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ITA 3646/DEL/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77623 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 21-01-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 26-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Assessee Lawyers: A JAY VOHRA UPVAN GUPTA
• Keywords: Depreciation; Business expenditure

Judgement Text

ITA NO.3646/D/2011 AY: 2006-07 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI CHANDRAMOHAN GARG, JUDICIAL MEMBER ITA NO. 3646/DEL/2011 ASSESSMENT YEAR : 2006-07 INTERNATIONAL TRAVEL HOUSE LTD., VS DY.CIT TRAVEL HOUSE, T-2, CIRCLE-11(1), COMMUNITY CENTRE, NEW DELHI. TRIVENI COMPLEX, SHEIKH SARAI, PHASE-I, NEW DELHI. (PIN: AAACI0093G) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI A JAY VOHRA, UPVAN GUPTA RESPONDENT BY : SHRI SATP AL SINGH, DR O R D E R PER CHANDRAMOHAN GARG, JUDICIAL MEMBER THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(A)-XIII, NEW DELHI DATED 28.4.2011 IN APPEAL NO. 1243/09-10 FOR AY 2006-07. 2. ON THE ISSUE OF FRINGE BENEFIT TAX, THE ASSESSEE HAS RAISED FOLLOWING GROUNDS:- 1. THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED ON FACTS AND IN LAW IN UPHOLDING THE ACTION O F THE ASSESSING OFFICER IN COMPLETING ASSESSMENT COMPUTIN G THE VALUE OF FRINGE BENEFITS AT RS.2,03,18,452/- AS AGA INST RETURNED VALUE OF FRINGE BENEFIT OF RS.91,42,036/-. ITA NO.3646/D/2011 AY: 2006-07 2 2. THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) E RRED ON FACTS AND IN LAW IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN TREATING THE EXPENDITURE AMOUN TING TO RS.17,11,95,670/- INCURRED ON RUNNING AND MAINTENAN CE OF MOTOR CAR BEING CAR FUEL, OIL AND LUBRICANTS, RE NT AND TAXES, INSURANCE ON MOTOR CAR, SERVICE CHARGES, I.E ., DRIVER SALARY, GIVEN ON HIRE AS LIABLE TO FRINGE BE NEFIT TAX UNDER THE PROVISIONS OF THE INCOME-TAX ACT, 1961. 3. BRIEFLY STATED THE FACTS GIVING RISE TO THIS APP EAL ARE THAT THE ASSESSEE COMPANY IS A PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF PROVIDING COMPLETE TRAVEL RELATED SERVICES TO ITS CLIENTS. T HE ASSESSEE COMPANY FILED ITS RETURN OF FRINGE BENEFIT ON 15.12.2006 FOR AY 2006- 07 DECLARING TOTAL VALUE OF FRINGE BENEFIT OF RS.91,42,036. THE ASSESSING O FFICER, HOWEVER, FINALIZED THE ASSESSMENT AND DETERMINED THAT U/S 115 WE(3) O F THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT), THE TOTAL FRINGE BENEFITS WERE CALCULATED AT RS.2,03,18,452/- AFTER MAKING VARIOUS ADDITIONS TO THE RETURNED VALUE OF FRINGE BENEFITS. THE AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX(A) WHICH WAS PARTLY ALLO WED ON THE POINT OF CHARGED INTEREST OF RS.2,74,050/- U/S 115WZ OF THE ACT BUT MAJOR PART OF THE APPEAL OF THE ASSESSEE WAS DISMISSED. NOW, THE EMP TY HANDED ASSESSEE IS AGAIN IN THE SECOND APPEAL BEFORE THIS TRIBUNAL WIT H THE GROUNDS AS MENTIONED HEREINABOVE. ITA NO.3646/D/2011 AY: 2006-07 3 GROUND NO. 1 & 2 OF THE ASSESSEE 4. WE HAVE HEARD RIVAL ARGUMENTS OF BOTH THE PARTIE S AND CAREFULLY PERUSED THE RECORD PLACED BEFORE US AND RELEVANT CI TATIONS AND LEGAL PROPOSITIONS RELIED BY BOTH THE PARTIES. LD. COUNS EL OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD A TOTAL OF 518 CARS OUT OF WHICH 491 CARS WERE USED EXCLUSIVELY IN THE BUSINESS OF RENTING/HI RING AND REMAINING 27 MOTOR CARS WERE USED FOR ADMINISTERING THE BUSINESS OF THE ASSESSEE I.E. FOR OFFICIAL AND PERSONAL USE OF EMPLOYEES AND THE ASSE SSEE OFFERED EXPENSES IN RELATION TO SUCH 27 CARS FOR THE PURPOSE OF FRINGE BENEFIT TAX. LD. COUNSEL OF THE ASSESSEE CONTENDED THAT THE ASSESSING OFFICER W AS JUSTIFIED IN HOLDING THAT THE EXPENSES IN RELATION TO AFORESAID 491 CARS TO BE USED EXCLUSIVELY IN THE BUSINESS OF RENTING/HIRING WERE LIABLE FOR FRIN GE BENEFIT TAX AND ACCORDINGLY, THE ASSESSING OFFICER ERRED IN COMPUTI NG THE VALUE OF FRINGE BENEFITS AT RS.2,03,18,452 AS AGAINST RETURNED VALU E OF FRINGE BENEFIT OF RS.91,42,0346/-. 5. LD. COUNSEL OF THE ASSESSEE VEHEMENTLY CONTENDED THAT THE COMMISSIONER OF INCOME TAX(A) ERRED ON FACTS AND IN LAW IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER FOR TREATING THE EX PENDITURE INCURRED ON RUNNING AND MAINTENANCE OF MOTOR CARS BEING CAR FUE L, ENGINE OIL AND LUBRICANTS, RENT AND TAXES, INSURANCE ON MOTOR CARS , SERVICE CHARGES I.E. THE ITA NO.3646/D/2011 AY: 2006-07 4 DRIVERS SALARY AS LIABLE TO BE CALCULATED AS VALUE OF FRINGE BENEFIT UNDER THE PROVISIONS OF THE ACT. ON BEHALF OF THE ASSESSEE, IT WAS ALSO CONTENDED THAT THE ACTION OF THE COMMISSIONER OF INCOME TAX(A) IN CONFIRMING ADDITIONS MADE BY THE ASSESSING OFFICER ARE NOT BASED ON CORR ECT APPRECIATION OF THE FACTS OF THE CASE AND POSITION OF LAW BECAUSE PROVI SIONS OF FBT ARE NOT APPLICABLE TO NORMAL BUSINESS EXPENDITURE WHICH DOE S NOT RESULT IN ANY BENEFIT TO EMPLOYEE. 6. LD. COUNSEL OF THE ASSESSEE HAS ALSO POINTED OUT BUDGET SPEECH OF THE FINANCE MINISTER WHILE INTRODUCING FINANCE BILL 200 5, MEMORANDUM EXPLAINING THE PROVISIONS TO THE FINANCE BILL, 2005 AND RELIANCE IS ALSO PLACED IN ITS RECORD ON THE FOLLOWING CITATIONS AND DECISIONS:- CIRCULAR NO.8 OF2005 DATED 29.08.2005 T & T MOTORS LTD. VS. CIT: 341 ITR 332 (DEL.) GODREJ PROPERTIES LTD. V. ADDL. CIT: 135 ITJ 42 6 (MUM.) (ITAT) DCIT VS. KOTAK MAHINDRA OLD MUTUAL LIFE INSURAN CE LTD: 134 ITD 388 (MUM.) (ITAT) JET AIRWAYS INDIA LTD. VS DCIT: 153 CTR 624 (MU M.) ACIT VS TATA CONSULTANCY SERVICES LTD: 56 SOT 7 1 (MUM.) INTERVALVE INDIA LIMITED VS ADDL. CIT: 149 TTJ 3 65 (PUNE) TOYOTA KIRLOSKAR MOTOR (P.) LTD. VS ADDL. CIT: 54 SOT 70 (BANG.) ITA NO.3646/D/2011 AY: 2006-07 5 GLAXOSMITHKLINE CONSUMER HEALTHCARE LIMITED VS A DDL. CIT: 149 TTJ 248 REEBOK INDIA LTD. VS ACIT (DELHI BENCH OF ITAT IN ITA NO.5905/DEL/2010 & 2702-2703/DEL/2011) 7. REPLYING TO THE ABOVE, LD. DR SUBMITTED THAT FRO M THE TAX AUDIT REPORT, IT WAS OBSERVED THAT THE VALUE OF FBT HAD BEEN WORK ED OUT AT RS.2,03,18,452 AS AGAINST RETURNED VALUE OF FRINGE BENEFIT WHICH WAS TAKEN BY THE ASSESSEE AT RS.91,42,036/-. THE DR FURTHER POINTED OUT THAT THE ASSESSING OFFICER ASKED TO RECONCILE THE DIFFERENCE IN THE EXPENSES DEBITED TO PROFIT & LOSS ACCOUNT AND HAS ADOPTED FOR THE PU RPOSE OF FRINGE BENEFIT BUT THE ASSESSEE FAILED TO SUBSTANTIATE THE RETURNED VA LUE OF FRINGE BENEFIT, THEREFORE, THE ASSESSING OFFICER RIGHTLY ADOPTED TH E VALUE OF FRINGE BENEFIT AS WORKED OUT BY THE TAX AUDITOR WHILE SUBMITTING THE RETURN U/S 44AB OF THE ACT. SUPPORTING THE IMPUGNED ORDER, THE DR CONTEND ED THAT AS PER SECTION 115WB OF THE ACT FOR DETERMINATION OF VALUE OF FRIN GE BENEFITS IN RELATING TO MOTOR CAR, THERE ARE TWO TYPES OF SITUATIONS WHICH ARE AS UNDER:- I) FRINGE BENEFITS COMPONENT ON MOTOR CARS USED B Y EMPLOYEES FOR RUNNING THE BUSINESS AT 20% EXPENDITURE + DEPRECIAT ION. II) FRINGE BENEFIT COMPONENT ON MOTOR CARS USED F OR HIRING AT 5% OF EXPENDITURE + DEPRECIATION. ITA NO.3646/D/2011 AY: 2006-07 6 8. THE DR SUPPORTING THE ORDERS OF THE AUTHORITIES BELOW SUBMITTED THAT WHILE TAX AUDIT REPORT SUBMITTED U/S 44AB OF THE AC T HAS ADOPTED THE VALUE OF FRINGE BENEFIT AT RS.2,03,18,452, THEN IN ABSENC E OF ANY CONTRADICTORY MATERIAL OR SUBSTANTIAL EVIDENCE IN FAVOUR OF THE A SSESSEE, THIS VALUE OF FRINGE BENEFIT CANNOT BE DISTURBED. 9. ON CAREFUL PERUSAL OF ASSESSMENT ORDER, WE OBSER VED THAT THE ASSESSING OFFICER HAS ACCEPTED THE REPORT OF TAX AU DIT SUBMITTED U/S 44AB OF THE ACT FOR THE PURPOSE OF ENHANCING VALUE OF FRING E BENEFIT WITH FOLLOWING OBSERVATIONS AND FINDINGS:- 2. THE ASSESSEE'S ARGUMENTS ARE CONSIDERED BUT THE SAME ARE NOT ACCEPTABLE BECAUSE THERE IS NOTHING IN THE ACT TO SUPPORT THE ASSESSEE'S CONTENTION. ALL THE E XPENSES RELATING TO RUNNING AND MAINTENANCE OF MOTOR CARS INCLUDING DEPRECIATION ARE TO BE CONSIDERED FOR THE PURPOSE OF COMPUTATION OF FBT EVEN IN CASES WHERE T HE ASSESSEE IS USING THE MOTOR CARS FOR RUNNING THEM O N HIRE. FURTHER, THE ASSESSEE HAS NOT INCLUDED THE EXPENSES FOR TRAVELING AND TELEPHONE FOR CALCULATION OF FBT ALTH OUGH NO REASON HAS BEEN GIVEN. THE EXPENSES OF TRAVELING, CONVEYANCE AND TELEPHONE ARE TO BE INCLUDED FOR THE PURPOSE OF CALCULATING THE VALUE OF FRINGE BENEFIT. THE FOLLOWING EXPENSES HAVE NOT BEEN INCLUDED BY THE ASSESSEE:- S.NO. DESCRIPTION AMOUNT (RS.) 1 CAR FUEL, OIL AND LUBRICANTS 5,82,71,463 2 RATE & TAXES ON MOTOR CARS 53,57,351 3 TRAVEL - AIR/RAIL TICKET 4,26,583 4 TELEPHONE EXPENSES 95,99,023 5 INSURANCE ON MOTOR CARS 76,51,103 ITA NO.3646/D/2011 AY: 2006-07 7 6 REPAIR & MAINTENANCE OF CARS 3,06,30,198 7 SERVICE CHARGES I.E. DRIVERS 6,92,85,555 SALARY 8 BUSINESS PROMOTION 15,80,177 3. IN VIEW OF THE FACTS DISCUSSED ABOVE, THE AS SESSEE'S ARGUMENTS ARE NOT ACCEPTABLE AND VALUE OF FRINGE BE NEFIT IS ADOPTED AS WORKED OUT BY THE TAX AUDITOR WHILE SUBMITTING THE REPORT U/S 44AB OF THE 1.1. ACT. THE VALUE OF FRINGE BENEFIT HAS BEEN WORKED OUT AT RS.2,03,18 ,452/-. THE SAME IS ADOPTED FOR THE PURPOSE OF TAXATION. PE NALTY PROCEEDINGS U/S 271 (1)(D) OF THE LT. ACT ARE INITI ATED ON THIS POINT. 10. DURING FIRST APPELLATE PROCEEDINGS BEFORE THE C OMMISSIONER OF INCOME TAX(A), LD. COUNSEL OF THE ASSESSEE PLACED F OLLOWING WRITTEN SUBMISSIONS BEFORE THE FIRST APPELLATE AUTHORITY:- EXPENDITURE ON REPAIR, RUNNING AND MAINTENANCE OF MOTOR CARS INCLUDING DEPRECIATION THEREON IS LIA BLE TO FBT IN TERMS OF CLAUSE (H) OF SUBSECTION (2) OF SEC TION 115 WB OF THE ACT. FURTHER, IN TERMS OF CLAUSE (E) OF SUB- SECTION (2) OF SECTION 115WC OF THE ACT, VALUE OF F RINGE BENEFIT IS DEEMED TO BE 5% FOR THE EMPLOYER ENGAGED IN THE BUSINESS OR CARRIAGE OF PASSENGER OR GOODS BY MOTORCAR INSTEAD OF 20%. IN THE CAR RENTING BUSINESS, THE PAYMENTS OF RENT FOR HIRING OF CARS BY THE CUSTOMERS COMPRISES OF TH REE ELEMENTS VIZ. (I) PAYMENT TOWARDS WEAR AND TEAR/USE OF THE MOTOR CARS, I.E., TOWARDS DEPRECIATION (II) PAY MENT TOWARDS MAINTENANCE OF MOTOR CARS (III) INCOME FOR SERVICES PROVIDED BY THE RENTING COMPANY. THE MOTOR CARS GIVEN ON RENT BY ITR, A RENTING COMPANY, ARE ITS TOOLS OF TRADE AND ARE TO BE EXCLU SIVELY USED IN THAT BUSINESS. THE MOTOR CARS THAT ARE MAIN TAINED ITA NO.3646/D/2011 AY: 2006-07 8 AND USED BY THE EMPLOYEES OF ITH ARE SEPARATELY IDENTIFIED AND ARE DISTINCT FROM THOSE USED IN THE BUSINESS. CLAUSE (F) OF SUB-SECTION (2) OF SECTION 115WB OF THE ACT TAKES WITHIN ITS FOLD INTER ALIA EXPENDITUR E ON CONVEYANCE. IN THE BUSINESS OF RENTING THE RENTAL P AID BY THE CUSTOMER, IN RESPECT OF THE CAR TAKEN ON RENT O N WHICH FBT WOULD BE PAYABLE BY THE CUSTOMER, IN TERMS OF CLAUSE (F) OF SUB -SECTION (20 OF SECTION 115 WB OF THE ACT. WHEREAS THE RENTALS RECEIVED BY THE RENTING COMPANY FROM THE CUSTOMERS WOULD CONSTITUTE INCOME OF THE RENTING COMPANY, THE EXPENDITURE ON REPAIR, MAINTEN ANCE (INCLUDING DEPRECIATION) OF THE CAR GIVEN ON RENT O UGHT NOT AGAIN BE SUBJECTED TO FBT IN THE HANDS OF THE R ENTING COMPANY, UNDER CLAUSE (H) OF SUB -SECTION (2) OF SE CTION 115WB OF THE ACT, THE FOLLOWING REASONS:- A. THE RENTING COMPANY INCURS COST ON MAINTENANCE O F FLEET OF MOTOR CARS AND ALSO DEPRECIATION THEREON I N THE COURSE OF CARRYING ON THE BUSINESS AND THE SAME CAN NOT BE: CONSIDERED AS EXPENDITURE RESULTING IN FRINGE B ENEFIT TO THE EMPLOYEES. B. THE ENTIRE AMOUNT OF DEPRECATION AND EXPENDITURE ON MAINTENANCE OF MOTOR CARS INCURRED BY THE RENTING COMPANY IS RECOVERED AS PART OF THE RENTAL FROM THE CUSTOMERS, ON WHICH FBT IS PAYABLE BY THE CUSTOMER, REQUIRING THE RENTING COMPANY ALSO TO PAY FBT ON SU CH EXPENSES/ COST WOULD MEAN THAT THE MOTOR CARS GIVEN ON RENT BY THE RENTING COMPANY ARE BEING SIMULTANEOUSL Y USED BY THE CUSTOMERS AND EMPLOYEES WHICH IS FACTUA LLY ERRONEOUS AND WOULD RESULT IN DOUBLE TAXATION OF TH E SAME AMOUNT. C. ITH HAS A FLEET OF 491 CARS WHICH ARE USED IN TH E BUSINESS OF RENTING . IN ADDITION, THE ASSESSEE COM PANY HAS 27 MOTOR CARS FOR USE BY THE EMPLOYEES FOR OFFI CIAL AS ITA NO.3646/D/2011 AY: 2006-07 9 WELL AS PERSONAL PURPOSES. FRINGE BENEFIT TAX IS LI ABLE TO BE PAID IN RESPECT OF EXPENSES ON REPAIRS, MAINTENA NCE AND DEPRECATION ON SUCH MOTOR CARS USED BY THE EMPLOYEES. TO ESTIMATE 5% OF 491 CARS USED IN THE BUSINESS OF RENTING, AS GIVING BEEN USED BY THE EMPLOYEES, WOULD MEAN THAT NEARLY 24 CARS ARE WITHDRAWN FROM THE BUSINESS AND ARE PUT TO USE BY T HE EMPLOYEES. THE AFORESAID PRESUMPTION IS CONTRARY TO THE FACTS. D. SINCE THE EXPENSES ON RUNNING AND MAINTENANCE (INCLUDING DEPRECIATION) OF THE MOTOR CARS GIVEN ON RENT CONSTITUTE ALMOST 80 % TO 90% OF THE TOTAL EXPENSES OF THE RENTING COMPANY, LEVY OF FBT IN RESPECT OF SUCH EXPENSES, WOULD PUT THE RENTING COMPANY OUT OF BUSI NESS. IT WOULD, THEREFORE BE APPRECIATED THAT THE LEVY OF FRINGE BENEFIT TAX ON CARS USED IN THE BUSINESS OF RENTING AS AFORESAID, IN TERMS OF CLAUSE (H) OF SAID SECTION 1 15WB OF THE ACT IS INEQUITABLE AND IS OPPOSED TO THE INT ENT OF THE LEGISLATURE.' 11. THE COMMISSIONER OF INCOME TAX(A) DECIDED THE I SSUE AGAINST THE ASSESSEE BY HOLDING AS UNDER:- 6. I HAVE CONSIDERED THE SUBMISSIONS OF THE LEARN ED COUNSEL AND THE FACTS ON RECORD. IT IS SEEN THAT TH ERE IS NO DISPUTE ABOUT THE FACTS. THE BUSINESS OF THE APPELL ANT IS THAT OF PROVIDING TRAVEL RELATED SERVICES INCLUDING PROVIDING MOTOR CARS ON HIRE. AS PER SUBMISSION, 27 MOTOR CARS ARE USED FOR ADMINISTERING THE BUSINESS I.E. FOR OFFICIAL AND PERSONAL USE OF THE EMPLOYEES. FOR THE BUSINESS ACTIVITY OF PROVIDING TOURING SERVICES, TH E APPELLANT HAS 491 MOTOR CARS. THESE ARE STATED TO B E USED EXCLUSIVELY FOR RENTING/HIRING. AS PER THE LEARNED COUNSEL'S SUBMISSION, IN THE CASE OF THE APPELLANT THE FRINGE BENEFIT VALUE SHOULD BE DETERMINED ONLY WITH REFERENCE TO THE 27 MOTOR CARS AND NOT THE 491 MOTO R CARS USED FOR HIRING. VARIOUS REASONS INCLUDING DOU BLE ITA NO.3646/D/2011 AY: 2006-07 10 TAXATION OF FBT ON THE CARS RENTED OUT AND THE HIGH IMPROBABILITY OF ASSUMPTION OF 5 % OF 491 CARS BEIN G WITHDRAWN FROM BUSINESS AND PUT TO USE BY THE APPELLANT'S EMPLOYEES HAVE BEEN CITED FOR THE UNJUS TIFIED INCLUSION OF THE MOTOR CARS USED FOR HIRING IN FRIN GE BENEFIT VALUATION U/S 115WB. IT HAS ALSO BEEN STATE D THAT SECTION 115WB (H) IS INEQUITABLE. 6.2 THE ARGUMENTS RAISED BY THE LEARNED COUNSEL AR E CONTRARY TO THE POSITION OF LAW ON THIS ISSUE. AS P ER SECTION 115WB(2)(H) EXPENDITURE INCURRED ON REPAIR, RUNNING INCLUDING (FUEL), MAINTENANCE OF MOTOR CARS AND THE AMOUNT OF DEPRECATION THEREON IS TO BE CONSIDER ED AS A FRINGE BENEFIT . UNDER SECTION 115WC (1) (C) THE VALUE OF THE FRINGE BENEFIT IS TO BE TAKEN AT 20% OF THE EXPENSES. HOWEVER RECOGNIZING THE FACT THAT AN EMPL OYER MAY BE ENGAGED IN THE BUSINESS OF CARRIAGE OF PASSE NGERS BY MOTOR CAR I.E. HIRING OF MOTOR CARS ( AS IS THE CASE OF THE APPELLANT) , SECTION 115WC (2) (E) CLEARLY STAT ES THAT IN SUCH CASES THE VALUE OF THE FRINGE BENEFIT BE TA KEN AT 5% OF THE EXPENDITURE AS AGAINST 20%. THUS THE ACT ITSELF SPECIFICALLY PROVIDES THAT WHERE THE ASSESSEE IS EN GAGED IN THE BUSINESS OF HIRING OF MOTOR CARS, THE ELEMEN T OF FRINGE BENEFIT IS DEFINITELY INCLUDED. HOWEVER IN V IEW OF THE NATURE OF BUSINESS OF HIRING OF MOTOR CARS, THE VALUE OF FRINGE BENEFIT HAS BEEN SUBSTANTIALLY REDUCED AN D IS TO BE TAKEN @ 5% INSTEAD OF 20%. THUS THE ACT ITSELF C LEARLY INCORPORATES THE REQUIREMENT OF FRINGE BENEFIT VALU ATION ON MOTOR CARS USED FOR HIRING. 12. LD. COUNSEL OF THE ASSESSEE HAS PLACED RELIANCE ON VARIOUS DECISIONS OF HONBLE HIGH COURT AND COORDINATE BENCH OF TRIBUNAL INCLUDING DECISION OF HONBLE JURISDICTIONAL HIGH COURT OF DELHI IN THE C ASE OF T & T MOTORS LTD. VS C.I.T. (SUPRA) WHEREIN IT HAS BEEN HELD THAT THE ACCESSORIES PROVIDED FREE OF COST TO THE CUSTOMERS WHO PURCHASE CAR FROM CAR DEALER IS NOT AN ITEM OF ITA NO.3646/D/2011 AY: 2006-07 11 HOSPITALITY OR SALES PROMOTION AND THEREFORE THE SA ME IS NOT LIABLE TO FRINGE BENEFIT TAX. LD. COUNSEL OF THE ASSESSEE HAS ALSO DRAWN OUR ATTENTION TOWARDS CBDT CIRCULAR NO. 8 OF 2005 DATED 29.8.2005 TO SUPP ORT HIS SUBMISSIONS AND CONTENTIONS. LD. DR POINTED OUT THAT THE PRESE NT CASE IS NOT A CASE OF CAR DEALER AND IS RELATED TO A COMPANY PROVIDING CARS O N RENT/HIRE. THE DR SUBMITTED THAT THE BENEFIT OF DECISION OF HONBLE H IGH COURT IN THE CASE OF T&T MOTORS LTD. (SUPRA) IS NOT AVAILABLE FOR THE AS SESSEE IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. 13. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS A ND PECULIAR FACTS AND CIRCUMSTANCES OF THIS CASE, AT THE OUTSET, WE OBSER VE FROM THE CITATIONS RELIED BY THE ASSESSEE THAT AS PER CIRCULAR NO. 8/2005 DAT ED 29.08.2005 ISSUED BY CBDT, EMPLOYER AND EMPLOYEE RELATIONSHIP IS A PRERE QUISITE FOR THE LEVY OF FBT U/S 115 WB OF THE ACT. AS PER THE SAME CIRCULA R, WE FURTHER OBSERVE THAT FBT IS PAYABLE BY A PERSON IF HE SATISFIES THE FOLLOWING CONDITIONS:- 1. FBI IS PAYABLE BY A PERSON IF HE SATISFIES THE FOLLOWING CONDITIONS:- (I) HE IS AN EMPLOYER; (II) HE HAS EMPLOYEES BASED IN INDIA; (III) HE IS A COMPANY OR A FIRM OR AN ASSOCIATION O F PERSONS OR A BODY OF INDIVIDUALS OR A LOCAL AUTHORI TY OR AN ARTIFICIAL JURIDICAL PERSON; ITA NO.3646/D/2011 AY: 2006-07 12 (IV) HIS INCOME IS NOT EXEMPT UNDER SECTION 10(23C) OF THE INCOME-TAX ACT OR HE IS NOT REGISTER ED UNDER SECTION 12AA; (V) HE HAS PROVIDED THE FOLLOWING FRINGE BENEFITS:- (A) CONTRIBUTES TO AN APPROVED SUPERANNUATION FUND FOR EMPLOYEES; (B) PROVIDES FREE OR CONCESSIONAL TICKETS F OR PRIVATE JOURNEYS OF EMPLOYEES OR THEIR FAMILY MEMBERS; (VI) HE HAS, DURING THE COURSE OF HIS BUSINESS OR PROFESSION (INCLUDING ANY ACTIVITY WHETHER OR NOT SUCH ACTIVITY. IS CARRIED ON WITH THE OBJECT OF DERIVING INCOME, PROFITS OR GAINS) INCURRED ANY EXPENSE ON, OR MADE ANY PAYMENT FOR, THE PURPOSES REFERRED TO IN CLAUSES (A ) TO (P) OF SUB-SECTION (2) OF SECTION 115WB OF THE INCO ME-TAX ACT. THESE PURPOSES ARE ENUMERATED IN PARA 3.3 OF T HIS CIRCULAR. 14. IN VIEW OF ABOVE LEGAL POSITION OF STATUTORY PR OVISIONS OF THE ACT AS REITERATED BY VARIOUS PRONOUNCEMENTS OF HONBLE HIG H COURT AND COORDINATE BENCHES OF THE TRIBUNAL, WE ARE OF THE VIEW THAT WH EN EMPLOYER AND EMPLOYEE RELATIONSHIP IS A PREREQUISITE CONDITION F OR LEVY OF FBT, THEN VALUE OF FBT IS TO BE DETERMINED ON THE BASIS OF PR ESUMPTIVE METHOD TO BE APPLIED TO CERTAIN HEADS OF EXPENDITURE AS A MEASUR E/INDICATOR OF FRINGE BENEFIT. AS PER CIRCULAR 8/2005, THE OBJECTIVE OF IMPOSITION OF FRINGE BENEFIT TAX WAS THAT WHEN A TAXPAYER IS RECEIVING HIS ENTIR E INCOME IN CASH, HE BEARS A HIGHER TAX BURDEN IN COMPARISON TO ANOTHER TAXPAY ER WHO RECEIVES HIS INCOME PARTLY IN CASH AND PARTLY IN KIND, THEREBY V IOLATING HORIZONTAL EQUITY. ITA NO.3646/D/2011 AY: 2006-07 13 FURTHER, FRINGE BENEFITS ARE GENERALLY PROVIDED TO SENIOR EXECUTIVES IN THE ORGANIZATION. THEREFORE, UNDER-TAXATION OF FRINGE BENEFITS ALSO VIOLATES VERTICAL EQUITY. IT ALSO DISCRIMINATES BETWEEN COM PANIES WHICH CAN PROVIDE FRINGE BENEFITS AND THOSE WHICH CANNOT, THEREBY ADV ERSELY AFFECTING MARKET STRUCTURE. THE OBJECT OF LEGISLATION TO BRING FRIN GE BENEFIT TAX WAS THAT WHEN ALL BENEFITS CANNOT BE INDIVIDUALLY ATTRIBUTED TO EMPLOYEES PARTICULARLY IN THE CASES WHERE THE BENEFIT IS COLLECTIVELY ENJOYED; OF THE PRESENT WIDESPREAD PRACTICE OF PROVIDING PERQUISITES, WHEREIN MANY PER QUISITES ARE DISGUISED AS REIMBURSEMENTS OR OTHER MISCELLANEOUS EXPENSES SO A S TO ENABLE THE EMPLOYEES TO ESCAPE/REDUCE THEIR TAX LIABILITY AND WHEN THERE IS DIFFICULTY IN THE VALUATION OF THE BENEFITS PROVIDED BY THE EMPLO YER TO ITS EMPLOYEES. 15. IN THE CASE IN HAND, THE ASSESSEE COMPANY ITSEL F OFFERED THAT THE EMPLOYEES OF THE COMPANY ARE USING 27 CARS FOR ADMI NISTERING THE BUSINESS OF THE ASSESSEE I.E. FOR OFFICIAL AND PERSONAL USE OF EMPLOYEE AND THE ASSESSEE OFFERED EXPENSES IN RELATION TO SUCH 27 CARS FOR TH E PURPOSE OF DETERMINATION OF THE VALUE OF FRINGE BENEFIT TAX. AT THE SAME TI ME, ANOTHER CONTENTION OF THE ASSESSEE IS THAT THE EXPENDITURE INCURRED ON RU NNING AND MAINTENANCE OF 491 MOTOR CARS WHICH WERE USED IN THE BUSINESS OF R ENTING AND HIRING CANNOT BE BROUGHT FOR DETERMINATION OF VALUE OF FRINGE BEN EFIT UNDER THE PROVISIONS OF THE ACT. AS PER OBJECTS OF THE STATUTORY PROVIS IONS RELATING TO FRINGE ITA NO.3646/D/2011 AY: 2006-07 14 BENEFIT TAX AS MENTIONED HEREINABOVE, WE AGREE WITH THIS CONTENTION OF THE ASSESSEE THAT FOR DETERMINATION OF VALUE OF FRINGE BENEFIT, THE RELATION OF EMPLOYER AND EMPLOYEE IS A PREREQUISITE CONDITION A ND THE ASSESSEE COMPANY ITSELF HAD OFFERED EXPENSES IN RELATION TO 27 CARS USED BY THE EMPLOYEES AND OFFICERS OF THE COMPANY FOR ADMINISTE RING THE BUSINESS OF THE ASSESSEE I.E. FOR OFFICIAL AND PERSONAL USE. 16. THE PECULIAR FACTS AND CIRCUMSTANCES OF THE PRE SENT CASE ARE THAT THE ASSESSING OFFICER HAS CALCULATED TOTAL VALUE OF FRI NGE BENEFITS AT RS. 2,03,18,452 BY FOLLOWING THE TAX AUDIT REPORT AS AG AINST THE RETURNED VALUE OF FRINGE BENEFIT WHICH WAS TAKEN BY THE ASSESSEE AT R S.91,42,036. FROM CAREFUL PERUSAL OF THE RECORD PLACED BEFORE US, SPE CIALLY BOTH PAPER BOOKS OF THE ASSESSEE, WE OBSERVE THAT NEITHER THE ASSESSEE NOR THE REVENUE HAS PLACED THE COPY OF TAX AUDIT REPORT ON THE BASIS OF WHICH THE ASSESSING OFFICER CALCULATED THE HIGHER VALUE OF FRINGE BENEFIT AS AG AINST THE RETURNED VALUE BY THE ASSESSEE DUE TO THE REASONS BEST KNOWN TO THEM. IN THE ABSENCE OF TAX AUDIT REPORT, WE ARE UNABLE TO DRAW ANY FACT FINDIN G CONCLUSION REGARDING ORDERS OF THE AUTHORITIES BELOW AND IN THIS SITUATI ON, WE HAVE NO ALTERNATIVE BUT TO RESTORE THE MATTER TO THE FILE OF ASSESSING OFFICER FOR PROPER DETERMINATION OF THE VALUE OF FRINGE BENEFIT AFRESH BY AFFORDING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. IN THIS SI TUATION, WE ARE OF THE ITA NO.3646/D/2011 AY: 2006-07 15 CONSIDERED VIEW THAT THE ISSUE OF DETERMINATION OF VALUE OF FRINGE BENEFIT FOR THE YEAR UNDER CONSIDERATION REQUIRES VERIFICATION AND EXAMINATION AT THE END OF ASSESSING OFFICER IN THE LIGHT OF OBSERVATIONS I N THE TAX AUDIT REPORT AS WELL AS IN THE LIGHT OF RATIO OF THE RELEVANT DECIS IONS AND LEGAL PROPOSITIONS ON THE ISSUE. ACCORDINGLY, WE SET ASIDE THE FINDIN GS OF THE AUTHORITIES BELOW IN THIS REGARD AND RESTORE THE ISSUE TO THE FILE OF ASSESSING OFFICER WITH THE DIRECTION THAT THE ASSESSING OFFICER SHALL DECIDE T HE ISSUE BY CONSIDERING FOLLOWING RELEVANT MATERIAL AND POINTS:-- I) THE ASSESSING OFFICER SHALL EXAMINE AND VERIFY THE CLAIM OF THE ASSESSEE PERTAINING TO THE EXPENSES INCURRED FOR MA INTENANCE AND RUNNING OF CARS USED BY THE EMPLOYEE FOR THE PU RPOSE OF ADMINISTERING THE BUSINESS OF THE ASSESSEE I.E. FOR OFFICIAL AND PERSONAL USE. II) THE ASSESSING OFFICER SHALL DETERMINE THE VALUE OF FRINGE BENEFITS AS PER STATUTORY PROVISIONS OF THE ACT IN THE LIGHT OF OBSERVATIONS MADE BY THE AUDITOR IN THE TAX AUDIT R EPORT. III) THE ASSESSING OFFICER SHALL DETERMINE THE VALUE OF FRINGE BENEFIT BY FOLLOWING THE RATIO OF RELEVANT DECISIONS AND LE GAL PROPOSITION LAID DOWN BY VARIOUS HIGH COURTS AND CO ORDINATE BENCHES OF THIS TRIBUNAL IN THIS REGARD. ITA NO.3646/D/2011 AY: 2006-07 16 ACCORDINGLY, BOTH THE GROUNDS OF THE ASSESSEE ARE D ISPOSED OF WITH THE ABOVE DIRECTIONS TO THE ASSESSING OFFICER AND DEEMED TO B E ALLOWED FOR STATISTICAL PURPOSES. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 17.4.2014. SD/- SD/- (S.V. MEHROTRA) (CHANDRAMOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 17 TH APRIL 2014 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. COMMISSIONER OF INCOME TAX(A) 4. C.I.T. 5 DR BY ORDER ASSTT.REGISTRAR