Joshi Technologies International Inc., Ahmedabad V. The ADIT.,(Intnl.Taxn.), Ahmedabad

ITA 209/AHD/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89240 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 25-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 24-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Keywords: Business expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD .., , BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ I.T.A. NO.209/AHD/2012 ( / ASSESSMENT YEAR : 2008-09) JOSHI TECHNOLOGIES INTERNATIONAL INC. 402, HERITAGE,OFF ASHRAM ROAD AHMEDABAD-380 015 / VS. THE ASST.DIT (INTERNATIONAL TAXATION) 4 TH FLOOR NATURE VIEW BUILDING ASHRAM ROAD AHMEDABAD ./ ./ PAN/GIR NO. : AAACJ 9592 P ( # / APPELLANT ) .. ( $% # / RESPONDENT ) #& / APPELLANT BY : SHRI SANJAY R.SHAH, AR $% #'& / RESPONDENT BY : SHRI M.K.SINGH, SR.DR ()'* / DATE OF HEARING 25/03/2015 +,-.'* / DATE OF PRONOUNCEMENT 10/04/2015 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-GANDHINAGAR (CIT(A) IN SHORT) DATED 30/12/2011 PERTAINING TO ASSESSMENT Y EAR (AY) 2008-09. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL:- ITA NO.209/AHD/ 2012 JOSHI TECHNOLIGIES INTERNATIONAL INC. VS. ASST.DI T- (INTERNATIONAL TAXATION) ASST.YEAR 2008-09 - 2 - YOUR APPELLANT BEING DISSATISFIED WITH THE ORDER PA SSED DATED DECEMBER 30, 2011 U/S.250 OF THE INCOME TAX ACT, 1961 BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-GANDHINAGAR, AHMEDABAD PRESENT S THIS APPEAL AGAINST THE SAME ON THE FOLLOWING GROUNDS WHICH ARE WITHOUT PREJUDICE TO EACH OTHER: 1. THE ORDER PASSED BY THE CIT(A) IS ERRONEOUS & REQU IRES TO BE MODIFIED. IT IS SUBMITTED THAT IT BE SO HELD NOW. 2. THE CIT(A) HAS ERRED IN CONFIRMING AND JUSTIFYING T HE ACTION OF THE AO & HOLDING THAT APPELLANT WAS LIABLE TO PAYMENT O F FRINGE BENEFIT TAX UNDER PROVISIONS OF CHAPTER XII-H OF THE ACT EV EN AFTER OBSERVING THAT IN FACT & LAW THE APPELLANT DOES NOT HAVE ANY EMPLOYEE. 3. THE CIT(A) HAS ERRED IN CONFIRMING THAT THERE EXIST S A MASTER SERVANT RELATIONSHIP BETWEEN THE APPELLANT & ITS CO NSULTANTS IGNORING THE FACT THAT THE APPELLANT DOES NOT PAY A NY BENEFITS OF AN EMPLOYEE TO THE CONSULTANTS. 4. THE CIT(A) HAS ERRED IN IGNORING THE CLARIFICATION ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES VIDE CIRCULAR NO.8 OF 2005 DATED AUGUST 29, 2005. 5. THE CIT(A) HAS ERRED IN HOLDING THAT THE LIABILITY OF FRINGE BENEFIT TAX ARISES MERELY BECAUSE THE EXPENSES INCURRED BY THE APPELLANT ARE OF THE NATURE AS CONTEMPLATED BY SECTION 115WB OF THE ACT EVEN THOUGH THERE ARE NO EMPLOYEES. 6. THE CIT(A) OUGHT TO HAVE DELETED ADDITION IN RESPEC T OF EXPENDITURE SUCH AS TRAVELLING & CONVEYANCE, TELEPHONE & MOBILE EXPENSES, GUEST HOUSE EXPENSES, INSURANCE EXPENSES, ENTERTAIN MENT EXPENSES AND CLUB MEMBERSHIP FEES WHICH ARE BUSINESS EXPENDI TURE AND CANNOT BE SAID TO BE FRINGE BENEFIT TO EMPLOYEES. 7. THE CIT(A) OUGHT TO HAVE DELETED ADDITION IN RESPEC T OF EXPENSES WHERE BENEFITS OF EXPENSES ARE NOT ENJOYED COLLECTI VELY BY EMPLOYEES OF THE COMPANY OR WHERE NO BENEFITS ARE BEING ENJOY ED BY ANY EMPLOYEE IN VIEW OF SPEECH OF FINANCE MINISTER & ME MORANDUM EXPLAINING PROVISIONS FOR FINANCE BILL, 2005. YOUR APPELLANT PRAYS FOR LEAVE TO ADD, TO ALTER AND /OR TO AMEND ALL OR ANY OF THE GROUNDS BEFORE THE FINAL HEARING OF APPE AL. ITA NO.209/AHD/ 2012 JOSHI TECHNOLIGIES INTERNATIONAL INC. VS. ASST.DI T- (INTERNATIONAL TAXATION) ASST.YEAR 2008-09 - 3 - 2. THE ONLY EFFECTIVE GROUND IN THIS APPEAL IS AGAI NST IN UPHOLDING THE ACTION OF THE AO BY THE LD.CIT(A) THAT THE APPELLAN T WAS LIABLE TO PAYMENT OF FRINGE BENEFIT TAX UNDER PROVISIONS OF C HAPTER XII-H OF THE ACT. 3. AT THE OUTSET, THE LD.COUNSEL FOR THE ASSESSEE S UBMITTED THAT THE ISSUE HAS ALREADY BEEN DECIDED BY THE COORDINATE BE NCH (ITAT C BENCH AHMEDABAD) IN ASSESSEES OWN CASE FOR AY 2006 -07 IN ITA NO.906/AHD/2010 VIDE ORDER DATED 01/05/2013. HE FU RTHER SUBMITTED THAT THE COORDINATE BENCH (ITAT C BENCH AHMEDABAD ) IN ANOTHER ITA NO.2065/AHD/08 FOR AY 07-08, ORDER DATED 31/05/2013 , HAS FOLLOWED THE DECISION OF THE COORDINATE BENCH PASSED IN ITA NO.906/AHD/2010(SUPRA). HE SUBMITTED THAT THE FACT S ARE IDENTICAL, THEREFORE, THE SAME VIEW MAY BE ADOPTED. 3.1. ON THE CONTRARY, LD.SR.DR HAS SUPPORTED THE OR DERS OF THE AUTHORITIES BELOW. HOWEVER, HE HAS NOT CONTROVERTE D THE SUBMISSION OF THE LD.COUNSEL FOR THE ASSESSEE THAT IN THE AYS 200 6-07 & 2007-08 THE SIMILAR ISSUE WAS BEFORE THE COORDINATE BENCH WHIC H HAS BEEN DECIDED IN FAVOUR OF ASSESSEE VIDE ORDERS DATED 01/05/2013 & 31/05/2013 RESPECTIVELY. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. ITA NO.209/AHD/ 2012 JOSHI TECHNOLIGIES INTERNATIONAL INC. VS. ASST.DI T- (INTERNATIONAL TAXATION) ASST.YEAR 2008-09 - 4 - WE FIND THAT THE LD.CIT(A) HAS FOLLOWED HIS PREDECE SSORS ORDERS PASSED IN AY 2006-07 AND 2007-08. THE LD.CIT(A) HAS OBSER VED AS UNDER: 3. THE APPELLANT HAD RAISED SIMILAR ISSUE IN THE PRECEDING YEARS I.E. 2006-07 AND 2007-08. MY PREDECESSOR HAD DISPOSED THE APPEAL FOR AY 2007-08 WITH THE FOLLOWING DETAILED FINDING: '5. A SIMILAR APPEAL OF THE APPELLANT FOR ASSESSMEN T YEAR 2006- 07 STANDS DISPOSED OFF BY THE UNDERSIGNED' S ORDER DATED 31/12/2009. AS PER THAT, IT HAS BEEN HELD THAT LOOKING AT THE ARRANGEMENT, THE SO CALLED CONSULTANTS AND THE ASSE SSEE HAD, THESE RELATIONSHIPS WERE IN THE NATURE OF MASTER-SE RVANT RELATIONSHIP ONLY AND THEREFORE THERE EXISTED A CAS E FOR FRINGE BENEFIT TAX. THE OPERATIVE PORTION OF THAT ORDER IS AS FOLLOWS: '2.3. THE MATTER HAS BEEN CONSIDERED AND I AM U NABLE TO AGREE WITH THE AUTHORISED REPRESENTATIVE. IT I S AN ESTABLISHED PROPOSITION THAT FOR EVALUATING WHETHER THERE IS A RELATIONSHIP OF EMPLOYER-EMPLOYEE, I.E. MAST ER- SERVANT, ONE NEEDS TO TRAVEL BEYOND THE NOMENCLATU RE AND TO NEED TO ANALYSE AS TO WHAT KIND OF SERVICE ARRAN GEMENT EXISTS BETWEEN THE TWO PARTIES. THE ASSESSING OF FICER IN THE ASSESSMENT ORDER HAS BEEN ABLE TO HIGHLIGHT THA T THE RELATION BETWEEN THE COMPANY AND THE SO CALLED CONSULTANTS IS IN THE SPIRIT OF MASTER-SERVANT RELA TION ONLY AND NOT A CONTRACT OF SERVICE. NOT ONLY THESE CON SULTANTS GET MONEY ON MONTHLY BASIS, THEY ALSO WORK FULL TIM E FOR THE COMPANY, THEIR WORK IS SUBJECT TO THE OVERALL C ONTROL OF THE COMPANY (MAY BE CONTROLLED FROM THE U.S.A.), TH EY HAVE ALSO NOMINATED ONE PERSON AS THE CONTROLLING H EAD OR THE PROJECT DIRECTOR. DURING THE COURSE OF HEARING, THE AUTHORISED REPRESENTATIVE WAS VERY EMPHATIC THAT THE ARRANGEMENTS EXISTED EVEN BEFORE THE FRINGE BENEFIT TAX PROVISIONS CAME INTO EXISTENCE A ND ITA NO.209/AHD/ 2012 JOSHI TECHNOLIGIES INTERNATIONAL INC. VS. ASST.DI T- (INTERNATIONAL TAXATION) ASST.YEAR 2008-09 - 5 - THEREFORE THIS IS A TYPICAL ORGANIZATIONAL STRUCTUR E OF THE COMPANY WHICH NEEDS TO BE APPRECIATED AND NOT A SH AM ARRANGEMENT. THE POINT OF THE AUTHORISED REPRESEN TATIVE HAS BEEN GIVEN DUE WEIGHTAGE, BUT ON THE OTHER HAND , ONE HAS TO SEE THE SPIRIT BEHIND THE ENACTMENT OF THIS SECT/ON ALSO. IDEA WAS TO BRING TO TAX SUCH PERSONAL EXPENS ES AND PERKS AFFORDED BY THE EMPLOYER AS LISTED IN SECTION 115W TO ITS EMPLOYEES, WHICH ARE OTHERWISE DIFFICULT TO MONITOR AT INDIVIDUAL LEVEL. THEREFORE, WHETHER ONE IS A N EMPLOYEE IN THE LEGAL SENSE OF THE TERM OR AN EMPLO YEE AS PER THE SPIRIT OF THE RELATIONSHIP, THE EXPENSES WH ICH THIS TAXATION WANTS TO COVER WOULD STILL BE THERE. IN THE INSTANT CASE, WE HAVE EXPENSES LIKE CLUB PAYMENTS, EMPLOYEES' WELFARE EXPENSES OR ENTERTAINMENT EXPENSES, AMONG THE VARIOUS EXPENSES COVERED BY THE ASSESSING OFFICER WHICH CLEARLY POINT TO A SITUATIO N WHERE THE SO CALLED CONSULTANTS HAVE BEEN USING THE ASSES SEE- COMPANY'S FACILITIES LIKE ANY LEGALLY TERMED EMPLOY EE. IT NEEDS TO BE APPRECIATED THAT IN THE ENTIRE SCHEME O F THAT PERTAINED TO FRINGE BENEFIT TAX THE EMPHASIS IS ON THE EMPLOYER AND THE EXPENSES INCURRED BY IT. IF WE TAK E THE POSITION THAT FOR OUR PURPOSE WE HAVE TO CONSIDER T HE DE- FACTO EMPLOYEE AND NECESSARILY DE-JURE EMPLOYEE, TH EN THE VARIOUS OBJECTIONS RAISED BY THE APPELLANT, INCLUDI NG THE APPLICABILITY OF CIRCULAR NO.8 OF 2005 DATED AUGUST 29, 2005, FALLS THROUGH.' 5. DURING THE PRESENT YEAR ALSO, THERE HAS BEEN NO CHANGE WITH RESPECT TO THE NATURE OF EXPENSES INCURRED BY THE S O CALLED NON- EMPLOYEES. AS THE ASSESSMENT ORDER WOULD SHOW, BESI DES CONVEYANCE AND TOUR EXPENSES, THERE ARE EXPENSES CO NCERNING EMPLOYEE'S WELFARE, ENTERTAINMENT, CLUB MEMBERSHIP ETC. THEREFORE, FOR ALL PRACTICAL PURPOSES THERE EXISTED AN EMPLOYER- EMPLOYEE - A MASTER-SERVANT RELATIONSHIP AND THEREF ORE RELYING ON THE DECISION FOR ASSESSMENT YEAR 2006-07, FOR TH IS ASSESSMENT YEAR ALSO, IT IS HELD THAT THE ASSESSEE IS LIABLE F OR FRINGE BENEFIT ITA NO.209/AHD/ 2012 JOSHI TECHNOLIGIES INTERNATIONAL INC. VS. ASST.DI T- (INTERNATIONAL TAXATION) ASST.YEAR 2008-09 - 6 - TAX. THE COMPUTATION OF THE FRINGE BENEFIT AND THE TAXATION THEREON IS, THEREFORE, UPHELD.' 4. IN THE YEAR UNDER CONSIDERATION ALSO, THERE HAS BEEN NO CHANGE WITH RESPECT TO THE NATURE OF EXPENSES INCURRED BY THE S O CALLED NON- EMPLOYEES. IT IS SEEN FROM THE ASSESSMENT ORDER, BE SIDES CONVEYANCE AND TOUR EXPENSES, THERE ARE OTHER EXPENSES LIKE EM PLOYEE'S WELFARE, ENTERTAINMENT, CLUB MEMBERSHIP ETC. WHICH SHOWS THE RE EXISTED AN EMPLOYER-EMPLOYEE RELATIONSHIP AND THEREFORE I DO N OT FIND ANY REASON TO DEVIATE FROM THE ORDER OF MY PREDECESSOR FOR PRE VIOUS YEARS AND I HOLD THAT THE APPELLANT IS LIABLE FOR FRINGE BENEFI T TAX. THE ACTION OF THE AO IS THEREFORE UPHELD AND THE CONTENTION OF THE AP PELLANT IS REJECTED. 4.1. WE FIND THAT THE COORDINATE BENCH IN ITA NO.90 6/AHD/2010 FOR AY 2006-07, ORDER DATED 01/05/2013, HAS DECIDED THE ISSUE BY OBSERVING AS UNDER:- 6.8. SO THE FBT IS ELIGIBLE ONLY IN A CASE WHERE E XPENDITURE IS INCURRED BY THE EMPLOYER OSTENSIBLY FOR THE PURPOSE OF BUSINESS BUT INCLUDES PARTIALLY A BENEFIT OF A PERSONAL NATURE P ASSED ON TO THE EMPLOYEE. BUT, A LEGITIMATE BUSINESS EXPENDITURE N OT WITHIN THE AMBITS OF EMPLOYER & EMPLOYEE RELATIONSHIP IS OUTSIDE THE SCOPE OF FBT. IN VIEW OF THESE OBSERVATIONS, WE HEREBY HOLD THAT THE FBT PROVISIONS HAVE WRONGLY BEEN INVOKED IN THE PRESENT CASE. WE HEREB Y REVERSE THE LEGAL FINDINGS OF THE AUTHORITIES BELOW AND DIRECT THE AO TO GIVE RELIEF ACCORDINGLY. GROUNDS ARE ALLOWED. 4.2. THE COORDINATE BENCH IN ANOTHER ITA NO.2065/AH D/2010 IN AY 2007-08, ORDER DATED 31/05/2013, HAS FOLLOWED THE D ECISION OF THE COORDINATE BENCH PASSED IN ITA NO.906/AHD/2010, BY OBSERVING AS UNDER:- ITA NO.209/AHD/ 2012 JOSHI TECHNOLIGIES INTERNATIONAL INC. VS. ASST.DI T- (INTERNATIONAL TAXATION) ASST.YEAR 2008-09 - 7 - 2. FACTS OF THE CASE, AS EMERGED FROM THE ASSESSME NT ORDER PASSED UNDER SECTION 115WE(3) OF THE I.T.ACT DATED 29.12.2 009 FOR A.Y.2007- 2008, THE ORDER UNDER APPEAL, ARE IDENTICAL WITH TH E FACTS OF THE ASSESSEE'S CASE FOR A.Y.2006-2007. RATHER, THE LEAR NED CIT(A) VIDE PARA 5 HAS ACKNOWLEDGED THIS FACT THAT A SIMILAR AP PEAL OF THE ASSESSEE FOR A.Y.2006-2007 WAS DECIDED VIDE A ORDER DATED 31 .12.2009, AND THE ISSUE WAS DECIDED AGAINST THE ASSESSEE. NOW BEFORE US, A COPY OF THE ORDER OF THE ITAT, AHMEDABAD, BENCH 'C' IS PLACED O N RECORD, WHEREIN FOR A.Y.2006-2007, WHILE DECIDING THE ASSESSEE'S AP PEAL I.E. JOSHI TECHNOLOGIES INTERNATIONAL INC., IN ITA NO.906/AHD/ 2010 ORDER DATED 1.5.2013, IT WAS CONCLUDED AS UNDER: '6.8. SO THE FBT IS ELIGIBLE ONLY IN A CASE WHERE E XPENDITURE IS INCURRED BY THE EMPLOYER OSTENSIBLY FOR THE PURPOSE OF BUSINESS BUT INCLUDES PARTIALLY A BENEFIT OF A PERSONAL NATU RE PASSED ON TO THE EMPLOYEE. BUT, A LEGITIMATE BUSINESS EXPENDITUR E NOT WITHIN THE AMBITS OF EMPLOYER & EMPLOYEE RELATIONSHIP IS O UTSIDE THE SCOPE OF FBT. IN VIEW OF THESE OBSERVATIONS, WE HER EBY HOLD THAT THE FBT PROVISIONS HAVE WRONGLY BEEN INVOKED IN THE PRESENT CASE. WE HEREBY REVERSE THE LEGAL FINDINGS OF THE A UTHORITIES BELOW AND DIRECT THE AO TO GIVE RELIEF ACCORDINGLY. GROUNDS ARE ALLOWED.' SINCE A VIEW HAS ALREADY BEEN TAKEN BY A RESPECTED CO-ORDINATE BENCH, THEREFORE, WE HAVE NO REASON TO DEVIATE FROM THE SA ID VIEW, BEING PRONOUNCED ON IDENTICAL FACTS, HENCE RESPECTFULLY F OLLOWING THE SAME FOR THIS YEAR AS WELL, WE HEREBY REVERSE THE FINDINGS O F THE AUTHORITIES BELOW, AND ALLOW THESE GROUNDS OF THE ASSESSEE. 4.3. IN THIS YEAR, SINCE THE REVENUE HAS NOT POINTE D OUT ANY CHANGE INTO THE FACTS AND CIRCUMSTANCES OF THE CASE, THEREFORE WE SEE NO REASON TO TAKE A DIFFERENT VIEW THAN TAKEN BY THE COORDINATE BENCH IN ASSESSEES ITA NO.209/AHD/ 2012 JOSHI TECHNOLIGIES INTERNATIONAL INC. VS. ASST.DI T- (INTERNATIONAL TAXATION) ASST.YEAR 2008-09 - 8 - OWN CASES IN ITA NO.906/AHD/2010(SUPRA) AND IN ITA NO.2065/AHD/2010(SUPRA). ACCORDINGLY, THE AO IS HE REBY DIRECTED TO DELETE THE FRINGE BENEFIT TAX ASSESSED U/S.115WE(3) OF THE ACT. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 10 TH DAY OF APRIL, 2015 AT AHMEDABAD. SD/- SD/- ( .. ) ( ) ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 10/ 04 /2015 2*..,(.../ T.C. NAIR, SR. PS !'#$%&' &$ / COPY OF THE ORDER FORWARDED TO : 1. # / THE APPELLANT 2. $% # / THE RESPONDENT. 3. 345 6 / CONCERNED CIT 4. 6 ( ) / THE CIT(A)- 5. 7(8$45 , *45. , 3 / DR, ITAT, AHMEDABAD 6. 8:;<) / GUARD FILE. ! / BY ORDER, %7$ //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD