M/s. Ambattur Clothing Ltd., CHENNAI V. Dcit, CHENNAI

ITA 2184/CHNY/2013

• Counselvise Citation: 218421714 RSA 2013
• Duration Of Justice: 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 16-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARI RAO
• Assessee Lawyers: T BANUSEKAR
• Section: 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . , . . ! , ' # [BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMB ER AND SHRI S. S. GODARA, JUDICIAL MEMBER] ./ I.T.A.NO.2184/MDS/2013 / ASSESSMENT YEAR : 2008-09 M/S AMBATTUR CLOTHING LTD 86-E, AMBATTUR INDUSTRIAL ESTATE CHENNAI 600 058 VS. THE DEPUTY COMMISSIONER OF INCOME-TAX COMPANY CIRCLE I(1) CHENNAI [PAN AAACA 4127 D] ( $% / APPELLANT) ( &'$% /RESPONDENT) / APPELLANT BY : SHRI T. BANUSEKAR, CA /RESPONDENT BY : SHRI HARI RAO, JCIT / DATE OF HEARING : 13-02-2014 ! / DATE OF PRONOUNCEMENT : 18-02-2014 ( / O R D E R PER S.S.GODARA, JUDICIAL MEMBER THIS APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2008-09, IS DIRECTED AGAINST THE ORDER OF THE COMMI SSIONER OF INCOME- TAX APPEALS (CENTRAL))-I CHENNAI, DATED 17.10.2013, PASSED IN APPEAL I.T.A.NO.2183/13 :- 2 -: NO.218/2013-14, IN PROCEEDINGS UNDER SECTION 115WE( 3)OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 2. THE SOLE SUBSTANTIVE GRIEVANCE OF THE ASSESSEE IN THE PRESENT APPEAL CHALLENGES ADDITION OF ` 55,82,113/- MADE BY THE ASSESSING OFFICER AND AFFIRMED BY THE CIT(A) IN THE NATURE OF FRINGE BENEFITS. 3. THE ASSESSEE, A COMPANY, IS ENGAGED IN THE BUSIN ESS OF MANUFACTURE AND EXPORT OF READYMADE GARMENTS. ON 2 9.9.2008, IT HAD FILED ITS FRINGE BENEFITS RETURN DECLARING VALU E THEREOF AT ` 93,70,433/- WHICH WAS PROCESSED U/S 115WE(1) OF TH E ACT. 4. IN THE COURSE OF SCRUTINY, THE ASSESSING OFFICER NOTICED THE ASSESSEE TO HAVE OMITTED INCLUSION IN ITS COMPUTATI ON A SUM OF ` 55,82,113/- DEBITED IN THE PROFIT AND LOSS ACCOUNT REPRESENTING EMPLOYEES MEDICAL EXPENSES. IN SUPPORT, THE ASSE SSEE PLEADED THAT THESE SUMS UPTO ` 15,000/- WERE EXEMPT FROM TAX IN THE HANDS OF RESPECTIVE EMPLOYEES AS THEY WERE OTHERWISE TAXABLE PER SE AND NOT AS FRINGE BENEFITS UNDER THE PROVISIONS OF THE ACT. THE ASSESSING OFFICER IN ASSESSMENT ORDER DATED 23.12.2010 INVOKE D CIRCULAR 8 OF I.T.A.NO.2183/13 :- 3 -: 2005 AND BROUGHT TO TAX THE AFORESAID AMOUNT AS FRI NGE BENEFITS IN THE ASSESSEES HANDS. 5. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL. THE CIT (A) HAS ALSO CONFIRMED THE FINDINGS OF THE ASSESSING OFFICE R AS FOLLOWS: 6. I HAVE CONSIDERED THE ASSESSMENT ORDER AND TH E GROUNDS OF APPEAL. DURING SCRUTINY PROCEEDINGS, TH E A.O NOTED THAT THE APPELLANT HAD PAID MEDICAL REIMBURSE MENT OF AMOUNTS BELOW ` 15,000/- FOR EACH EMPLOYEE, TOTALING TO ` 55,82,113/-. HOWEVER, THIS WAS NOT INCLUDED IN THE FRINGE BENEFIT COMPUTED BY THE APPELLANT. WHEN THE AO QUE STIONED AS TO WHY THESE AMOUNTS WERE NOT CONSIDERED FOR FRI NGE BENEFIT TAX (FBT), THE AR REPLIED THAT THE AMOUNTS PAID TO THE EMPLOYEES AS MEDICAL REIMBURSEMENT AS PER SE TA XABLE AND AS SUCH THE SAME CANNOT BE CONSIDERED AS FRINGE BENEFIT. HOWEVER, THE AO HAS NOT ACCEPTED THE APPE LLANTS EXPLANATION AND TREATED THE SAME AS FRINGE BENEFIT U/S 115WB(2). THE AO, WHILE MAKING THE ADDITION, HAS O BSERVED AS UNDER: EXAMINATION OF THE DETAILS FILED BY THE ASSESSEE AND THE ITEMS OF EXPENDITURE DEBITED TO THE PROFIT & LO SS ACCOUNT SHOWED THAT THE ASSESSEE HAS OMITTED TO INCLUDE IN THE FBT COMPUTATION AN AMOUNT OF RS.55,82,113/- REPRESENTING MEDICAL EXPENSES REIMBURSED. THE ASSESSEE'S AUTHORISED REPRESENTATIV E EXPLAINED THAT SUCH SUMS ARE EXEMPT FROM TAX IN TH E HANDS OF THE EMPLOYEES UPTO RS. 15,000/- PER HEAD. SINCE THE SAID SUMS ARE OTHERWISE TAXABLE IN THE HA NDS OF THE EMPLOYEES BUT FOR THE EXPLICIT EXEMPTION PRO VIDED, THE SAID EXPENDITURE SHOULD NOT BE CONSIDERED AS A FRINGE BENEFIT. AS PER THE PROVISIONS OF SECTION 11 5WB, ANY BENEFIT OR PRIVILEGE GRANTED BY THE EMPLOYER TO THE EMPLOYEE SHALL BE CONSIDERED AS A FRINGE BENEFIT IF IT IS NOT CONSIDERED AS A TAXABLE ALLOWANCE OR PERQUISITE IN THE HANDS OF THE EMPLOYEE. THIS HAS BEEN AMPLY CLARIFIED BY THE CBDT IN ITS CIRCULAR NO . 8 OF 200 5. THE RELEVANT PORTION OF THE CIRCULAR IS QUOTED HEREUNDE R FOR EASY REFERENCE: I.T.A.NO.2183/13 :- 4 -: 69. WHETHER MEDICAL REIMBURSEMENT UPTO ` 15,000 (EXEMPT IN THE HANDS OF THE EMPLOYEES) AND MEDICAL REIMBURSEMENT OVER ` 15,000 (TAXED AS PERQUISITE IN THE HANDS OF THE EMPLOYEES) IS LIABLE TO FBT? ANS. AT PRESENT, IF ANY SUM IS PAID BY THE EMPLOYER FOR EXPENDITURE ACTUALLY INCURRED BY THE EMPLOYEE FOR MEDICAL TREATMENT IN AN UNAPPROVED HOSPITAL AND IT EXCEEDS ` 15,000 DURING THE YEAR, SUCH SUM IS SALARY AS DEFINED IN CLAUSE (1) OF SECTION 17 OF THE INCOME-TAX ACT AND LIABLE TO INCOME-TAX IN THE HANDS OF THE EMPLOYEE. THERE IS NO CHANGE IN THIS POSITION. SINCE SUCH SUM IS TAXABLE IN THE HANDS OF THE EMPLOYEE, THE SAME IS NOT LIABLE TO FBT. HOWEVER, IF ANY SUM IS PAID BY THE EMPLOYER FOR EXPENDITURE ACTUALLY INCURRED BY THE EMPLOYEE F OR MEDICAL TREATMENT IN AN UNAPPROVED HOSPITAL AND IT DOES NOT EXCEED ` 15,000 DURING THE YEAR, SUCH SUM DOES NOT FALL WITHIN THE MEANING OF SALARY AS DEF INED IN CLAUSE (1) OF SECTION 17 OF THE INCOME-TAX ACT A ND NOT LIABLE TO INCOME-TAX IN THE HANDS OF THE EMPLOYEE. THERE IS NO CHANGE IN THIS POSITION. SINCE SUCH SUM IS NOT TAXABLE IN THE HANDS OF THE EMPLOYEE, THE SAME IS LIABLE TO FBT. ACCORDINGLY, REPLYING ON THE CLARIFICATION GIVEN BY THE BOARD ON THIS ISSUE, THIS SUM OF ` 55,82,113/- IS BROUGHT TO TAX AS FRINGE BENEFITS. 6.1 FRINGE BENEFIT TAX WAS AN ADDITIONAL TAX OF FR INGE BENEFITS AND PERQUISITES ON WHICH NO TAX WAS PAID B Y THE EMPLOYEES BUT TO BE TAXED IN THE HANDS OF THE EMPLO YER, SINCE SUCH AMOUNT WAS NOT TO BE PART OF SALARY AS D EFINED IN SECTION 17(2) OF THE ACT. THEREFORE, PERQUISITES W HICH COULD NOT BE DIRECTLY TAXED IN THE HANDS OF THE EMPLOYEES WERE TO BE CONSIDERED FOR THE PURPOSE OF LEVY OF FRINGE BEN EFIT TAX IN THE HANDS OF THE EMPLOYERS. CBDT CIRCULAR NO.8/200 5 MADE IT CLEAR THAT REIMBURSEMENTS UPTO ` 15,000/- FOR MEDICAL TREATMENT WILL NOT BE TAXABLE IN THE HANDS OF THE E MPLOYEES, AND HENCE REMAIN LIABLE FOR LEVY OF FRINGE BENEFIT TAX IN THE I.T.A.NO.2183/13 :- 5 -: HANDS OF THE EMPLOYER. FURTHER, IT IS RELEVANT TO MENTION HERE THAT THE ISSUE INVOLVED IN THIS APPEAL HAS BEE N COVERED BY THE DECISION OF THE HON'BLE JURISDICTIONAL ITAT B BENCH, CHENNAI IN THE CASE OF M/S MRF LIMITED IN I.T.A.NOS 375 & 376/MDS/2010 FOR THE A.YS 2006-07 & 2007-08 DATED 1 0 TH JUNE 2011 WHEREIN THE HON'BLE JURISDICTIONAL ITAT H AS OBSERVED AS UNDER: 8. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. CLAUSE (A) OF SUB-SECTION (1) OF SECT ION 115WB CLEARLY STATES THAT FRINGE BENEFITS WOULD MEA N ANY PRIVILEGE, SERVICE, FACILITY OR AMENITY, DIRECTLY O R INDIRECTLY PROVIDED BY AN EMPLOYER, WHETHER BY WAY OF REIMBURSEMENT OR OTHERWISE TO HIS EMPLOYEES. THE TERMINOLOGY USED IS SO WIDE THAT ANY TYPE OF PRIVIL EGE, SERVICE, FACILITY OR AMENITY WHETHER BY REIMBURSEME NT OR NOT WOULD FALL WITHIN THE PURVIEW OF FRINGE BENEFITS. IF WE LOOK AT SUB-SECTION (3), IT CLEARLY STATES THAT SUCH PRIVIL EGE, SERVICE, FACILITY OR AMENITY WOULD NOT INCLUDE PERQUISITE ON WHICH TAX IS PAID OR PAYABLE BY THE EMPLOYEE. THE QUESTION H ERE THEREFORE IS WHETHER THE MEDICAL REIMBURSEMENT OF ` 15,000/- CAN BE CONSIDERED AS PERQUISITE ON WHICH T AX IS PAID OR PAYABLE BY THE EMPLOYEES. PERQUISITE IS DE FINED UNDER SUB-SECTION (2) OF SECTION 17 OF THE ACT AND PROVISO (V) THERETO CLEARLY SPECIFIES THAT THE DEFINITION O F PERQUISITE WOULD NOT INCLUDE THEREIN ANY SUM PAID BY AN EMPLOY ER IN RESPECT OF ANY EXPENDITURE ACTUALLY INCURRED BY AN EMPLOYEE ON HIS MEDICAL TREATMENT OR TREATMENT OF A NY MEMBER OF HIS FAMILY IF SUCH SUM WAS NOT IN EXCESS OF ` 15,000/-. NEVERTHELESS, THE AMOUNT PAID OR REIMBUR SED REMAINED PERQUISITE. ONLY EFFECT OF THE PROVISO IS THAT IN EXCESS OF ` 15,000/-, THE REIMBURSEMENT AMOUNT WOULD BE TAXABLE AS A PART OF SALARY IN THE HANDS OF EMPLOYE E, WHEREAS AMOUNTS OF ` 15,000/- AND LESS IT WOULD NOT BE TAXABLE IN THE HANDS OF THE EMPLOYEE. SUCH REIMBUR SEMENT NEVERTHELESS WOULD BE PERQUISITE AS DEFINED UNDER T HE ACT BUT WOULD REMAIN UNTAXED IN THE HANDS OF THE EMPLOY EES. ACCORDING TO QUESTION NO.69 IN CBDT CIRCULAR NO.8/2 005 IS RELEVANT HERE:- 69. WHETHER MEDICAL REIMBURSEMENT UPTO ` 15,000 (EXEMPT IN THE HANDS OF THE EMPLOYEES) AND MEDICAL REIMBURSEMENT OVER I.T.A.NO.2183/13 :- 6 -: ` 15,000 (TAXED AS PERQUISITE IN THE HANDS OF THE EMPLOYEES) IS LIABLE TO FBT? ANS. AT PRESENT, IF ANY SUM IS PAID BY THE EMPLOYER FOR EXPENDITURE ACTUALLY INCURRED BY THE EMPLOYEE FOR MEDICAL TREATMENT IN AN UNAPPROVED HOSPITAL AND IT EXCEEDS ` 15,000 DURING THE YEAR, SUCH SUM IS SALARY AS DEFINED IN CLAUSE (1) OF SECTION 17 OF THE INCOME-TAX ACT AND LIABLE TO INCOME-TAX IN THE HANDS OF THE EMPLOYEE. THERE IS NO CHANGE IN THIS POSITION. SINCE SUCH SUM IS TAXABLE IN THE HANDS OF THE EMPLOYEE, THE SAME IS NOT LIABLE TO FBT. HOWEVER, IF ANY SUM IS PAID BY THE EMPLOYER FOR EXPENDITURE ACTUALLY INCURRED BY THE EMPLOYEE FOR MEDICAL TREATMENT IN AN UNAPPROVED HOSPITAL AND IT DOES NOT EXCEED ` 15,000 DURING THE YEAR, SUCH SUM DOES NOT FALL WITHIN THE MEANING OF SALARY AS DEFINED IN CLAUSE (1) OF SECTION 17 OF THE INCOME-TAX ACT AND NOT LIABLE TO INCOME-TAX IN THE HANDS OF THE EMPLOYEE. THERE IS NO CHANGE IN THIS POSITION. SINCE SUCH SUM IS NOT TAXABLE IN THE HANDS OF THE EMPLOYEE, THE SAME IS LIABLE TO FBT. 9. THE ARGUMENT OF THE LEARNED A.R. THAT THERE ARE TWO CLASSES OF PERQUISITES BY VIRTUE OF THE ABOVE CIRCULAR, ONE FOR AMOUNT ABOVE IN EXCESS OF ` 15,000/- AND ANOTHER ONE FOR AMOUNTS OF ` 15,000/- AND BELOW, DOES NOT HAVE ANY INTELLIGIBLE CRITERIA OF DIFFEREN TIATION NOR ANY RATIONAL NEXUS. WE ARE OF THE OPINION THAT PROVISIONS OF FBT WERE CORRECTLY APPLIED BY THE A.O . AND CIT(APPEALS) IN THIS REGARD. THE CIRCULAR OF CBDT WAS A CONTEMPORANEOUS EXPOSITION OF THE LAW OF FBT AND HENCE DOES HAVE SUBSTANTIAL FORCE WHILE INTERPRETIN G THE PROVISIONS. THUS, WE ARE UNABLE TO FIND ANY MISTAK E IN THE ORDERS OF THE A.O. AND CIT(APPEALS). I.T.A.NO.2183/13 :- 7 -: 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2007-08 STANDS DISMISSED. 6.2 THUS, FROM THE ABOVE, IT IS CLEAR THAT THE ISSUE IN VOLVED IN THIS APPEAL IS SQUARELY COVERED BY THE DECISION MEN TIONED SUPRA, THE ACTION OF THE ASSESSING OFFICER, IN TREATING ME DICAL REIMBURSEMENT TOTALING TO ` 55,82,113/- AS FRINGE BENEFIT AND TAXING THE SAME U/S 115WB(2) OF THE ACT, IS JUSTIF IED. AS A RESULT, THE ADDITION MADE BY THE AO IS CONFIRMED. THEREFORE, THE ASSESSEE IS IN APPEAL. 6. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH THE CAS E FILE. A PAPER BOOK FILED BY THE ASSESSEE CONTAINING THE FOLLOWING HAS ALSO BEEN PERUSED: 1. INTERVALVE (INDIA) LTD. VS ADDL. CIT (2012) 77 DTR (PUNE(TRIB)13 2. GODREJ PROPERTIES LTD. VS ADDL. CIT (2011) 49 DTR 2 02. 3. CIT VS HERO CYCLES (P) LTD [1997] 228 ITR 463(S.C) 4. RELEVANT EXTRACTS OF THE MEMORANDUM TO FINANCE BILL , 2005 5. RELEVANT EXTRACTS OF THE BUDGET SPEECH IN 2005 6. CIRCUALR NO.8 OF 2005 DATED 29.8.2005. THE ONLY QUARREL BETWEEN THE PARTIES IS ABOUT ADDIT ION OF ` 55,82,113/- MADE BY THE LOWER AUTHORITIES IN ASSESSEES HANDS AS FRINGE BENEFITS. IT IS CONTENDED BY THE ASSESSEE THAT THE SAME REP RESENTED MEDICAL REIMBURSEMENT MADE TO INDIVIDUAL EMPLOYEES UPTO ` 15,000/-. IN THIS REGARD, WE FIND FROM THE RELEVANT EXTRACTS OF THE M EMORANDUM TO FINANCE BILL 2005 AS WELL AS BUDGET SPEECH BY THE H ON'BLE FINANCE MINISTER THAT THE TAX INCIDENCE OF FRINGE BENEFIT C OMES INTO PLAY ONLY I.T.A.NO.2183/13 :- 8 -: WHEN IT IS NOT FEASIBLE TO TAX THE BENEFITS IN HAN DS OF THE INDIVIDUAL EMPLOYEES. UNDISPUTEDLY, THERE IS NO SUCH SITUATI ON ARISING IN THE PRESENT CASE AS THE ISSUE OF IDENTITY OF THE EMPLOY EES IS NOWHERE IN QUESTION. FURTHER, IT IS EVIDENT TO US IN THE CASE OF GODREJ PROPERTIES LTD(SUPRA) FOLLOWED BY THE CO-ORDINATE BENCH IN TH E CASE OF INTERVALVE (INDIA) LTD(SUPRA) THAT IN SIMILAR CIRCUMSTANCES IN VOLVING MEDICAL REIMBURSEMENTS TO INDIVIDUAL EMPLOYEES HAVE BEEN HE LD AS NOT A CASE WHERE IT IS NOT FEASIBLE TO TAX THE BENEFITS IN THE IR HANDS. IN OTHER WORDS, ONLY A CASE OF LACK ATTRIBUTION OF THE BENE FITS IN QUESTION FORMS THE BASIS FOR ATTRACTING FRINGE BENEFIT TAX AND NO T OTHERWISE. SIMILARLY, IN THE LATTER CASE LAW, THE CO-ORDINATE BENCH HAS ALSO HELD THAT CIRCULAR NO.8 OF 2005 RELIED ON BY THE LOWER A UTHORITIES AS WELL AS THE CO-ORDINATE BENCH OF THE CHENNAI TRIBUNAL IN THE CASE OF M/S MRF LTD. VS ACIT, [2011] 5 TAXCORP(A.T) 25888(CHENNAI) ENLARGES SCOPE OF FRINGE BENEFITS WHICH IS NOT PERMISSIBLE IN T HE EYES OF LAW. COMING TO THE REVENUES ARGUMENT THAT THE CO-ORDINATE BENC H OF THE CHENNAI TRIBUNAL HAS FOLLOWED THE CIRCULAR, WE NOTICE TH AT THEREIN, NATURE AND SCOPE OF THE CIRCULAR I.E WHETHER OR NOT IT GOES AG AINST THE EXPRESS PROVISION OF THE ACT WAS NOWHERE A SUBJECT MATTER O F ADJUDICATION. THEREFORE, THIS DECISION STANDS DISTINGUISHED. IN THESE CIRCUMSTANCES, WE HOLD THAT THE IMPUGNED ADDITION ON ACCOUNT OF F RINGE BENEFITS I.T.A.NO.2183/13 :- 9 -: MADE BY THE LOWER AUTHORITIES IS NOT SUSTAINABLE. THE ASSESSEES ARGUMENTS STAND ACCEPTED. 7. THE ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED ON TUESDAY, THE 18 TH OF FEBRUARY, 2014, AT CHENNAI. SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (S. S. GODARA) JUDICIAL MEMBER DATED: 18 TH FEBRUARY, 2014 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR