D.C.I.T., Circle-4, Kolkata, Kolkata V. M/S. Mercury Car Rentals Ltd., Kolkata

ITA 2772/KOL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4540 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 13-12-2013
• Court: TRIBUNAL
• Department Lawyers: K K TRIPATHI
• Assessee Lawyers: A K GUPTA
• Keywords: Depreciation; Assessment record; Tax effect
• Section: 11

Judgement Text

1 ITA NO. 2772/KOL/2013 MERCURY CAR RENTALS LTD., AY 2006-07 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA [BEFORE SHRI N. V. VASUDEVAN, JM & SHRI M. BALAGAN ESH, AM] I.T.A NO.2772/KOL/2013 ASSESSMENT YEAR: 2006-07 DEPUTY COMMISSIONER OF INCOME-TAX, VS. M/S. MERCU RY CAR RENTALS LTD. CIRCLE-4, KOLKATA. (PAN: AACCM0488P) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 10.06.2016 DATE OF PRONOUNCEMENT: 08.07.2016 FOR THE APPELLANT: SHRI K. K. TRIPATHI, JCIT, SR. DR FOR THE RESPONDENT: SHRI A. K. GUPTA, FCA ORDER PER SHRI M. BALAGANESH, AM: THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF C IT(A)-IV, KOLKATA VIDE APPEAL NO. 178/CIT(A)-IV/2010-11 DATED 27.08.2013. ASSESSM ENT WAS FRAMED BY DCIT, CIRCLE-4, KOLKATA U/S. 154/115WE(3) OF THE INCOME TAX ACT, 19 61 (HEREINAFTER REFERRED TO AS THE ACT) FOR AY 2006-07 VIDE HIS ORDER DATED 21.10.20 10. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA IS JUSTIFIED IN DELETING THE CONSIDERATION OF TAX DEPRECIATION O F 5% ON MOTOR CARS USED EXCLUSIVELY FOR HIRE FOR THE PURPOSE OF FRINGE BENEFIT TAX IN THE F ACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSES SEE IS A SUBSIDIARY OF EIH LIMITED AND IS ENGAGED IN THE BUSINESS OF TRANSPORTATION AND CAR R ENTALS. IT REPRESENTS THE AVIS WORLDWIDE SYSTEM OF CAR RENTAL IN INDIA AS THE MASTER LICENSE E OF AVIS EUROPE PLC. USUALLY CHAUFFEUR DRIVEN CARS ARE GIVEN ON RENT TO CUSTOMERS FOR A PE RIOD OF TIME. THE ASSESSEE OPERATES THROUGH IS BRANCH OFFICES SITUATED IN ALMOST ALL TH E MAJOR CITIES AND PLACES OF TOURIST INTERESTS IN INDIA. THE ASSESSEE FOR THE CAPTIONED ASSESSMENT YEAR FILED ITS RETURN OF FRINGE BENEFITS U/S. 115WD ON 30.11.2006 DISCLOSING THE VA LUE OF FRINGE BENEFITS AT RS.43,70,059/- . THE RETURN WAS PROCESSED U/S. 115WE(1) OF THE IT ACT, 1961. THEREAFTER, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 115WB(2) DATED 7.12.2007 WAS ISSUED. ASSESSMENT 2 ITA NO. 2772/KOL/2013 MERCURY CAR RENTALS LTD., AY 2006-07 ORDER U/S 115WE(3) WAS PASSED ON 19TH DECEMBER, 200 8 WHEREIN THE VALUE OF FBT AS PER RETURN WAS ACCEPTED AND AN AMOUNT OF RS.1,51,939/- WAS DETERMINED TO BE PAYABLE AFTER ADJUSTMENT OF ADVANCE TAX OF RS.6,07,050/- AND SELF ASSESSMENT TAX OF RS.8,63,912/-. SUBSEQUENT TO THE SAME, THE ASSESSING OFFICER ISSUE D NOTICE U/S.154 DATED 25TH AUGUST, 2010 TO RECTIFY MISTAKE IN THE ORDER PASSED U/S. 11 5WE(3) OF THE ACT AND FIXING THE HEARING ON 8.9.2010. THE PARTICULARS OF MISTAKE SOUGHT TO B E RECTIFIED WAS STATED IN LETTER DATED 25.8.2010 UNDER REFERENCE NO. DCIT, CIR.- 4/KO1/1 0 -11/FBT/540 AS UNDER: 'SCRUTINY OF ASSESSMENT RECORDS FOR AY 2006-07 REVE ALED THAT WHILE CALCULATING FRINGE BENEFIT DEPRECIATION OF RS.6,15,64,911/- ON MOTOR CAR FOR HIRE WAS NOT CONSIDERED. AS PER PROVISIONS OF FBT IN THE CASE OF AN EMPLOYER ENGAGED IN THE BUSINESS OF CARRIAGE OF PASSENGERS OR GOODS BY MOTO R CAR, THE VALUE OF FRINGE BENEFIT FOR THE PURPOSE REFERRED TO IN CLAUSE (H) OF SUB-SE CTION (2) OF SECTION 115WB SHALL BE 'FIVE PER CENT', INSTEAD OF 'TWENTY PER CENT'. S O IN YOUR CASE 5% DEPRECIATION VALUE SHOULD BE CHARGED ON DEPRECIATION ON MOTOR CA R FOR HIRE. THIS HAS RESULTED IN UNDER ASSESSMENT OF FRINGE BENEFIT FOR RS.30,78,245 /- WITH CONSEQUENTIAL TAX EFFECT OF RS.10,36,137/-. IN THIS CONNECTION REFERENCE IS MADE TO CIRCULAR NO .8/2005 OF GOVT. OF INDIA, MINISTRY OF FINANCE, DEPT. OF REVENUE, CBDT DT.29/8/2005: EX PLANATORY NOTES ON THE PROVISIONS RELATING TO FBT. PARA 3.4 (C)(IV) OF THE SAID CIRCULAR STATES THAT 'WHERE THE EMPLOYER IS ENGAGED IN CARRIAGE OF PASSENGERS O R GOODS BY MOTOR CAR A LOWER RATE OF 5% OF EXPENSES ON REPAIR, RUNNING (INCLUDIN G FUEL) AND MAINTENANCE OF MOTOR CARS AND DEPRECIATION THEREON HAS BEEN SPECIFIED'. THEREFORE, THE AO WAS OF THE VIEW THAT 'NO SEGREGAT ION CAN BE MADE IN RUNNING, MAINTENANCE AND DEPRECIATION OF MOTOR CARS INTO GUE STS AND EMPLOYEES. IN REPLY TO THE AFORESAID NOTICE U/S.154 IT WAS CLA RIFIED VIDE LETTER DATED 8.9.2010 THAT THE ASSESSEE OWNS A FLEET OF MOTOR CARS, WHICH ARE CLAS SIFIED INTO THE FOLLOWING TWO CATEGORIES: 1. MOTOR CAR FOR HIRE; AND 2. MOTOR CAR NOT FOR HIRE THIS WOULD BE EVIDENT FROM DEPRECIATION SCHEDULE AN NEXED WITH TAX AUDIT REPORT FOR THE RELEVANT ASSESSMENT YEAR. SUCH CLASSIFICATION IS RE QUIRED FOR CLAIMING APPROPRIATE DEPRECIATION AS PRESCRIBED IN INCOME TAX RULES. THE CLAIM OF DEPRECIATION IS BEING ACCEPTED BY THE DEPARTMENT IN ASSESSMENT OF INCOME. 3 ITA NO. 2772/KOL/2013 MERCURY CAR RENTALS LTD., AY 2006-07 THUS IT IS NOT DISPUTED THAT THE APPELLANT HAS A FL EET OF CARS OUT OF WHICH A PARTICULAR SET IS EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS (I.E., RUNNING THEM ON HIRE) AND THE OTHER SET OF CARS IS USED BY EMPLOYEES FOR OFFICIAL PURPOSES. TH E ASSESSEE HAS DULY DISCHARGED ITS FBT OBLIGATIONS WITH RESPECT TO THE CARS USED BY THE EM PLOYEES FOR THE PERFORMANCE OF THEIR DUTIES. HOWEVER, WITH REGARD TO EXPENSES INCURRED F OR CARS WHICH ARE USED EXCLUSIVELY FOR TRANSPORT BUSINESS IT WAS EXPLAINED THAT MAINTENANC E EXPENSES OF SUCH CARS ARE SEPARATELY ACCOUNTED FOR. SUCH EXPENSES HAVE NO NEXUS OR RELAT ION TO ANY BENEFIT WHICH CAN BE SAID TO HAVE BEEN COLLECTIVELY ENJOYED BY THE EMPLOYEES AND THEREFORE THE EXPENSES INCURRED ON SUCH ACCOUNT CANNOT BE SUBJECT TO FBT. THE REASON I S THAT THE EMPLOYEES ARE NOT ALLOWED TO USE THESE CARS FOR PERSONAL/OFFICIAL PURPOSES. THE LD AO PROCEEDED TO ADD BACK 5% OF DEPRECIATION ON MOTOR CARS USED FOR HIRE AS THE VAL UE OF FRINGE BENEFITS AND RECOMPUTED FBT PAYABLE THEREON. 4. THE LD CITA OBSERVED AS BELOW IN HIS ORDER :- 4.2 I HAVE EXAMINED THE A.O'S ORDER PASSED U/S.15 4 DT. 21.10.2010 AS WELL AS THE SUBMISSIONS MADE BY THE A.R. OF THE APPELLANT. THE LARGER PICTURE THAT ONE MUST NOT FORGET IS THAT FBT COMES INTO BEING ONLY IN A RELATIONSHIP OF EMPLOYER AND EMPLOYEE. THE RELEVANT SECTION 115WB(2)(H) READS AS BELOW :- '(2) THE FRINGE BENEFITS SHALL BE DEEMED TO HAVE BE EN PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES/ IF THE EMPLOYER HAS, IN THE COURSE OF HI S BUSINESS OR PROFESSION (INCLUDING ANY ACTIVITY WHETHER OR NOT SUCH ACTIVITY IS CARRIE D ON WITH THE OBJECT OF DERIVING INCOME, PROFITS OR GAINS) INCURRED ANY EXPENSE ON O R MADE ANY PAYMENT FOR, THE FOLLOWING PURPOSES, NAMELY:- (H) REPAIR, RUNNING (INCLUDING FUEL), MAINTENANCE O F MOTORCARS AND THE AMOUNT OF DEPRECIATION THEREON; 4.3 AGAINST THIS BACKGROUND, THE SUBMISSION OF THE A.R. OF THE APPELLANT HAS TO BE ANALYZED. THE APPELLANT IS IN THE BUSINESS OF TRANSPORTATION AND CAR RENTALS. ITS ENTIRE FLEETS OF MOTOR CARS ARE GROUPED INTO TWO CATEGORIES I.E. MOTOR CAR FOR HIRE AND MOTOR CAR NOT FOR HIRE. THIS DISTINCTION HAS NOT BEEN MADE FOR FIRST TIME BUT EV EN IN THE EARLIER YEARS THIS DISTINCTION HAS BEEN MADE. THE AUDIT REPORT ALSO IN THE SCHEDULE OF FIXED ASSETS MAKE CLEAR CUT DISTINCTION BETWEEN MOTOR CAR FOR HIRE WHERE THE APPLICABLE DEP RECIATION RATE IS 30% AND MOTOR CAR NOT FOR HIRE WHERE THE APPLICABLE DEPRECIATION RATE IS 15%. THIS DISTINCTION HAS BEEN ACCEPTED BY THE A.O. IN THE ASSESSMENT OF INCOME. HOWEVER, FOR THE PURPOSE OF FBT, THE A.O. HAS NOT ACCEPTED THIS DISTINCTION BY STATING THAT 'NO SEGRE GATION CAN BE MADE IN RUNNING/MAINTENANCE AND DEPRECIATION OF MOTOR CARS INTO GUESTS AND EMPL OYEES AS CLAIMED BY YOU IN ASSESSMENT PROCEEDINGS. NECESSARY RECTIFICATION HAS TO BE MADE U/S.154. 4 ITA NO. 2772/KOL/2013 MERCURY CAR RENTALS LTD., AY 2006-07 4.4 THAT THE MOTORCARS ARE USED FOR HIRE PURPOSES H AS NOT BEEN CHALLENGED BY THE A.O. IT IS ALSO NOT THE A.O.'S CASE THAT THE MOTOR CARS CLAIME D TO BE USED BY THE APPELLANT FOR HIRE PURPOSES ARE BEING ACTUALLY USED BY THE EMPLOYEES. NO SUCH FINDINGS HAS BEEN GIVEN BY THE A.O. THEN, IT ARISES WHETHER FBT WILL BE APPLICABLE IN CASE OF PERSONS OTHER THAN EMPLOYEES OF THE APPELLANT COMPANY. I AM OF THE VIEW, THAT WH EN THERE IS NO FINDING GIVEN BY THE A.O. THAT CARS REFLECTED IN THE AUDIT REPORT AS BEING US ED FOR HIRE ARE ACTUALLY BEING USED BY THE EMPLOYEES, THERE WILL BE NO EMPLOYER EMPLOYEE RELAT IONSHIP ESTABLISHED IN ORDER TO INVOKE THE PROVISION OF FBT. THEREFORE, THE ACTION OF THE A.O. IN DISALLOWING RS.30,78,245/- U/S.115WB(2)(H) IS NOT UPHELD. 5. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US O N THE FOLLOWING GROUND:- THE LD. CIT(A) ERRED IN LAW AS WELL AS ON FACTS I N HOLDING THAT DEPRECIATION OF 5% DOES NOT FORM PART OF FBT, IGNORING THE PARA 3.4(C)(IV) OF C IRCULAR NO.8/2005 OF GOVERNMENT OF INDIA, MINISTRY OF FINANCE, DEPARTMENT OF REVENUE, CBDT DA TED 29.08.2005, WHEREIN IT IS DECLARED AS FBT. 6. THE LD DR VEHEMENTLY RELIED ON THE ORDER OF THE LD AO AND THE GROUNDS OF APPEAL. IN RESPONSE TO THIS, THE LD AR VEHEMENTLY RELIED ON THE ORDER OF THE LD CITA AND ALSO PRODUCED A COPY OF THE DECISION OF THE CO-ORDINATE BENCH OF COCHIN TRIBUNAL IN THE CASE OF POPULAR VEHICLES & SERVICES LTD VS. DCIT REPORTED I N (2014) 51 TAXMANN.COM 126 DATED 6.6.2014 WHICH COVERS THE CASE OF THE ASSESSEE. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE HAS PAID FBT IN RESPECT O F EXPENSES INCURRED FOR VEHICLES WHICH ARE USED FOR OFFICE PURPOSES AS WELL AS THE EXPENSE S INCURRED FOR CARS USED BY EMPLOYEES IN THE COURSE OF THEIR PERFORMANCE OF DUTIES. HOWEVER , WITH REGARD TO THE EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FOR MAINTENANCE AND RUNNING OF TOURIST CARS FOR CAR RENTAL BUSINESS , NO FBT IS PAID AS THE SAID CARS WERE NEVER USED BY THE EMPLOYEES. IN THIS REGARD, IT WOULD BE RELEVANT TO UNDERSTAND THE INTENTION BEHIND INTR ODUCTION OF PROVISIONS OF FBT U/S 115W TO 115WL W.E.F. 1.4.2006 BY THE FINANCE ACT, 2005. WE FIND THAT THE SAID PROVISION WERE INTRODUCED WHERE THE BENEFITS ARE USUALLY ENJOYED C OLLECTIVELY BY THE EMPLOYEES AND CANNOT BE ATTRIBUTED TO INDIVIDUAL EMPLOYEES THEN THE SAME SHALL BE TAXED IN THE HANDS OF THE EMPLOYER. IN THE MEMORANDUM EXPLAINING THE BILL , IT HAS BEEN POINTED OUT THAT THE RATIONALE FOR LEVYING FBT ON THE EMPLOYER LIES IN T HE INHERENT DIFFICULTY IN ISOLATING THE PERSONAL ELEMENT WHERE THERE IS COLLECTIVE ENJOYMEN T OF SUCH BENEFITS AND ATTRIBUTING THE 5 ITA NO. 2772/KOL/2013 MERCURY CAR RENTALS LTD., AY 2006-07 SAME DIRECTLY TO THE EMPLOYEE. WE FIND THAT THE CA R EXPENSES INCURRED FOR THE TRANSPORT BUSINESS, THE MAINTENANCE OF SUCH CARS ARE SEPARATE LY ACCOUNTED FOR AS THOSE CAR EXPENSES HAVE NO NEXUS OR RELATION TO ANY BENEFIT WHICH CAN BE EVEN SAID TO HAVE BEEN COLLECTIVELY ENJOYED BY THE EMPLOYEES AND THEREFORE THE EXPENSES INCURRED ON SUCH ACCOUNT DO NOT ATTRACT THE LEVY OF FBT. IT IS NOT THE CASE OF THE REVENUE THAT THE EMPLOYEES WERE ALLOWED TO ENJOY ANY BENEFIT DIRECTLY OR INDIRECTLY FROM SUCH TRANSPORT SERVICES. WE FIND FROM THE OBSERVATIONS OF LD CITA SUPRA THAT THE ASSESSEE HAD DULY BIFURCATED THE MOTOR CARS USED FOR HIRE AND THAT NOT USED FOR HIRE SEPARATELY IN THE D EPRECIATION SCHEDULE ITSELF. HENCE THE RELIANCE PLACED BY THE LD AR ON THE CO-ORDINATE BEN CH DECISION OF COCHIN TRIBUNAL IN THE CASE OF POPULAR VEHICLES & SERVICES LTD (SUPRA) IS WELL FOUNDED AND SUPPORTS THE CASE OF THE ASSESSEE, WHEREIN IT WAS HELD THAT :- 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON E ITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE EXCLUSION OF DEPRECIATION AND THE VALUE OF THE CAR FROM THE COMPUTATION OF FRINGE BENEFIT IS AVAILABLE ONLY FOR THE CARS USED FOR TEST DRIVE BY THE POTENTIAL CUSTOMERS. THE REVENUE CLAIMED THAT APART FROM THE CAR THAT IS USED FOR TEST DRIVE, THE ASSESSEE IS ALSO MAINTAINING VEHICLE FOR THE BENEFI TS OF THE EMPLOYEES. HOWEVER, THE ASSESSEE HAS NOT FURNISHED ANY DETAILS WITH REGARD TO THE DE TAILS OF THE CARS MEANT FOR THE BENEFIT OF THE EMPLOYEES. THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT THE CAR MEANT FOR THE BENEFIT OF THE EMPLOYEES HAS TO BE TREATED AS FRINGE BENEFIT. HOWE VER, IN RESPECT OF CARS WHICH WERE USED FOR TEST DRIVE BY POTENTIAL CUSTOMERS HAVE TO BE TREATE D AS VEHICLE FOR BUSINESS. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ONLY O N THE GROUND THAT THERE IS NO DISTINCTION MADE BY THE ASSESSEE IN RESPECT OF EXPENDITURE MADE ON THE CARS MEANT FOR EMPLOYEES AS WELL AS THE CARS MEANT FOR TEST DRIVE THE ASSESSEE IS MA INTAINING CARS FOR TEST DRIVE AND FOR EMPLOYEES IT IS FOR THE ASSESSEE TO SEGREGATE THE E XPENDITURE MADE ON EACH VEHICLE. IN THE ABSENCE OF ANY DETAILS BEFORE THIS TRIBUNAL, THIS T RIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE CONSIDERED AFRESH BY THE ASSESSI NG OFFICER. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ISSUE IS RE STORED ON THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RECONSIDER THE ISSUE IN THE LIGHT OF MATERIAL THAT MAY BE FILED BY THE ASSESSEE AND THEREAFTER FIND OUT WHETHER ANY FA CILITY PROVIDED BY THE ASSESSEE TO THE EMPLOYEES IN THE COURSE OF THEIR EMPLOYMENT OR NOT, AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTU NITY OF HEARING TO THE ASSESSEE. IN VIEW OF THE AFORESAID FINDINGS IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN THE JUDICIAL PRECE DENT RELIED UPON ABOVE, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD CITA IN RES PECT OF THE IMPUGNED ISSUE. ACCORDINGLY THE GROUND RAISED BY THE REVENUE IS DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. 6 ITA NO. 2772/KOL/2013 MERCURY CAR RENTALS LTD., AY 2006-07 ORDER IS PRONOUNCED IN THE OPEN COURT ON 08.07.201 6 SD/- SD/- (N. V. VASUDEVAN) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED : 8TH JULY, 2016 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT DCIT, CIRCLE-4, KOLKATA. 2 RESPONDENT M/S. MERCURY CAR RENTALS LTD., 4, MANGO E LANE, KOLKATA-1. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .