M/s. MRF Limited, CHENNAI V. ACIT, CHENNAI

ITA 375/CHNY/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4924 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 01-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 29-03-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P B SEKARAN
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Retrospective amendment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI (BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER) .. I.T.A. NOS. 375 & 376/MDS/2010 ASSESSMENT YEARS : 2006-07 & 2007-08 M/S MRF LIMITED, 124, GREAMS ROAD, CHENNAI 600 006. PAN : AAACM4154G (APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT, CHENNAI 600 101. (RESPONDENT) APPELLANT BY : SHRI R. VIJAYARAGHAVAN RESPONDENT BY : SHRI P.B. SEKARAN O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEALS OF THE ASSESSEE AGAINST ORDERS D ATED 23.2.2010 OF THE COMMISSIONER OF INCOME TAX (APPEAL S), LARGE TAXPAYER UNIT, CHENNAI, FOR THE RESPECTIVE ASSESSME NT YEARS. APPEAL FOR ASSESSMENT YEAR 2007-08 IS TAKEN UP FIRS T FOR DISPOSAL. 2. ASSESSEE HAS RAISED ONLY ONE ISSUE IN THIS APPEA L, I.E. CIT(APPEALS) ERRED IN CONSIDERING MEDICAL REIMBURSE MENT UPTO ` 15,000/- PER EMPLOYEE AS FRINGE BENEFIT UNDER SECTI ON 115WB(2) OF I.T.A. NOS. 375 & 376/MDS/10 2 INCOME-TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) . ACCORDING TO ASSESSEE, PROVISO (V) TO SUB-SECTION (2) OF SECTION 17 OF THE ACT CLEARLY MENTIONS THAT EXPENDITURE FOR MEDICAL TREAT MENT UPTO ` 15,000/- WAS EXEMPT IN THE HANDS OF EMPLOYEES AND T HEREFORE, THERE WAS NO JUSTIFICATION IN LEVYING OF FBT IN THE HANDS OF THE EMPLOYER FOR SUCH AMOUNT. 3. SHORT FACTS APROPOS ARE THAT ASSESSEE HAD FILED ITS RETURN OF FRINGE BENEFIT FOR THE IMPUGNED ASSESSMENT YEAR AND THE FRINGE BENEFIT VALUED IN THE RETURN WAS ` 4,71,11,806/-. DURING SCRUTINY PROCEEDINGS, ASSESSING OFFICER NOTED THAT ASSESSEE HAD GIVEN MEDICAL REIMBURSEMENTS OF AMOUNTS BELOW ` 15,000/- FOR EACH EMPLOYEE, TOTALLING TO ` 5.87 CRORES. BUT, NEVERTHELESS, THIS WAS NOT INCLUDED IN THE FRINGE BENEFIT COMPUTED BY IT. ASS ESSEE WAS PUT ON NOTICE WHY FRINGE BENEFIT TAX SHOULD NOT BE LEVIED ON SUCH MEDICAL REIMBURSEMENTS GIVEN BY THE ASSESSEE. REPLY OF THE ASSESSEE WAS THAT MEDICAL REIMBURSEMENTS GIVEN BY THE COMPANY TO ITS EMPLOYEES WERE TAXABLE PERQUISITE IN THEIR HAND WHEN THE AMOU NT EXCEEDED ` 15,000/-. THEREFORE, AS PER THE ASSESSEE, WHERE TH E AMOUNTS REIMBURSED DID NOT EXCEED ` 15,000/- PER EMPLOYEE, IT COULD NOT CONSIDERED AS PERQUISITE SINCE IT WAS ONLY A THRESH OLD LIMIT I.T.A. NOS. 375 & 376/MDS/10 3 MENTIONED. RELIANCE WAS PLACED ON 5 TH PROVISO TO SECTION 17(2) OF THE ACT. HOWEVER, THE A.O. WAS NOT IMPRESSED. ACC ORDING TO HIM, CBDT CIRCULAR NO.8/2005 DATED 29.8.2005 HAD CLARIFI ED AGAINST QUESTION NO.69 THAT SUCH PAYMENTS WERE TAXABLE UNDE R FBT PROVISIONS. ACCORDING TO HIM, WHERE ANY SUM WAS PA ID TO AN EMPLOYEE FOR EXPENDITURE ACTUALLY INCURRED BY HIM O R HER FOR MEDICAL TREATMENT IN AN UNAPPROVED HOSPITAL, COST OF WHICH DID NOT EXCEED ` 15,000/- DURING THE YEAR, THEN IT DID NOT FALL WITH IN THE MEANING OF SALARY AS DEFINED IN SECTION 17(1) OF THE ACT. T HEREFORE, AS PER THE A.O., THE CIRCULAR CLEARLY MENTIONED THAT WHEN IT W AS NOT LIABLE FOR INCOME-TAX IN THE HANDS OF THE EMPLOYEE, IT WOULD R EMAIN A FRINGE BENEFIT IN THE HANDS OF THE EMPLOYER AND LIABLE TO FBT. HE, THEREFORE, CONSIDERED ` 5.87 CRORES BEING TOTAL MEDICAL REIMBURSEMENT BELO W ` 15,000/- PER EACH EMPLOYEE, DURING THE RELEVANT YEA R, AS A PART OF THE FRINGE BENEFIT AND TAXED ACCORDINGLY. 4. IN ITS APPEAL BEFORE LD. CIT(APPEALS), CONTENTIO N OF THE ASSESSEE WAS AS UNDER:- ' THE COMPANY'S EMPLOYEES GET REIMBURSEMENT OF MEDICAL BILLS S UBMITTED ACCORDING TO COMPANY RULES. THE AMOUNT PAID UP TO RS 15 , 000 IS NOT CONSIDERED AS A PERQUISITE IN THEIR HANDS IN VIEW OF THE PROVISO (V) TO SECTION 17(2) OF THE INCOME TAX ACT . EXCESS OVER RS 15,000 IS CONSIDERED AS A PERQUISITE AND TAXED ACCORDINGLY . I.T.A. NOS. 375 & 376/MDS/10 4 SINCE THE AMOUNT PAID UP TO RS 15,000 IS NOT CONSIDERED AS A PERQUI S ITE UNDER THE ACT AND THEREFORE EXEMPT FROM TAX IN THE EMPLOYEES ' HANDS , THE APPELLANT COMPANY RIGHTLY DID NOT CONSIDER THIS FOR F BT . THE AD, RELYING ON CBOT CIR C ULAR 812005, TREATED IT AS A FRINGE BENEFIT ULS 115 WB(2) AND BROUGHT IT TO TA X. THE APPELLANT SUBMITS THAT MEDICAL REIMBURSEMENT UP TO RS . 15,0001 - I S NOT LIABLE TO FBT . PROVISO TO SECTION 17 ITSELF STATES THAT ANY SUM PAID BY AN EMPLOYER IN RESPECT OF AN EXPENDITURE ACTUALLY INCURR ED BY THE EMPLOYEE FOR MEDICAL TREATMENT IN AN UNAPPROVED HOSPITAL AND IF IT IS LESS THAN RS. 15 , 0001 - , SUCH SUM SHALL NOT BE TREATED AS PERQUISITE . THE INTENTION BEHIND INTRODUCIN G THESE PROVISIONS ARE TO TAX BENEFITS WHICH ESCAPE T AXATION AND ARE ENJO Y ED COLLECTIVELY BY THE EMPLOYEES AND NOT TO TAX PERQUI SITES WHICH ARE SPE C IFICALLY E X EMPTED FROM TAX. IN THI S C ONTEXT , RELIANCE CAN BE PLA C ED ON THE S P EEC H O F HON 'BLE FINANCE MINISTER WHILE INTRODUCING THE P ROVISIONS WHEREIN HE STATED THAT MANY PERQUISITES ARE DISGUISE D AS BENEFITS AND ESCAPE TA X ATION. THI S IS A LL TH E MORE CLEAR IN THE MEMORANDUM E X PLAINING THE FINANCE BILL 2005 . INTRODUCTION OF FRINGE BENEFIT TAX T HE TAXATION OF PERQUISITES OR FRINGE BENEFITS PROV I DED BY AN EMPLO Y E R T O HIS EMPLOYEES , IN ADDIT I ON TO THE C ASH SALAR Y OR WAGES PAID , I S SUB J ECT T O VA R YI N G TREATMENT I N DIFFERENT COUNTRIES. THESE BENEFITS ARE EITHER TA XED IN THE HAND S OF THE EMPLOYEES THEMSELVES OR THE VALUE OF SUCH BE NEFITS IS SUBJECT TO A ' F R IN G E BENEFIT TAX ' IN THE HANDS OF THE EMPLOYER. THE RATIONALE FOR LEVYING A FRINGE BENEFIT TA X ON THE EMPLOVER LIES IN THE I NHERENT DIFFICULTV IN ISOLATING THE ' PER S ONAL ELEMENT' WHERE THERE IS COLLECT I VE ENJOYMENT OF SUCH BENEFITS AND ATTR I BUT I NG THE SAME DIRECTLY TO THE EMPLOYEE . THIS IS SO ESPECIALLY WHERE THE EXPENDITUR E INCURRED BY THE EMPLOYER IS OSTENS I BLY FOR PURPO S ES OF THE BUS I NESS BUT IN C LUD ES, IN PARTIAL MEASURE, A BENEFIT OF A PERSONAL NATURE. MOREOVER, IN CASES WHERE THE EMPLOYER DIRECTLY RE I MBURSES THE EMPLOYEE FOR EXPENSE S INCURRED, IT BE CO M ES D I FFICULT TO EFFECTIVELY CAPTURE THE TRUE EXTENT OF TH E PERQUIS I TE PROVIDED BECAU SE OF THE PROBLEM OF CASH FLOW I N THE HAND S OF THE EMPLOYER . THEREFOR E, I T IS PROPOSED TO ADOPT A TW O PRONGED APPROA C H FOR THE TA X AT I ON OF FRING E BE N E F I T S UNDER THE INCOME - TAX ACT . PERQUISITES WHICH CAN BE DIRECTLY ATTRIBUTED TO TH E EMPLOYEES W I LL CONTINUE TO BE TA X ED I N THE I R HANDS IN AC C ORDAN C E WI TH T H E EXIST I NG PROVIS I ONS OF SECTION 17(22 OF THE INCOME - TAX ACT AND SUBJE C T T O TH E METHOD OF VALUATION OUTL I NED IN RULE 3 OF THE INCOME - TAX RULES. IN CAS ES , WHE RE ATTRIBUTION OF THE PERSONAL BENEFIT POSES PROBLEMS, OR FOR SOME REASONS , IT I S N O T FEAS I BLE TO TA X THE BENEFITS IN THE HANDS OF THE EMPLOYEE, IT IS PROPOSED T O L E VY A S EPARATE TAX KNO W N AS THE FRINGE BENEFIT TAX ON THE EMPLOYER ON THE V A LU E O F SUCH BENEFITS PROVIDED OR DEEMED TO HAVE BEEN PROVIDED TO THE EMPLOYE ES . F O R THIS PURPO SE , A NE W CHAPTER X II - H IS PROP OS ED T O BE IN S ERTE D I N T HE I.T.A. NOS. 375 & 376/MDS/10 5 I NCO M E T AX A C T CONTAINING SECTIONS 115 W TO 115 WL, WHI C H PROVIDES FOR THE L E V Y OF ADDIT I ONAL I NCOME-TA X ON FR I NGE BE N E F I T S. FURTHER THE OB J ECTIVE O F I NTR O DU C I NG FBT AS EXP L AI NED I N CBOT CIR C ULAR 8/2 0 05 I S STATED TO BE THE DIFF IC ULT Y O F T AX IN G THE F RI N G E B E NEFIT. PARA 2. 1 O F THE SAID CI RC UL A R S TATE S TH A T ' THE TA X ATION OF FRINGE BEN E FIT S RAI SES SO ME P R OBL E M S P RIM A R I L Y BE CAUSE- ( A ) AL L BEN EFI T S C ANNOT BE I N D I VIDUALLY ATTR I BUTED TO EMP LO YEE S, PARTI C ULARLY IN C ASES WHERE THE BENEFIT IS COLLECTIVELY E NJO YE D; ( B) OF THE PRESENT WI DESPREAD PRA C TI C E O F PROVID I NG PERQUI S ITE S, WHEREIN MANY PERQUISITES A RE D I S G UISED AS REIMBURSEM E NT S O R OTHER M IS C E LLANEOUS E X PEN S E S SO AS TO E NABLE THE EMPL OY E ES T O ESCAPE/REDUCE TH E IR TA X LIA B ILITY ; AND A CCORDI N G L Y, THE A SS E SSEE S UBMIT S TH A T TH ESE P R O V ISIO N S WE R E I NT ROD U CED T O T A X THOSE B ENEF I T S W HI C H E SCAPE T AX AT ION ON ACCOU NT O F IT BEI N G COLLECTIVE L Y ENJOYED AND N O T TH OSE W H IC H A R E SP E CI F ICALLY EXEMP T A ND IDEN T I F IAB L E AND H E N CE , THE MEDICA L R E IMBU RSE M E NT UP TO R S 1 5, 00 0/- I S NOT L IAB L E TO FB T. T HE R E F ORE, THE ADDITION OF RS. 5.87 CRORES TO THE TOTAL V ALUE OF THE FRINGE BENEFIT WAS NOT WARRANTED. 5. HOWEVER, LD. CIT(APPEALS) WAS NOT IMPRESSED. AC CORDING TO HIM, FBT WAS AN ADDITIONAL TAX ON FRINGE BENEFITS A ND PERQUISITES ON WHICH NO TAX WAS PAID BY THE EMPLOYEES WERE TO BE T AXED IN THE HANDS OF EMPLOYER, SINCE SUCH AMOUNT WOULD NOT BE P ART OF SALARY AS DEFINED IN SECTION 17(2) OF THE ACT. ACCORDING TO HIM, PERQUISITES WHICH COULD NOT BE DIRECTLY TAXED IN THE HANDS OF E MPLOYEES WERE TO BE CONSIDERED FOR THE PURPOSE OF LEVY OF FRINGE BEN EFITS TAX IN THE HANDS OF THE EMPLOYER. ACCORDING TO HIM, CIRCULAR NO.8/2005 OF CBDT WAS CLEAR IN THAT REIMBURSEMENT UPTO ` 15,000/- FOR MEDICAL I.T.A. NOS. 375 & 376/MDS/10 6 TREATMENT WAS NOT TAXABLE IN THE HANDS OF THE EMPLO YEES, AND HENCE REMAINED LIABLE FOR LEVY OF FRINGE BENEFITS TAX IN THE HANDS OF EMPLOYER. HE, THEREFORE, CONFIRMED THE ACTION OF T HE A.O. 6. NOW BEFORE US, LEARNED A.R. SUBMITTED THAT TYPES OF PAYMENTS TO BE CONSIDERED FOR LEVY OF FBT WERE CLEARLY SPECI FIED IN SUB-SECTION (3) OF SECTION 115WB OF THE ACT. ACCORDING TO HIM, AS PER THIS SUB- SECTION, ANY PRIVILEGE, SERVICE, FACILITY OR AMENIT Y ON WHICH TAX WAS PAID OR PAYABLE BY AN EMPLOYEE WOULD HAVE TO BE EXC LUDED FROM FRINGE BENEFITS. LEARNED A.R. ARGUED THAT PROVISO (V) SUB-SECTION (2) OF SECTION 17 WHICH DEFINED PERQUISITES CLEARLY M ENTIONED THAT ANY SUM PAID BY AN EMPLOYER IN RESPECT OF EXPENDITURE A CTUALLY INCURRED BY AN EMPLOYEE FOR HIS MEDICAL REIMBURSEMENT, EVEN IF IT DID NOT EXCEED ` 15,000/- WAS TO BE CONSIDERED AS A PERQUISITE. AS PER LEARNED A.R., JUST BECAUSE A SUM OF ` 15,000/- OUT OF SUCH EXPENDITURE ACTUALLY INCURRED BY THE EMPLOYEES, IF REIMBURSED BY THE EMPLOYER, STOOD EXCLUDED, WOULD NOT MEAN THAT IT WA S NOT TO BE CONSIDERED AS A PERQUISITE WHICH WAS NOT TAXABLE IN THE HANDS OF EMPLOYEES. THEREFORE, AS PER LEARNED A.R., REIMBUR SEMENT OF MEDICAL EXPENSES REMAINED AS PERQUISITE TAXABLE IN HANDS OF THE EMPLOYEE AND HENCE ALSO COULD NOT BE CONSIDERED FOR LEVY OF FRINGE I.T.A. NOS. 375 & 376/MDS/10 7 BENEFITS TAX IN THE HANDS OF THE EMPLOYER. AS FOR THE RELIANCE PLACED ON CBDT CIRCULAR NO.8/2005, LEARNED A.R. SUBMITTED THAT CBDT HAD CLEARLY FIGURED OUT TWO CATEGORIES OF PAYMENTS, ONE WHICH EXCEEDED ` 15,000/- AND ONE WHICH WERE LESS THAN ` 15,000/- IN EACH CASE. ACCORDING TO HIM, EVEN WHEN REIMBURSEMENT WERE ` 15,000/- OR LESS, IT VERY MUCH REMAINED A PERQUISITE WHICH WAS TAXABL E IN THE HANDS OF THE EMPLOYEES, AND EXCLUSION BY PRESCRIBING A LIMIT , WOULD HAVE NO EFFECT WHATSOEVER ON THE CHARACTER OF THE PAYMENT. 7. PER CONTRA, LEARNED D.R. SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 8. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. CLAUSE (A) OF SUB-SECTION (1) OF SECTION 115WB CLEA RLY STATES THAT FRINGE BENEFITS WOULD MEAN ANY PRIVILEGE, SERVICE, FACILITY OR AMENITY, DIRECTLY OR INDIRECTLY PROVIDED BY AN EMPLOYER, WHE THER BY WAY OF REIMBURSEMENT OR OTHERWISE TO HIS EMPLOYEES. THE T ERMINOLOGY USED IS SO WIDE THAT ANY TYPE OF PRIVILEGE, SERVICE, FAC ILITY OR AMENITY WHETHER BY REIMBURSEMENT OR NOT WOULD FALL WITHIN T HE PURVIEW OF FRINGE BENEFITS. IF WE LOOK AT SUB-SECTION (3), IT CLEARLY STATES THAT SUCH PRIVILEGE, SERVICE, FACILITY OR AMENITY WOULD NOT I NCLUDE PERQUISITE ON I.T.A. NOS. 375 & 376/MDS/10 8 WHICH TAX IS PAID OR PAYABLE BY THE EMPLOYEE. THE QUESTION HERE THEREFORE IS WHETHER THE MEDICAL REIMBURSEMENT OF ` 15,000/- CAN BE CONSIDERED AS PERQUISITE ON WHICH TAX IS PAID OR PA YABLE BY THE EMPLOYEES. PERQUISITE IS DEFINED UNDER SUB-SECTION (2) OF SECTION 17 OF THE ACT AND PROVISO (V) THERETO CLEARLY SPECIFIE S THAT THE DEFINITION OF PERQUISITE WOULD NOT INCLUDE THEREIN ANY SUM PAID BY AN EMPLOYER IN RESPECT OF ANY EXPENDITURE ACTUALLY INCURRED BY AN EMPLOYEE ON HIS MEDICAL TREATMENT OR TREATMENT OF ANY MEMBER OF HIS FAMILY IF SUCH SUM WAS NOT IN EXCESS OF ` 15,000/-. NEVERTHELESS, THE AMOUNT PAID OR REIMBURSED REMAINED PERQUISITE. ONLY EFFECT OF THE PROVISO IS THAT IN EXCESS OF ` 15,000/-, THE REIMBURSEMENT AMOUNT WOULD BE TAXABL E AS A PART OF SALARY IN THE HANDS OF EMPLOYEE, WHERE AS AMOUNTS OF ` 15,000/- AND LESS IT WOULD NOT BE TAXABLE IN THE HA NDS OF THE EMPLOYEE. SUCH REIMBURSEMENT NEVERTHELESS WOULD BE PERQUISITE AS DEFINED UNDER THE ACT BUT WOULD REMAIN UNTAXED IN T HE HANDS OF THE EMPLOYEES. ACCORDING TO QUESTION NO.69 IN CBDT CIR CULAR NO.8/2005 IS RELEVANT HERE:- 69. WHETHER MEDICAL REIMBURSEMENT UPTO ` 15,000 (EXEMPT IN THE HANDS OF THE EMPLOYEES) AND MEDICAL REIMBURSEMENT OVER ` 15,000 (TAXED AS PERQUISITE IN THE HANDS OF THE EMPLOYEES) IS LIABLE TO FBT? I.T.A. NOS. 375 & 376/MDS/10 9 ANS. AT PRESENT, IF ANY SUM IS PAID BY THE EMPLOYER F OR EXPENDITURE ACTUALLY INCURRED BY THE EMPLOYEE FOR MED ICAL TREATMENT IN AN UNAPPROVED HOSPITAL AND IT EXCEEDS ` 15,000 DURING THE YEAR, SUCH SUM IS SALARY AS DEFINED IN C LAUSE (1) OF SECTION 17 OF THE INCOME-TAX ACT AND LIABLE TO INCO ME-TAX IN THE HANDS OF THE EMPLOYEE. THERE IS NO CHANGE IN THIS P OSITION. SINCE SUCH SUM IS TAXABLE IN THE HANDS OF THE EMPLOYEE, TH E SAME IS NOT LIABLE TO FBT. HOWEVER, IF ANY SUM IS PAID BY THE EMPLOYER FOR EXPENDITURE ACTUALLY INCURRED BY THE EMPLOYEE FOR MED ICAL TREATMENT IN AN UNAPPROVED HOSPITAL AND IT DOES NOT EXCEED ` 15,000 DURING THE YEAR, SUCH SUM DOES NOT FALL WITHI N THE MEANING OF SALARY AS DEFINED IN CLAUSE (1) OF SECTION 17 O F THE INCOME-TAX ACT AND NOT LIABLE TO INCOME-TAX IN THE HANDS OF TH E EMPLOYEE. THERE IS NO CHANGE IN THIS POSITION. SINCE SUCH SU M IS NOT TAXABLE IN THE HANDS OF THE EMPLOYEE, THE SAME IS LIABLE TO FBT. 9. THE ARGUMENT OF THE LEARNED A.R. THAT THERE ARE TWO CLASSES OF PERQUISITES BY VIRTUE OF THE ABOVE CIRCULAR, ONE FO R AMOUNT ABOVE IN EXCESS OF ` 15,000/- AND ANOTHER ONE FOR AMOUNTS OF ` 15,000/- AND BELOW, DOES NOT HAVE ANY INTELLIGIBLE CRITERIA OF D IFFERENTIATION NOR ANY RATIONAL NEXUS. WE ARE OF THE OPINION THAT PROVISI ONS OF FBT WERE CORRECTLY APPLIED BY THE A.O. AND CIT(APPEALS) IN T HIS REGARD. THE CIRCULAR OF CBDT WAS A CONTEMPORANEOUS EXPOSITION O F THE LAW OF FBT AND HENCE DOES HAVE SUBSTANTIAL FORCE WHILE INT ERPRETING THE PROVISIONS. THUS, WE ARE UNABLE TO FIND ANY MISTAK E IN THE ORDERS OF THE A.O. AND CIT(APPEALS). I.T.A. NOS. 375 & 376/MDS/10 10 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2007-08 STANDS DISMISSED. 11. NOW, WE TAKE UP ASSESSEES APPEAL FOR ASSESSMEN T YEAR 2006- 07. 12. GROUND NO.1 RAISED BY THE ASSESSEE IS SIMILAR T O ITS SOLE GROUND RAISED FOR ASSESSMENT YEAR 2007-08. FOR THE SAME REASONING AS MENTIONED IN PARAS 8 AND 9, WE DO NOT FIND ANY N ECESSITY TO INTERFERE WITH THE ORDERS OF AUTHORITIES BELOW. TH US, THIS GROUND STANDS DISMISSED. 13. GROUND NOS. 2 AND 3 CAN BE GROUPED TOGETHER. G RIEVANCE OF THE ASSESSEE VIDE ITS GROUND NOS.2 IS THAT CIT(APPE ALS) DID NOT CONSIDER THE THRESHOLD LIMIT OF ` 1 LAKH, WHILE COMPUTING THE FRINGE BENEFIT RELATING CONTRIBUTION TO SUPERANNUATION FUN DS. GRIEVANCE VIDE ITS GROUND NO.3 IS THAT CIT(APPEALS) CONSIDERED PAY MENTS TO PERSONS OF REPUTE AS FRINGE BENEFITS. PLEADING OF THE ASSE SSEE IS THAT THE AMENDMENTS BROUGHT IN THROUGH FINANCE ACT, 2006 SUB STITUTING CLAUSE (B) OF SUB-SECTION (1) OF SECTION 115WC AND SUB-CLAUSES (VII) AND (VIII) OF CLAUSE D OF SUB-SECTION (2) OF SECTIO N 115WB HAD I.T.A. NOS. 375 & 376/MDS/10 11 RETROSPECTIVE EFFECT AND THEREFORE, HAD TO BE CONSI DERED FOR IMPUGNED ASSESSMENT YEAR ALSO. 14. SHORT FACTS APROPOS ARE THAT DURING THE COURSE OF ASSESSMENT OF FRINGE BENEFITS, A.O. FOUND THAT THE ASSESSEE HA D PAID CONTRIBUTION TO SUPERANNUATION FUNDS EXCEEDING ` 1 LAKH TOTALLING TO ` 98,91,964/-. BUT, THIS WAS NOT CONSIDERED AS FRINGE BENEFITS BY THE ASSESSEE. WHEN PUT ON NOTICE, REPLY OF THE ASSESSEE WAS THAT CLAUSE (B) OF SUB- SECTION (1) OF SECTION 115WC WAS AMENDED WITH EFFEC T FROM 1.4.2007 AND THROUGH THIS AMENDMENT AMOUNTS WHICH WERE TO BE CONSIDERED AS FRINGE BENEFITS ON CONTRIBUTION TO SUPERANNUATIO N FUNDS WOULD EXCLUDE ` 1 LAKH IN RESPECT OF EACH EMPLOYEE. ACCORDING TO ASSESSEE, THIS BEING A BENEFICIAL PROVISION, IT HAD TO BE APPLIED RETROSPECTIVELY. VIS--VIS EXCLUSION OF PAYMENTS T O PERSONS OF REPUTE, WHILE COMPUTING SALES PROMOTION VALUE, ASSESSEES C LAIM WAS THAT THERE WAS AN AMENDMENT TO CLAUSE (D) IN SUB-SECTION (2) OF SECTION 115WB, AGAIN THROUGH FINANCE ACT, 2006 WITH EFFECT FROM 1.4.2007 BY WHICH SUB-CLAUSE (VII) WAS SUBSTITUTED AND SUB-CLAU SE (VIII) WAS ADDED BY VIRTUE OF WHICH PAYMENTS TO PERSONS OF REP UTE HAD TO BE EXCLUDED, WHILE COMPUTING THE FRINGE BENEFIT VALUE COMPRISED IN SALES PROMOTION EXPENSES. ACCORDING TO ASSESSEE, THIS AM ENDMENT HAD I.T.A. NOS. 375 & 376/MDS/10 12 ALSO TO BE CONSTRUED RETROSPECTIVELY. HOWEVER, A.O . WAS NOT IMPRESSED. ACCORDING TO HIM, BOTH THESE AMENDMENTS DID NOT HAVE ANY RETROSPECTIVE EFFECT AND COULD NOT BE APPLIED F OR THE IMPUGNED ASSESSMENT YEAR. HE, THEREFORE, CONSIDERED CONTRIB UTION TO SUPERANNUATION FUNDS AND SALES PROMOTION EXPENSES I NCLUDING THE PAYMENTS MADE TO PERSONS OF REPUTE AS A PART OF FRI NGE BENEFITS OF THE ASSESSEE, FOR LEVYING FRINGE BENEFITS TAX. 15. ASSESSEE MOVED IN APPEAL BEFORE THE CIT(APPEALS ) WHO CONFIRMED THE ADDITIONS MADE BY THE A.O. 16. NOW BEFORE US, LEARNED A.R., STRONGLY ASSAILING THE ORDERS OF AUTHORITIES BELOW, SUBMITTED THAT RESPECTIVE AMENDM ENTS MADE BY FINANCE ACT, 2006 WOULD BE APPLICABLE TO THE PRESEN T CASE. 17. PER CONTRA, LEARNED D.R. SUBMITTED THAT AMENDME NTS WERE SPECIFICALLY MADE WITH EFFECT FROM A LATER YEAR AND HENCE THERE WAS NO QUESTION OF ANY RETROSPECTIVE EFFECT BEING GIVEN TO THEM. 18. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. IN SO FAR AS CONTRIBUTION BY AN EMPLOYER TO APPROVED S UPERANNUATION FUNDS IS CONCERNED, IT IS DEFINITELY A FRINGE BENEF IT VIDE CLAUSE (C) OF I.T.A. NOS. 375 & 376/MDS/10 13 SUB-SECTION (1) OF SECTION 115WB. FOR COMPUTING VA LUE OF SUCH BENEFIT, CLAUSE (B) OF SUB-SECTION (1) OF SECTION 1 15WC STATES THAT ONLY CONTRIBUTION IN EXCESS OF ` 1 LAKH WAS TO BE CONSIDERED. BUT, THIS IS THE POSITION SUBSEQUENT TO AN AMENDMENT MADE THR OUGH FINANCE ACT 2006 WITH EFFECT FROM 1.4.2007. PRIOR TO THIS AMENDMENT, ACTUAL AMOUNT OF CONTRIBUTION TO SUPERANNUATION FUNDS WAS TO BE CONSIDERED AS FRINGE BENEFIT. ARGUMENT OF THE ASSESSEE THAT S UBSTITUTION OF CLAUSE (B) SPECIFICALLY MADE WITH EFFECT FROM 1.4.2 007 BY THE PARLIAMENT HAD TO BE CONSTRUED RETROSPECTIVELY, CAN NOT BE ACCEPTED. WHEN THE LEGISLATURE MANDATED AN AMENDMENT TO COME INTO EFFECT FROM A PARTICULAR DATE, UNLESS THERE ARE SPECIFIC R EASONS TO DO SO, RETROSPECTIVITY CANNOT BE PRESUMED. PROSPECTIVITY IS THE RULE AND RETROSPECTIVITY IS AN EXEMPTION. SIMILAR IS THE CA SE WITH SALES PROMOTION EXPENSES ALSO. HERE, CLAUSE (VIII) WAS A DDED TO CLAUSE (D) OF SECTION 115WB(2) OF THE ACT THROUGH FINANCE ACT, 2006 WITH EFFECT FROM 1.4.2007. THROUGH THIS AMENDMENT, PAYMENT TO PERSONS OF REPUTE FOR PROMOTING SALE OF GOODS AND SERVICES WAS EXCLUDED FROM THE AMBIT OF SALES PROMOTION WHILE COMPUTING FRINGE BENEFITS. WE CANNOT SAY THAT THIS AMENDMENT WAS RETROSPECTIVE, E SPECIALLY WHEN THE LEGISLATURE MADE IT EFFECTIVE FROM 1.4.2008. T HIS BEING THE CASE, I.T.A. NOS. 375 & 376/MDS/10 14 WE DO NOT FIND ANY MERIT IN THE CONTENTION OF THE L EARNED A.R. THAT THESE AMOUNTS COULD NOT HAVE BEEN CONSIDERED FOR CO MPUTING FRINGE BENEFITS VALUE OF ASSESSEE FOR THE RELEVANT ASSESSM ENT YEAR. WE THUS FIND NO REASON TO INTERFERE WITH THE ORDERS OF THE A.O. AND CIT(APPEALS). 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2006-07 STANDS DISMISSED. 20. TO SUMMARISE, BOTH THE APPEALS FILED BY THE ASS ESSEE ARE DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 10 TH JUNE, 2011. SD/- SD/- (U.B.S. BEDI) (ABRAHAM P. GE ORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 10 TH JUNE, 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A), LTU, CHENNAI (4) CIT LTU, CHENNAI (5) D.R. (6) GUARD FILE