ACIT 8(1), MUMBAI V. ENDRESS & HAUSSER INDIA P. LTD, MUMBAI

ITA 5434/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48727 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 09-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 30-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA GUPTA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI. BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ITA NO.5434/MUM/2009 (ASSESSMENT YEAR : 2006-07) ASSTT. COMMISSIONER OF INCOME - TAX-8(1) ROOM NO.210, 2 ND FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI-20 VS. ENDRESS & HAUSSER INDIA PVT. LTD. EXCOM HOUSE 7, SAKI VIHAR ROAD ANDHERI (E) MUMBAI-400 072. P.A. NO. AAACE 5283 C (APPELLANT) (RESPONDENT) APPELLANT BY : MS. ASHIMA GUPTA. RESPONDENT BY : SHRI PRAKASH JOTHWANI PER V. DURGA RAO : THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER DATED 22.07.2009 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX(A)- VIII, MUMBAI RELATING TO THE ASST. YEAR 2006-07. 2. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A PRIVAT E LIMITED COMPANY ENGAGED IN THE BUSINESS OF FIELD MEASURING INSTRUME NTS AND PROCESS SOLUTIONS. THE ASSESSEE HAS FILED RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION DECLARING VALUE OF TOTAL FRINGE BENEF ITS AT RS.59,36,353/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO HAS NOTICED THAT THE ASSESSEE HAS PAID COMMISSION OF RS.52,95,896/- AND NO FRINGE BENEFIT TAX WAS PAID ON THE ABOVE ACCOUNT AND CALLED THE EXPLA NATION FROM THE ASSESSEE AND THE ASSESSEE HAS SUBMITTED THAT THE COMPANY HA S PAID COMMISSION TO THE FIELD SYSTEM INTEGRATOR AND HE IS NOT THE EMPLO YEE OF THE ASSESSEE AND ITA 5434/MUM/09 2 NO FRINGE BENEFIT TAX IS PAYABLE BY THE ASSESSEE. HOWEVER, THE AO HAS NOT AGREED WITH THE SUBMISSION OF THE ASSESSEE AND OBSE RVED THAT THE COMMISSION WAS PAID FOR PROMOTING THE SALES AND AFT ER SALES SERVICES AND THE ASSESSEE HAS FAILED TO SUBSTANTIATE THAT THE COMMIS SION WAS NOT PAID FOR SALES PROMOTION AND AFTER SALES SERVICES. THE AO H AS REVOKED SEC.115 WB(2)(D) AND ACCORDINGLY THE COMMISSION PAID BY THE ASSESSEE OF RS.52,95,896/- IS ADDED TO THE FRINGE BENEFITS AS A SALES PROMOTION U/S.115WB(2)(D). ACCORDINGLY THE VALUE OF FRINGE B ENEFIT IS WORKED OUT AT RS.10,59,179/- (20% OF RS.52,95,896/-). 2. ON BEING AGGRIEVED ASSESSEE CARRIED THE MATTER B EFORE THE LD. CIT(A). IT WAS SUBMITTED BEFORE THE LD. CIT(A) THAT TO LEVY THE FRINGE BENEFIT TAX THERE MUST EXIST AN EMPLOYER EMPLOYEE RELATIONSHIP BETWEEN THE PARTIES CONCERNED. AS PER THE MOU THE RELATIONSHIP BETWEE N THE ASSESSEE COMPANY AND THE FIELD SYSTEM INTEGRATOR CLEARLY SHOWS THAT THE FSI USED TO ACT AS AN AGENT FOR WHICH COMMISSION SHOULD BE PAID ON THE BA SIS OF SALES TURN OVER ACHIEVED BY THEM. IT WAS FURTHER SUBMITTED BEFORE THE LD. CIT(A) THAT SEC. 115 WB(2)(D) HAS NO APPLICATION TO THE ASSESSEES C ASE. THE LD. CIT(A) AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE AND ALS O BY CONSIDERING THE ORDER OF THE TRIBUNAL IN THE CASE OF ITO VS. MEERA AND CO . (1986) 15 ITD 227(CHD.) HAS HELD THAT THE COMMISSION HAS BEEN PAID FOR THE INCREASE IN THE SALES BUT IT CANNOT BE TAKEN IN THE PURVIEW OF FRINGE BENEFIT S TAX UNTIL AND UNLESS THE CONDITION OF EMPLOYER EMPLOYEE RELATIONSHIP BETWEEN THE PARTIES IS ITA 5434/MUM/09 3 ESTABLISHED AND DELETED THE ADDITION MADE BY THE AO . THE OPERATIVE POTION OF THE ORDER OF THE LD. CIT(A) IS EXTRACTED AS UNDE R :- 1.4. I HAVE CONSIDERED THE SUBMISSIONS OF THE APP ELLANT AND ORDER OF THE AO. IT IS NOTICED THAT THE AO HAS OBS ERVED FROM THE DETAILS FILED BY THE APPELLANT CO. IN RESPECT OF FR INGE BENEFIT AS COMMISSION PAID OF RS.52,92,826/-. THE AO HAS ENQU IRED THE BASIS AND TERMS AND CONDITIONS FOR PAYMENT OF COMMI SSION. THE APPELLANT SUBMITTED THE SPECIMEN AGREEMENT OF TERM S AND CONDITIONS AND BASIS OF COMMISSION PAID. THE AO RE LIED ON THE GENERAL CLAUSE OF THIS AGREEMENT AS STATED ABOVE. FINALLY, THE AO HAS CONCLUDED THAT THE ASSESSEE HAS FAILED TO SU BSTANTIATE THAT THE COMMISSION HAS NOT PAID FOR SALES PROMOTIO N AND AFTER SALES SERVICES. HENCE, HE HAS ADDED THE COMMISSION PAID OF RS.52,95,896/- TO THE FRINGE BENEFIT AS SALES PROMO TION U/S.115 WB(2)(D). ON THE OTHER HAND, THE APPELLANT HAS REL IED ON THE PROVISIONS OF SEC.115 WB(2)(D) OF THE I.T. ACT WHER E THE FRINGE BENEFIT HAS BEEN DEFINED AS STATED ABOVE. FROM TH E DEFINITION OF FRINGE BENEFIT, IT IS CLEAR THAT ANY PRE-REQUISI TES ON WHICH THE FRINGE BENEFIT TAX IS TO BE LEVIED THERE MUST EXIST AND EMPLOYER- EMPLOYEE RELATIONSHIP BETWEEN THE PARTIES CONCERNED . THE AO HAS TREATED THIS COMMISSION AS PAYMENT FOR THE SALE S PROMOTION AND IGNORED THIS ASPECT WHICH IS A PRE-REQUISITES C ONDITION FOR LEVYING FRINGE BENEFIT TAX U/S.115 WB(2)(D) OF THE I.T. ACT. FROM THE FACTS OF THE CASE, IT IS OBSERVED THAT THE COMMISSION HAS ALWAYS BEEN PAID FOR INCREASING THE SALES BUT I T CANNOT BE TAKEN IN THE PURVIEW OF FRINGE BENEFIT TAX UNTIL AN D UNLESS THE CONDITION OF EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE PARTIES IS ESTABLISHED. THIS VIEW HAS BEEN CONFIRM ED BY THE HONBLE TRIBUNAL IN CASE OF ITO VS. MEERA & CO. 15 I TD 227(SUPRA). KEEPING IN VIEW ALL THESE FACTS AND CI RCUMSTANCES, I AM OF THE VIEW THAT THE PRE-REQUSITES CONDITION O F EMPLOYER- EMPLOYEE RELATIONSHIP HAS NOT BEEN ESTABLISHED IN T HIS CASE. THEREFORE, THE AO HAS ERRED IN LEVYING FRINGE BENEF IT TAX U/S.115 WB (2)(D) OF THE I.T. ACT. HENCE, THE GROUND OF APP EAL IS ALLOWED. 3. ON BEING AGGRIEVED THE REVENUE CARRIED THE MATTE R BEFORE THE TRIBUNAL. THE LD. DR HAS SUPPORTED THE ORDER PASSE D BY THE AO. ITA 5434/MUM/09 4 4. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESS EE HAS SUBMITTED THAT TO ATTRACT THE SEC. 115 WB(2)(D) THERE MUST EXIST E MPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE ASSESSEE AND THE CONCERNED PARTY AND ADMITTEDLY NO SUCH RELATION EXITED IN THE PRESENT CASE, SUPPOR TED THE ORDER PASSED BY THE LD. CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECO RDS, GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ONLY ISSU E INVOLVED IN THIS APPEAL IS WHETHER THE ASSESSEE IS LIABLE TO FRINGE BENEFIT TA X ON THE PAYMENT OF RS.52,95,896/-. THE ASSESSEE IS IN THE BUSINESS OF FIELD MEASURING INSTRUMENTS AND PROCESS SOLUTIONS. THE ASSESSEE CO MPANY HAS ENGAGED FIELD SYSTEM INTEGRATOR AS AN AGENT AND ACCORDING T O THE TERMS AND CONDITIONS OF THE MOU THE COMMISSION WILL BE PAID TO THE AGENT AS PER THE PAPER BOOK PAGE-42. THE LD. CIT(A) AFTER EXAMINING THE ENTIRE MOU ENTERED BETWEEN THE ASSESSEE AND PARTY GAVE A FINDING THAT ASSESSEE IS NOT LIABLE TO PAY FRINGE BENEFIT TAX AND TO PAY THE FRINGE BENEFI T TAX THERE MUST BE A EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE PARTIES CONCERNED. TO INVOKE SEC. 115 WB(2), IT IS NECESSARY FOR THE AO TO SATIS FY THAT THE PAYMENT MADE BY THE ASSESSEE IS TO HIS EMPLOYEE. IN THE PRESENT CASE ASSESSEE PAID COMMISSION TO THE AGENT NOT AN EMPLOYEE. THEREFORE , THE ABOVE PROVISION OF SEC.115 WB(2) HAS NO APPLICATION TO THE FACTS O F THE CASE. IN VIEW OF THE ABOVE WE FIND NO INFIRMITY IN THE ORDER PASSED BY T HE ORDER OF THE LD. CIT(A) THE APPEAL OF THE REVENUE IS DISMISSED. ITA 5434/MUM/09 5 6. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED . PRONOUNCED IN THE OPEN COURT ON 9.5.2011. SD/- SD/- (PRAMOD KUMAR) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DT. 9.5.2011. JV. COPIES OF THE ORDER FORWARDED TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT, MUMBAI (4) CIT(A), MUMBAI (5) DR, (6) GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES ITA 5434/MUM/09 6 DATE INITIALS 1. DRAFT DICTATED ON 9.5.11 2. DRAFT PLACED BEFORE AUTHOR 9.5.11 3. DRAFT PROPOSED & PLACED BEFORE SECOND MEMBER 4. DRAFT DISCUSSED & APPROVED BY SECOND MEMBER 5. APPROVED DRAFT COMES TO SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 9.5.11 7. FILE SENT TO BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER.