McLeod Russel India Limited., Kolkata V. A.C.I.T Range - 4,kolkata., Kolkata

ITA 262/KOL/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 2053 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-10-2015
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 30-09-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 07-02-2013
• Court: TRIBUNAL
• Department Lawyers: MRINAL KANTI BISWAS
• Assessee Lawyers: AJOY KUMAR GUPTA
• Keywords: Business expenditure
• Section: 10AA; 10B; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH C , KOLKATA [BEFORE SHRI M.BALAGANESH, AM & SHRI S.S.VISWANET HRA RAVI, JM] ITA NOS.262&263/KOL/2013 ASSESSMENT YEAR : 2008-09 & 2009-10 ( APPELLANT ) (RESPONDENT) MCLEOD RUSSEL INDIA LIMITED -VERSUS- A.C.I.T., RAN GE-4, KOLKATA KOLKATA (PAN:AAACE 6918 J) FOR THE APPELLANT : SHRI AJOY KUMAR GUPTA, FCA FOR THE RESPONDENT : SHRI MRINAL KANTI BISWAS, JCIT DATE OF HEARING : 30.09.2015. DATE OF PRONOUNCEMENT : 08.10.2015. ORDER PER SHRI M.BALAGANESH, AM 1. THESE APPEALS OF THE ASSESSEE ARISE OUT OF THE ORDER OF THE LEARNED CITA IN APPEAL NO. 139/CIT(A)-IV/2010-11 DATED 15.11.2012 F OR THE ASST YEAR 2008-09 AND IN APPEAL NO. 139/CIT(A)-IV/2011-12 DATED 16.11.201 2 FOR THE ASST YEAR 2009-10 PASSED AGAINST THE ORDER OF ASSESSMENT FRAMED BY TH E LEARNED AO U/S 115WE(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO A S THE ACT). AS THE ISSUES INVOLVED ARE IDENTICAL IN NATURE, BOTH THE APPEALS ARE TAKEN UP TOGETHER AND DISPOSED OFF BY A COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. SHRI.AJOY KR.GUPTA, FCA, THE LEARNED AR ARG UED ON BEHALF OF THE ASSESSEE AND SHRI. MRINAL KANTI BISWAS, JCIT, THE LEARNED DR ARG UED ON BEHALF OF THE REVENUE. 3. THE ONLY ISSUE TO BE DECIDED IN THIS ISSUE I S AS TO WHETHER THE ASSESSEE IS ENTITLED TO AVAIL THE CONCESSIONAL RATE OF TAX PRESCRIBED UN DER RULE 8 OF INCOME TAX RULES TO DETERMINE THE TAXABLE VALUE OF FRINGE BENEFITS. 4. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSE SSEE IS ENGAGED IN THE BUSINESS OF GROWING AND MANUFACTURING TEA. THE RETURN OF FRING E BENEFITS FOR THE ASST YEARS 2008- 09 & 2009-10 WAS FILED BY THE ASSESSEE DECLARING TA XABLE VALUE OF FRINGE BENEFITS IN ITA NOS.262&263/KOL/2013 MCLEOD RUSSEL INDIA LTD. A.YRS.2008-09& 2009-10 2 ACCORDANCE WITH RULE 8 OF INCOME TAX RULES. THE AS SESSEE CLAIMED THAT SINCE FOR THE PURPOSE OF INCOME TAX, ONLY 40% OF THE PROFITS ALON E SHALL BE TREATED AS THE TAXABLE INCOME AND 60% OF PROFITS SHALL BE ASSESSABLE UNDER STATE AGRICULTURAL TAX IN ACCORDANCE WITH RULE 8 OF INCOME TAX RULES. ACCOR DINGLY, THE ASSESSEE CLAIMED THAT THE SAME ANALOGY SHOULD BE MADE APPLICABLE FOR DETE RMINING THE TAXABLE VALUE OF FRINGE BENEFITS I.E ONLY 40% OF VALUE OF FRINGE BE NEFITS SHALL BE TAXABLE UNDER SECTION 115WC OF THE ACT. HOWEVER, THE LEARNED AO DID NO T ACCEPT TO THE CONTENTIONS OF THE ASSESSEE AND PROCEEDED TO DETERMINE THE TAXABLE VALUE OF FRINGE BENEFITS @ 100% AS AGAINST 40% DECLARED IN THE RETURN BY THE ASSESS EE. ACCORDING TO LEARNED AO, THE FRINGE BENEFIT TAX SHALL BE PAYABLE IRRESPECTIVE OF THE FACT WHETHER ANY INCOME TAX IS PAYABLE BY THE ASSESSEE UNDER THE PROVISIONS OF THE ACT AS PRESCRIBED IN SECTION 115WA OF THE ACT. ON FIRST APPEAL, THE LEARNED CI TA UPHELD THE ACTION OF THE LEARNED AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL B EFORE US. 5. THE LEARNED AR ARGUED THAT THE TAXABLE VALUE OF FRINGE BENEFITS SHOULD BE COMPUTED IN ACCORDANCE WITH RULE 8 OF INCOME TAX RU LES ONLY AS FRINGE BENEFIT TAX IS CHARGED U/S 115WA OF THE ACT WHICH ADMITTEDLY IS PART OF THE INCOME TAX ACT, 1961. WHEN THE TAXABLE INCOME UNDER THE PROVISIONS OF THE ACT ARE TO BE DETERMINED @ 40% OF PROFITS, THE SAME ANALOGY SHOULD EQUALLY B E MADE APPLICABLE FOR DETERMINING THE TAXABLE VALUE OF FRINGE BENEFITS. THE LEARNED AR ARGUED THAT THE ISSUE IS COVERED BY THE DECISION OF THE JURISDICTIO NAL HIGH COURT IN THE CASE OF MORAN TEA CO. (I) LTD VS CIT REPORTED IN (2014) 51 TAXMAN N.COM 520 (CALCUTTA) VIDE ORDER DATED 1.9.2014. IN RESPONSE TO THIS, THE LEARNED DR ARGUED THAT THE PROVISIONS OF SECTION 115WA OF THE ACT MAKES IT CLEAR THAT THE FR INGE BENEFIT TAX (FBT) SHALL BE PAYABLE BY THE ASSESSEE IRRESPECTIVE OF THE FACT TH E ASSESSEE PAYS INCOME UNDER THE PROVISIONS OF THE ACT OR NOT. HENCE FBT OPERATES AS AN INDEPENDENT CODE BY ITSELF. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, WE ARE NOT IN AGREEMENT WIT H THE ARGUMENTS OF THE LEARNED DR THAT FBT IS AN INDEPENDENT CODE BY ITSELF AND OPERA TES SEPARATELY IRRESPECTIVE OF THE FACT OF INCOME TAX LIABILITY ON THE ASSESSEE UNDER THE NORMAL PROVISIONS OF THE ACT. ITA NOS.262&263/KOL/2013 MCLEOD RUSSEL INDIA LTD. A.YRS.2008-09& 2009-10 3 FOR THE SAKE OF CONVENIENCE, THE PROVISIONS OF SECT ION 115WA ARE REPRODUCED HERE IN BELOW:- SECTION 115WA CHARGE OF FRINGE BENEFIT TAX (1) IN ADDITION TO THE INCOME TAX CHARGED UNDER THIS AC T, THERE SHALL BE CHARGED FOR EVERY ASSESSMENT YEAR COMMENCING ON OR AFTER 1 ST DAY OF APRIL 2006 , ADDITIONAL INCOME TAX (IN THIS ACT REFERRED TO AS F RINGE BENEFIT TAX) IN RESPECT OF THE FRINGE BENEFITS PROVIDED OR DEEMED TO HAVE BEEN PROVIDED BY AN EMPLOYER TO HIS EMPLOYEES DURING THE PREVIOUS YEAR AT THE RA TE OF THIRTY PERCENT ON THE VALUE OF SUCH FRINGE BENEFITS . (2) NOTWITHSTANDING THAT NO INCOME TAX IS PAYABLE BY AN EMPLOYER ON HIS TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE PROVISIONS O F THE ACT , THE TAX ON FRINGE BENEFITS SHALL BE PAYABLE BY SUCH EMPLOYER. THE ABOVE PROVISIONS MAKE IT VERY CLEAR THAT FRINGE BENEFIT TAX IS ALSO CHARGED AS PER THE PROVISIONS OF INCOME TAX ACT. HENCE IT IS INCO RRECT TO ARGUE THAT IT WOULD OPERATE INDEPENDENTLY AWAY FROM INCOME TAX ACT READ WITH RU LES THEREON. IT IS PERTINENT TO NOTE THAT THE LEGISLATURE IN ITS WISDOM HAD NOT PRO VIDED FOR THE NON OBSTANTE CLAUSE IN THE CHARGING SECTION 115WA OF THE ACT TO GIVE AN IN DEPENDENT AND OVERRIDING OPERATION. THE CHARGING SECTION 115WA OF THE AC T ONLY STATES THAT AN ASSESSEE EMPLOYER SHALL PAY FBT WHETHER OR NOT THE EMPLOYER ASSESSEE PAYS INCOME TAX UNDER NORMAL PROVISIONS OF THE ACT. THE EMPLOYER ASSESSE E MAY BE EXEMPT FROM PAYMENT OF INCOME TAX DUE TO ALLOWANCE OF VARIOUS EXEMPTION S / DEDUCTIONS U/S 10 A / 10B / 10AA / 80IA ETC OF THE ACT THEREBY RESULTING IN NIL TAX LIABILITY. HOWEVER, THAT WOULD NOT AUTOMATICALLY EXONERATE THE SAID EMPLOYER ASSES SEE FROM MAKING PAYMENT OF FBT. THIS IS WHAT IS INTENDED BY THE PROVISIONS OF SECTI ON 115WA OF THE ACT. HENCE IT CAN SAFELY BE CONCLUDED THAT THE PROVISIONS OF FBT FALL WITHIN THE AMBIT OF INCOME TAX ACT, 1961 READ WITH INCOME TAX RULES, 1962 AND HENC E DOES NOT OPERATE INDEPENDENTLY. 7. LOOKING AT THE IMPUGNED ISSUE FROM THE ABOVE PE RSPECTIVE, THE ASSESSEE BEING ENGAGED IN THE BUSINESS OF GROWING AND MANUFACTURE OF TEA IS ENTITLED TO OFFER ITS TAXABLE INCOME IN ACCORDANCE WITH RULE 8 OF INCOME TAX RULES. SIMILARLY THE TAXABLE ITA NOS.262&263/KOL/2013 MCLEOD RUSSEL INDIA LTD. A.YRS.2008-09& 2009-10 4 VALUE OF FRINGE BENEFITS ALSO COULD HAVE TO BE DETE RMINED ONLY IN ACCORDANCE WITH RULE 8 OF INCOME TAX RULES THEREON. WE ALSO FIND THAT T HE CASE LAW RELIED UPON BY THE LEARNED AR IS WELL PLACED . IN MORAN TEA CO. (I) LTD VS CIT REPORTED IN (2014) 51 TAXMANN.COM 520 (CALCUTTA), THE QUESTIONS RAISED BEFORE THE HONBLE JURISDICTI ONAL HIGH COURT WERE AS BELOW:- 1. WHETHER THE TRIBUNAL BELOW COMMITTED SUBSTANTIA L ERROR OF LAW IN UPHOLDING THE COMPUTATION OF THE VALUE OF FRINGE BENEFIT IN THE C ASE OF ASSESSEE ENGAGED IN THE BUSINESS OF GROWING, MANUFACTURING AND SALE OF TEA WITHOUT HAVING REGARD TO THE RELEVANT PROVISIONS OF THE INCOME-TAX ACT, 1961 REA D WITH RULE 8 OF THE INCOME-TAX RULES 1962. 2. WHETHER THE TRIBUNAL BELOW COMMITTED SUBSTANTIAL ERROR OF LAW IN HOLDING THAT THERE WAS NO SIMILARITY BETWEEN THE PROVISIONS OF SECTION 115WA VIS--VIS SECTION 115-O OF THE ACT. 3. WHETHER THE TRIBUNAL BELOW COMMITTED SUBSTANTIAL ERROR OF LAW IN UPHOLDING THE INCLUSION OF EXPENSES IN THE TAXABLE VALUE OF FRING E BENEFIT IN THE CASE OF AN ASSESSEE ENGAGED IN THE BUSINESS OF GROWING, MANUFACTURING A ND SALE OF TEA ALTHOUGH EXPENSES INCLUDED WERE NOT ALLOWED AS DEDUCTION WHEN COMPUTI NG THE TOTAL INCOME UNDER THE ACT ? THEIR LORDSHIPS OF CALCUTTA HIGH COURT WHILE DECIDI NG THE QUESTIONS RAISED HEREINABOVE HELD AS BELOW:- 3. WE FIND THE QUESTIONS AROSE OUT OF THE ISSUE DE CIDED BY THE TRIBUNAL REGARDING THE APPLICABILITY OF RULE 8 IN THE MATTER OF ARRIVING A T THE VALUE OF FRINGE BENEFIT FOR THE PURPOSE OF TAX THEREIN. THE ISSUE HAS BEEN DECIDED IN THE UNREPORTED JUDGMENT DELIVERED ON 3 RD JULY, 2014 IN ITAT 165 OF 2013. G.A.NO.3135 OF 201 3. APEEJAY TEA LTD. V. CIT IN CONSIDERING AN ILLUSTRATION GIVEN BY THE HONBLE SU PREME COURT IN CIT V. DOOM DOOMA INDIA LTD. [2009] 310 ITR 392/178 TAXMAN 261. WE SE T OUT THE RELEVANT PORTION OF THE SAID JUDGMENT : .WE SHALL TAKE ASSISTANCE OF THE ILLUSTRATION TO RESOLVE THE ISSUE. LET US ASSUME THAT THE OTHER EXPENSES IN ILLUSTRATION (A) AMOUNTING TO RS.300/- INCLUDE RS.100/- SPENT BY THE EMPLOYER ON ACCOUNT OF FRINGE BENEFITS MADE AVA ILABLE TO ITS EMPLOYEES. IN THAT CASE, 40% OF THE AFORESAID SUM OF RS.100/- WOULD ALSO BE INCLUDIBLE IN ILLUSTRATION (B). THEREFORE, THE QUESTION POSED BEFORE US HAS REALLY BEEN ANSWERED BY THE ILLUSTRATION GIVEN BY THE APEX COURT IN THE AFORESAID JUDGMENT. IT CANNOT BE DISPUTED THAT THE AMOUNT OF EXPENDITURE INCURRED BY THE ASSESSEE IN E XTENDING FRINGE BENEFITS TO ITS EMPLOYEES WAS NOT SOLELY FOR THE PURPOSE OF BUSINES S. THE EXPENDITURE INCURRED IS BOTH FOR THE PURPOSE OF BUSINESS AND FOR THE PURPOSE OF AGRICULTURE. THE SUBMISSION MADE BY MRS. GULGUTIA THAT THE EXPENDITURE ON ACCOUNT OF FR INGE BENEFITS HAS ALREADY BEEN TAKEN INTO ACCOUNT IS NOT CORRECT. THE NET PROFIT AND LOS S OF THE BUSINESS HAS TO BE ARRIVED AT AFTER DEDUCTING ALL THE EXPENSES AS INDICATED IN IL LUSTRATION A IN THE CASE OF DOM DOOMA (SUPRA). ONCE THAT IS DONE 40% OF THE NET PRO FIT AND LOSS HAS TO BE WORKED OUT WHICH SHALL BE CHARGEABLE TO TAX. ONCE THIS IS DONE THE EXPENDITURE ON ACCOUNT OF FRINGE ITA NOS.262&263/KOL/2013 MCLEOD RUSSEL INDIA LTD. A.YRS.2008-09& 2009-10 5 BENEFITS WOULD AUTOMATICALLY STAND REDUCED TO 40% A S WOULD APPEAR FROM ILLUSTRATION IN THE CASE OF DOOM DOOMA (SUPRA). THE REVENUE IS INTERESTED IN CONTENDING AS WOULD APPEAR FROM THE IMPUGNED ORDERS THAT THE EXPENDITUR E ON ACCOUNT OF FRINGE BENEFIT CANNOT BE REDUCED TO 40% FOR THE PURPOSE OF COMPUTI NG FRINGE BENEFIT TAX. IF THAT IS DONE, THE RESULT WOULD THAT THE AGRICULTURAL INCOME ITSELF WOULD BECOME LIABLE TO TAX, WHICH IS NOT PERMISSIBLE UNDER SUB-SECTION 1 OF SEC TION 10 OF THE INCOME TAX ACT. THE PROVISIONS CONTAINED IN CHAPTER XII H OF THE INCOME TAX ACT HAVE TO BE READ SUBJECT TO SECTION 10 OF THE INCOME TAX ACT. FOR THE AFORESAID REASONS, WE ARE OF THE OPINION TH AT THE JUDGMENT OF THE LEARNED TRIBUNAL CANNOT BE SUSTAINED. THE SUBMISSIONS ADVAN CED BY MS.GUTGUTIA NATURALLY DO NOT HELP THE REVENUE. THE JUDGMENT CITED BY HER WAS WITH REGARD TO THE QUESTION AS TO WHETHER FRINGE BENEFIT TAX AMOUNTS TO DOUBLE TAXATI ON. THAT QUESTION WAS ANSWERED BY THEIR LORDSHIPS IN THE NEGATIVE. BEFORE US, THE QUE STION OF DOUBLE TAXATION HAS NOT ARISEN FOR CONSIDERATION. THE QUESTION FORMULATED ABOVE IS, THEREFORE, ANSWER ED IN THE AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. 4. SINCE THE ISSUE STANDS DECIDED, THE QUESTIONS AR ISING THERE FROM ARE ANSWERED AS FOLLOWS : QUESTION NO.1 IS IN THE NEGATIVE AND IN FAVOUR OF T HE ASSESSEE; AND QUESTION NO.4 IS IN THE NEGATIVE AND IN FAVOUR OF T HE ASSESSEE 5. SO FAR AS QUESTION NO.2 IS CONCERNED , AS IT AR ISES OUT OF THE REASONING GIVEN IN THE IMPUGNED ORDER PASSED BY THE TRIBUNAL ON THE ISSUE DECIDED, THE SAME IS REDUNDANT AND NEED NOT BE ANSWERED. 6. THEREFORE, THE APPEAL IS ALLOWED. 8. WE HOLD THAT WHAT HAS BEEN ALLOWED AS THE BUSIN ESS EXPENDITURE (I.E THE EXPENDITURE THAT ARE SUBJECTED TO FBT) IS ONLY TO T HE EXTENT OF 40% THEREON IN ACCORDANCE WITH RULE 8 OF THE INCOME TAX RULES, 196 2. HENCE LOGICALLY THE SAID BUSINESS EXPENDITURE FOR THE PURPOSE OF FBT ALSO SH OULD BE CONSIDERED AT ONLY 40% OF THE SAME AS AGAINST 100%. 9. WE ALSO FIND THAT THE DECISION OF THIS TRIBUN AL RENDERED IN ASSESSEES OWN CASE AGAINST ASSESSEE FOR THE ASST YEAR 2006-07 VIDE ORD ER DATED 6.5.2011 IS NO LONGER RELEVANT AS THE ISSUE ADJUDICATED BY THIS TRIBUNAL HAD BEEN OVERRULED BY THE JURISDICTIONAL HIGH COURT IN THE CASE MENTIONED HER EINABOVE. 10. HENCE IN VIEW OF THE AFORESAID FACTS AND CIR CUMSTANCES AND RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH C OURT , WE HOLD THAT THE ASSESSEE EMPLOYER SHALL BE ENTITLED TO CLAIM RELIEF AT 40% OF TAXABLE VALUE OF FRINGE BENEFITS AS ITA NOS.262&263/KOL/2013 MCLEOD RUSSEL INDIA LTD. A.YRS.2008-09& 2009-10 6 AGAINST 100% DETERMINED BY THE LEARNED AO AND ACCOR DINGLY WE DIRECT THE LEARNED AO TO RECOMPUTED THE VALUE OF FRINGE BENEFITS IN AC CORDANCE WITH RULE 8 OF INCOME TAX RULES. HENCE THE GROUNDS RAISED BY THE ASSES SEE IN THIS REGARD FOR BOTH THE YEARS ARE ALLOWED. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE ALLO WED. ORDER PRONOUNCED IN THE COURT ON 08.10.2015. SD/- SD/- [S.S.VISWANETHRA RAVI] [M.BALAGAN ESH] JUDICIAL MEMBER ACCOUNTANT MEMBE R DATE: 08.10.2015. R.G.(.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . MCLEOD RUSSEL INDIA LIMITED, FOUR MANGOE LANE, SURE NDRA MOHAN GHOSH SARANI, KOLKATA-700001. 2 THE A.C.I.T., RANGE-4, KOLKATA. 3 . THE CIT-II, KOLKATA, 4. T HE CIT(A)-IV, KOLKATA. 5 . DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES