DP WORLD P. LTD, MUMBAI V. ACIT CIR 2(2), MUMBAI

ITA 4463/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59788 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 16-01-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 31-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR
• Assessee Lawyers: M P LOHIA NIKHIL TIWARI; MADHVI MEHTA
• Keywords: Gift; Depreciation; Fair market value; Notional interest
• Section: 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D,MUMBAI BEFORE SHRI D.K. AGARWAL (JM) & SHRI T.R. SOOD (AM) I.T.A. NOS.4462 & 4463/MUM/2010 (A.Y. 2006-07 & 2007-08) DP WORLD PVT. LTD., DARABSHAW HOUSE, LEVEL 1, N.M. MARG, BALLARD ESTATE, MUMBAI-400 038. PAN: AAACP6133A VS. DY./ASSTT. COMMR. OF INCOME-TAX, CIRCLE -2(2)/(1), AAYKAR BHAVAN, M.K. ROAD, MUMBAI-400 020. APPELLANT RESPONDENT APPELLANT BY S/SHRI M.P. LOHIA, NIKHIL TIWARI & MS. MADHVI MEHTA. RESPONDENT BY SHRI C .G.K. NAIR. DATE OF HEARING 16 - 01 - 201 2 DATE OF PRONOUNCEMENT 20-01-2012 O R D E R PER T.R. SOOD, AM : IN THESE APPEALS, THE ASSESSEE HAS RAISED VARIOUS G ROUNDS BUT THE ONLY COMMON DISPUTE INVOLVED IS REGARDING LEVY OF FRINGE BENEFIT TAX (F BT FOR SHORT). 2. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DUR ING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD PROVIDED RESIDENTIAL ACCOMMODATION TO ITS CHAIRMAN-CUM- MANAGING DIRECTOR AS PER TERMS OF THE EMPLOYMENT CO NTRACT WITH HIM. THE ASSESSEE COMPANY HAD TAKEN THE PREMISES ON LEASE FROM M/S. SDN COMPA NY FOR A MONTHLY RENT OF RS.1 LAKH, WHICH WAS TREATED AS PERQUISITE IN THE HANDS OF THE EMPLO YEE. THE ASSESSEE COMPANY HAD ALSO GIVEN A DEPOSIT OF RS.5 CRORE TOWARDS INTEREST FREE REFUNDA BLE DEPOSIT FOR THE LICENCE TO USE AND OCCUPY ITA 4462 & 4463/M/2010 DP WORLD PVT.LTD. 2 THE FLAT NO.13 IN SUNEETA BUILDING SITUATED AT 9-11 , B.G. KHARE MARG, MALABAR HILL, MUMBAI-400 006. IT WAS FURTHER NOTICED THAT THE ASSESSEE ALSO HAD BORROWINGS TO THE EXTENT OF RS.2,54,88,085/-. THEREFORE, THE ASSESSEE WAS ASKE D TO EXPLAIN WHY INTEREST ON DEPOSIT OF RS.5 CRORE SHOULD NOT BE CONSIDERED FOR FBT. IN RESPONSE , IT WAS MAINLY STATED THAT THE SUM OF RS.5 CRORE WAS PAID OUT OF THE SHARE CAPITAL RAISED DURI NG THE FINANCIAL YEAR 2001-02. THE SECURITY DEPOSIT WAS PAID FOR TAKING THE ABOVESAID FLAT ON L EASE BASIS WHICH WAS PROVIDED TO CAPT. JIMMY SARBH, CHAIRMAN & MANAGING DIRECTOR OF THE COMPANY. THEREFORE, NO BENEFIT WAS PASSED ON TO CAPT. JIMMY SARBH. THE AO, AFTER CONSIDERING THE SU BMISSIONS, DID NOT AGREE AND OBSERVED THAT ACCORDING TO SECTION 115WB(1), FRINGE BENEFIT MEA NS ANY PRIVILEGE, SERVICE, FACILITY OR AMENITY, DIRECTLY OR INDIRECTLY, PROVIDED BY AN EMPLOYER, WH ETHER BY WAY OF REIMBURSEMENT OR OTHERWISE, TO THE EMPLOYEES (INCLUDING FORMER EMPLOYEE OR EMPL OYEES). HE FURTHER OBSERVED THAT THE ASSESSEE PAID THE DEPOSIT FOR THE PREMISES WHICH O THERWISE WOULD HAVE BEEN PAID BY THE EMPLOYEE. SINCE THE EMPLOYER MADE THE PAYMENT OF DE POSIT AND THE EMPLOYEE GOT THE BENEFIT, THEREFORE, EQUIVALENT INTEREST ON SUCH DEPOSIT WAS TO BE TREATED AS FRINGE BENEFIT BECAUSE, IN THE ABSENCE OF THIS DEPOSIT, THERE WAS NO NECESSITY TO BORROW THE FUNDS. IN THIS BACKGROUND, HE CALCULATED 9% INTEREST, WHICH WAS BEING GIVEN BY TH E BANKS ON FDRS, AND ADDED A SUM OF RS.45 LAKHS TO THE VALUE OF FRINGE BENEFIT. 3. ON APPEAL BEFORE THE CIT(A), IT WAS MAINLY SUBMI TTED THAT SINCE NO VALUATION WAS POSSIBLE FOR SUCH BENEFIT, THEREFORE, THE SAME COUL D NOT BE SUBJECTED TO FBT AND STRONG RELIANCE WAS PLACED ON THE BOARD CIRCULAR NO. 8 DATED 29-08- 2005 WITH RESPECT TO LEVY OF FBT. ANSWER TO QUESTION NO.7 OF THE SAID CIRCULAR WAS REFERRED, W HEREIN IT WAS CLEARLY STATED THAT IF THERE WAS NO PROVISION FOR COMPUTING THE VALUE OF ANY PARTICULAR FRINGE BENEFIT, THEN THE SAME COULD NOT BE SUBJECTED TO TAX. THE LD. CIT(A), AFTER EXAMINING T HE SUBMISSIONS, DID NOT AGREE WITH THE SAME AND OBSERVED THAT THE CIRCULAR HAS BEEN ISSUED UNDE R SUB-SECTION (1)(A) OF SECTION 115WB. HE OBSERVED THAT AS PER THE PROVISIONS OF SECTION 115W B(2), ANY CONSIDERATION PAID FOR EMPLOYMENT, WHICH MAY COMPRISE OF ANY PRIVILEGE, SE RVICE, FACILITY OR AMENITY, WOULD BE COVERED UNDER SUB-SECTION . (1)(A). IN VIEW OF THIS, THE AS SESSEES APPEALS WERE DISMISSED. ITA 4462 & 4463/M/2010 DP WORLD PVT.LTD. 3 4. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE CARRI ED US TO THE PROVISIONS OF FRINGE BENEFIT TAX AND POINTED OUT THAT SECTION 115WB(1) PROVIDES A DEFINITION OF FRINGE BENEFITS AND VARIOUS CATEGORIES OF BENEFITS HAVE BEEN LISTED IN THIS SEC TION. SUB-SECTION (2) DEALS WITH DEEMED FRINGE BENEFITS WHICH MAY BE SAID TO HAVE BEEN PROVIDED B Y AN EMPLOYER TO HIS EMPLOYEES DURING THE COURSE OF BUSINESS BY INCURRING ANY EXPENSE OR ANY EXPENDITURE ON ENTERTAINMENT, HOSPITALITY, CONFERENCE AND SALES PROMOTION ETC. HAS BEEN LISTED . SECTION 115WC(1) DEALS WITH VALUATION OF VARIOUS FRINGE BENEFITS. HE POINTED OUT THAT VARIOU S CLAUSES OF THIS SECTION HAVE GIVEN THE YARDSTICK OF VALUATION FOR VARIOUS FRINGE BENEFITS. HOWEVER, NO VALUATION RULE HAS BEEN PROVIDED FOR FRINGE BENEFIT COVERED BY SECTION 115WB(1)(A). HE THEN REFERRED TO THE BOARD CIRCULAR NO. 8, WHICH HAS BEEN FILED AT PAGES 8 TO 47 OF THE PAPER BOOK, AND INVITED OUR ATTENTION TO THE ANSWER TO QUESTION NO. 7 WHEREIN IT HAS BEEN CLARIFIED BY THE BOARD THAT WHEREVER COMPUTATION PROVISION FAILS, THE CHARGING SECTION CANNOT BE EFF ECTED. SINCE NOTIONAL INTEREST ON SECURITY WOULD FALL UNDER SUB-SECTION (1)(A) FOR WHICH NO VALUATIO N METHOD HAS BEEN PROVIDED AND, THEREFORE, THE SAME CANNOT BE SUBJECTED TO FBT. HE FURTHER ARG UED THAT BOARDS CIRCULARS ARE BINDING ON THE DEPARTMENT AND IN THIS REGARD REFERRED TO THE DECIS ION OF HONBLE SUPREME COURT IN THE CASE OF UCO BANK VS. CIT (237 ITR 889). 5. THE LD. COUNSEL THEN REFERRED TO SUB-SECTION (3) OF SEC. 115WB WHICH PROVIDES THAT A PERQUISITE, IN RESPECT OF WHICH TAX IS PAYABLE BY T HE EMPLOYEE, IS NOT INCLUDIBLE AS FRINGE BENEFIT. THEN HE REFERRED TO THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. VIJAY SINGH (323 ITR 446) WHEREIN IDENTICAL ISSUE AROSE. IN THA T CASE ALSO, THE ASSESSEE HAD HIRED ACCOMMODATION FOR ITS MG. DIRECTOR FOR RS.50,000/- P.M. AND ALSO HAD GIVEN INTEREST FREE SECURITY FREE DEPOSIT OF RS.3.10 CRORE PLUS ADDITIONAL GUAR ANTEE OF RS.5.5 CRORE. THEREAFTER, THE MG. DIRECTOR PURCHASED THE SAID ACCOMMODATION FOR RS.3. 12 CRORE AND A SUM OF RS.3.10 CRORE WAS RECEIVED AS SECURITY DEPOSIT FROM EMPLOYER. NOTIONA L INTEREST @ 10% OF THIS SECURITY DEPOSIT WAS TREATED AS PERQUISITE AND THE HONBLE COURT HELD TH AT THE SAME DOES NOT CONSTITUTE PERQUISITE. THEREFORE, IF THE SAME DOES NOT PARTAKE THE NATURE OF PERQUISITE, THE SAME CANNOT BE TREATED EVEN AS FRINGE BENEFIT. HE ALSO RELIED ON THE DECISION O F BOMBAY BENCH OF TRIBUNAL IN THE CASE OF GODREJ ITA 4462 & 4463/M/2010 DP WORLD PVT.LTD. 4 PROPERTIES LTD. VS. ADDL.CIT REPORTED IN 135 TTJ ( MUMBAI) 426 WHEREIN IT WAS HELD THAT ANY BENEFIT GIVEN TO INDIVIDUAL EMPLOYEE CANNOT BE TREA TED AS FRINGE BENEFIT. ONLY THOSE BENEFITS WHICH ARE GIVEN TO GROUP OF EMPLOYEES CAN BE TREATE D AS FRINGE BENEFIT. 6. ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTED THE ORDER OF CIT(A) AND SUBMITTED THAT NO VALUATION IS REQUIRED IN CASE OF NATURE OF BENEF ITS MENTIONED IN CLAUSE (A) OF SUB-SECTION (1) OF SEC. 115WB. FOR EXAMPLE, IF A GOLD COIN IS GIVEN TO AN EMPLOYEE, THE VALUE OF THAT COIN WOULD BE THE VALUE OF THE BENEFIT. THEREFORE, IT IS NOT NECE SSARY THAT THERE SHOULD BE A VALUATION RULE FOR ALL TYPES OF BENEFITS AND, ACCORDINGLY, SIMPLY BECAUSE VALUATION HAS NOT BEEN PUT ON PARTICULAR BENEFIT DOES NOT MEAN THAT THE SAME IS NOT TAXABLE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. FOR UNDERSTANDING THE ISSUE, LET US REPRODUCE THE RELEVANT PROVISIONS, WHICH ARE AS UND ER : 115WB. (1) FOR THE PURPOSES OF THIS CHAPTER, FRINGE BENEFITS MEANS ANY CONSIDERATION FOR EMPLOYMENT PROVIDED BY WAY OF (A) ANY PRIVILEGE, SERVICE, FACILITY OR AMENITY, DIRECTLY OR INDIRECTLY, PROVIDED BY AN EMPLOYER, WHETHER BY WAY OF REIMBURSEMENT OR OTHERWISE, TO HIS EMP LOYEES (INCLUDING FORMER EMPLOYEE OR EMPLOYEES); (B) ANY FREE OR CONCESSIONAL TICKET PROVIDED BY THE EMPLOYE R FOR PRIVATE JOURNEYS OF HIS EMPLOYEES OR THEIR FAMILY MEMBERS; 15 [***] (C) ANY CONTRIBUTION BY THE EMPLOYER TO AN APPROVED SUPERANNU ATION FUND FOR EMPLOYEES 16 [; AND] 17 [(D) ANY SPECIFIED SECURITY OR SWEAT EQUITY SHARES ALLOTT ED OR TRANSFERRED, DIRECTLY OR INDIRECTLY, BY THE EMPLOYER FREE OF COST OR AT CONCESSIONA L RATE TO HIS EMPLOYEES (INCLUDING FORMER EMPLOYEE OR EMPLOYEES). EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, (I)SPECIFIED SECURITY MEANS THE SECURITIES AS DEFINED IN CLAUSE (H) OF SECTION 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) 18 19 [AND, WHERE EMPLOYEES STOCK OPTION HAS BEEN GRANTED UNDER ANY PLAN OR SCHEME THEREFOR, INCLUDES THE SECURITI ES OFFERED UNDER SUCH PLAN OR SCHEME]; (II)SWEAT EQUITY SHARES MEANS EQUITY SHARES ISSUED BY A COM PANY TO ITS EMPLOYEES OR DIRECTORS AT A DISCOUNT OR FOR CONSIDERATION OTHER THAN CASH FOR PROVIDING KNOW- HOW OR MAKING AVAILABLE RIGHTS IN THE NATURE OF INTELLECTUAL PROPERTY RIGHTS OR VALUE AD DITIONS, BY WHATEVER NAME CALLED.] (2) THE FRINGE BENEFITS SHALL BE DEEMED TO HAVE BEEN PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES, IF THE EMPLOYER HAS, IN THE COURSE OF HIS BUSINESS OR PROFE SSION (INCLUDING ANY ACTIVITY WHETHER OR NOT SUCH ACTIVITY IS CARRIED ON WITH THE OBJECT OF DERIVING INC OME, PROFITS OR GAINS) INCURRED ANY EXPENSE ON, OR MADE ANY PAYMENT FOR, THE FOLLOWING PURPOSES, NAME LY: (A) ENTERTAINMENT; (B) PROVISION OF HOSPITALITY OF EVERY KIND BY THE EMPLOYER TO AN Y PERSON, WHETHER BY WAY OF PROVISION OF FOOD OR BEVERAGES OR IN ANY OTHER MANNER WHATSOEVER AND WHETHER OR NOT SUCH PROVISION IS MADE BY REASON OF ANY EXPRESS OR IMPLIED CONTRACT OR CUSTOM OR USAGE OF TRADE BUT DOES NOT INCLUDE (I)ANY EXPENDITURE ON, OR PAYMENT FOR, FOOD OR BEVERAGES PROV IDED BY THE EMPLOYER TO HIS EMPLOYEES IN OFFICE OR FACTORY; ITA 4462 & 4463/M/2010 DP WORLD PVT.LTD. 5 (II)ANY EXPENDITURE ON OR PAYMENT THROUGH PAID VOUCHERS WHI CH ARE NOT TRANSFERABLE AND USABLE ONLY AT EATING JOINTS OR OUTLETS; 20 [(III) ANY EXPENDITURE ON OR PAYMENT THROUGH NON-TRANSFERABLE PRE- PAID ELECTRONIC MEAL CARD USABLE ONLY AT EATING JOINTS OR OUTLETS AND WHICH FULFILS SUCH OTHER CONDITIONS AS MAY BE PRESCRIBED 21 ;] (C) CONFERENCE (OTHER THAN FEE FOR PARTICIPATION BY THE EMPLOYE ES IN ANY CONFERENCE). EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, ANY EXPENDITUR E ON CONVEYANCE, TOUR AND TRAVEL (INCLUDING FOREIGN TRAVEL), ON HOTEL, OR BOARDING AND LODGING IN CONNECTION WITH ANY CONFERENCE SHALL BE DEEMED TO BE EXPENDITURE INCURRED FOR THE PURPOSES OF CONFERE NCE; (D) SALES PROMOTION INCLUDING PUBLICITY: PROVIDED THAT ANY EXPENDITURE ON ADVERTISEMENT, (I)BEING THE EXPENDITURE (INCLUDING RENTAL) ON ADVERTISEMENT OF ANY FORM IN ANY PRINT (INCLUDING JOURNALS, CATALOGUES OR PRICE LISTS) OR ELECTRONIC MEDIA OR T RANSPORT SYSTEM; (II)BEING THE EXPENDITURE ON THE HOLDING OF, OR THE PARTIC IPATION IN, ANY PRESS CONFERENCE OR BUSINESS CONVENTION, FAIR OR EXHIBITION; (III)BEING THE EXPENDITURE ON SPONSORSHIP OF ANY SPORTS EVENT OR ANY OTHER EVENT ORGANISED BY ANY GOVERNMENT AGENCY OR TRADE ASSOCIATION OR BODY; (IV)BEING THE EXPENDITURE ON THE PUBLICATION IN ANY PRINT OR ELECT RONIC MEDIA OF ANY NOTICE REQUIRED TO BE PUBLISHED BY OR UNDER ANY LAW OR BY AN ORDER OF A COUR T OR TRIBUNAL; (V)BEING THE EXPENDITURE ON ADVERTISEMENT BY WAY OF SIGNS, ART WORK, PAINTING, BANNERS, AWNINGS, DIRECT MAIL, ELECTRIC SPECTACULARS, KIOSKS, HOARDINGS, BILL BOARDS 22 [, DISPLAY OF PRODUCTS] OR BY WAY OF SUCH OTHER MEDIUM OF ADVERTISEMENT; 23 [***] (VI)BEING THE EXPENDITURE BY WAY OF PAYMENT TO ANY ADVERTIS ING AGENCY FOR THE PURPOSES OF CLAUSES (I) TO (V) ABOVE; 24 [ 25 [(VII) BEING THE EXPENDITURE ON DISTRIBUTION OF SAMPLES EITHE R FREE OF COST OR AT CONCESSIONAL RATE; AND] (VIII)BEING THE EXPENDITURE BY WAY OF PAYMENT TO ANY PERSON OF REPUTE FOR PROMOTING THE SALE OF GOODS OR SERVICES OF THE BUSINESS OF THE EMPLOYER,] SHALL NOT BE CONSIDERED AS EXPENDITURE ON SALES PROMOTION INCL UDING PUBLICITY; (E) EMPLOYEES WELFARE. 26 [EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, ANY EXPENDITURE INCURRED OR PAYMENT MADE TO (I)FULFIL ANY STATUTORY OBLIGATION; OR (II)MITIGATE OCCUPATIONAL HAZARDS; OR (III)PROVIDE FIRST AID FACILITIES IN THE HOSPITAL OR DISPENS ARY RUN BY THE EMPLOYER; OR (IV)PROVIDE CRECHE FACILITY FOR THE CHILDREN OF THE EMPL OYEE; OR (V)SPONSOR A SPORTSMAN, BEING AN EMPLOYEE; OR (VI)ORGANISE SPORTS EVENTS FOR EMPLOYEES, SHALL NOT BE CONSIDERED AS EXPENDITURE FOR EMPLOYEES WELFAR E;] (F) CONVEYANCE 27 [***]; (G) USE OF HOTEL, BOARDING AND LODGING FACILITIES; (H) REPAIR, RUNNING (INCLUDING FUEL), MAINTENANCE OF MOTOR C ARS AND THE AMOUNT OF DEPRECIATION THEREON; (I) REPAIR, RUNNING (INCLUDING FUEL) AND MAINTENANCE OF AIRC RAFTS AND THE AMOUNT OF DEPRECIATION THEREON; (J) USE OF TELEPHONE (INCLUDING MOBILE PHONE) OTHER THAN EXPENDITURE ON LE ASED TELEPHONE LINES; (K) 28 [***] (L) FESTIVAL CELEBRATIONS; (M) USE OF HEALTH CLUB AND SIMILAR FACILITIES; (N) USE OF ANY OTHER CLUB FACILITIES; (O) GIFTS; AND * (P) SCHOLARSHIPS; 29 [(Q) TOUR AND TRAVEL (INCLUDING FOREIGN TRAVEL).] ITA 4462 & 4463/M/2010 DP WORLD PVT.LTD. 6 (3) FOR THE PURPOSES OF SUB-SECTION (1), THE PRIVILEGE, SERVIC E, FACILITY OR AMENITY DOES NOT INCLUDE PERQUISITES IN RESPECT OF WHICH TAX IS PAID OR PAYABLE BY THE EM PLOYEE 29 [OR ANY BENEFIT OR AMENITY IN THE NATURE OF FREE OR SUBSIDISED TRANSPORT OR ANY SUCH ALLOWANCE PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES FOR JOURNEYS BY THE EMPLOYEES FROM THEIR RESIDENCE TO THE PLACE OF WORK OR SUCH PLACE OF WORK TO THE PLACE OF RESIDENCE]. 115WC. (1) FOR THE PURPOSES OF THIS CHAPTER, THE VALUE OF FRINGE BENEFITS SHALL BE THE AGGREGATE OF THE FOLLOWING, NAMELY: (A) COST AT WHICH THE BENEFITS REFERRED TO IN CLAUSE (B) OF SUB-SECTION (1) OF SECTION 115WB , IS PROVIDED BY THE EMPLOYER TO THE GENERAL PUBLIC AS REDUCED B Y THE AMOUNT, IF ANY, PAID BY, OR RECOVERED FROM, HIS EMPLOYEE OR EMPLOYEES: PROVIDED THAT IN A CASE WHERE THE EXPENSES OF THE NATURE REFERRED TO IN CLAUSE (B) OF SUB-SECTION (1) OF SECTION 115WB ARE INCLUDED IN ANY OTHER CLAUSE OF SUB-SECTION (2) OF THE SAID SECTION, THE TOTAL EXPENSES INCLUDED UNDER SUCH OTHER CLAUSE SHALL BE REDUCED BY THE AMOUNT OF EXPENDITURE REFERRED TO IN THE SAID CLAUSE (B) FOR COMPUTING THE VALUE OF F RINGE BENEFITS; 30 [(B) THE AMOUNT OF CONTRIBUTION, REFERRED TO IN CLAUSE (C) OF SUB -SECTION (1) OF SECTION 115WB , WHICH EXCEEDS ONE LAKH RUPEES IN RESPECT OF EACH EMPLOY EE;] 31 [(BA) THE FAIR MARKET VALUE OF THE SPECIFIED SECURITY OR S WEAT EQUITY SHARES REFERRED TO IN CLAUSE (D) OF SUB-SECTION (1) OF SECTION 115WB , ON THE DATE ON WHICH THE OPTION VESTS WITH THE EMPLOYEE AS REDUCED BY THE AMOUNT ACTUALLY PAID BY, OR RECOVERED F ROM, THE EMPLOYEE IN RESPECT OF SUCH SECURITY OR SHARES. EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, (I)FAIR MARKET VALUE MEANS THE VALUE DETERMINED IN ACCORDA NCE WITH THE METHOD AS MAY BE PRESCRIBED 32 BY THE BOARD; (II)OPTION MEANS A RIGHT BUT NOT AN OBLIGATION GRANTED TO AN EMPLO YEE TO APPLY FOR THE SPECIFIED SECURITY OR SWEAT EQUITY SHARES AT A PREDETERMIN ED PRICE;] (C) TWENTY PER CENT OF THE EXPENSES REFERRED TO IN CLAUSES 33 [(A) TO (L)] OF SUB-SECTION (2) OF SECTION 115WB ; (D) FIFTY PER CENT OF THE EXPENSES REFERRED TO IN CLAUS ES 34 [(M) TO (P)] OF SUB-SECTION (2) OF SECTION 115WB ; 35 [(E) FIVE PER CENT OF THE EXPENSES REFERRED TO IN CLAUSE (Q ) OF SUB-SECTION (2) OF SECTION 115WB .] (2) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTION (1), (A) IN THE CASE OF AN EMPLOYER ENGAGED IN THE BUSINESS OF H OTEL, THE VALUE OF FRINGE BENEFITS FOR THE PURPOSES REFERRED TO IN CLAUSE (B) OF SUB-SECTION (2) OF SECTION 115WB SHALL BE FIVE PER CENT INSTEAD OF TWENTY PER CENT REFERRED TO IN CLAUSE (C) OF SUB-SECTION (1); 35 [(AA) IN THE CASE OF AN EMPLOYER ENGAGED IN THE BUSINESS OF CA RRIAGE OF PASSENGERS OR GOODS BY AIRCRAFT, THE VALUE OF FRINGE BENEFITS FOR THE PURPOSES REFERRED TO IN CLAUSE (B) OF SUB-SECTION (2) OF SECTION 115WB SHALL BE FIVE PER CENT INSTEAD OF TWENTY PER CENT REFE RRED TO IN CLAUSE (C) OF SUB-SECTION (1); (AB) IN THE CASE OF AN EMPLOYER ENGAGED IN THE BUSINESS OF CA RRIAGE OF PASSENGERS OR GOODS BY SHIP, THE VALUE OF FRINGE BENEFITS FOR THE PURPOSES REFERRE D TO IN CLAUSE (B) OF SUB-SECTION (2) OF SECTION 115WB SHALL BE FIVE PER CENT INSTEAD OF TWENTY PER CENT RE FERRED TO IN CLAUSE (C) OF SUB-SECTION (1);] (B) IN THE CASE OF AN EMPLOYER ENGAGED IN THE BUSINESS OF CONSTRUCT ION, THE VALUE OF FRINGE BENEFITS FOR THE PURPOSES REFERRED TO IN CLAUSE (F) OF SUB-SECTION (2 ) OF SECTION 115WB SHALL BE FIVE PER CENT INSTEAD OF TWENTY PER CENT REFERRED TO IN CLAUSE (C ) OF SUB-SECTION (1); (C) IN THE CASE OF AN EMPLOYER ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF PHARMACEUTICALS, THE VALUE OF FRINGE BENEFITS FOR THE PURPOSES R EFERRED TO IN CLAUSES (F) AND (G) OF SUB-SECTION (2) OF SECTION 115WB SHALL BE FIVE PER CENT INSTEAD OF TWENTY PER CENT REFERRED TO IN CLAUSE (C) OF SUB-SECTION (1); (D) IN THE CASE OF AN EMPLOYER ENGAGED IN THE BUSINESS OF M ANUFACTURE OR PRODUCTION OF COMPUTER SOFTWARE, THE VALUE OF FRINGE BENEFITS FOR THE PURPOSES REF ERRED TO IN CLAUSES (F) AND (G) OF SUB- SECTION (2) OF SECTION 115WB SHALL BE FIVE PER CENT INSTEAD OF TWENTY PER CENT REF ERRED TO IN CLAUSE (C) OF SUB-SECTION (1); 36 [(DA) IN THE CASE OF AN EMPLOYER ENGAGED IN THE BUSINESS OF CA RRIAGE OF PASSENGERS OR GOODS BY AIRCRAFT, THE VALUE OF FRINGE BENEFITS FOR THE PURPOSES R EFERRED TO IN CLAUSE (G) OF SUB-SECTION ITA 4462 & 4463/M/2010 DP WORLD PVT.LTD. 7 (2) OF SECTION 115WB SHALL BE FIVE PER CENT INSTEAD OF TWENTY PER CENT REFE RRED TO IN CLAUSE (C) OF SUB-SECTION (1); (DB) IN THE CASE OF AN EMPLOYER ENGAGED IN THE BUSINESS OF CA RRIAGE OF PASSENGERS OR GOODS BY SHIP, THE VALUE OF FRINGE BENEFITS FOR THE PURPOSES REFERRED TO IN CLAUSE (G) OF SUB-SECTION (2) OF SECTION 115WB SHALL BE FIVE PER CENT INSTEAD OF TWENTY PER CENT REFERR ED TO IN CLAUSE (C) OF SUB-SECTION (1);] (E) IN THE CASE OF AN EMPLOYER ENGAGED IN THE BUSINESS OF CARRI AGE OF PASSENGERS OR GOODS BY MOTOR CAR, THE VALUE OF FRINGE BENEFITS FOR THE PURPOSES REF ERRED TO IN CLAUSE (H) OF SUB-SECTION (2) OF SECTION 115WB SHALL BE FIVE PER CENT INSTEAD OF TWENTY PER CENT REFE RRED TO IN CLAUSE (C) OF SUB-SECTION (1); (F) IN THE CASE OF AN EMPLOYER ENGAGED IN THE BUSINESS OF CARRI AGE OF PASSENGERS OR GOODS BY AIRCRAFT, THE VALUE OF FRINGE BENEFITS FOR THE PURPOSES REFER RED TO IN CLAUSE (I) OF SUB-SECTION (2) OF SECTION 115WB SHALL BE TAKEN AS NIL. READING OF THE ABOVE PROVISIONS WOULD CLEARLY SHOW THAT GOVERNMENT WANTED TO LEVY A SEPARATE TAX IN TH E FORM OF FRINGE BENEFIT TAX ON CERTAIN BENEFITS GIV EN BY THE COMPANIES AND OTHER ORGANIZATIONS TO THEI R EMPLOYEES WHICH WERE NOT BEING TAXED IN THE HANDS O F SUCH EMPLOYEES. THIS HAS BEEN EXPLAINED IN THE BOARDS CIRCULAR NO. 8 UNDER THE HEADING OBJECTIVE WHICH READS AS UNDER : 2. OBJECTIVE 2.1 THE TAXATION OF PERQUISITES OR FRINGE BENEFIT S IS JUSTIFIED BOTH ON GROUNDS OF EQUITY AND ECONOMIC EFFICIENCY. WHEN FRINGE BENE FITS ARE UNDER-TAXED, IT VIOLATES BOTH HORIZONTAL AND VERTICAL EQUITY. A TAXPAYER REC EIVING HIS ENTIRE INCOME IN CASH BEARS A HIGHER TAX BURDEN IN COMPARISON TO ANOTHER TAXPAYER WHO RECEIVES HIS INCOME PARTLY IN CASH AND PARTLY IN KIND, THEREBY V IOLATING HORIZONTAL EQUITY. FURTHER, FRINGE BENEFITS ARE GENERALLY PROVIDED TO SENIOR EXECUTIVES IN THE ORGANIZATION. THEREFORE, UNDER-TAXATION OF FRINGE B ENEFITS ALSO VIOLATES VERTICAL EQUITY. IT ALSO DISCRIMINATES BETWEEN COMPANIES WHI CH CAN PROVIDE FRINGE BENEFITS AND THOSE WHICH CANNOT THEREBY ADVERSELY AFFECTING MARKET STRUCTURE. HOWEVER, THE TAXATION OF FRINGE BENEFITS RAISES SOME PROBLEMS PR IMARILY BECAUSE (A) ALL BENEFITS CANNOT BE INDIVIDUALLY ATTRIBUTED TO E MPLOYEES, PARTICULARLY IN CASES WHERE THE BENEFIT IS COLLECTI VELY ENJOYED; (B) OF THE PRESENT WIDESPREAD PRACTICE OF PROVIDING PER QUISITES, WHEREIN MANY PERQUISITES ARE DISGUISED AS REIMBURSEMENTS OR OTHER MISCELLANEOUS EXPENSES SO AS TO ENABLE THE EMPLOYEE S TO ESCAPE/REDUCE THEIR TAX LIABILITY; AND (C) OF THE DIFFICULTY IN THE VALUATION OF THE BENEFITS. 2.2 IN INDIA, PRIOR TO ASSESSMENT YEAR 1998-99, SOM E PERQUISITES/FRINGE BENEFITS WERE INCLUDED IN SALARY IN TERMS OF SECTIO N 17 AND ACCORDINGLY TAXED UNDER SECTION 15 OF THE INCOME-TAX ACT IN THE HANDS OF TH E EMPLOYEE AND A LARGE NUMBER OF FRINGE BENEFITS WERE TAXED BY THE EMPLOYER-BASED DISALLOWANCE METHOD WHERE THE QUANTUM OF THE DISALLOWANCE WAS ESTIMATED ON A PRESUMPTIVE BASIS. IN PRACTICE, TAXATION OF FRINGE BENEFITS BY THE EMPLOY ER-BASED DISALLOWANCE METHOD RESULTED IN LARGESCALE LITIGATION ON ACCOUNT OF AMB IGUITY IN DEFINING THE TAX BASE. THEREFORE, THE TAXATION OF FRINGE BENEFITS BY THE E MPLOYER-BASED DISALLOWANCE METHOD WAS WITHDRAWN BY THE FINANCE ACT 1997. HOWEV ER, THE WITHDRAWAL OF THE PROVISIONS RELATING TO TAXATION OF FRINGE BENEFITS BY THE EMPLOYER-BASED ITA 4462 & 4463/M/2010 DP WORLD PVT.LTD. 8 DISALLOWANCE METHOD RESULTED IN SIGNIFICANT EROSION OF THE TAX BASE. THE FINANCE ACT, 2005 HAS INTRODUCED A NEW LEVY, NAMELY, THE FB T AS A SURROGATE TAX ON EMPLOYER, WITH THE OBJECTIVE OF RESOLVING THE PROBL EMS ENUMERATED IN PARA 2.1 ABOVE, EXPANDING THE TAX BASE AND MAINTAINING EQUIT Y BETWEEN EMPLOYERS. 8. NOW, ACCORDING TO THE SCHEME, THE LEGISLATURE HA S DEFINED VARIOUS PRIVILEGES, BENEFITS OR AMENITIES ETC. WHICH CAN BE COVERED UNDER THE DEFIN ITION OF FRINGE BENEFITS U/S.115WB(1). SUB- SECTION (2) DEALS WITH CERTAIN DEEMED FRINGE BENEFI TS WHICH ARE BASICALLY ORIGINATING FROM THE EXPENDITURE INCURRED BY A COMPANY DURING THE COURS E OF BUSINESS ON CERTAIN ACTIVITIES, E.G., ENTERTAINMENT. SECTION 115WC HAS GIVEN THE VALUATIO N RULES WHICH CAN BE PUT ON SUCH FRINGE BENEFITS. THEREFORE, IT IS CLEAR THAT ALL THE AMENI TIES, PRIVILEGES, ETC., CANNOT BE BROUGHT TO TAXATI ON UNDER THIS CHAPTER AND IT IS ONLY THOSE PRIVILEGES OR AMENITIES WHICH HAVE BEEN SPECIFICALLY DEFINED AS FRINGE BENEFITS WHICH CAN BE BROUGHT TO TAX. IT HAS TO BE NOTED THAT SEC. 115WC, WHICH DEALS WITH THE VALUATION OF SUCH FRINGE BENEFITS, S TARTS WITH : 115WC (1) FOR THE PURPOSES OF THIS CHAPTER, THE V ALUE OF FRINGE BENEFITS SHALL BE THE AGGREGATE OF THE FOLLOWING, NAMELY :- THUS, IT IS CLEAR THAT VALUATION RULES HAVE BEEN PR OVIDED FOR ALL THE BENEFITS UNDER THIS CHAPTER. AT THE SAME TIME, IT WOULD BE NOTICED THAT NO VALUA TION RULE HAS BEEN PROVIDED IN RESPECT OF FRINGE BENEFITS COVERED BY CLAUSE (A) OF SUB-SECTIO N (1) OF SEC. 115WB. IT IS A CARDINAL PRINCIPLE OF INTERPRETATION THAT AN ACT HAS TO BE INTERPRETED IN SUCH A WAY SO THAT NONE OF THE PROVISIONS BECOMES REDUNDANT. THEREFORE, IF THE ARGUMENT OF TH E LD. COUNSEL OF THE ASSESSEE IS ACCEPTED THAT SINCE NO VALUATION RULES HAVE BEEN PRESCRIBED IN RE SPECT OF BENEFITS MENTIONED UNDER CLAUSE (A) OF SUB-SECTION (1) OF SEC. 115WB, THEN THE SAME CAN NOT BE TAXED AT ALL. THIS POSITION CAN FURTHER BE UNDERSTOOD BY A SIMPLE EXAMPLE THAT IN CASE A CO MPANY PROVIDES A COOK AT THE HOUSE OF CHAIRMAN AT A SALARY OF RS.5,000/- P.M., THEN PERHA PS NO VALUATION RULE IS REQUIRED BECAUSE FRINGE BENEFIT CAN BE CALCULATED @ RS.5,000/- P.M. FOR THE NUMBER OF MONTHS THE COOK IS EMPLOYED. SIMILARLY, AS POINTED OUT BY THE LD. DR, IF A GOLD COIN IS GIVEN TO THE DIRECTORS OF THE ITA 4462 & 4463/M/2010 DP WORLD PVT.LTD. 9 COMPANY ON SOME OCCASION, THEN THE VALUE OF THAT GO LD COIN WOULD CONSTITUTE THE VALUE OF THAT BENEFIT. 9. HOWEVER, ALL THE PRIVILEGES, AMENITIES OR FACILI TIES ETC. CANNOT ALWAYS BE AS SIMPLE AS THE EXAMPLES WE HAVE TAKEN. THERE MAY BE SITUATIONS WHE RE VALUATION MAY BE REQUIRED. FOR EXAMPLE, IF A COMPANY HAS EMPLOYED A FULL-TIME GA RDENER TO MAINTAIN THE GARDEN OF THE OFFICE AND HE ALSO SPENDS SOME TIME OCCASIONALLY FOR MAIN TENANCE OF THE GARDEN IN THE HOUSE OF SOME DIRECTOR OR SENIOR OFFICIAL, THEN, IN THE ABSENCE O F RULE FOR VALUATION, SUCH BENEFIT CANNOT BE SUBJECTED TO TAX PROVIDED UNDER THIS CHAPTER. THIS IS SO BECAUSE IN MOST OF THE CASES VALUATION RULES HAVE BEEN PROVIDED SO AS TO REMOVE THE DISCRE TIONARY POWER OF THE ASSESSING AUTHORITIES. IT WOULD BE NOTICED THAT UNDER SUB-SECTION (2) OF SEC. 115WC, DIFFERENT VALUATION RULES HAVE BEEN PROVIDED FOR CERTAIN SITUATIONS. FOR EXAMPLE, IN TH E CASE OF A COMPANY WHICH IS RUNNING A HOTEL BUSINESS, THE VALUE OF THE FRINGE BENEFIT HAS BEEN SPECIFIED AT 5% INSTEAD OF 20% IN A CASE WHERE SOME BENEFIT IN THE SHAPE OF ACCOMMODATION IN A HOT EL WAS GIVEN WHICH IS NOT OWNED BY ASSESSEE. IN OTHER WORDS, WE CAN SAY THAT WHEREVER SPECIFIC VALUE/COST, WHICH CAN BE DIRECTLY ARRIVED OR IMPUTED, THEN SUCH VALUE CAN BE TAKEN AS THE AMOUNT OF FRINGE BENEFIT. AT THE SAME TIME, WHERE NO DIRECT SPECIFIC COST CAN BE ATTRIBUT ED TO A PARTICULAR BENEFIT, THEN THE SAME CANNOT BE VALUED. THIS SITUATION FURTHER BECOMES CLEAR FRO M THE ANSWERS GIVEN BY THE CBDT TO VARIOUS QUESTIONS AND THE RELEVANT QUESTION NOS. 7 & 8 AND THE ANSWERS TO THE SAME ARE AS UNDER : 7. WHETHER THE DEEMING PROVISIONS OF SUB-SECTION 1 15WB QUANTIFY THE FRINGE BENEFITS REFERRED TO IN CLAUSE (A) OF SUB-SE CTION (1) OF SECTION 115WB ? IF NOT, HOW ARE THE BENEFITS REFERRED TO IN THE SAID CLAUSE TO BE VALUED ? ANS. IN TERMS OF THE PROVISIONS OF SUB-SECTION (1) OF SECTION 115WA, AN EMPLOYER IN INDIA IS LIABLE TO FBT IN RESPECT OF T HE VALUE OF FRINGE BENEFITS (A) PROVIDED BY HIM TO HIS EMPLOYEES; AND (B) DEEMED TO HAVE BEEN PROVIDED BY HIM TO HIS EMPLOYEES. THE SCOPE OF FRINGE BENEFITS PROVIDED OR DEEMED TO HAVE BEEN PROVIDED IS DEFINED IN SECTION 115WB. SUB-SECTION ( 1) OF THE SAID SECTION DEFINES THE SCOPE OF FRINGE BENEFITS PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES. SIMILARLY, SUB-SECTION (2) OF THE SAID SECTION DEFINES THE SCOPE OF FRINGE BENEFITS DEEMED TO HAVE BEEN PROVIDED BY THE ITA 4462 & 4463/M/2010 DP WORLD PVT.LTD. 10 EMPLOYER TO HIS EMPLOYEES. THEREFORE, SUB-SECTION ( 2) EXPANDS THE SCOPE OF SUB-SECTION (1) THROUGH A DEEMING PROVISIO N. THE PROVISION RELATING TO THE COMPUTATION OF THE VA LUE OF THE FRINGE BENEFITS IS CONTAINED IN SECTION 115WC. IT IS A SET TLED PRINCIPLE OF LAW THAT WHERE THE COMPUTATION PROVISION FAILS, THE CHA RGING SECTION CANNOT BE EFFECTUATED. THEREFORE, IF THERE IS NO PR OVISION FOR COMPUTING THE VALUE OF ANY PARTICULAR FRINGE BENEFI T, SUCH FRINGE BENEFIT, EVEN IF IT MAY FALL WITHIN CLAUSE (A) OF S UB-SECTION (1) OF SECTION 115WB, IS NOT LIABLE TO FBT. 8. WHETHER THE VALUE OF ANY BENEFIT PROVIDED BY THE EMPLOYER TO ITS EMPLOYEES BY WAY OF ALLOTMENT OF SHARES, DEBENTURES , OR WARRANTS DIRECTLY OR INDIRECTLY UNDER ANY EMPLOYEES STOCK OP TION PLAN OR SCHEME OF THE COMPANY, IS LIABLE TO FBT ? ANS. THE VALUE OF ANY BENEFIT PROVIDED BY THE EMPL OYER TO ITS EMPLOYEES BY WAY OF ALLOTMENT OF SHARES, DEBENTURES, OR WARRA NTS DIRECTLY OR INDIRECTLY UNDER ANY EMPLOYEES STOCK OPTION PLAN OR SCHEME OF THE COMPANY IS A FRINGE BENEFIT WITHIN THE MEANING OF C LAUSE (A) OF SECTION (1) OF SECTION 115WB. HOWEVER, IN THE ABSEN CE OF A COMPUTATION PROVISION IN RESPECT OF SUCH BENEFITS, THE CHARGING SECTION FAILS. THEREFORE, THE VALUE OF SUCH BENEFIT S IS NOT LIABLE TO FBT. FROM ABOVE ALSO, IT BECOMES CLEAR THAT UNLESS AND U NTIL VALUATION RULES HAVE BEEN PROVIDED WHERE DETERMINATION OF DIRECT COST IS NOT POSSIBLE, THEN SUCH FRINGE BENEFIT CANNOT BE SUBJECTED TO TAX. 10. IN THE CASE BEFORE US, IT IS NOT DISPUTED THAT BENEFIT IN TERMS OF NOTIONAL INTEREST ON THE SECURITY DEPOSIT FOR HIRING THE FLAT FOR THE CHAIRM AN WOULD BE COVERED ONLY UNDER CLAUSE (A) OF SUB-SECTION (1) OF SECTION 115WB. NOW, THE QUESTION WHETHER ANY PARTICULAR COST CAN BE ARRIVED, THE ANSWER WOULD BE NO IN THE PRESENT CASE BECAU SE, EVEN ACCORDING TO THE ASSESSING AUTHORITY, THE ASSESSEE HAD BORROWED ONLY A SUM OF RS.2.54 CRO RE WHICH MEANS THE BALANCE OF THE SECURITY (TOTAL SECURITY RS.5 CRORE) HAS BEEN GIVEN OUT OF THE ASSESSEES OWN FUNDS AND, THEREFORE, THERE WAS NO COST TO THE ASSESSES OWN FUNDS. FURTHER, TH E AO HAS ADOPTED 9% RATE WHICH WAS GENERALLY AVAILABLE ON FDRS. ONE CAN ARGUE THAT THI S RATE MAY BE 20% WHICH WAS APPLICABLE TO INTERCORPORATE DEPOSITS. THEREFORE, NO PARTICULAR C OST OR VALUATION IS APPROPRIATE AND, ACCORDINGLY, IN THE ABSENCE OF ANY VALUATION RULE I N RESPECT OF SUCH FRINGE BENEFIT, THE SAME CANNOT BE SUBJECTED TO TAX. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THOUGH THE PROVISION ITA 4462 & 4463/M/2010 DP WORLD PVT.LTD. 11 OF SECURITY DEPOSIT IS DEFINITELY IN THE NATURE OF FRINGE BENEFIT UNDER CLAUSE (A) OF SUB-SECTION (1) OF SECTION 115WB, BUT IN THE ABSENCE OF VALUATION R ULES, THE SAME CANNOT BE SUBJECTED TO TAX. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT( A) AND DELETE THE ADDITION OF RS.45 LACS ON ACCOUNT OF FRINGE BENEFIT OF NOTIONAL INTEREST FOR EACH OF THE TWO ASSESSMENT YEARS IN QUESTION. 11. IN THE RESULT, THE ASSESSEES APPEALS ARE ALLOW ED. ORDER PRONOUNCED ON THE 20TH DAY OF JANUARY, 2012. SD/- SD/- (D.K. AGARWAL) (T. R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 20TH JANUARY , 2012. NG: COPY TO : 1. DEPARTMENT. 2.ASSESSEE. 3 CIT(A)-5,MUMBAI. 4 CIT-2,MUMBAI. 5.DR,D BENCH,MUMBAI. 6.MASTER FILE. (TRUE COPY) BY ORDER, ASST. REGIST RAR, ITAT, MUMBAI. FIT FOR PUBLICATION ( J. M.) ( A. M.) ITA 4462 & 4463/M/2010 DP WORLD PVT.LTD. 12 DETAILS DATE INITIALS DESIGNATI ON 1. DRAFT DICTATED ON 17-01-2012 SR.PS/ 2. DRAFT PLACED BEFORE AUTHOR 18-01-2012 SR.PS/ 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/A M 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 . DATE O N WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER