Federal Bank Ltd, Aluva V. Assistant Commissioner of Income Tax, Aluva

ITA 261/COCH/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52300 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 04-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 08-05-2009
• Court: TRIBUNAL
• Department Lawyers: S R SENAPATI
• Assessee Lawyers: R RAJASEKHARAN

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND SANJAY AROR A, AM I.T.A NO. 261/COCH/2009 ASSESSMENT YEAR:2006-07 THE FEDERAL BANK LTD., P.B. NO. 103, FEDERAL TOWERS ALWAYE-683 101. [PAN:AABCT 0020H] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, ALUVA. (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI R.RAJASEKHARAN, CA REVENUE BY SHRI S.R.SENAPATI, SR.DR DATE OF HEARING 04/10/2011 DATE OF PRONOUNCEMENT 09/12/2011 O R D E R PER SANJAY ARORA, AM: THIS IS AN APPEAL BY THE ASSESSEE ARISING OUT OF T HE ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, KOCHI (THE CIT(A) FOR SH ORT) DATED 16/3/2009, PASSED U/S. 115WE(3) OF THE INCOME-TAX ACT, 1961 ('THE ACT', HE REINAFTER), AND THE ASSESSMENT YEAR (A.Y.) UNDER REFERENCE IS 2006-07. 2. THE ASSESSEE IS A PUBLIC LIMITED COMPANY IN THE BUSINESS OF BANKING. IT FILED ITS RETURN FOR THE YEAR ON 04.12.2006 AT ` 1289.71 LAKHS. THE PROFIT AND LOSS (P&L) ACCOUNT FILED ALONG WITH REFLECTED A DEBIT OF ` 3286.09 LAKHS IN RESPECT OF CONTRIBUTION TO THE EMPLOYEES SUPERANNUATION FUND. HOWEVER, THE VALUE OF THE CORRESPONDING FRINGE BENEFIT THAT THE ASSESSEE HAD, THUS, PROVIDED TO IT S EMPLOYEES, WAS ADOPTED AT ` 728.08 LAKHS. THIS WAS EXPLAINED BY THE ASSESSEE TO BE (S O) FOR THE REASON THAT THE SAME (FRINGE BENEFIT) IS LIMITED TO THE `ACTUAL CONTRIBUTION BY THE ASSESSEE DURING THE YEAR, WITH THE I.T.A. NO.261/COCH/2009 THE FEDERAL BANK LTD. V. ASSTT. CIT, ALUVA 2 BALANCE ` 2558.01 LAKHS HAVING BEEN ACTUALLY PAID OR CONTRIBU TED DURING THE FOLLOWING FINANCIAL YEAR, SUPPORTING THE SAME WITH A COPY OF THE SAVING BANK ACCOUNT OF THE FUND WHEREIN THE SAID AMOUNT STOOD CREDITED ON 03.4.2006 . IN THE VIEW OF THE REVENUE, THE FRINGE BENEFIT TAX (FBT) WAS PAYABLE FOR THE YEAR I N WHICH THE EXPENDITURE IS INCURRED, EVEN AS CLARIFIED BY THE CBDT VIDE ITS CIRCULAR NO. 8/2005 DATED 29.8.2005 (COPY ON RECORD). THE RELEVANT EXPENDITURE HAVING BEEN INCU RRED IN FULL DURING THE FINANCIAL YEAR (F.Y.) 2005-06, THE ENTIRE CONTRIBUTION OF ` 3286.09 LAKHS IS LIABLE FOR ASSESSMENT TO FBT FOR A.Y. 2006-07 AND, ACCORDINGLY, THE CONTRIBUTION PAYABLE AS AT THE YEAR-END (31.3.2006), I.E., ` 2558.01 LAKHS, WAS BROUGHT TO TAX BY THE ASSESSING OFFICER (A.O.). THE LD. CIT(A), AFTER NOTING THE ASSESSEES ARGUMEN TS, WHO RELIED ON THE PROVISIONS OF SS. 115WA(1), 115WB(1) AND 115WC(1), CONFIRMED THE SAID ADDITION, RELYING ON PARAS 7, 8 AND 11 OF THE SAID CIRCULAR, REPRODUCING THE ANSWER S TO QUESTION NOS. 18 & 19 AS CONTAINED IN PARA 11 OF THE CIRCULAR IN HIS ORDER. IN HIS VIEW, THE PROVISION FOR PAYMENT OF THE CONTRIBUTION AMOUNTED TO PROVISION OF FRINGE BENEFIT BY THE ASSESSEE TO ITS EMPLOYEES. AGGRIEVED, THE ASSESSEE IS IN APPEAL. 3.1 BEFORE US, THE ISSUE WAS ARGUED AT LENGTH. THE LD. AR WOULD SUBMIT THAT THE AUTHORITIES BELOW HAVE MISLED THEMSELVES BY RELYING ON THE PROVISIONS OF SEC. 115WD, WHICH CASTS AN OBLIGATION FOR FILING THE RETURN OF FRINGE BENEFIT WHERE AN EMPLOYER HAS DURING THE PREVIOUS YEAR PAID OR MADE A PROVISION F OR PAYMENT IN RESPECT OF ANY FRINGE BENEFIT TO HIS EMPLOYEES. THE CHARGING SECTION CLEA RLY PROVIDES FOR LIABILITY TO FBT WHERE A FRINGE BENEFIT IS EITHER PROVIDED OR DEEMED TO BE PROVIDED BY AN EMPLOYER TO HIS EMPLOYEES DURING THE PREVIOUS YEAR. WHILE SEC. 115W B(1) DEFINES THE TERM FRINGE BENEFIT WITH REFERENCE TO SOME PAYMENTS, SUB-SECTI ON (2) OF THE SECTION PROVIDES FOR VARIOUS EXPENSES, THE INCURRING OF WHICH BY THE ASS ESSEE-EMPLOYER WOULD BE CONSIDERED AS A DEEMED PROVISION OF FRINGE BENEFIT BY IT TO IT S EMPLOYEES. IT IS, THUS, CLEAR THAT IT IS ONLY IN THE CASE OF THE LATTER, I.E., THE DEEMED FR INGE BENEFIT, WHERE THE INCURRING OF AN EXPENSE HAS BEEN CONSIDERED BY LAW AS AMOUNTING TO PROVISION OF A FRINGE BENEFIT BY THE EMPLOYER TO HIS EMPLOYEES. WITH REGARD TO THE FORME R, I.E., THE FRINGE BENEFIT PER SE , THE SAME WOULD BE SO ONLY WHERE THE TRANSACTION FALLS U NDER EITHER OF THE CLAUSES (A) TO (D) OF I.T.A. NO.261/COCH/2009 THE FEDERAL BANK LTD. V. ASSTT. CIT, ALUVA 3 SEC. 115WB(1). PER CLAUSE (C) THEREOF, THE ACT CLEA RLY DEFINES THE CONTRIBUTION BY AN EMPLOYER TO HIS EMPLOYEES SUPERANNUATION FUND AS A FRINGE BENEFIT. THE SAME CAN POSSIBLY ONLY MEAN AN ACTUAL CONTRIBUTION, AND NOT A PROVISION IN ITS RESPECT BY THE ASSESSEE-EMPLOYER IN HIS ACCOUNTS, WHEREBY THE EMPL OYEE DOES NOT STAND TO GAIN ANYTHING. THE PROVISION IN ACCOUNTS IS BY ITSELF WH OLLY IRRELEVANT IN THE MATTER. WHAT, IF THE ASSESSEE-EMPLOYER DOES NOT PAY THE CONTRIBUTION ? THE EMPLOYEE DOES NOT STAND TO GAIN ANYTHING, AND NO BENEFIT CAN THUS BE CONSIDERE D AS HAVING BEEN PROVIDED TO HIM BY THE EMPLOYER. SUPPORT FOR THE ARGUMENT WAS ALSO SOU GHT TO DRAWN BY HIM FROM S. 115WC, WHICH SEEKS TO PROVIDE FOR THE VALUATION OF THE FRI NGE BENEFIT. CLAUSE (B) OF SUB-SECTION (1) THEREOF REFERS TO THE ACTUAL AMOUNT OF CONTRIBU TION, AND, THUS, CLARIFIES THE MATTER BEYOND ANY DOUBT, I.E., THAT IT IS ONLY THE ACTUAL CONTRIBUTION WHICH IS CONTEMPLATED BY THE ACT AS AMOUNTING TO THE PROVISION OF FRINGE BENEFIT BY WAY OF CONTRIBUTION TO THE SUPERANNUATION FUND OF THE EMPLOYEES. THE QUESTIONS REFERRED TO BY THE LD. CIT(A) IN HIS ORDER ARE IN RESPECT OF `DEEMED FRINGE BENEFIT, AN D WHICH, AS CLARIFIED BY THE ACT ITSELF (S. 115WB(2)), WOULD BE THE INCURRING OF AN EXPENDITURE ON OR MAKING OF PAYMENT FOR THE DEFINED PURPOSES. AS SUCH, THE INFERENCE DRAWN BY HIM IS NOT IN CONSONANCE WITH THE CLEAR PROVISIONS AS WELL AS THE SCHEME OF THE ACT. ON BEING QUESTIONED BY THE BENCH AS TO WHETHER THE ASSESSEE HAD INCURRED ANY CONTRACTUA L LIABILITY AS AN EMPLOYER IN RESPECT OF CONTRIBUTION TO THE EMPLOYEES SUPERANNUATION FUND, HE REPLIED IN THE NEGATIVE, STATING THAT ALL THAT THE ASSESSEE HAD DONE WAS TO PROVIDE FOR THE LIABILITY IN HIS ACCOUNTS ON THE BASIS OF AN ACTUARIAL VALUATION. ON A FURTHER QUES TION, AS TO IF THE CHEQUE FOR THE CONTRIBUTION HAD BEEN ISSUED BY THE ASSESSEE-EMPLOY ER ON OR BEFORE 31.3.2006, HE CLARIFIED THAT THE SAME WAS ONLY ON 03.4.2006, I.E. , THE DATE ON WHICH THE FUNDS STOOD TRANSFERRED TO THE BANK ACCOUNT OF THE FUND. 3.2 THE LD. DR, ON THE OTHER HAND, WAS EQUALLY VEHE MENT IN ARGUING THE REVENUES CASE. THE LIABILITY STANDS DULY INCURRED, AND NEIT HER IS THERE ANY DIFFERENCE IN VALUATION, AS IS BORNE OUT BY THE FACTUM OF THE SUBSEQUENT PAY MENT AT THE AMOUNT OF PROVISION. THE INCURRING OF THE LIABILITY BY ITSELF CONSTITUTES TH E PROVISION OF THE CORRESPONDING BENEFIT TO THE EMPLOYEE INASMUCH AS ITS CONSIDERATION STANDS S UFFERED BY THE EMPLOYER. WOULD THERE I.T.A. NO.261/COCH/2009 THE FEDERAL BANK LTD. V. ASSTT. CIT, ALUVA 4 BE A PAYMENT IN THE ABSENCE OF ANY LIABILITY IN ITS RESPECT ? AS SUCH, THE ORDERS OF THE AUTHORITIES BELOW MERIT CONFIRMATION. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 4.1 WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO T HE MATTER. WE ARE, FOR THE REASONS SPECIFIED THEREIN, UNABLE TO BE IN AGREEMENT WITH T HE ASSESSEES CASE. THE BASIS OF THE FRINGE BENEFIT TAX (FBT) IS THE PROVISION OF A FRIN GE BENEFIT, AS DEFINED, BY AN EMPLOYER TO HIS EMPLOYEE (SEC. 115WA). THE SCHEME OF THE CHARG E ALSO COVERS CASES WHERE PAYMENTS TO EVEN THIRD PARTIES, I.E., AS AGAINST TH OSE DIRECTLY TO THE EMPLOYEES, ARE DEEMED AS A PROVISION OF A FRINGE BENEFIT, AS WHERE SUCH P AYMENTS (VIZ. ENTERTAINMENT, CONFERENCE, PROVISION OF HOSPITALITY, CONVEYANCE, R EPAIR OF FURNITURE, ETC.) BEAR AN ELEMENT OF PERSONAL EXPENDITURE, ALSO BENEFITING THE CONCER NED EMPLOYEE, SO THAT THE INCURRING THE SAME IS BY ITSELF DEEMED BY LAW AS A PROVISION OF A (FRINGE) BENEFIT TO THE EMPLOYEE (S. 115WB(2)). THE ASSESSEES CASE IS THAT THE FRINGE BENEFIT U/S. 115WB(1) IS ATTRACTED ONLY ON ACTUAL PAYMENT, I.E., ENTAILS AN ACTUAL PAYMENT, IN CONTRADISTINCTION TO INCURRING A LIABILITY IN ITS RESPECT, WHICH IS PERMISSIBLE FOR BEING RECKONED AS A FRINGE BENEFIT ONLY IN RESPECT OF CASES COVERED BY S. 115WB(2). 4.2 THE RELEVANT PROVISIONS READ AS UNDER:- CHARGE OF FRINGE BENEFIT ETC . 115WA. (1) IN ADDITION TO THE INCOME-TAX CHARGED U NDER THIS ACT, THERE SHALL BE CHARGED FOR EVERY ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL, 2006, ADDITIONAL INCOME-TAX (IN THIS ACT REFERRED TO AS FRINGE BENEFIT TAX) IN RESPECT OF THE FRINGE BENEFITS PROVIDE OR DEEMED TO HAVE B EEN PROVIDED BY AN EMPLOYER TO HIS EMPLOYEES DURING THE PREVIOUS YEAR AT THE RATE OF THIRTY PER CENT ON THE VALUE OF SUCH FRINGE BENEFITS. FRINGE BENEFITS . 115WB(1) FOR THE PURPOSES OF THIS CHAPTER, FRINGE BENEFITS MEANS A NY CONSIDERATION FOR EMPLOYMENT PROVIDED BY W AY OF - I.T.A. NO.261/COCH/2009 THE FEDERAL BANK LTD. V. ASSTT. CIT, ALUVA 5 A) ANY PRIVILEGE, SERVICE, FACILI TY OR AMENITY, DIRECTLY OR INDIRECTLY, PROVIDED BY AN EMPLOYER, WHETHER BY WAY OF REIMBURSEMENT OR OTHERWISE, 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; C) ANY CONTRIBUTION BY THE EMPLOYER TO AN APP ROVED SUPRANNUATION FUND FOR EMPLOYEES; AND D) (2) THE FRINGE BENEFITS SHALL BE DEEMED TO HAVE BEEN PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES, IF THE EMPLOYER HAS, IN THE COURSE O F HIS BUSINESS OR PROFESSION (INCLUDING ANY ACTIVITY.) INCURRED ANY EXPENSE ON, OR MADE ANY PAYMENT FOR, THE FOLLOWING PURPOSES, NAMELY:- (A) ENTERTAINMENT; (B) PROVISION OF HOSPITABILITY OF EVERY KIND BY THE EMP LOYER TO ANY PERSON, WHETHER BY WAY OF PROVISION OF FOOD OR BEVERAGES OR IN ANY OTHER MANNER .. VALUE OF FRINGE BENEFITS . 115 WC(1) FOR THE PURPOSES OF THIS CHAP TER, THE VALUE OF FRINGE BENEFITS SHALL BE THE AGGREGATE OF THE FOLLOWING, NAMELY:- (A) (B) ACTUAL AMOUNT OF THE CONTRIBU TION REFERRED TO IN CLAUSE (C) OF SUB-SECTION (1) OF SECTION 115WB; (BA) . 4.3 UNDER BOTH THE CLAUSES, I.E., SUB SECTIONS (1 ) & (2) OF SEC. 115WB, THE RECIPIENT OR THE PAYEE, I.E., A PERSON WHO RECEIVES THE PAYME NT, OR THE WOULD-BE PAYEE, I.E., TO WHOM THE PAYMENT IS TO BE MADE, COULD BE PERSONS OT HER THAN THE EMPLOYEE CONCERNED. WHILE SEC. 115WB(1) COVER CASES OF DIRECT PAYMENT F OR AND ON BEHALF OF THE EMPLOYEE, PER SUB-SECTION (2) OF THE SECTION, AS AFORE-STATED , THE LAW DEEMS SOME PAYMENTS/EXPENDITURE, INCURRED IN THE COURSE OF HIS BUSINESS/PROFESSION BY THE ASSESSEE, AS A PROVISION OF FRINGE BENEFIT, AND ONLY (SO) IN VIEW OF THE SAME (EXPENDITURE) BEARING AN ELEMENT OF PERSONAL GRATIFICATION/BENEFIT. IN OT HER WORDS, THE TEST OF THE PAYMENT QUA A I.T.A. NO.261/COCH/2009 THE FEDERAL BANK LTD. V. ASSTT. CIT, ALUVA 6 DEEMED FRINGE BENEFIT AS BEING TO A THIRD PARTY AS AGAINST TO THE EMPLOYEE HIMSELF IN RESPECT OF FRINGE BENEFIT U/S. 115WB(1), BREAKS DOW N. THE PROVISION OF A PRIVILEGE, SERVICE, FACILITY OR AMENITY, FREE/CONCESSIONAL TIC KET, ETC., TO AN EMPLOYEE COULD WELL ENTAIL PAYMENT TO A THIRD PARTY. LIKE-WISE, THE `TE ST OF THE FRINGE BENEFIT AS INVOLVING ONLY AN ACTUAL PAYMENT, WHILE A DEEMED FRINGE BENEF IT U/S. 115WB(2) COULD ENTAIL CONTRACTING A CORRESPONDING LIABILITY BY THE EMPLOY ER, I.E., TO A THIRD PERSON. THIS IS AS, CLEARLY, THERE IS NO BASIS FOR CONTENDING SO; THE P ROVISION OF A PRIVILEGE OR SERVICE OR FREE/CONCESSIONAL TICKET, ETC., BY THE EMPLOYER (CO VERED U/S. 115WB(1)) MAY WELL BE SO BY AN UNDERTAKING A CONTRACTUAL OBLIGATION OR ASSUM ING A LIABILITY IN ITS RESPECT, SO THAT THE CORRESPONDING PAYMENT MAY NOT HAVE BEEN MADE AS ON THE RELEVANT DATE, I.E., THE PROVISION OF THE FACILITY OR SERVICE OR THE DATE OF JOURNEY, ETC., AS THE CASE MAY BE. THE ARGUMENT/S ADVANCED BY THE LD. AR IS THUS TO NO MOM ENT THE SOLE GUIDING TEST, THEREFORE, EMANATING FROM THE CLEAR LANGUAGE OF THE RELEVANT P ROVISIONS IS THAT THE `TRANSACTION SHOULD RESULT IN THE PROVISION OF A BENEFIT TO THE EMPLOYEE . THE DIFFERENCE, IF AT ALL IT IS NECESSARY TO IDENTITY ONE, THAT WE OBSERVE IS THAT WHILE THE BENEFITS PROVIDED UNDER SECTION 115WB(1) FLOW OR ARISE OUT OF TERMS OF EMPL OYMENT, THOSE U/S. 115WB(2) MAY NOT NECESSARILY BE SO, AND MAY EVEN BE IN RELATION TO PERSONS WHO ARE ADMITTEDLY NOT ITS EMPLOYEES. THE PROVISION OF FRINGE BENEFIT TO AN EM PLOYEE AND THE PAYMENT OF THE CORRESPONDING LIABILITY BY THE ASSESSEE-EMPLOYER TO THE PAYEE, ARE TWO ENTIRELY DIFFERENT THINGS OR ASPECTS OF THE MATTER. IN FACT, THIS HAS EVEN NOTHING TO DO WITH THE PROVISION OF THE SAID LIABILITY IN HIS ACCOUNTS BY THE EMPLOYER, WHICH IN A GIVEN CASE MAY NOT OBTAIN, AND WITHOUT IN ANY MANNER IMPACTING EITHER THE ALLO WABILITY AS DEDUCTION OF THE CORRESPONDING EXPENDITURE (IN THE COMPUTATION OF TH E ASSESSEE-EMPLOYERS INCOME UNDER THE ACT), OR ITS INCLUSION AS A FRINGE BENEFIT PROV IDED BY THE EMPLOYER. A PROVISION IN ACCOUNTS ONLY EXHIBITS THE FACTUM OF ACCRUAL OF THE LIABILITY. IN OUR VIEW, THERE IS ONLY ONE, AND NOT TWO BASES FOR ATTRACTING THE CHARGE TO TAX ON ACCOUNT O F FRINGE BENEFIT U/S. 115WA, I.E., ONE AS SPECIFIED U/S. 115WB(1), AND TH E OTHER FOR THOSE DEEMED TO BE PROVIDED U/S. 115WB(2), AND THAT IS THE PROVISION O F A FRINGE BENEFIT AS PROVIDED OR DEEMED TO HAVE BEEN PROVIDED, AS BEING CONTENDED BY THE ASSESSEE. AND THE DATE OF THE ACTUAL DISCHARGE OF THE CORRESPONDING LIABILITY (TO WARD PAYMENT OR EXPENDITURE) BY THE I.T.A. NO.261/COCH/2009 THE FEDERAL BANK LTD. V. ASSTT. CIT, ALUVA 7 EMPLOYER IS AN ALTOGETHER DIFFERENT MATTER. THE DEE MING U/S. 115WB(2) IS ONLY TOWARD THE STATUTORY PRESUMPTION QUA CERTAIN PAYMENTS AS CONSTITUTING A FRINGE BENEFIT, I.E., BY LAW. IN VIEW OF THE STATUTORY PRESUMPTION, IT IS N OT OPEN TO CONTEND THAT THE PAYMENT (TO A THIRD PARTY) DOES NOT INVOLVE AN EXTENSION OR PROVI SION OF BENEFIT TO THE EMPLOYEES OR OF IT AS NOT BEING SO AS NOT FLOWING FROM THE TERMS OF TH E EMPLOYMENT. AS SUCH, ONCE THE EMPLOYER HAS UNDERTAKEN AN OBLIGATION TO PAY OR CON TRACTED A LIABILITY IN ITS RESPECT, HE HAS SUFFERED THE CONSIDERATION FOR THE PROVISION OF THE FRINGE BENEFIT TO HIS EMPLOYEE U/S. 115WB(1). OF COURSE, THE CORRESPONDING SERVICE SHO ULD HAVE BEEN PERFORMED OR AVAILED OF (BY THE EMPLOYEE). E.G., IF THE BENEFIT IS BY W AY OF FREE/CONCESSIONAL TICKETS, THE DATE OF JOURNEY MUST FALL DURING THE RELEVANT PREVIOUS Y EAR, AND THE MERE PURCHASE OF TICKETS, WHETHER PAID FOR OR ACQUIRED ON CREDIT, WOULD NOT A MOUNT TO A PROVISION OF ANY CORRESPONDING BENEFIT TO THE EMPLOYEES, WHERE IT IS NOT SO. THE DATE OF DISCHARGE OF THE CORRESPONDING LIABILITY BY THE ASSESSEE-EMPLOYER IS WHOLLY IRRELEVANT FOR THE PURPOSE. 4.4 THOUGH NOT DIRECTLY RELEVANT, IT WOULD, AT THIS STAGE, BE RELEVANT TO CONSIDER THE FOREGOING PROVISIONS WITH THE OTHER PROVISIONS UNDE R THE ACT RELATING TO THE DEDUCTION QUA CONTRIBUTION BY THE EMPLOYER IN THE COMPUTATION OF HIS BUSINESS/OTHER INCOME: DEFINITIONS . 2. IN THIS ACT, UNLESS THE CONTEXT OTHERWISE REQUIRES , - (24) INCOME INCLUDES - (I) PROFITS AND GAINS ; (II) DIVIDEND; (III) .. (X) ANY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPL OYEES AS CONTRIBUTIONS TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR ANY FUND SET UP UNDER THE PROVISIONS OF THE EMPLOYEES STATE INSURANCE ACT, 1948 (34 OF 19 48), OR ANY OTHER FUND FOR THE WELFARE OF SUCH EMPLOYEES; S. 17 (1) SALARY INCLUDES - I.T.A. NO.261/COCH/2009 THE FEDERAL BANK LTD. V. ASSTT. CIT, ALUVA 8 (VI) THE ANNUAL ACCRETION TO THE BALANCE AT THE CREDIT OF THE EMPLOYEE PARTICIPATING IN A RECOGNIZED PROVIDENT FUND, .. (2) PERQUISITE INCLUDES - (V) ANY SUM PAYABLE BY THE EMPLOYER, WHETH ER DIRECTLY OR THROUGH A FUND, OTHER THAN A RECOGNISED PROVIDENT FUND OR AN APPROVED SUPERANN UATION FUND OR S. 36(1) (IV) ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TOWARDS A RECOGNISED PROVIDENT FUND OR AN APPROVED SUPERANNUA TION FUND, .. (V) ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TOWARDS AN APPROVED GRATUITY FUND CREATED BY HIM FOR THE E XCLUSIVE BENEFIT OF HIS EMPLOYEES UNDER AN IRREVOCABLE TRUST. FURTHER, BUT FOR S. 43B(B), THE CONTRIBUTION PAYAB LE BY THE ASSESSEE AS AN EMPLOYER TO THE FUND FOR THE BENEFIT OF HIS EMPLOYEES WOULD BE ALLOWED AS A DEDUCTION. THIS IS EVEN AS THE WORD `PAID IS DEFINED U/S. 43(2) AS INCLUDI NG `INCURRED. THE LEGISLATURE, PER THESE SECTIONS, WHICH ALSO CONCERN CONTRIBUTION TO FUNDS SET UP FOR THE BENEFIT OF THE EMPLOYEES, EMPLOYED THE WORDS `SUM RECEIVED, `ANNUAL ACCRETIO N, `SUM PAID, `SUM PAYABLE, TO DENOTE THE SUMS UNDER REFERENCE, AS ALSO AS TO WHET HER IT WOULD COVER ONLY ACTUAL PAYMENTS AND/OR THOSE PAYABLE AS WELL. IN OTHER WOR DS, THE LEGISLATIVE INTENT, AS EXPRESSED BY THE CLEAR LANGUAGE OF THE ACT, DOES NOT WARRANT RESTRICTING THE PROVISION OF FRINGE BENEFIT ONLY TO CASES WHERE THE CONTRIBUTION HAS BE EN ACTUALLY PAID OR REALIZED, I.E., IN EXCLUSION TO CASES WHERE THE CONTRIBUTION HAS ACTUA LLY INURED. THE LD. AR, IN OUR OPINION, IS INCORRECT IN STATING THAT NO CONTRACTUAL LIABILI TY QUA CONTRIBUTION TO THE SUPERANNUATION FUND (OF THE EMPLOYEES) STANDS UNDERTAKEN OR ASSUME D BY THE ASSESSEE AS AT THE END OF THE RELEVANT YEAR. THE SAME IS IN FACT CONTRADICTED BY THE PROVISION FOR THE SAME IN ITS ACCOUNTS, AND WHICH IS ONLY ON THE BASIS OF ASSUMPT ION OF LIABILITY IN ITS RESPECT. ON WHAT BASIS, ONE MAY ASK, IF NOT SO, IS IT PROVIDING FOR THE SAID LIABILITY IN ITS ACCOUNTS, CLAIMING THE SAME IN ITS RETURN AND, FURTHER, MAKING PAYMENT THERE-AGAINST. THE ASSESSEE IS BY VIRTUE OF THE CONTRACT OF EMPLOYMENT, AS WELL AS TH AT ENTERED INTO WITH THE FUND, OBLIGED TO CONTRIBUTE ON A DEFINED, PERIODIC BASIS, WHICH C ONSTITUTES THE `CONSIDERATION TOWARD I.T.A. NO.261/COCH/2009 THE FEDERAL BANK LTD. V. ASSTT. CIT, ALUVA 9 THE PROVISION OF BENEFIT TO THE EMPLOYEES . THE ONLY FURTHER CONDITION TO BE SATISFIED FOR IT TO BE CONSIDERED AS A `FRINGE BENEFIT IS THAT IT M UST BE TOWARD EMPLOYMENT, AND WHICH IT UNDISPUTEDLY IS IN THE PRESENT CASE. 4.5 COMING TO THE ASSESSEES POSER AS TO WHAT IF TH E CONTRIBUTION HAS NOT BEEN SUBSEQUENTLY PAID BY THE ASSESSEE, SO THAT THE EMPL OYEE DOES NOT STAND TO GAIN IN ANY MANNER, EVEN AS THE ASSESSEE-EMPLOYER IS SUBJECT TO FBT ON THE BASIS OF HAVING INCURRED THE LIABILITY IN ITS RESPECT. THE QUESTION FAILS TO TAKE COGNIZANCE OF THE FACT THAT THE EMPLOYEE/S IS NOT WITHOUT RECOURSE IN THE EVENT OF THE ASSESSEE FAILING TO PAY HIS CONTRACTUAL LIABILITY IN ITS RESPECT; AND THE SAME IS ENFORCEABLE UNDER LAW. THIS POSITION COULD IN FACT OBTAIN FOR AND, CONSEQUENTLY, THE ARG UMENT EXTENDED TO, ANY SERVICE, FACILITY OR EXPENDITURE, AND EVEN TO THOSE COVERED UNDER S. 115WB(2). WHAT IF THE ASSESSEE DOES NOT SUBSEQUENTLY DISCHARGE HIS LEGAL/CONTRACTUAL OB LIGATION/LIABILITY? THE LEGAL ENFORCEABILITY OF THE LIABILITY ONLY IMPLIES THAT T HE RIGHT TO RECEIVE CONTRIBUTION HAS ARISEN OR INURED TO THE EMPLOYEE DURING THE RELEVANT PREVI OUS YEAR. SECONDLY, THE QUESTION IS ALSO MISCONCEIVED, AS IT FAILS TO RECOGNIZE THAT `A CCRUAL IS ESSENTIALLY A MATTER OF FACT, WHICH IN THE PRESENT CASE IS NOT DISPUTED, I.E., TH AT THE PROVISION TOWARDS THE CONTRIBUTION REPRESENTS AN ADMITTED LIABILITY AS AT THE END OF T HE RELEVANT YEAR. THE ARGUMENT IS, THEREFORE, WITHOUT ANY BASIS IN FACT OR IN LAW. 4.6 COMING, NEXT, TO THE ASPECT OF VALUATION; THE L D. AR HAVING ALSO SOUGHT TO DRAW SUPPORT FROM THE RELEVANT PROVISION IN ITS RESPECT (SECTION 115WC). THE SECTION RELATES ONLY TO THE VALUATION OF THE FRINGE BENEFITS, WITH SEC. 115WC(1)(B) CONCERNING THE CONTRIBUTION TO ANY SUPERANNUATION FUND. THE SAME ONLY PROVIDES THAT THE VALUE OF THE BENEFIT IS TO BE ADOPTED WITH REFERENCE TO THE ACTU AL AMOUNT OF CONTRIBUTION, NOTHING LESS, NOTHING MORE . THAT IS, IT ABSTAINS FROM PRESCRIBING ANY INDEPEN DENT VALUATION METHOD, BUT CONFINES IT TO THE ARRANGEMENT, AS EXISTING, WHEREB Y THE CONTRIBUTIONS ARE BEING PAID OR ARE LIABLE FOR PAYMENT. IN THE PRESENT CASE, AS STA TED, THE `ARRANGEMENT PROVIDES FOR PAYMENT OF THE CONTRIBUTION ARRIVED AT ON THE BASIS OF THE ACTUARIAL VALUATION. FURTHER, THERE IS NO DIFFERENCE BETWEEN THE AMOUNT OF ACTUAL CONTRIBUTION AND THAT PROVIDED FOR IN I.T.A. NO.261/COCH/2009 THE FEDERAL BANK LTD. V. ASSTT. CIT, ALUVA 10 THE BOOKS OF ACCOUNTS. IN FACT, WHATEVER MAY BE TH E BASIS OF ARRIVING AT THE AMOUNT OF CONTRACTED LIABILITY (I.E., ACTUARIAL OR OTHERWISE) , NO DIFFERENCE WOULD OBTAIN WHERE THE EMPLOYER PAYS THE AMOUNT HE IS SUPPOSED TO PAY, I.E ., FOR WHICH OBLIGATION HAS BEEN ASSUMED AND LIABILITY INCURRED, PROVIDING THE SAME IN ITS BOOKS. THE WORDS ` ACTUAL AMOUNT OF THE CONTRIBUTION REFERRED TO .. IN SECTION 115WC(1)(B), REFER TO THE ACTUAL AMOUNT OF CONTRIBUTION REFERRED TO IN SEC. 115WB(1) (C), I.E., WHICH THE ASSESSEE IS OBLIGED TO PAY. THE INFERENCE SOUGHT TO BE DRAWN FROM THE P ROVISIONS OF S. 115WC IS, THUS, TO OUR MIND, MISCONSTRUED. AS APPARENT, THE SAME CONCERNS ONLY THE VALUATION ASPECT, PRESCRIBING THE ADOPTION OF THE ACTUAL AMOUNT OF CO NTRIBUTION TOWARD CONSIDERATION, SO THAT NO CASE OF ANY DIFFERENCE OR VARIATION MAY ARI SE. AGAIN, IT WOULD NOTED THAT THE WORD ACTUAL IN THE PROVISION QUALIFIES THE WORD AMOU NT AND NOT CONTRIBUTION, AND WHICH ONLY ACCORDS WITH THE PURPOSE OF THE PROVISION, I.E ., PROVIDING A BASIS FOR VALUATION. IN FACT WHERE PROVIDED FOR (IN ACCOUNTS), I.E., IN TER MS OF THE UNDERLYING CONTRACT, WE ARE UNABLE TO SEE AS TO HOW THE SAME WOULD VARY FROM TH E AMOUNT PAID, EVEN THOUGH SUBSEQUENTLY. THE PROVISION ONLY STATES THAT THE AC TUAL AMOUNT OF CONTRIBUTION IS TO BE CONSIDERED FOR VALUATION, SO THAT IT WOULD REASONAB LY ONLY IMPLY THE AMOUNT OF CONTRIBUTION THAT IS EITHER PAID OR OBLIGED TO BE S O, BOTH THE AMOUNTS BEING ONLY IN PURSUANCE TO THE SAME CONTRACTUAL OBLIGATION AND, F URTHER, AS ARISING DURING THE RELEVANT YEAR. IN FACT WHERE PROVIDED FOR (IN ACCOUNTS), I.E ., IN TERMS OF THE UNDERLYING CONTRACT, WE ARE UNABLE TO SEE AS TO HOW THE SAME WOULD VARY FRO M THE AMOUNT SUBSEQUENTLY PAID. IN FACT, THE PROVISION STAND AMENDED ( BY THE FINANCE ACT, 2006 W.E.F. 1.4.2007 (A.Y. 2007-08), SO THAT IT NOW READS AS UNDER:- S. 115WC(1) (B) THE AMOUNT OF CONTRIBUTION, REFERRED IN CLAUSE (C) AND SUB-SECTION (1) OF S. 115 WB, WHICH EXCEEDS ONE LAKH RUPEES IN RESPE CT OF EACH EMPLOYEE; THE WORD `ACTUAL, ON WHICH THE LD. AR HEAVILY RELI ES, IS, AS WOULD BE READILY SEEN, CONSPICUOUSLY ABSENT, TO, HOWEVER, NO MATERIAL DIFF ERENCE, EVEN AS ITS SCOPE STANDS DISCUSSED HEREINABOVE. THE ONLY IMPORT OF THE AMEND MENT IS THAT WHILE THE ERSTWHILE PROVISION WOULD COVER THE CONTRIBUTIONS IRRESPECTIV E OF ANY MONETARY CONDITION, THE I.T.A. NO.261/COCH/2009 THE FEDERAL BANK LTD. V. ASSTT. CIT, ALUVA 11 SAME, W.E.F. A.Y. 2007-08, INCLUDES ONLY THOSE WHIC H ARE IN EXCESS OF ONE LAKH RUPEES, RECKONED SEPARATELY FOR EACH EMPLOYEE. RATHER, GOIN G BY THE ASSESSEES INTERPRETATION THEREOF, I.E., THAT ONLY THE CONTRIBUTION AS ACTUAL LY CREDITED TO THE ACCOUNT OF THE RESPECTIVE EMPLOYEE DURING THE RELEVANT YEAR IS TO BE TAKEN IN TO ACCOUNT, IT IS PERMISSIBLE TO AVOID THE LIABILITY TO FBT BY RESTRICTING THE PAYMENT TO LESS THAN ONE LAKH, PAYING THE BALANCE SUBSEQUENTLY, AND WHICH ONLY WOULD, IF AT ALL, ATTR ACT FBT. FOR EXAMPLE, A PAYMENT DUE AT (SAY) ` 1.25 LACS, COULD BE PAID IN TWO INSTALMENTS OF ` 0.99 LACS AND ` 0.26 LACS, BOTH BEING NOT LIABLE TO TAX (FBT). IN FINE, REFERENCE TO THIS PROVISION, RATHER THAN ASSISTING THE ASSESSEES CASE, DOES THAT OF THE REVENUE, REINFORC ING THE VIEW THAT IT IS ONLY THE AMOUNT OF CONTRIBUTION WHICH THE ASSESSEE-EMPLOYER IS LIAB LE TO PAY IN TERMS OF THE UNDERLYING CONTRACTUAL OBLIGATION QUA EMPLOYMENT, WHERE INCURRED DURING THE RELEVANT YEA R, WHICH CONSTITUTES THE CONSIDERATION FOR EMPLOYMENT, AND O N WHICH IT WOULD BE LIABLE TO BE CHARGED TO FBT. REFERENCE TO SECTION 115WD, WHICH C ASTS AN OBLIGATION TO RETURN THE FRINGE BENEFIT EITHER PAID OR PROVIDED FOR BY THE A SSESSEE-EMPLOYER, ALSO SUPPORTS THIS VIEW INASMUCH AS IT CANNOT OBLIGE THE ASSESSEE TO R ETURN A `FRINGE BENEFIT WHICH DOES NOT QUALIFY AS ONE, OR FOR WHICH THERE IS NO LIABILITY TO FBT. THE SAME, THOUGH DEFINITELY NOT A CHARGING PROVISION, IS YET REQUIRED TO BE READ HARM ONIOUSLY. 4.7 FINALLY, WE MAY CONSIDER ONE MORE ASPECT O F THE MATTER. THAT IS, WHETHER THE PROVISION OF FRINGE BENEFIT IN RESPECT OF A CONTRIB UTION TO THE EMPLOYEES SUPERANNUATION FUND U/S. 115WB(1)(C), WOULD NECESSARILY REQUIRE TH AT THE SAME HAD BECOME DUE FOR PAYMENT DURING THE RELEVANT YEAR OR WOULD IT BE SUF FICIENT IF THE LIABILITY IN ITS RESPECT HAD ACCRUED AS AT THE YEAR-END. TO MAKE THINGS CLEARER, ASSUMING (SAY) THAT THE CONTRIBUTION FALLS DUE FOR PAYMENT ON THE FIRST DAY OF APRIL, SO THAT THE LIABILITY THOUGH ACCRUED HAD NOT FALLEN DUE FOR PAYMENT AS ON THE LAST DAY OF MARCH. COULD, IN SUCH A CASE, IT BE SAID THAT EVEN THOUGH THE RIGHT TO PAY AND, CORRESPONDINGLY, TO RECEIVE, HAVING NOT CRYSTALLIZED AS AT THE END OF THE RELEVANT YEAR, THERE IS NO PROVIS ION OF FRINGE BENEFIT BY WAY OF CONTRIBUTION THERETO ?. WE CONSIDER IT RELEVANT TO DISCUSS THIS ASPECT O NLY FOR THE SAKE OF COMPLETENESS OF OUR ORDER, EVEN AS NO CONTENTION IN ITS RESPECT STANDS RAISED BY THE ASSESSEE AT ANY STAGE AND, FURTHER, IN THE FACTS OF THE CASE, THE IMPUGNED LIABILITY HAS I.T.A. NO.261/COCH/2009 THE FEDERAL BANK LTD. V. ASSTT. CIT, ALUVA 12 ADMITTEDLY ACCRUED AND IS PAYABLE AS AT THE YEAR-EN D; THE ASSESSEE PAYING THE SAME AT THE SAME AMOUNT IMMEDIATELY THEREAFTER, RATHER, HAVING ALREADY DISCHARGED A PART OF THE LIABILITY DURING THE YEAR ITSELF. IN OUR VIEW THE A NSWER IS IN THE NEGATIVE, AND NOT IN THE LEAST FOR THE REASON THAT THE EMPLOYER HAS MADE OR IS ENTITLED TO MAKE AND CLAIM A PROVISION TOWARD THE LIABILITY FOR CONTRIBUTION IN HIS ACCOUNTS AS AT THE YEAR-END. THE PROVISION OF A BENEFIT, WHICH WOULD QUALIFY FOR BEI NG CONSIDERED AS SO, IS AS ACTUALLY (OR DEEMED TO BE) MADE DURING EACH PREVIOUS YEAR. THE S AME FLOWS FROM THE CONTRACT OF EMPLOYMENT AND/OR ANY OTHER SUPPLEMENTARY ARRANGEME NT MADE BY THE EMPLOYER IN ITS RESPECT (EMPLOYMENT). AS AFORE-NOTED, ALL THAT WAS REQUIRED TO BE WRITTEN IF THE INTENTION WAS TO BRING THE ACTUAL AMOUNT OF CONTRIBUTION AS P AID DURING A PARTICULAR YEAR TO TAX WAS TO USE THE WORDS `THE SUM PAID OR `THE SUM CREDITE D TO THE ACCOUNT, ETC., AS WAS SOUGHT TO BE ILLUSTRATED WITH REFERENCE TO SOME OTHER PROV ISIONS IN RESPECT OF CONTRIBUTIONS TO EMPLOYEE WELFARE FUNDS. THE OPERATIVE WORDS ARE `CO NSIDERATION . BY WAY OF , AND WHAT QUALIFIES IT TO BE A `FRINGE BENEFIT IS WHERE IT IS FOR EMPLOYMENT. THE WORDS ARE WIDE IN SCOPE, AND WOULD THUS ALSO INCLUDE ALL CONT RIBUTIONS WHICH ARE LIABLE TO BE PAID, INASMUCH AS ANY PAID SUBSEQUENT (TO THE END OF THE YEAR), EITHER ON OR AFTER ITS DUE DATE, IS ONLY ONE FOR WHICH THE EMPLOYER IS LIABLE TO CONTRI BUTE. SECONDLY, THE PROVISION OF BENEFIT BEING MADE QUA A CONTRACTUAL OBLIGATION, IT CAN BE SAID TO HAVE B EEN PROVIDED DURING A PREVIOUS YEAR ONLY IN RELATION TO THE CORRESPONDING LIABILITY ASSUMED BY THE EMPLOYER OR ARISING/ACCRUING TO IT DURING THE PARTICULAR YEAR. THAT IS, WHERE PROVIDED BY WAY OF CONTRIBUTION BY AN EMPLOYER (TO AN APPROVED SUPERAN NUATION FUND FOR HIS EMPLOYEES), IT IS THE AMOUNT THAT THE EMPLOYER IS ACTUALLY REQUIRED T O CONTRIBUTE IN RELATION TO THE RELEVANT YEAR WHICH CAN BE SAID TO THE CONSIDERATION FOR EMP LOYMENT FOR THE SAID YEAR. THE DUE DATE/S OF CONTRIBUTION MAY NOT NECESSARILY MATCH WI TH THE FINANCIAL YEAR, AND OR EVEN IF THEY DO, THE CONTRIBUTION MAY NOT HAVE BEEN ACTUALL Y PAID DURING THE RELEVANT YEAR ITSELF. 5. IN VIEW OF THE FOREGOING, WE ARE UNABLE TO BE IN AGREEMENT WITH THE ASSESSEES CASE AND, ACCORDINGLY, UPHOLD THE REVENUES ACTION IN BR INGING THE AMOUNT OF UNDISCHARGED LIABILITY TOWARDS CONTRIBUTION ( ` 2558.01 LAKHS), DISCHARGED ON APRIL 3, 2006, TO TAX FOR THE RELEVANT YEAR, I.E., A.Y. 2006-07. SO HOWEVER, AS ADMITTEDLY THE AMOUNT STANDS I.T.A. NO.261/COCH/2009 THE FEDERAL BANK LTD. V. ASSTT. CIT, ALUVA 13 DISCHARGED DURING THE FOLLOWING YEAR, FOR WHICH THE SAME HAS BEEN OFFERED TO TAX BY THE ASSESSEE-COMPANY, THE SAME CANNOT BE SUBJECT TO TAX AGAIN FOR THAT YEAR, AND IF SO, THE ASSESSMENT FOR THAT YEAR WOULD STAND TO BE SUITABLY AMENDED BY THE AO, WITHOUT THE ASSESSEE BEING REQUIRED TO MOVE AN APPLICATION U/S. 154 IN ITS RESPECT. FOR THIS WE DRAW SUPPORT FROM THE DECISION IN THE CASE OF CIT V. AJAY FORGINGS (P.) LTD ., 257 ITR 572 (CAL.). WE DECIDE ACCORDINGLY. 6. IN THE RESULT, THE ASSESSEES APPEAL IS DI SMISSED ON THE AFORESAID TERMS. SD/- SD /- (N.R.S.GANESAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: DECEMBER 9, 2011 GJ COPY TO: 1. THE FEDERAL BANK LTD., P.B. NO. 103, FEDERAL TOW ERS, ALWAYE-683 101. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -1, ALUVA. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, KOC HI. 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE .