M/s. Hamilton Research & Technology Pvt. Ltd., Kolkata V. DCIT, Circle-2, Kolkata, Kolkata

ITA 2240/KOL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1616 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 18-12-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RANU BISWAS D IT
• Assessee Lawyers: S M SURANA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH : KOLKATA [BEFORE HONBLE SRI N.V.VASUDEVAN, JM ] I.T.A NO. 2240/KOL/20 14 ASSESSMENT YEAR : 2006-0 7 M/S HAMILTON RESEARCH & TECHNOLOGY -VS.- D.C .I.T., CIRCLE-2, PVT. LTD., KOLKATA KOLKATA [PAN : AAACH 6752 M] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI S.M.SUR ANA, ADVOCATE FOR THE RESPONDENT : SMT. RANU BISWAS, ADDL D IT DATE OF HEARING : 23.01.2018. DATE OF PRONOUNCEMENT : 02.02.2018. ORDER THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 04.09.2014 OF CIT(A)- I, KOLKATA RELATING TO A.Y.2006-07. 2. THIS APPEAL ARISES OUT OF AN ASSESSMENT UNDER C HAPTER XII H OF THE ACT VIZ., INCOME TAX ON FRINGE BENEFITS. IT IS NOT IN DISPUTE THAT THE ASSESSEE INCURRED AN EXPENDITURE ON CONVEYANCE, TOUR AND TRAVEL OF RS.20 ,41,180/- AND EXPENSES ON USE OF HOTELS AND BOARDINGS OF RS.4,44,972/-. IT IS ALSO NOT DISPUTE THAT THE AFORESAID EXPENSES WAS A FRINGE BENEFIT PROVIDED BY THE ASSESSEE TO I TS EMPLOYEE AND LIABLE TO BE TAXED U/S 115WA OF THE INCOME TAX ACT, 1961 (ACT). THE EXPENS ES ON CONVEYANCE, TOUR AND TRAVEL AND THE EXPENSES ON USE OF HOTEL, BOARDINGS AND LODGING FACILITIES ARE FRINGE BENEFITS FALLING WITHIN THE AMBIT OF SECTION 115WB( 2)(F)(G) OF THE ACT RESPECTIVELY. UNDER SECTION 115WC(1)(C) OF THE ACT, 20% OF THE EX PENSES REFERRED TO IN CLAUSES (F)(G) OF SECTION 115WB(2) OF THE ACT SHOULD BE TAK EN AS VALUATION OF FRINGE BENEFIT ON WHICH FRINGE BENEFIT TAX IS TO BE PAID. 3. AS PER THE PROVISION OF SECTION 115WC(2) (D) IF AN EMPLOYER IS ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF COMPUTER S OFTWARE, THE VALUE OF FRINGE 2 ITA NO.2240/KOL/2014 M/S. HAMILTON RESEARCH & TECHNOLOGY PVT. LTD. A.YR.2006-07 2 BENEFITS U/S 115WB(2)(F)(G) OF THE ACT SHALL BE 5%. THE ISSUE BEFORE THE AO WAS THEREFORE WHETHER 20% OF THE CONVEYANCE, TOUR AND TRAVEL EXPENSES AND 20% OF THE HOTEL AND OTHER EXPENSES SHOULD BE TAKEN AS VALUE O F FRINGE BENEFITS OR 5% OF THOSE EXPENSES TAKEN AS VALUE OF FRINGE BENEFIT BY VIRTUE OF SECTION 115WB(2) (D) OF THE ACT. 4. THE ASSESSEE IS A MANUFACTURR OF A MICRO PROCESS ING BASED EQUIPMENTS. THE ASSESSEE PLEADED THAT IT WAS MANUFACTURING OR PRODU CING COMPUTER SOFTWARE BECAUSE MICRO BASED EQUIPMENTS HAVE SOFTWARE EMBEDDED IN TH EM. THE PLEA OF THE ASSESEE WAS REJECTED BY THE AO FOR THE FOLLOWING REASONS :- IT WAS NOTED THAT THE ASSESSEE HAS CLAIMED LOWER R ATE OF FRINGE BENEFITS ON TOUR AND TRAVEL AND USE OF HOTEL, BOARDING AND OTHER FACILIT IES, I.E. 5% INSTEAD OF 20%. THE BENEFIT OF LOWER RATE OF FRINGE BENEFITS IS AVAILAB LE ONLY TO THOSE EMPLOYERS WHO ARE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTIO N OF PHARMACEUTICALS OR COMPUTER SOFTWARE. THE ASSESSEE IS A MANUFACTURER O F MICRO PROCESSOR BASED EQUIPMENT WHICH MAY BE AT BEST BE CONSIDERED AS HAR DWARE AND NOT COMPUTER SOFTWARE. HENCE THE BENEFIT OF LOWER RATE OF FRINGE BENEFITS WILL NOT BE AVAILABLE. 5. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED THE ORDER OF AO. THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF CIT(A): THE SUBMISSIONS OF THE APPELLANT AS ABOVE HAVE BEE N CONSIDERED. IT IS SEEN THAT THE A.O. HAS DISALLOWED THE APPELLANT'S CLAIM OF LO WER RATE OF FRINGE BENEFIT VALUE AT 5% ON TOUR & TRAVEL AND USE OF HOTEL, BOARDING F ACILITIES, ON THE GROUND THAT THE LOWER RATE OF FRINGE BENEFIT WAS AVAILABLE ONLY TO THOSE EMPLOYERS ENGAGED IN THE BUSINESS OF MANUFACTURER OR PRODUCTION OF PHARM ACEUTICALS OR COMPUTER SOFTWARE, WHEREAS THE APPELLANT WAS MANUFACTURER OF MICROPROCESSOR BASED EQUIPMENT WHICH MAY BE AT BEST BE CONSIDERED AS HAR DWARE AND NOT COMPUTER SOFTWARE. THE A.O. THEREFORE APPLIED THE NORMAL RAT E OF FRINGE BENEFIT TAX AT 20% ON EXPENSES RELATING TO TOUR & TRAVEL, CONVEYANCE A ND HOTEL, BOARDING ETC. OF RS.20,41,180/- AND RS.4,44,972/- RESPECTIVELY. IT I S SEEN THAT THE APPELLANT IS ENGAGED IN MANUFACTURING OF ELECTRONIC POT CONTROLL ERS AND OTHER MICROPROCESSOR BASED EQUIPMENT. IT IS ALSO SEEN FROM THE COPY OF R EGISTRATION SUBMITTED WITH THE NATURE OF EXPORT PRODUCT HAS BEEN MENTIONED AS 'MIC ROPROCESSOR BASED CONTROL EQUIPMENT AND SOFTWARE'. IT IS SEEN FROM THE ABOVE DESCRIPTION THAT THE APPELLANT IS A HARDWARE MANUFACTURING UNIT AND PROVIDING PROC ESSOR CONTROL SOLUTIONS WHICH USES SOFTWARE ITS FUNCTIONING . HOWEVER, THE SAME CANNOT BE SAID TO BE PRODUCTION OF MANUFACTURER OF 'COMPUTER SOFTWARE' T O BE SOLD IN THE MARKET AND THE 3 ITA NO.2240/KOL/2014 M/S. HAMILTON RESEARCH & TECHNOLOGY PVT. LTD. A.YR.2006-07 3 SOFTWARE IS ONLY A PART OF THE PROCESS CONTROL EQUI PMENT MANUFACTURED BY THE APPELLANT AND NOT STAND ALONE COMPUTER SOFTWARE UTI LIZED BY OTHERS AND SOLD IN THE MARKET. THEREFORE, CONSIDERING THE SAME, WHILE THE APPELLANT CAN BE CONSIDERED AS MANUFACTURER OF ELECTRONIC EQUIPMENT RUN BY MEANS O F A SOFTWARE, HOWEVER IT CANNOT BE CONSIDERED AS MANUFACTURING OF 'COMPUTER SOFTWARE' FOR THE PURPOSE OF BENEFIT OF LOWER RATE FOR THE PURPOSE OF FRINGE BEN EFIT VALUE U/S 115WE OF THE INCOME TAX ACT, 1961. ACCORDINGLY, THE ADDITION MAD E BY THE AO IS HELD TO BE JUSTIFIED AND THE SAME IS CONFIRMED. 6. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 7. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES. HE FURTHER PLEADED THAT UNDER SECTION 115WC(B) OF THE ACT IN THE CASE OF AN EMPLOYER ENGAGED IN THE BUSINESS OF CONS TRUCTION THE VALUE OF FRINGE BENEFIT SHOULD BE TAKEN AS 5% OF THE EXPENSES INCURRED BY T HE EMPLOYER IN PROVIDING FRINGE BENEFIT AND NOT 20%. IN THIS REGARD THE LD. COUNSEL SUBMITTED BEFORE ME THAT THE PROVISION OF SECTION 115WC(B) OF THE ACT TALKS ONLY ABOUT BUSINESS OF CONSTRUCTION. THE ASSESEE BY MANUFACTURING MICRO PROCESSOR EQUIPM ENT CAN ALSO SAID TO BE ENGAGED IN THE BUSINESS OF CONSTRUCTION. MY ATTENTION WAS D RAWN TO THE MEANING OF THE WORD CONSTRUCTED AS PER STROUDS DICTIONARY 4 TH EDITION PAGE 566 WHICH READS AS FOLLOWS :- (9) TRACTORS FITTED WITH EQUIPMENT FOR DRAGGING AN D LOADING TIMBER. BUT ADAPTED AND USED PRIMARILY FOR HAULING THE TIMBER ON A TRAI LER WERE HELD TO BE 'CONSTRUCTED AND USED ON PUBLIC ROADS FOR HAULAGE SOLELY'. WITHI N S. 4 (2) (F) OF THE VEHICLES (EXCISE) ACT 1949 (C. 89) (T. K. WORGAN & SONS V. GLOUCESTE RSHIRE COUNTY COUNCIL 1961] 2 Q.B. 123) (11) 'CONSTRUCTED' (ROAD TRAFFIC ACT 1960 (C. 16). S. 253) MEANS 'COMPLETELY CONSTRUCTED' AND THEREFORE EXCLUDES A COMMERCIAL CH ASSIS BEING DRIVEN TO A PLACE WHERE IT IS TO RECEIVE. A BODY (MILLARD V. TURVEY [ 1968(2 Q.B. 390). STAT. DEF.. COASTAL FLOODING (EMERGENCY PROVISIONS) ACT 1953 (C. 18). (1). 8. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE L D. COUNSEL FOR THE ASSESSEE. I AM OF THE VIEW THAT IN SO FAR AS THE APPLICABILITY OF THE PROVISION OF SECTION 115WC(2)(D) OF THE ACT THE ASSESSEE WAS NOT IN THE BUSINESS OF MANUFACTURE OR 4 ITA NO.2240/KOL/2014 M/S. HAMILTON RESEARCH & TECHNOLOGY PVT. LTD. A.YR.2006-07 4 PRODUCTION OF COMPUTER SOFTWARE. THE FACT THAT THE ASSESSEE USES COMPUTER SOFTWARE IN THE MICRO PROCESSOR EQUIPMENTS MANUFACTURED BY HIM, CANNOT BE THE BASIS TO SAY THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFAC TURING OR CONSTRUCTION OF COMPUTER SOFTWARE. WITH REGARD TO THE APPLICABILITY OF SECTI ON 115WC(2)(B) OF THE ACT, I AM OF THE VIEW THAT THE ASSESSEE CANNOT ALSO BE SAID TO B E IN THE BUSINESS OF CONSTRUCTION. THE EXPRESSION CONSTRUCTION CANNOT BE STRETCHED TO IN CLUDE MANUFACTURE OF MICRO PROCESSOR. THE MEANING OF THE EXPRESSION CONSTRUCT ED AS FOUND IN THE STROUDS DICTIONARY REFERRED TO BY THE LD. DR ARE IN THE CON TEXT OF A SPECIFIC STATUTORY PROVISION. MOREOVER, THEY ARE IN THE CONTEXT OF THE EXPRESSION CONSTRUCTED WHEREAS I AM CONCERNED IN THIS CASE WITH THE EXPRESSION CONSTRU CTION. IN MY VIEW THE PLEA PUT FORTH BY THE LD. COUNSEL FOR THE ASSESSEE CANNOT THEREFOR E BE ACCEPTED. I, THEREFORE, UPHELD THE ORDER OF CIT(A) AND DISMISS THE APPEAL OF THE ASSES SEE. 9. IN THE RESULT THE APPEAL OF THE ASSESSEE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 02.02.2018. SD/- [ N.V.VASUDEVAN ] JUDICIAL MEMBER DATED 02.02.2018. [RG SR.PS] COPY OF THE ORDER FORWARDED TO: 1. M/S HAMILTON RESEARCH TECHNOLOGY PVT. LTD, 13A, NEW ROAD, KOLKATA-700027. 2. D.C.I.T., CIRCLE-2, KOLKATA. 3. CIT(A)-I, KOLKATA 4. C.I.T-I, KOLKATA . 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVATE SECR ETARY HEAD OF OFFICE/ D.D.O., ITAT KOLKATA BENCHES 5 ITA NO.2240/KOL/2014 M/S. HAMILTON RESEARCH & TECHNOLOGY PVT. LTD. A.YR.2006-07 5