POSCO-India Pvritave Ltd, Bhubaneswar V. ACIT, Bhubaneswar

ITA 319/CTK/2011

• Counselvise Citation: 31922114 RSA 2011
• Duration Of Justice: 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 10-01-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 13-06-2011
• Court: TRIBUNAL
• Department Lawyers: PARAMITA TRIPATHY
• Assessee Lawyers: B K MOHAPATRAA K SABATARS
• Keywords: Capital asset; Depreciation; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : SHRI K.K.GUPTA, AM, AND SHRI K.S.S.PRASAD RAO, JM ITA NO. 319/ CTK /2011 (ASSESSMENT YEAR 2006 - 07) P OSCO - INDIA PRIVATE LIMITED, 5 TH FLOOR, FORTUNE TOWERS, CHANDRASEKHARPUR, BHUBANESWA R PAN: AADCP 6735 B VERSUS ASST.COMMISSIONER OF INCOME - TAX, CIRCLE 2(2), BHUBANESWAR (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI B.K.MOHAPATRA/A.K.SABAT, ARS FOR THE RESPONDENT SMT. PARAMITA TRIPATHY, DR DATE OF HEARING : 10.01.2 012 DATE OF PRONOUNCEMENT : 13.01.2012 ORDER SHRI K.K.GUPTA, AM : THIS APPEAL BY THE ASSESSEE IS ON THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) CONFIRMING THE FRINGE BENEFIT TAX LEVIED BY THE ASSESSING OFFICER UNDER THE PROVISIONS OF SECTION 1 15WE(3) OF THE INCOME - TAX ACT,1961. 2. THE ASSESSEE AGITATES THE CHARGING OF FRINGE BENEFIT TAX ON THE ASSESSEE ON THE PREMISE THAT THE FACTS AND CIRCUMSTANCES DO NOT INVITE THE CHARGING THEREOF AS THE ASSESSEE HAD NOT COMMENCED BUSINESS AND THE EXPENSES I NCURRED ON THE EMPLOYEES WERE CAPITALIZED AS THE ASSESSEE WAS YET TO BEGIN ITS BUSINESS AFTER ACQUISITION OF LAND. 3. THE BRIEF FACTS AS BROUGHT ON RECORD ARE THAT THE RETURN OF FRINGE BENEFIT TAX WAS FILED ON 29 TH NOVEMBER, 2006 SHOWING TOTAL VALUE OF FR INGE BENEFITS AS NIL. SUBSEQUENTLY ON 15 TH MARCH, 2007 THE ASSESSEE COMPANY SUO - MOTO DEPOSITED FRINGE BENEFIT TAX OF 11,55,060. DURING THE COURSE OF HEARING U/S.115WE(3) THE ASSESSEE INSISTED THAT IT HAD NOT COMMENCED ITS BUSINESS AND THEREFORE, THE ASSESSEE WAS NOT TO BE CONSIDERED FOR PAYING TAX ON THE FRINGE BENEFITS PROVIDED TO THE EMPLOYEES. THE ASSESSING OFFICER T OOK COG NI Z A NCE OF CIRCULAR NO.8 OF 2005 ISSUED BY CBDT WHICH CIRCULAR PROVIDES A ITA NO.319/CTK/2011 2 HARMONIOUS, PURPOSIVE AND CONTEXTUAL INTERPRETATION OF THE PROVISIONS OF THE FINANCE ACT, 2005 RELATING TO THE FRINGE BENEFIT TAX. THE ASSESSEE DISPUTED THE APPLICABILITY OF THE SAID CIRCULAR IN VIEW OF THE ASSESSING OFFICER OBSERVING THAT THE PREOPERATIVE EXPENSES FALLING WITHIN THE CATEGORIES SPECIFIED IN SECTION 115WB(2) WOULD BE COVERED IN THE SCOPE OF FRINGE BENEFIT TAX WAS UPHELD BY THE CIRCULAR THEREFORE WAS AGIT ATED BY THE ASSESSEE BEFORE THE LEARNED CIT(A) INDICATING THAT THE SUB - SECTION (2) OF SECTION 115WB CLEARLY IMPLIES THAT THE ASSESSEE OUGHT TO HAVE CARRIED ON BUSINESS OR ACTIVITIES OR PROFESSION TO ESTABLISH THE DEEMING PROVISIONS OF WHETHER THE ASSESSEE COULD B E SUBJECTED TO FRINGE BENEFIT TAX HAVING CONDUCTED NO BUSINESS WHEN THE ISSUE WAS CAPITALIZATION OF EXPENSES. 4. THE LEARNED CIT(A) CONFIRMED THE LEVY OF FRINGE BENEFIT TAX BY UPHOLDING THE BOARD CIRCULAR IN ANSWER TO QUESTION NOS.16 AND 19, WHICH HELD BE YOND ANY DOUBT THAT THE ASSESSEE WAS REQUIRED TO PAY FRINGE BENEFIT TAX AS PER THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE . 5. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE AUDITORS IN THEIR REPORT HAVE UPHELD THE DIRECTOR S DECISION NOT TO BE SUBJECTED TO FRINGE BENEFIT TAX IN VIEW OF THE ASSESSEE H AVING CONDUCTED NO ACTIVITIES ON BUSINESS FOR THE PURPOSE OF INVOKING THE PROVISIONS OF SUB - SECTION (2) OF SECTION 115WB. THE LEARNED COUNSEL FOR THE ASSESSEE IN SUPPORT THEREOF HAS FILED THE COPIES OF THE CIRCULAR WHEN HE SPECIFICALLY POINTED OUT TO THE ANSWER TO QUESTION NO.89 WHETHER CAPITAL EXPENDITURES FALLING WITHIN THE CATEGORIES SPECIFIED IN SECTION 115WB(2) WOULD BE COVERED IN THE SCOPE OF FRINGE BENEFIT TAX. THE CIRCUL AR THEREFORE INDICATED THAT EXPENDITURE ON ANY CAPITAL ASSET IN RESPECT OF WHICH DEPRECIATION IS ALLOWABLE U/S.32 OF THE INCOME - TAX ACT,1961 DID NOT FALL WITHIN THE SECTION 115WB(2) CLARIFIES THE INTENTION OF THE LEGISLATURE THAT EXPENDITURES WHICH ARE TO BE ITA NO.319/CTK/2011 3 CAPITALIZED EITHER IN THE FORM OF AMORTIZATION OR IN THE FORM OF AN ASSET TO BEGIN ANY BUSINESS ACTIVITIES WAS NOT TO BE SUBJECTED TO FRINGE BENEFIT TAX THEREFORE, CLEARLY ESTABLISHED THAT THE ASSESSEE WAS NOT TO BE SUBJECTED TO FRINGE BENEFIT TAX. FOR THIS PROPOSITION, THE LEARNED COUNSEL FOR THE ASSESSEE FILED THE FINANCIAL STATEMENTS AND THE AUDITORS CERTIFYING THAT THERE WERE NO EXPENDITURE S TO BE CONSIDERED UNDER THE PROVISIONS OF SECTION 115WB. HE SUBMITTED THAT THE ASSESSEE, HOWEVER, PAID A SUM O F 11,55,060 AS FRINGE BENEFIT TAX WHICH T T HE ASSESSING OFFICER HAS ASSESSED AT 27,64,605 BEING THE BENEFITS AS PER THE INFORMATION PROVIDED TO THE ASSESSING OFFICER. 5. HE ARGUED ON THE DEEMING PROVISIONS, WHICH HAVE BEEN CONSIDERED BY THE VARIOUS JU DICIAL AUTHORITIES INDICATING THAT THE INTERPRETATION OF TAXING STATUTE WOULD LOSE ITS ENTITY AS NO TAX CAN BE IMPOSED BY INTERPRETATION OR ANALOGY OR BY TRYING TO PROBE INTO THE INTENTION OF THE LEGISLATURE OR CONSIDERING WHAT WAS THE SUBSTANCE OF THE MAT TER. CIRCULARS CANNOT OVERRIDE OR DETRACT FROM THE PROVISIONS OF THE ACT AS WERE ALSO CONSIDERED IN THE JUDICIAL PRONOUNCEMENT SUCH AS, STATE BANK OF TRAVANCORE V. CIT [158 ITR 102 (SC)], UCO BANK V. CIT [237 ITR 889 (SC)] AND CIT V. HERO CYCLES (P) LTD [2 28 ITR 463 (SC)]. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT IT IS A WELL SETTLED PROPOSITION OF LAW THAT WHERE TWO VIEWS ARE PLAUSIBLE, THE VIEW FAVOURABLE TO THE ASSESSEE IS TO BE ADOPTE D QUOTING THE DECISION OF HONBLE SUPREME COURT IN TH E CASE OF CIT V. VEGETABLE PRODUCTS LTD [88 ITR 192 (SC)]. 6. THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. THE INTERPRETATION FROM THE CIRCULAR HAS BEEN MIS INTERPRETED BY THE ASSESSEE INSOFAR AS IT WAS NEVER THE CASE OF THE ASSESSING OFFIC ER TO CONSIDER THE DEEMING PROVISIONS OF WHETHER THE ASSESSEE COULD BE SAID TO HAVE NOT COMMENCED THE BUSINESS ACTIVITIES ONLY WHEN WHETHER IT COULD BE SAID THAT THE ASSESSEE WAS TO RENDER INCOME THEREFROM. THE ASSESSEE HAVING ITA NO.319/CTK/2011 4 DEPOSITED FUNDS IN THE BANK FOR INTEREST WAS ADJUSTED AGAINST THE EXPENSES INCURRED BY THE ASSESSEE REMAINING TO BE CAPITALIZED AS PREOPERATIVE EXPENSES THEREFORE ONLY CLARIFIED THAT THE SUB - SECTION (2) OF SECTION 115WB IS NOT A DEEMING PROVISION FOR THE ASSESSEE TO ESTABLISH THAT TH E BUSINESS AC TIVITY WAS YET TO BEGIN. THE FACT THAT THE EMPLOYEES WERE BEING PAID FOR THE ASSESSEES BUSINESS HAS NOWHERE BEEN DISPUTED BY THE ASSESSEE OR BY THE LEARNED COUNSEL FOR THE ASSESSEE AS OF NOW. IF THE LANGUAGE OF THE STATUTE IS CLEAR AND UNAMBI GUOUS AND IF TWO INTERPRETATIONS ARE NOT REASONABLY POSSIBLE IT WOULD BE WRONG TO DISCARD THE PLA I N MEANING OF THE WORDS USED IN ORDER TO MEET A POSSIBLE INJUSTICE, AS WAS ALSO CONSIDERED BY THE HONBLE APEX COURT IN THEIR DECISION IN THE CASE OF CIT V. T. V.SUNDARAM IYENGAR & SONS (P) LTD [101 ITR 764 (SC)]. THE CIRCULAR THEREFORE CLARIFIES WHETHER PRE - OPERATIVE EXPENSES FALLING WITHIN THE CATEGORIES SPECIFIED IN SECTION 115WB(2) WOULD BE COVERED IN THE SCOPE OF FRINGE BENEFITS ON THE EMPLOYEES OF THE ASSES SEE WHO ARE PRELIMINARY TO CONDUCT THE BUSINESS OF THE ASSESSEE. THE ANSWERS TO QUESTIONS 16 AND 19 OF THE SAID CIRCULAR THEREFORE, RIGHTLY APPLIES TO THE FACTS OF THE CASE OF THE ASSESSEE AND CANNOT NOW BE CONSIDERED AS A CIRCULAR CANNOT OVERRIDE THE INTE RPRETATION OF THE STATUE. 7. SHE VEHEMENTLY ARGUED THAT THE ASSESSEE IS TRYING TO GIVE A MEANING TO THE WORDS BUSINESS OR PROFESSION BY IMPORTING THE M AS DEEMING PROVISIONS AS WERE TO BE CONSIDERED FOR THE PURPOSE OF AMORTIZATIONS OR CAPITALIZATION INS OFAR AS THE BASIC CONTENTION IS THAT THE BENEFITS GIVEN TO THE EMPLOYEES AS HAVE BEEN DEFINED IN SUB - SECTION (1) OF SECTION 115WB IS NOT DISPUTED BY THE ASSESSEE. HAVING IDENTIFIED THE FRINGE BENEFITS THEREFORE THE ASSESSEE OUGHT NOT TO TAKE RECOURSE BY HI S OWN AVERMENT THAT IT HAD NOT COMMENCED BUSINESS OR NOT CARRYING ON ANY ACTIVITIES. A SIMPLE READING OF THE STATUTE WOULD INDICATE THAT THE BUSINESS OR PROFESSION IN THE SAID SECTION ITA NO.319/CTK/2011 5 IS AN ADJECTIVE AND NOT A NOUN. SHE, THEREFORE, SUBMITTED THAT THE CIRCU LAR ONLY HELP THE ASSESSING OFFICER TO UNDERSTAND THE ISSUE WHICH RESULTED IN THE ASSESSEE MAKING PAYMENTS BUT ALSO FILING APPEAL BEFORE THE FIRST APPELLATE AUTHORITY WHO DID NOT FIND ANY INFIRMITY IN THE ORDER OF THE ASSESSING OFFICER. SHE PRAYED THAT TH E ORDERS OF THE AUTHORITIES BELOW BE CONFIRMED. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE INCLINED TO HOLD THAT THE ASSESSEE WAS RIGHTLY SUBJECTED TO FR INGE BENEFIT TAX. THERE WAS NO MISINTERPRETATION OF THE STATUTE ON RELYING ON THE CIRCULAR WHICH ONLY CLARIFIED THE ASSESSEES FACTS AS WERE DISCLOSED BY THE ASSESSEE IN ITS FINANCIAL STATEMENTS. THERE WAS NO BASIS FOR THE ASSESSEE TO DENY LEVY OF FRINGE B ENEFIT TAX ON ITS NOT HAVING CONDUCT ED ANY BUSINESS. HAVING AGREED TO THE PROPOSITION THAT THE ASSESSEE HAD INCURRED EXPENDITURES IN THE FORM OF FRINGE BENEFITS AS PROVIDED IN SECTION 115WB(1), THE ASSESSEE COULD NOT BE SUBJECTED TO RE - EXAMINE THE DEEMING PROVISIONS AS INDICATED IN SUB - SECTION (2) THEREOF. WE FIND FAVOUR IN THE CONTENTION OF THE LEARNED DR THAT THE ASSESSEE INCURRED FRINGE BENEFITS ON ITS EMPLOYEES IN THE COURSE OF BUSINESS OR PROFESSION INCLUDING ANY ACTIVITIES WHETHER OR NOT SUCH ACTIVI TY WAS CARRIED ON WITH THE OBJECT OF DERIVING INCOME, PROFITS OR GAINS THEREFORE PUT A STOP TO THE ASSESSEE TO WAIT FOR A SUNSET CLAUSE OF NOT HAVING CONDUCTED ANY BUSINESS AT ALL. THE CAPITALIZATION OF THE EXPENSES THEREFORE BECOMES IMMATERIAL INSOFAR AS THE LEARNED COUNSEL HIMSELF SUPPORTED THE PURPORTED CLARITY IN THE CIRCULAR BY PERUSING THE ANSWER TO QUESTION 89 WHICH INDICATED CAPITALIZATION OF ONLY THOSE ASSET S WHICH WERE DEPRECIABLE. THEREFORE, ADJUSTMENT OF INTEREST INCOME AGAINST THESE EXPENSES WA S THE CLEAR INTENTION OF THE ASSESSEE FOR CARRYING FORWARD THE PRE - OPERATIVE EXPENSES TO BE AMORTIZED NOT BECAUSE IT DID NOT CONDUCT ANY BUSINESS, IF ANY, THAT COULD NOT ITA NO.319/CTK/2011 6 BE CONDUCTED. IT WAS NOT A HYPOTHETICAL PROPOSITION IN THE MIND OF THE ASSESSEE TO NOT BEGIN ANY BUSINESS ON THE FIRST DAY OF THE FINANCIAL YEAR BUT O N THE LAST DATE OF THE FINANCIAL YEAR TO SAY THAT NO BUSINESS WAS CONDUCTED. EVEN OTHERWISE A PRIVATE LIMITED COMPANY NEED NOT OBTAIN A CERTIFICATE FOR COMMENCEMENT OF BUSINESS AS IS REQUIRED BY A PUBLIC LIMITED COMPANY WITHIN SIX MONTHS OF ITS INCORPORATION UNDER THE PROVISIONS OF THE COMPANIES ACT . WE DO NOT FIND ANY SUBSTANCE IN THE CONTENTIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT NON - CONDUCTING OR NON - CARRYING ON ANY BUSINESS ACTIV ITIES COULD BE PRESUPPOSED . THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSING OFFICER HAS RIGHTLY CHARGED FRINGE BENEFIT TAX ON THE BASIS OF FACTS AND CIRCUMSTANCES AS HAVE BEEN BROUGHT ON RECORD AND THE LEARNED CIT(A) HAS RIGHTLY CONFIRMED THE S AME, WHICH WE ARE INCLINED TO UPHOLD BY DISMISSING THE APPEAL OF THE ASSESSEE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. S D/ - S D/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 13.01.2012 H .K.PADHEE, SENIOR PRIVATE SECRETARY. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: POSCO - INDIA PRIVATE LIMITED, 5 TH FLOOR, FORTUNE TOWERS, CHANDRASEKHARPUR, BHUBANESWAR 2. THE RESPONDENT: ASST.COMMISSIONER OF INCOME - TAX, CIRCLE 2(2), BHUBANESWAR 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.