The ACIT,(OSD)-,Range-4, Ahmedabad V. Karnavati Club Ltd., Ahmedabad

ITA 2136/AHD/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1822 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 04-02-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 22-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K DHANESTA
• Assessee Lawyers: SUNIL H TALATI
• Keywords: Principle of natural justice
• Section: 115JB; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' BEFORE SHRI T K SHARMA, JM & SHRI A N PAHUJA,AM ITA NO.2136/AHD/2010 (ASSESSMENT YEAR:-2006-07) ASSISTANT COMMISSIONER OF INCOME-TAX (OSD)-I, RANGE-4, AHMEDABAD NAVJIVAN TRUST BLDG., OFF. ASHRAM ROAD, AHMEDABAD V/S KARNAVATI CLUB LIMITED, SARKHEJ GANDHINAGAR HIGHWAY, AHMEDABAD PAN: AAACK 7865 Q [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI R K DHANESTA, DR ASSESSEE BY:- SHRI SUNIL H TALATI, AR O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATED 19- 03-2010 OF THE LD. CIT(APPEALS)-XX, AHMEDABAD, FOR THE ASSESSMENT YEAR (AY) 2006-07, RAISES THE FOLLOWING GROUNDS:- 1 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.18,76,982/- MADE BY THE ASSESSING OFFICER OUT OF EXPENDITURE ON ENTERTAINMENT ACTIVITIES FOR MEMBERS, EXPENDITURE O N ACTIVITIES OF GAMES AND SPORTS FOR MEMBERS & EXPENDITURE ON TELEPHONE P ROVIDED TO MEMBERS, BY TREATING THE SAID AMOUNT AS CHARGEABLE TO FRINGE BENEFIT TAX. 1.1 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE DEEMING PROVISIONS OF THE SECTION WHICH PROVIDE THA T THE EXPENDITURE IS DEEMED TO HAVE BEEN MADE ON EMPLOYEES IF THE EXPEND ITURE IS INCURRED ON ANY OF THE ITEMS SPECIFIED WITHIN THE SECTION. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 3 IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD . CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED T O THE ABOVE EXTENT. 2 FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING FRINGE BENEFITS OF RS.5,998/- FILED ON 22-12-2006 B Y THE ASSESSEE RECREATION CLUB, WAS SELECTED FOR SCRUTINY WITH THE ISSUE OF A NOTICE U/S 115WE(2) OF THE INCOME-TAX ACT, 1961 [HEREINAFT ER REFERRED TO AS THE ACT] ON 20-12-2007. DURING THE COURSE OF ASSE SSMENT ITA NO.2135/AHD/2010 2 PROCEEDINGS, THE ASSESSING OFFICER [AO IN SHORT] NO TICED THAT THE ASSESSEE DID NOT INCLUDE THE FOLLOWING EXPENDITURE WHILE COMPUTING FRINGE BENEFITS:- ACCOUNT HEAD HEAD UNDER WHICH CHARGEABLE UNDER FBT PROVISIONS AMOUNT VALUE ENTERTAINMENT ACTIVITIES EXP. ENTERTAINMENT RS.28,66,909/- RS.5,73,382/- ACTIVITIES & GAMES ENTERTAINMENT RS.61,63,764/- RS.12,32,753/- TELEPHONE EXP. USE OF TELEPHONE RS.3,54,234/- RS.70,847/- TOTAL RS.93,84,907/- RS.18,76,982/- THE AO WAS OF THE OPINION THAT EXPENDITURE ON ACCOU NT OF ENTERTAINMENT ACTIVITIES WAS DEEMED TO BE FRINGE BE NEFITS IN TERMS OF CLAUSE (A) OF SUB-SECTION (2) OF SECTION 115WB. SIMILARLY, TELEPHONE EXPENDITURE WAS DEEMED TO BE FRINGE BENEF ITS IN TERMS OF THE SAID CLAUSE (J) OF SUB-SECTION (2) OF SECTION 1 15WB OF THE ACT. TO A QUERY BY THE AO, THE ASSESSEE EXPLAINED IN THE LIGHT OF OBJECTS AND REASONS OF FRINGE BENEFIT TAX THAT THE EXPENDIT URE INCURRED IN RELATION TO NON-EMPLOYEES DID NOT RELATE IN ANY MAN NER TO EMPLOYEES AND, THEREFORE, BEYOND THE SCOPE OF LEVY OF FRINGE BENEFIT TAX. IT WAS FURTHER POINTED OUT THAT ON A WRIT PETITION FIL ED BY THE ASSESSEE ALONG WITH THE GUJARAT CHAMBER OF COMMERCE & INDUST RY AND OTHERS WHILE CHALLENGING THE VALIDITY OF THE CBDT CIRCULAR NO.8, DATED 29- 08-2005 SEEKING TO INTERPRET THE PROVISIONS OF FBT AS PROVIDING FOR LEVY OF FBT, EVEN IN RESPECT OF EXPENDITURE INCURRE D FOR NON- EMPLOYEES OR FOR THE BUSINESS OF THE EMPLOYER ITSEL F, WITHOUT CONFERRING ANY BENEFIT WHATSOEVER ON THE EMPLOYEES, HAD BEEN ADMITTED AND THE HONBLE HIGH COURT DIRECTED THE A SSESSEES THAT THEY MAY DEPOSIT INTO A SEPARATE BANK ACCOUNT AN AM OUNT EQUAL TO THE FBT INCIDENCE ON ITEMS WHICH FALL UNDER CATEGOR Y (I) AND (II) ITA NO.2135/AHD/2010 3 RELATING TO NON-EMPLOYEES OR FOR THE BUSINESS OF TH E ASSESSEE TILL DISPOSAL OF WRIT PETITIONS. ACCORDINGLY, THE ASSESS EE HAD ALREADY DEPOSITED THE AMOUNT OF RS.6,31,792/- IN THE SEPARA TE BANK ACCOUNT AND DEPOSITED FBT AMOUNT OF RS.2019/- ON OTHER ITEM S IN THE GOVERNMENT TREASURY. THEREFORE, THE ASSESSEE ARGUED THAT NO FBT IS LIABLE TO BE PAID BY THE ASSESSEE ON THE AFORESA ID AMOUNTS. HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF T HE ASSESSEE AND BROUGHT TO TAX THE AFORESAID AMOUNTS IN TERMS O F CIRCULAR NO.8, DATED 29-08-2005 AND THE PROVISIONS OF CLAUSE (A) & (J) OF SUB- SECTION 2 OF SECTION 115WB OF THE ACT, RESULTING IN AN ADDITION OF RS.18,76,982/-. 3. ON APPEAL, THE LEARNED CIT(A) DELETED THE ADDITI ON IN THE FOLLOWING TERMS:- 4. I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT OR DER, SUBMISSIONS AND THE PROVISIONS OF FRINGE BENEFIT TAX. ON THE BASIS OF THE CONDITIONS LAID DOWN IN FRINGE BENEFIT TAX IT IS VERY CLEAR THAT FR INGE BENEFIT TAX CANNOT BE LEVIED IN THIS PARTICULAR CASE AS ALL THE EXPEND ITURE ARE INCURRED WHOLLY AND EXCLUSIVELY ON THE MEMBERS. IT IS AN UNDISPUTED FACT THAT THE APPELLANT IS A CLUB AND ITS INCOME IS CONSIDERED AS EXEMPT ON THE CONCEPT OF MUTUALITY BY ITAT FOLLOWING VARIOUS JUDGEMENTS OF H IGH COURTS. COPY OF THE ORDER OF TRIBUNAL FOR ASST. YEAR 1994-95 IS ON RECORD. AS THE INCOME OF THE CLUB IS EXEMPT ON THE CONCEPT OF MUTUALITY, PAR TICULARLY OTHER THAN INTEREST INCOME, ALL OTHER INCOME OF THE CLUB IS EX EMPT AS HELD BY GUJARAT HIGH COURT IN THE CASE OF RAJPATH CLUB LTD. REPORTE D IN 211 ITR 380 AND ALSO IN THE CASE OF SPORTS CLUB OF GUJARAT LTD. REP ORTED IN 171 ITR 504. WHEN THE ACTIVITIES AND CONSEQUENTIAL INCOME OF THE CLUB ARE EXEMPT ON THE GROUND OF MUTUALITY ONE CANNOT TAKE A VIEW STRE TCHING IT FURTHER THAT BENEFITS ARE ATTRIBUTABLE TO THE EMPLOYEES. FRINGE BENEFIT TAX WAS INTRODUCED TO BRING INTO TAX NET THE BENEFITS, WHIC H ARE USUALLY ENJOYED COLLECTIVELY BY THE EMPLOYEES AND CANNOT BE ATTRIBU TED TO INDIVIDUAL EMPLOYEES. IN THIS CASE THE EXPENDITURE/BENEFITS OF EMPLOYEES ARE OFFERED FOR FRINGE BENEFIT TAX. EXPENDITURE INCURRED BY THE ASSESSEE CLUB ON ITS MEMBERS CAN NOT BE BY ANY STRETCH OF IMAGINATION TR EATED AS FRINGE BENEFIT. 4.1 IN VIEW OF THE ABOVE I AM OF THE VIEW THAT THE ADDITION MADE ON ACCOUNT OF ITA NO.2135/AHD/2010 4 AMOUNT VALUE (G) EXPENDITURE ON ENTERTAINMENT RS.28,66,909 RS.5 ,73,382 ACTIVITIES FOR MEMBERS (H EXPENDITURE ON ACTIVITIES OF GAMES AND SPORTS FOR MEMBERS RS.61,63,764 RS.2,32,753 (I) EXPENDITURE ON TELEPHONE PROVIDED TO MEMBERS RS.3,54,234 RS. 70 ,847 ------------------ --------------- RS.93,84,907 RS.18,76,982 ARE NOT AT ALL IN THE NATURE OF FRINGE BENEFIT TO I TS EMPLOYEES. THEY ARE THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR AND TOWARDS THE MEMBERS OF THE CLUB ON WHICH THERE CANNOT BE A LEVY OF TAX UNDER FRINGE BENEFIT TAX. I HOLD ACCORDINGLY AND DIRECT THE ASSESSING OF FICER TO DELETE THE ADDITIONS OF ALL THE AFORESAID THREE ITEMS OF EXPEN DITURE FROM FRINGE BENEFIT TAX. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPP ORTED THE ORDER OF THE AO IN THE LIGHT OF PROVISIONS OF CLAUSE (A) &(J) OF SUB-SECTION (2) OF SECTION 115WB OF THE ACT, CONTENDING. INTER ALIA, THAT THE LD. CIT(A) IGNORED ALTOGETHER THE AFORESAID DEEMING PRO VISIONS . ON THE OTHER HAND, THE LEARNED AR ON BEHALF OF THE ASSESSE E SUPPORTED THE FINDINGS OF THE LEARNED CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. AS IS APPARENT FROM THE FINDINGS IN THE IMPUGNED ORDER, THE LD. CIT(A) DID NOT ADVERT TO THE PROVISIONS OF CLAUSE (A) &(J) OF SUB-SECTION (2) OF SECTION 115WB OF THE ACT AT ALL NOR RECORDED HIS FINDINGS AS TO WHY THESE DEEMING PROVISIONS ARE NOT APPLICABLE IN THE INSTANT CASE. THE PROVISIONS OF SECTION 115WB OF THE ACT, SO FAR AS RELEVANT FOR ADJUDICATING THE ISSUE BEFORE US, R EAD AS UNDER:- ITA NO.2135/AHD/2010 5 ' SEC. 115WB-FRINGE BENEFITS (1) FOR THE PURPOSES OF THIS CHAPTER, 'FRINGE BENEF ITS' MEANS ANY CONSIDERATION FOR EMPLOYMENT PROVIDED BY WAY OF- (A) ANY PRIVILEGE, SERVICE, FACILITY OR AMENITY, DI RECTLY OR INDIRECTLY, PROVIDED BY AN EMPLOYER, WHETHER BY WAY OF REIMBURSEMENT OR OTHERW ISE, TO HIS EMPLOYEES (INCLUDING FORMER EMPLOYEE OR EMPLOYEES); (B) ANY FREE OR CONCESSIONAL TICKET PROVIDED BY THE EMPLOYER FOR PRIVATE JOURNEYS OF HIS EMPLOYEES OR THEIR FAMILY MEMBERS; AND (2) THE FRINGE BENEFITS SHALL BE DEEMED TO HAVE BEE N PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES, IF THE EMPLOYER HAS, IN THE COURSE O F HIS BUSINESS OR PROFESSION (INCLUDING ANY ACTIVITY WHETHER OR NOT SUCH ACTIVIT Y IS CARRIED ON WITH THE OBJECT OF DERIVING INCOME, PROFITS OR GAINS) INCURRED ANY EXP ENSE ON, OR MADE ANY PAYMENT FOR, THE FOLLOWING PURPOSES, NAMELY: (A) ENTERTAINMENT; (J) USE OF TELEPHONE (INCLUDING MOBILE PHONE) OTHER THAN EXPENDITURE ON LEASED TELEPHONE LINES; ............. (3) FOR THE PURPOSES OF SUB-S. (1), THE PRIVILEGE, SERVICE, FACILITY OR AMENITY DOES NOT INCLUDE PERQUISITES IN RESPECT OF WHICH TAX IS PAID OR PAYABLE BY THE EMPLOYEE OR ANY BENEFIT OR AMENITY IN THE NATURE OF FREE OR SUBSIDISED TRANSPORT OR ANY SUCH ALLOWANCE PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES FOR JOURNEYS BY THE EMPLOYEES FROM THEIR RESIDENCE TO THE PLACE OF WORK OR SUCH PLACE OF WORK TO THE PLACE OF RESIDENCE'. 6. WE FURTHER FIND THAT THE HONBLE APE X COURT IN THEIR DECISION IN R AND B FALCON (A) PTY. LIMITED. VS COMMISSIONER OF INCOME- TAX,301 ITR 309(SC) WHILE REFERRING TO CBDT CIRCULAR NO. 8 OF 2005 OBSERVED I N THE CONTEXT OF PROVISIONS OF SEC. 115WB O THE ACT AS UNDER: BEFORE THE AAR, A CIRCULAR ISSUED BY THE CENTRAL BOARD OF DIRECT TAX (CBDT) BEARING NO. 8 OF 2005 [(2005) 197 CTR (ST) 85] WAS RELIED UPON BY BOTH THE PARTIES. WE WILL REFER TO A PART OF IT. THE CIRCULA R PROVIDES FOR EXPLANATORY NOTES ON PROVISIONS RELATING TO FRINGE BENEFIT TAX. THE OBJECT FOR IMPOSITION OF THE SAID TAX IS STATED TO BE AS UNDER: ITA NO.2135/AHD/2010 6 'THE TAXATION OF PERQUISITES OR FRINGE BENEFITS IS JUSTIFIED BOTH ON GROUNDS OF EQUITY AND ECONOMIC EFFICIENCY. WHEN FRI NGE BENEFITS ARE UNDER-TAXED, IT VIOLATES BOTH HORIZONTAL AND VERTIC AL EQUITY. A TAXPAYER RECEIVING HIS ENTIRE INCOME IN CASH BEARS A HIGHER TAX BURDEN IN COMPARISON TO ANOTHER TAXPAYER WHO RECEIVES HIS INC OME PARTLY IN CASH AND PARTLY IN KIND, THEREBY VIOLATING HORIZONTAL EQ UITY. FURTHER, FRINGE BENEFITS ARE GENERALLY PROVIDED TO SENIOR EXECUTIVE S IN THE ORGANIZATION. THEREFORE, UNDER-TAXATION OF FRINGE B ENEFITS ALSO VIOLATES VERTICAL EQUITY. IT ALSO DISCRIMINATES BETWEEN COMP ANIES WHICH CAN PROVIDE FRINGE BENEFITS, AND THOSE WHICH CANNOT THE REBY ADVERSELY AFFECTING MARKET STRUCTURE. HOWEVER, THE TAXATION O F FRINGE BENEFITS RAISES SOME PROBLEMS PRIMARILY BECAUSE- (A) ALL BENEFITS CANNOT BE INDIVIDUALLY ATTRIBUTED TO EMPLOYEES, PARTICULARLY IN CASES WHERE THE BENEFIT IS COLLECTI VELY ENJOYED; (B) OF THE PRESENT WIDESPREAD PRACTICE OF PROVIDING PERQUISITES, WHEREIN MANY PERQUISITES ARE DISGUISED AS REIMBURSE MENTS OR OTHER MISCELLANEOUS EXPENSES SO AS TO ENABLE THE EMPLOYEE S TO ESCAPE/REDUCE THEIR TAX LIABILITY; AND (C) OF THE DIFFICULTY IN THE VALUATION OF THE BENEF ITS.' 8. THE HEADING OF PARA 11 OF THE SAID CIRCULAR IS ' FREQUENTLY ASKED QUESTIONS'. THE QUESTIONS WHICH WERE POSED AND ANSWERED AND IN TURN ARE RELEVANT FOR OUR PURPOSE READ AS UNDER: 'IN TERMS OF THE PROVISIONS OF SUB-S. (1) OF S. 115 WA, AN EMPLOYER IN INDIA IS LIABLE TO FBT IN RESPECT OF THE VALUE OF F RINGE BENEFITS- (A) PROVIDED BY HIM TO HIS EMPLOYEES; AND (B) DEEMED TO HAVE BEEN PROVIDED BY HIM TO HIS EMPL OYEES. THE SCOPE OF FRINGE BENEFITS PROVIDED OR DEEMED TO HAVE BEEN PROVIDED IS DEFINED IN S. 115WB. SUB-S. (1) OF THE SAID SECT ION DEFINES THE SCOPE OF FRINGE BENEFITS PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES. SIMILARLY, SUB-S. (2) OF THE SAID SECTION DEFINES T HE SCOPE OF FRINGE BENEFITS DEEMED TO HAVE BEEN PROVIDED BY THE EMPLOY ER TO HIS EMPLOYEES. THEREFORE, SUB-S. (2) EXPANDS THE SCOPE OF SUB-S. (1) THROUGH A DEEMING PROVISION. THE PROVISION RELATING TO THE COMPUTATION OF THE VA LUE OF THE FRINGE BENEFITS IS CONTAINED IN S. 115WC. IT IS A SETTLED PRINCIPLE OF LAW THAT WHERE THE COMPUTATION PROVISIONS FAIL, THE CHARGING SECTION CANNOT BE EFFECTUATED. THEREFORE, IF THERE IS NO PROVISION FO R COMPUTING THE VALUE ITA NO.2135/AHD/2010 7 OF ANY PARTICULAR FRINGE BENEFIT, SUCH FRINGE BENEF IT, EVEN IF IT MAY FALL WITHIN CL. (A) OF SUB-S. (1) OF S. 115WB, IS NOT LI ABLE TO FBT......... 19. FBT IS PAYABLE IN THE YEAR IN WHICH THE EXPENDI TURE IS INCURRED IRRESPECTIVE OF WHETHER THE EXPENDITURE IS CAPITALI ZED OR NOT. HOWEVER, THE SAME EXPENDITURE WILL NOT BE LIABLE TO FBT AGAI N IN THE YEAR IN WHICH IT IS AMORTIZED AND CHARGED TO PROFIT. IS FBT PAYABLE BY AN INDIAN COMPANY HAVING EMPLOYEE S BASED BOTH IN AND OUTSIDE INDIA ON ITS TOTAL (GLOBAL) EXPENDITURE INCURRED BY IT FOR THE PURPOSES REFERRED TO IN CLS. (A) TO (P) OF SUB-S. ( 2) OF S. 115B? 20. FBT IS PAYABLE ON THE VALUE OF FRINGE BENEFITS PROVIDED OR DEEMED TO HAVE BEEN PROVIDED TO EMPLOYEES BASED IN INDIA A ND DETERMINED ON A PRESUMPTIVE BASIS IN ACCORDANCE WITH THE PROVISIO NS OF S. 115WC OF THE IT ACT. THE VALUE OF SUCH FRINGE BENEFITS IS DE TERMINED, INTER ALIA, AS A PROPORTION OF THE TOTAL AMOUNT OF EXPENSES INC URRED FOR SOME IDENTIFIED PURPOSES. IN THE CASE OF AN INDIAN COMPA NY HAVING EMPLOYEES BASED BOTH IN INDIA AND IN A FOREIGN COUN TRY, FBT IS PAYABLE ON THE PROPORTION (50 PER CENT, 20 PER CENT OR 5 PE R CENT, AS THE CASE MAY BE OF THE TOTAL AMOUNT OF EXPENSES INCURRED FOR THE PURPOSES REFERRED TO IN CLS. (A) TO (P) OF SUB-S. (2) OF S. 115WB AND ATTRIBUTABLE TO THE OPERATIONS IN INDIA. IF THE COMPANY MAINTAIN S SEPARATE BOOKS OF ACCOUNT FOR ITS INDIAN AND FOREIGN OPERATIONS, FBT WOULD BE PAYABLE ON THE AMOUNT OF EXPENSES REFLECTED IN THE BOOKS OF AC COUNT RELATING TO THE INDIAN OPERATIONS. IF HOWEVER, NO SEPARATE ACCO UNTS ARE MAINTAINED, THE AMOUNT OF EXPENSES ATTRIBUTABLE TO INDIAN OPERATIONS WOULD BE THE PROPORTIONATE AMOUNT OF THE GLOBAL EXP ENDITURE. FURTHER, SUCH PROPORTIONATE AMOUNT SHALL BE DETERMINED BY AP PLYING TO THE GLOBAL EXPENDITURE THE PROPORTION WHICH THE NUMBER OF EMPLOYEES BASED IN INDIA BEARS TO THE TOTAL WORLDWIDE EMPLOYE ES OF THE COMPANY. WHETHER AN INDIAN COMPANY CARRYING ON BUSINESS OUTS IDE INDIA WOULD BE LIABLE TO FBT EVEN THOUGH NONE OF ITS EMPLOYEES IN SUCH BUSINESS MAY BE LIABLE TO PAY INCOME-TAX IN INDIA? 21. AN INDIAN COMPANY WOULD BE LIABLE TO THE FBT IN INDIA IF IT HAS EMPLOYEES BASED IN INDIA. THEREFORE, IF AN INDIAN C OMPANY CARRIES ON BUSINESS OUTSIDE INDIA BUT DOES NOT HAVE ANY EMPLOY EES BASED IN INDIA, SUCH COMPANY WOULD NOT BE LIABLE TO FBT IN I NDIA. DOES FBT APPLY TO FOREIGN COMPANIES? .............. 103. FBT IS A LIABILITY QUA EMPLOYER. IT IS AN EXPE NDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR ITA NO.2135/AHD/2010 8 PROFESSION OF THE EMPLOYER. HOWEVER, SUB-CL. (IC) O F CL. (A) OF S. 40 OF THE IT ACT EXPRESSLY; PROHIBITS THE DEDUCTION OF TH E AMOUNT OF FBT PAID, FOR THE PURPOSES OF COMPUTING THE INCOME UNDE R THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THIS PROHIBITI ON DOES NOT APPLY TO THE COMPUTATION OF BOOK PROFIT FOR THE PURPOSES OF S. 115JB. ACCORDINGLY, THE FBT IS AN ALLOWABLE DEDUCTION IN T HE COMPUTATION OF BOOK PROFIT UNDER S. 115JB OF THE IT ACT. . 12. FRINGE BENEFIT TAX IS A NEW CONCEPT. THE TAXES TO BE LEVIED ON THE FRINGE BENEFIT PROVIDED OR DEEMED TO HAVE BEEN PROVIDED BY AN EMPLOYER TO EMPLOYEES DURING THE PREVIOUS YEAR IS AT THE RATE OF 30 PER C ENT ON THE VALUE OF SUCH FRINGE BENEFITS. THE OBJECT FOR IMPOSITION OF THE SAID TAX , AS IS EVIDENT FROM THE SAID CIRCULAR DT. 29TH AUG., 2005, WAS TO BRING ABOUT AN EQUITY. THE INTENTION OF THE PARLIAMENT WAS TO TAX THE EMPLOYER WHO, ON THE ONE HAND, DEDUCTS THE EXPENDITURE FOR THE BENEFIT OF THE EMPLOYEES INCLUD ING ENTERTAINMENT, ETC. AND ON THE OTHER WHEN THE EMPLOYEES GETTING THE PERKS ARE TO BE TAXED, THOSE WHO GET DIRECT OR INDIRECT BENEFITS FROM THE EXPENDITURES I NCURRED BY THE EMPLOYER, NO TAX IS LEVIABLE. AS STATED IN THE OBJECTIVE, IT IS FOR BRINGING ABOUT A HORIZONTAL EQUITY AND NOT A VERTICAL EQUITY. 13. SUB-S. (1) OF S. 115WB CONTAINS THE INTERPRETAT ION SECTION. IT IS IN TWO PARTS. IT PROVIDES FOR A DIRECT MEANING, AS ALSO AN EXPANDED MEANING. EXPANDED MEANING OF THE SAID PROVISION IS CONTAINED IN SUB-S. (2). W HEREAS SUB-S. (1) TAKES WITHIN ITS SWEEP ANY CONSIDERATION FOR EMPLOYMENT, INTER ALIA, BY WAY OF PRIVILEGE SERVICE, FACILITY OR AMENITY DIRECTLY OR INDIRECTLY, SUB-S. (2) THEREOF EXPANDS THE SAID DEFINITION STATING AS TO WHEN THE FRINGE BENEFIT WO ULD BE DEEMED TO HAVE BEEN PROVIDED. THE EXPANSIVE MEANING OF THE SAID TERM 'B ENEFITS' BY REASON OF A LEGAL FICTION CREATED ALSO BRINGS WITHIN ITS PURVIEW, BEN EFITS WHICH WOULD BE DEEMED TO HAVE BEEN PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES DURING THE PREVIOUS YEAR. INDISPUTABLY, SUB-S. (3) REFERS TO SUB-S. (1) ONLY. EX FACIE, IT DOES NOT HAVE ANY APPLICATION IN REGARD TO THE MATTERS WHICH HAVE BEE N BROUGHT WITHIN THE PURVIEW OF THE FBT BY REASON OF APPLICATION OF THE DEEMING PROVISION. WE ARE CONCERNED HERE WITH A QUESTION IN REGARD TO GRANT OF EXEMPTIO N IN RESPECT OF 'CONVEYANCE' AS PROVIDED FOR IN CL. (F) OF SUB-S. (2) AND 'TOUR AND TRAVEL' WHICH IS PROVIDED FOR IN CL. (Q) OF SUB-S. (2) OF S. 115WB. 14. CBDT CATEGORICALLY STATES IN ANSWER TO QUESTION NUMBER 7 THAT SUB-S. (2) PROVIDES FOR AN EXPANSIVE DEFINITION. DOES IT MEAN THAT SUB-S. (2) IS MERELY AN EXTENSION OF SUB-S. (1) OR IT IS AN INDEPENDENT PROVISION? IF SUB-S. (2) IS MERELY AN E XTENSION OF SUB-S. (1), MR. GANESH MAY BE RIGHT BUT WE MUST NOTICE THAT S. 115W A PROVIDES FOR IMPOSITION OF TAX ON EXPENDITURE INCURRED BY THE EMPLOYER OR PROV IDING ITS EMPLOYEES CERTAIN BENEFITS. THOSE BENEFITS WHICH ARE DIRECTLY PROVIDE D ARE CONTAINED IN SUB-S. (1). SOME OTHER BENEFITS, HOWEVER, WHICH THE EMPLOYER PR OVIDES TO THE EMPLOYEES BY INCURRING ANY EXPENDITURE OR MAKING ANY PAYMENT FOR THE PURPOSE ENUMERATED ITA NO.2135/AHD/2010 9 THEREIN IN THE COURSE OF HIS BUSINESS OR PROFESSION , IRRESPECTIVE OF THE FACT AS TO WHETHER ANY SUCH ACTIVITY WOULD BE CARRIED ON A REG ULAR BASIS OR NOT, E.G., ENTERTAINMENT WOULD, BY REASON OF THE LEGAL FICTION CREATED, ALSO BE DEEMED TO HAVE BEEN PROVIDED BY THE EMPLOYER FOR THE PURPOSE OF SUB-S. (2). WHEREAS SUB- S. (1) ENVISAGES ANY AMOUNT PAID TO THE EMPLOYEE BY WAY OF CONSIDERATION FOR EMPLOYMENT, WHAT WOULD BE THE LIMITS THEREOF ARE ON LY ENUMERATED IN SUB-S. (2). WE, THEREFORE, ARE OF THE OPINION THAT SUB-SS. (1) AND (2), HAVING REGARD TO THE PROVISIONS OF S. 115WA AS ALSO SUB-S. (3) OF S. 115WB, MUST BE HELD TO BE OPERATING IN DIFFERENT FIELDS. 7. AS ALREADY STATED AND AS POINTED OUT IN GROUN D NO.1.1 IN THE APPEAL, SINCE THE LD. CIT(A) DID NOT RECORD HIS SPECIFIC FINDIN GS ON THE ISSUES RAISED BY THE AO IN THE CONTEXT OF INTERPRETATION OF PROVISIONS OF S UB-SECTION (2) OF SECTION 115WB OF THE ACT AND IGNORED ALTOGETHER THE AFORESA ID OBSERVATIONS OF THE HONBLE APEX COURT, APPARENTLY THE ORDER PASSE D BY THE LD. CIT(A) IS CRYPTIC AND GROSSLY VIOLATIVE OF ONE OF THE FACETS OF THE RULES OF NATURAL JUSTICE, NAMELY, THAT EVERY JUDICIAL/QUASI-JUDICIAL BODY/AUT HORITY MUST PASS REASONED ORDER, WHICH SHOULD REFLECT APPLICATION OF MIND BY THE CONCERNED AUTHORITY TO THE ISSUES/POINTS BEFORE IT. THE APPLICATION OF MIND TO THE MATERIAL FACTS AND THE ARGUMENTS SHOULD MANIFEST ITSELF IN THE ORDER. SECT ION 250(6) OF THE ACT MANDATES THAT THE ORDER OF THE CIT(A) WHILE DISPOSI NG OF THE APPEAL SHALL BE IN WRITING AND SHALL STATE THE POINTS FOR DETERMINATIO N, THE DECISION THEREON AND THE REASON FOR THE DECISION. THE REQUIREMENT OF RECORDI NG OF REASONS AND COMMUNICATION THEREOF HAS BEEN READ AS AN INTEGRAL PART OF THE CONCEPT OF FAIR PROCEDURE. THE REQUIREMENT OF RECORDING OF REASONS BY THE QUASI-JUDICIAL AUTHORITIES IS AN IMPORTANT SAFEGUARD TO ENSURE OBS ERVANCE OF THE RULE OF LAW. IT INTRODUCES CLARITY, CHECKS THE INTRODUCTION OF EXTR ANEOUS OR IRRELEVANT CONSIDERATIONS AND MINIMIZES ARBITRARINESS IN THE D ECISION-MAKING PROCESS. WE MAY REITERATE THAT A DECISION DOES NOT MERELY MEA N THE CONCLUSION. IT EMBRACES WITHIN ITS FOLD THE REASONS FORMING BASIS FOR THE C ONCLUSION.[MUKHTIAR SINGH VS. STATE OF PUNJAB,(1995)1SCC 760(SC)]. AS IS APPARENT , THE IMPUGNED ORDER SUFFERS FROM LACK OF REASONING AND IS NOT A SPEAKI NG ORDER. IN VIEW OF THE FOREGOING, ESPECIALLY WHEN THE LD. CIT(A) HAS NOT P ASSED A SPEAKING ORDER ON THE ISSUES RAISED IN THIS APPEAL, WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO H IS FILE FOR DECIDING THESE ISSUES AFRESH IN ACCORDANCE WITH LAW, KEEPING IN MIND VARI OUS JUDICIAL PRONOUNCEMENTS, ITA NO.2135/AHD/2010 10 INCLUDING THE AFORESAID OBSERVATIONS OF THE HONBLE APEX COURT, AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES. NEEDLES S TO SAY THAT WHILE REDECIDING THE APPEAL, THE LEARNED CIT(A) SHALL PASS A SPEAKIN G ORDER, KEEPING IN MIND, INTER ALIA, THE MANDATE OF PROVISIONS OF SEC. 250(6) OF T HE ACT . WITH THESE OBSERVATIONS, GROUND NOS. 1 & 1.1 IN THE APPEAL OF THE REVENUE FOR THE AY 2003- 04 ARE DISPOSED OF. 8. GROUND NOS. 2 & 3 BEING MERE PRAYER NOR ANY SU BMISSIONS HAVING BEEN MADE BEFORE US, DO NOT REQUIRE ANY SEPA RATE ADJUDICATION AND ARE, THEREFORE ,DISMISSED. 9. IN THE RESULT, APPEAL IS ALLOWED, BUT FOR STA TISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT TODAY ON 22 -03-2011 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 22 -03-2011 COPY OF THE ORDER FORWARDED TO: 1. KARNAVATI CLUB LIMITED, SARKHEJ GANDHINAGAR HIGH WAY, AHMEDABAD 2. ACIT (OSD)-I, RANGE-4, NAVJIVAN TRUST BLDG., OF F. ASHRAM ROAD, AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XX, AHMEDABAD 5. DR, ITAT, AHMEDABAD BENCH-A, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD