARD TO SALES PROMOTION OF RS.35,06,333/- AND GIFTS OF RS.3,70,334/-. IN THIS CASE, EXPENDITURE HAS BEEN INCURRED ON FOOD OF H.O., BUT IT DOES NOT TELL THE DETAILS WHETHER SAME HAS BEEN INCURRED ON FOOD OF GUESTS OR EMPLOYEES IN THE COURSE OF EMP LOYMENT. SO, THAT HAS TO BE LOOKED INTO BY THE ASSESSING OFFICER UNDE R THE PROVISIONS OF SECTION 115WB(2) AFTER PROVIDING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. REGARDING GIFTS, THESE PAYMENTS INCLUDE THE CLUB PAYMENTS BUT AGAIN IT IS NOT CLEAR FROM THE DETAILS FURNISHED BY THE ASSESSEE WHETHER SAME HAS BEEN INCURRED ON EMPLOYEE S OF THE 7 ASSESSEE OR OUTSIDERS. SO THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE SAME AND ALLOW THE SAME AFTER DUE VERIFICATION OF THE SAME UNDER THE PROVISIONS OF SECTION 115WB(2) OF THE ACT AFTER PROVIDING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE NEXT I SSUE IS WITH REGARD TO AUDITORS TRAVELLING. AUDITORS ARE NOT EMPLOYEES OF THE ASSESSEE SO ANY EXPENDITURE ON THEIR TRAVELLING EXPENSES OR OTH ERWISE DOES NOT FALL IN THE AMBIT OF THE PROVISIONS OF SECTION 115WB. THE NEXT ISSUE IS REGARDING DRIVER SALARIES. THE DRIVER SALARIES IN THE PRESENT CASE CANNOT BE SUBJECT MATTER OF PROVISIONS OF SECTION 1 15WB BECAUSE SALARY PAID TO A DRIVER IS TAXABLE IN HIS HANDS UND ER THE HEAD SALARY INCOME AND THUS TAX IS PAID OR PAYABLE IN RESPECT O F THE SAME. ACCORDING TO US, THE PROVISIONS OF SECTION 115WB WA S WRONGLY INVOKED WITH RESPECT TO THIS EXPENDITURE. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SPOSED OF AS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF OCTOBER, 2012. SD/- SD/- ( G.S.PANNU ) ( SHAILENDRA KUMA R YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER GSPS PUNE, DATED THE 31 ST OCTOBER, 2012. COPY OF THE ORDER IS FORWARDED TO: 1. THE ASSESSEE 2. THE ADDL.CIT, RANGE-1, PUNE. 3. THE CIT(A)-I, PUNE. 4. THE CIT-I, PUNE. 5. THE DR A BENCH, PUNE. 6. GUARD FILE BY ORDER //TRUE COPY// PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE.