Desai Brother Limited, Pune V. Addl. Comm. of Income-tax, Pune

ITA 47/PUN/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2005 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 10-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA
• Assessee Lawyers: RAVINDRA MEHTA
• Keywords: Gift; Salary income; Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER , AND SHRI R.K. PANDA, ACCOUNTANT MEMBER. ITA.NO.47/PN/2012 (ASSTT. YEAR : 2007-08) DESAI BROTHERS LTD. 1436, KASBA PETH, PUNE 411011. .. APPELLANT PAN NO. AAACD 7361C VS. ADDL.CIT, RANGE-1, PUNE. .. RESPONDENT APPELLANT BY : SHRI RAVINDRA MEHTA RESPONDENT BY : MS.ANN KAPTHUAMA DATE OF HEARING : 07-03-2013 DATE OF PRONOUNCEMENT : 12-03-2013 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 26-07-2011 OF THE CIT(A)-I, PUNE, RELATING TO THE ASSESSMENT Y EAR 2007-08. 2. THE GROUNDS OF APPEAL BY THE ASSESSEE ARE AS UN DER : 1. LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CON FIRMING THE ADDITION OF RS.12,14,806/- AS THE TAXABLE AMOUNT OF FRINGE BENE FITS TO THE AMOUNT OF FRINGE BENEFITS DECLARED BY THE APPELLANT IN HIS RETURN OF FBT. 2. LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT FR INGE BENEFIT TAX IS NOT LIABLE TO BE PAID BY THE APPELLANT IN RESPECT OF THE FOLLOWING I TEMS OF EXPENDITURE AS THEY HAVE BEEN EITHER INCURRED ONLY WITH RELATION TO NON-EMPLOYEES AND/OR THOUGH INCURRED THROUGH EMPLOYEES, BUT BEING PURELY FOR THE BUSINESS PURPOS ES OF THE ASSESSEE AND THUS NOT RESULTING IN ANY BENEFIT TO THE EMPLOYEES- NATURE OF EXPENDITURE AMOUNT (RS.) FBT RATE (%) TAXABLE AMOUNT (RS.) ENTERTAINMENT 1,86,019.00 20 37,204.00 PROVISION OF HOSPITALITY 1,19,213,00 20 23,843.00 TRAVELLING & CONVEYANCE AUDITORS TRAVELLING 52,99,131.25 20 10,59,826.00 MOTOR CAR EXPENSES DRIVER SALARIES 1,84,711.00 20 36,942.00 2,84,954.00 20 56,991.00 TOTAL 12,14,806.00 2 3. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT THE ABOVE ITEMS OF EXPENDITURE FALL BEYOND THE SCOPE AND LEVY OF FR INGE BENEFIT TAX CONTAINED IN SECTION 115WB(2) CONSIDERING THE LEGISLATIVE INTENT AND OBJ ECTIVES WHILE INTRODUCING THE FRINGE BENEFIT TAX AS EXPLAINED IN THE BUDGET SPEECH IN TH E EXPLANATORY NOTES. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS ING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE FOLLOWING FRI NGE BENEFITS HAVE NOT BEEN DISCLOSED BY THE ASSESSEE IN ITS RETURN OF INCOME O N THE PRETEXT THAT THESE ARE NOT TAXABLE FRINGE BENEFITS IN VIEW OF THE BUDGET SPEEC H OF THE FINANCE MINISTER OF INDIA. THE DETAILS ARE AS UNDER : PARTICULARS AMOUNT AMOUNT OF EXPENSES FBT RATE (%) TAXABLE AMOUNT ENTERTAINMENT LESS : CLUB PAYMENTS 208434.00 22415.00 186019.00 20 37204 PROVISION OF HOSPITALITY (5% OF MESS CANTEEN) 119213.00 20 23843 SALES PROMOTION FOOD BRANCHES 1732802.90 FOOD-H.O. 771546.35 BIDI 2794782.00 5299131.25 LESS : GIFTS 0.00 5299131.25 20 1059826 AUDITORS TRAVELLING 184711.00 184711.00 20 36942 DRIVER SALARIES 284954.00 284954.00 20 56991 GIFTS 0.00 50 0 6074028.25 1214806 4. THE ASSESSING OFFICER REJECTED THE EXPLANATION O F THE ASSESSEE THAT THE ABOVE- MENTIONED FRINGE BENEFITS FALL UNDER SECTION 115WB( 2) OF THE INCOME TAX ACT AND HELD THAT THESE ARE DEEMED FRINGE BENEFITS CHARGEAB LE TO TAX. FOLLOWING HIS ORDER FOR A.Y. 2006-07 WHICH HAS BEEN CONFIRMED BY THE CIT(A) THE ASSESSING OFFICER ADDED BACK ` 12,14,806 TO THE TOTAL RETURNED FRINGE BENEFITS OF THE ASSESSEE. 5. IN APPEAL THE LEARNED CIT(A) DECIDED THE ISSUE A GAINST THE ASSESSEE BY FOLLOWING THE ORDER FOR A.Y. 2006-07. AGGRIEVED WI TH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 6. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING FILED A COPY OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A. Y. 2006-07 AND SUBMITTED THAT THE 3 ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN RESPECT OF ENTERTAINMENT EXPENSES, AUDITORS TRAVELLING AND DRIVERS SALARIES. THE ISSU ES RELATING TO SALES PROMOTION AND GIFTS HAVE BEEN RESTORED TO THE FILE OF THE ASSESSI NG OFFICER FOR VERIFICATION. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE O THER HAND FAIRLY CONCEDED THAT THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR O F THE ASSESSEE WITH CERTAIN DIRECTIONS TO THE ASSESSING OFFICER FOR VERIFICATIO N. 8. AFTER HEARING BOTH THE SIDES, WE FIND THE TRIBUN AL IN ASSESSEES OWN CASE FOR A.Y. 2006-07 VIDE ITA NO. 168/PN/2009 ORDER DATED 3 1-10-2012 HAS DECIDED THE ISSUE BY HOLDING AS UNDER : 6. ON THIS ASPECT, WE HAVE CONSIDERED THE RIVAL SU BMISSIONS. CHAPTER XII-H OF THE ACT CREATING ADDITIONAL TAX LIABILITY ON THE PRESCRIBED ASSESSEES IN THE FORM OF FBT WAS INSERTED BY THE FINANCE ACT, 2005 WITH EFFECT FROM 1.4.2006. SECTION 115WA OF THE ACT PRESCRIBES THAT IN ADDITION TO THE INCOME-TAX CHARGEABLE UNDER THE ACT, THERE SHALL BE CHARGED FOR EVERY ASSESSMENT YEAR COMMENCING ON OR AFTER 1.4.20 06, A FBT AT A SPECIFIED RATE ON THE VALUE OF THE FRINGE BENEFITS PROVIDED OR DEEMED TO HAVE BEEN PROVIDED BY AN EMPLOYER TO HIS EMPLOYEES DURING THE RELEVANT PREVIOUS YEAR. SE CTION 115WB OF THE ACT ELUCIDATES THE FRINGE BENEFITS WHICH ARE LIABLE FOR CHARGE OF FBT AS PRESCRIBED IN SECTION 115WA OF THE ACT. SUB-SECTION (1) OF SECTION 115WB PRESCRIBES THAT F OR THE PURPOSES OF THIS CHAPTER, FRINGE BENEFITS MEANS ANY CONSIDERATION FOR EMPLOYMENT PR OVIDED BY WAY OF------. THE PRESENCE OF THE EXPRESSION ANY CONSIDERATION FOR EMPLOYMENT IS SIGNIFICANT IN SECTION 115WB(1), INASMUCH AS THE BENEFITS BY WAY OF CLAUSES (A) TO ( D) LISTED THEREIN ARE DIRECTED TOWARDS THE EMPLOYEES OR THEIR FAMILIES INCLUDING FORMER EMPLOY EES. SUB-SECTION (2) OF SECTION 115WB, WHICH IS THE FOCUS OF CONTROVERSY BEFORE US READS A S UNDER: (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 HIS BUSINESS OR PROFESSION (INCLUDING ANY ACTIVITY WHETHER OR NOT SUCH ACTIVIT Y IS CARRIED ON WITH THE OBJECT OF DERIVING INCOME, PROFITS OR GAINS) INCURRED ANY EXP ENSE ON, OR MADE ANY PAYMENT FOR, THE FOLLOWING PURPOSES, NAMELY:- (A).(Q) 7. SUB-SECTION (2) OF SECTION 115WB OF THE ACT ELUC IDATES THE FRINGE BENEFITS WHICH SHALL BE DEEMED TO HAVE BEEN PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES. IT IS PROVIDED THAT IF AN EMPLOYER IN THE COURSE OF HIS BUSINESS OR PROFESSIO N INCURS ANY EXPENDITURE FOR THE PURPOSES SET OUT THEREIN, IT SHALL BE DEEMED THAT FRINGE BE NEFIT HAS BEEN PROVIDED BY THE EMPLOYER TO THE EMPLOYEES. THE MOOT POINT BEFORE US IS WHETH ER THE MERE INCURRENCE OF THE EXPENDITURE LISTED IN CLAUSES (A) TO (Q) OF SECTION 115WB(2) OF THE ACT IS ENOUGH TO TRIGGER THE DEEMING PRESCRIPTION CONTAINED IN THE SECTION O R THAT IT IS FURTHER REQUIRED TO BE ESTABLISHED THAT SPECIFIED EXPENDITURE HAS BEEN INC URRED ON ACCOUNT OF CONSIDERATION FOR EMPLOYMENT SO AS TO ATTRACT LEVY OF FBT CONTEMPLATE D IN SECTION 115WA(1) OF THE ACT. 4 8. TO APPRECIATE THE LEGAL POSITION, WE MAY AGAIN R EFER TO THE MEANING OF THE EXPRESSION FRINGE BENEFITS, AS CONTAINED IN SECTI ON 115WB(1) OF THE ACT. AS NOTED EARLIER, SUB-SECTION (1) OF SECTION 115WB CONTAINS THE EXPRE SSION MEANS ANY CONSIDERATION FOR EMPLOYMENT. THE PRESENCE OF THE AFORESAID EXPRESS ION MEANS THAT THE FRINGE BENEFITS COVERED IN SECTION 115WB(1) ARE THOSE WHICH ARE IN CONSIDERATION FOR EMPLOYMENT. NOW, SECTION 115WB(2) CONTAINS FRINGE BENEFITS WHICH A RE DEEMED TO HAVE BEEN PROVIDED BY THE EMPLOYER TO THE EMPLOYEES. SECTION 115WB(2) DOES NO T CONTAIN THE EXPRESSION . MEANS ANY CONSIDERATION FOR EMPLOYMENT AS CONTAINED IN SUB-SECTION (1) OF SECTION 115WB, AND THEREFORE, IT IS SOUGHT TO BE CANVASSED BY THE REVE NUE THAT ANY PAYMENT MADE BY AN ASSESSEE FOR THE PURPOSES CONTAINED IN CLAUSES (A) TO (Q) OF SUB-SECTION (2) OF SECTION 115WB SHALL RESULT IN FRINGE BENEFITS DEEMED TO H AVE BEEN PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES. IN OTHER WORDS, AS PER THE REVENUE THE E XPENSES LISTED IN SECTION 115WB(2) NEED NOT BE INCURRED ON EMPLOYEES SO AS TO QUALITY FOR CHARGING OF FBT. IN OUR CONSIDERED OPINION, SUB-SECTION (1) OF SECTION 115WB ITSELF QU ALIFIES THAT THE MEANING OF THE EXPRESSION FRINGE BENEFITS CONTAINED THEREIN IS FOR THE PUR POSES OF THIS CHAPTER----- AND, THEREFORE, IT IMPLIES THAT THE OVERRIDING CONDITION OF THE INCURR ENCE OF EXPENDITURE IN CONSIDERATION FOR EMPLOYMENT IS EVEN RELEVANT FOR THE PURPOSES OF ASS ESSING OR ASCERTAINING FRINGE BENEFITS, WHICH ARE DEEMED TO HAVE BEEN PROVIDED BY THE EMPLO YER TO ITS EMPLOYEES IN TERMS OF SUB- SECTION (2) OF SECTION 115WB OF THE ACT ALSO. THERE FORE, EVEN IN THE CIRCUMSTANCES PROVIDED IN SUB-SECTION (2) OF SECTION 115WB OF THE ACT FRI NGE BENEFITS CAN BE DEEMED TO HAVE BEEN PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES, ONLY IN CASES WHERE THE PRESCRIBED EXPENDITURE IS INCURRED IN CONSIDERATION FOR EMPLOYMENT. SO, HO WEVER, THE REVENUE HAS CONTENDED THAT THE CBDT HAS CLARIFIED BY WAY OF CIRCULAR NO. 8 OF 2005 THAT THE DEEMING PROVISION CONTAINED IN SUB-SECTION (2) OF SECTION 115WB CANNO T BE RESTRICTED TO EXPENSES WHICH ARE INCURRED ON EMPLOYEES ALONE AND, IN THIS CONTEXT TH E ANSWER TO QUESTION NO. 14 OF THE CIRCULAR HAS BEEN REFERRED TO. ON THE STRENGTH OF T HE CIRCULAR OF THE CBDT, IT IS SOUGHT TO BE POINTED OUT THAT THE INTERPRETATION PLACED BY THE R EVENUE IS LIABLE TO SUCCEED. 9. THE INTERPRETATION SOUGHT TO BE ADVANCED BY THE REVENUE IS NOT BORNE OUT OF THE STATUTORY PROVISIONS. OSTENSIBLY, THE CLARIFICATION ISSUED BY THE CBDT VIDE QUESTION NO. 14 IN CIRCULAR NO. 8 OF 2005 (SUPRA) SEEKS TO ENLARGE THE SCOPE OF LEVY OF FBT, WHICH IS NOT SUPPORTED BY THE LANGUAGE OF THE STATUTE. THE HONB LE SUPREME COURT IN THE CASE OF KERALA FINANCIAL CORPORATION V. CIT 210 ITR 129 (SC) HAS C LEARLY OPINED THAT THE CIRCULARS ISSUED BY CBDT CANNOT OVERRIDE THE PROVISIONS OF THE ACT. IN ANY CASE, IT IS QUITE WELL-SETTLED THAT AN EXECUTIVE INSTRUCTION/CIRCULAR CANNOT CREATE ANY AD DITIONAL LIABILITY ON THE ASSESSEE. SECONDLY, IT IS ALSO TO BE APPRECIATED THAT THE STA ND OF THE REVENUE IS ALSO NOT IN CONSONANCE WITH THE LEGISLATIVE INTENT. THE IMPORT AND INTENT OF INTRODUCING CHAPTER XII-H WAS TO TAX SUCH BENEFITS WHICH ARE COLLECTIVELY ENJ OYED BY THE EMPLOYEES AND CANNOT BE ATTRIBUTED TO ANY INDIVIDUAL EMPLOYEE. SUCH BENEFIT S ESCAPE TAXATION AS PERQUISITE IN THE HANDS OF THE INDIVIDUAL EMPLOYEES AS THEY ARE NOT A TTRIBUTABLE TO ANY INDIVIDUAL EMPLOYEE. THEREFORE, SUCH BENEFITS WERE SOUGHT TO BE TAXED IN THE HANDS OF THE CONCERNED EMPLOYER. THOUGH THE SPEECH OF THE HONBLE FINANCE MINISTER M AY NOT BE A DECISIVE TEST, SO HOWEVER, IT IS INDEED A RELEVANT AND CONTEMPORANEOUS EXPOSIT ION OF THE LEGISLATIVE INTENT AND CAN BE RELIED UPON, AS PROPOUNDED BY THE HONBLE SUPREME C OURT IN THE CASE OF K P VARGHESE V. ITO 131 ITR 597 (SC). CONSIDERED IN THAT LIGHT TOO, WE FIND THAT THE INTERPRETATION SOUGHT TO BE MADE OUT BY THE REVENUE WITH REGARD TO THE MEANING OF THE EXPRESSION FRINGE BENEFITS FOR THE PURPOSES OF SECTION 115WB(2) OF THE ACT IS QUIT E MISPLACED. CONSIDERING THE AFORESAID, WE THEREFORE DO NOT SUBSCRIBE TO THE INTERPRETATION SOUGHT TO BE PLACED BY THE REVENUE ON SECTION 115WB(2) OF THE ACT AND INSTEAD, HOLD THAT THE EXPENSES PRESCRIBED THEREIN ARE LIABLE TO BE CONSIDERED AS FRINGE BENEFITS ONLY TO THE EXTENT THE SAME ARE INCURRED IN CONSIDERATION FOR EMPLOYMENT. TO THE SAME EFFECT IS ALSO THE VIEW OF OUR CO-ORDINATE BENCH IN THE CASE OF DCIT V. KOTAK MAHINDRA OLD MUTUAL LI FE INSURANCE LTD. 134 ITD 388 (MUM). 10. LET US ANALYSE DIFFERENT EXPENDITURES IN QUESTI ON. FIRST IS THE ISSUE OF ENTERTAINMENT EXPENDITURE. THE STAND OF THE ASSESSEE IS THAT THE PROVISIONS OF FBT CAN BE INVOKED IN RESPECT OF EXPENSES WHICH ARE INCURRED ON EMPLOYEES OR THEIR FAMILY MEMBERS BUT IN THE PRESENT CASE, AS MENTIONED ON PAGE NO.5 OF THE PAPE R BOOK, THE ENTERTAINMENT EXPENSES HAVE BEEN INCURRED FOR GUESTS OF THE COMPANY, WHICH HAS NOT BEEN DISPUTED BY THE REVENUE. 5 SO SAME ARE NOT LIABLE TO BE SUBJECTED TO PROVISION S OF SECTION 115WB(2) OF THE ACT. THE NEXT ISSUE IS WITH REGARD TO SALES PROMOTION OF RS. 35,06,333/- AND GIFTS OF RS.3,70,334/-. IN THIS CASE, EXPENDITURE HAS BEEN INCURRED ON FOOD OF H.O., BUT IT DOES NOT TELL THE DETAILS WHETHER SAME HAS BEEN INCURRED ON FOOD OF GUESTS OR EMPLOYEES IN THE COURSE OF EMPLOYMENT. SO, THAT HAS TO BE LOOKED INTO BY THE ASSESSING OFFICER UNDER THE PROVISIONS OF SECTION 115WB(2) AFTER PROVIDING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. REGARDING GIFTS, THESE PAYMENTS INCLUDE THE CLUB PAYMENTS BUT AGAIN IT IS NOT CLEAR FROM THE DETAILS FURNISHED BY THE ASSESSEE WHETHER SAME HAS BEEN INC URRED ON EMPLOYEES OF THE ASSESSEE OR OUTSIDERS. SO THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE SAME AND ALLOW THE SAME AFTER DUE VERIFICATION OF THE SAME UNDER THE PROVISIONS O F SECTION 115WB(2) OF THE ACT AFTER PROVIDING DUE OPPORTUNITY OF HEARING TO THE ASSESSE E. THE NEXT ISSUE IS WITH REGARD TO AUDITORS TRAVELLING. AUDITORS ARE NOT EMPLOYEES OF THE ASSESSEE SO ANY EXPENDITURE ON THEIR TRAVELLING EXPENSES OR OTHERWISE DOES NOT FALL IN T HE AMBIT OF THE PROVISIONS OF SECTION 115WB. THE NEXT ISSUE IS REGARDING DRIVER SALARIES. THE D RIVER SALARIES IN THE PRESENT CASE CANNOT BE SUBJECT MATTER OF PROVISIONS OF SECTION 1 15WB BECAUSE SALARY PAID TO A DRIVER IS TAXABLE IN HIS HANDS UNDER THE HEAD SALARY INCOME A ND THUS TAX IS PAID OR PAYABLE IN RESPECT OF THE SAME. ACCORDING TO US, THE PROVISIONS OF SE CTION 115WB WAS WRONGLY INVOKED WITH RESPECT TO THIS EXPENDITURE. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SPOSED OF AS INDICATED ABOVE. 9. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBU NAL IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE WE RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO V ERIFY THE DIFFERENT ITEMS IN THE LIGHT OF THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN C ASE AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS THE 12 TH DAY OF MARCH, 2013. SD/- SD/- ( SHAILENDRA KUMAR YADAV ) ( R.K . PANDA ) JUDICIAL MEMBER ACCOUNTANT ME MBER SATISH PUNE, DATED THE 12 TH MARCH 2013. 6 COPY OF THE ORDER IS FORWARDED TO: 1. THE ASSESSEE 2. THE ADDL.CIT, RANGE-1, PUNE. 3. THE CIT(A)-I, PUNE. 4. THE CIT-I, PUNE. 5. THE DR A BENCH, PUNE. 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLAT E TRIBUNAL, PUNE.