Andhra Bank, Hyderabad V. DCIT, Circle-1(1), Hyderabad

ITA 601/HYD/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6477 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 27-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Keywords: Fair market value; Valuation report
• Section: 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.601/HYD//2012 ASSESSMENT YEAR 2006-2007 ANDHRA BANK, HYDERABAD 500 001. PAN AABCA-7375C VS. DCIT, CIRCLE 1(1) HYDERABAD. (APPELLANT) (RESPONDENT) ITA.NO.781/HYD//2012 ASSESSMENT YEAR 2007-2008 ACIT, CIRCLE 1(1) HYDERABAD. VS. ANDHRA BANK, HYDERABAD 500 001. PAN AABCA-7375C (APPELLANT) (RESPONDENT) FOR ASSESSEE MR. S. ANANTHAN FOR REVENUE MR. P. SOMASEKHAR REDDY DATE OF HEARING 21.05.2014 DATE OF PRONOUNCEMENT 16.07.2014 ORDER PER B. RAMAKOTAIAH, A.M. THESE CROSS-APPEALS ARE BY ASSESSEE AND REVENUE AGAINST THE ORDER OF CIT(A)-II, HYDERABAD DATED 15. 03.2012 ON THE ISSUE OF VALUE OF FBT BROUGHT TO TAX BY THE A.O . UNDER THE PROVISIONS OF SECTION 115WB(1)(C) OF INCOME TAX ACT , 1961. 2. BRIEFLY STATED, ASSESSEE IS A SCHEDULE BANK GOVERNED BY THE PROVISIONS OF BANKING REGULATION AC T, 1949. IT FILED ITS RETURN OF INCOME FOR A.Y. 2006-07 ON 29.1 1.2006 ADMITTING FRINGE BENEFIT TAX (IN SHORT FBT) VALUE OF RS.14,36,39,345/-. A.O. COMPLETED THE ASSESSMENT 2 ITA.NO.601 & 781/HYD/2012 ANDHRA BANK, HYDERABAD. DETERMINING THE FBT VALUE AT RS.89,61,88,345/-, BY MAKING AN ADDITION OF RS.75,25,49,000/- WHICH WAS CLAIMED AS AN EXPENDITURE BY THE ASSESSEE AS CONTRIBUTION BY THE EMPLOYER TOWARDS PENSION FUND. A.O. NOTICED THAT AS PER THE PROVISIONS OF SECTION 115WB(1)(C) OF THE I.T. ACT, THE ABOVE C ONTRIBUTION MADE BY THE EMPLOYER NEEDS TO BROUGHT TO TAX AS ELI GIBLE FBT VALUE DURING THE YEAR. IT WAS THE CONTENTION OF ASS ESSEE THAT IT FALLS UNDER EMPLOYEES WELFARE AND ALSO IN THE NATU RE OF STATUTORY OBLIGATION. A.O. HOWEVER, WAS OF THE VIEW THAT PENSION FUND CONTRIBUTION IS CLASS APART FROM EMPLO YEE WELFARE AND SQUARELY FALLS UNDER THE SAID PROVISION. HE ALS O RELIED THAT THE AMENDMENT MADE TO SECTION 115WB (1)(C) FOR A.Y. 2007-08 ONWARDS THAT AMOUNT OF CONTRIBUTION, WHICH EXCEEDS RS. 1 LAKH IN RESPECT OF EACH EMPLOYEE CLEARLY DISTINGUIS HES THE CONTRIBUTION TO SUCH FUNDS AND ACCORDINGLY, HE BROU GHT THE AMOUNT TO TAX. 3. BEFORE THE LD. CIT(A), ASSESSEE CONTENDED THAT CONTRIBUTION TO PENSION FUND WHICH WAS MADE IN LIEU OF P.F. IS A STATUTORY LIABILITY AND SINCE THE CONTRIBUTION TO P.F. IS NOT CONSIDERED FOR VALUATION OF FBT, CONTRIBUTION TO P ENSION FUND SHALL ALSO DOES NOT ATTRACT FBT. ASSESSEE ALTERNATI VELY RELIED ON THE DECISION OF COORDINATE BENCH AT JAIPUR IN THE C ASE OF DCIT VS. STATE BANK OF BIKANER AND JAIPUR IN ITA.NO.538/ JP/2011 FOR A.Y. 2006-07 DATED 21.10.2011 WHEREIN IT WAS CO NSIDERED THAT THE AMENDMENT BROUGHT SUBSEQUENTLY WILL BE APP LICABLE RETROSPECTIVELY, THEREFORE, ASSESSEE SHALL BE ELIGI BLE TO GET DEDUCTION OF RS. 1 LAKH PER EMPLOYEE. FOLLOWING THE ABOVE ORDER OF THE ITAT, LD. CIT(A), DIRECTED THE A.O. TO VERIFY AND ALLOW THE CONTRIBUTION TO THE FUND UP TO RS. 1 LAKH FOR EACH EMPLOYEE. 3 ITA.NO.601 & 781/HYD/2012 ANDHRA BANK, HYDERABAD. 4. ASSESSEE IS AGGRIEVED THAT THIS PAYMENT WAS NOT ATTRACTED TOWARDS PROVISIONS OF FBT WHEREAS, REVENU E IS AGGRIEVED ON THE DIRECTION OF THE LD. CIT(A) IN APP LYING AMENDMENT BROUGHT IN THE LATER YEAR TO THE YEAR UND ER CONSIDERATION. ACCORDINGLY, BOTH RAISED THE RESPECT IVE GROUNDS. 5. LD. COUNSEL SUBMITTED THAT SECTION 115WB(1)(C) DOES INCLUDE FRINGE BENEFITS BY WAY OF ANY CONTRIBU TION BY THE EMPLOYER TO AN APPROVED SUPERANNUATION FUND FOR EMP LOYEES. HE ALSO EXPLAINED VARIOUS AMENDMENTS BROUGHT TO SEC TION 115WB(1)(C) BY FINANCE ACT, 2006 AND ALSO TO SECTIO N 17(2) WITH REFERENCE TO PERQUISITE SO AS TO EXCLUDE THE A MOUNT UP TO RS. 1 LAKH PER EMPLOYEE. LD. COUNSELS CONTENTION W AS THAT THE WORD USED CONTRIBUTION HAS NOT BEEN DEFINED UNDER THE PROVISIONS OF FBT BUT FOURTH SCHEDULE PART-A UNDER THE HEAD RECOGNISED P.F. DEFINES THE WORD CONTRIBUTION W HICH MEANS ANY SUM CREDITED BY OR ON BEHALF OF ANY EMPLOYEE O UT OF HIS SALARY OR BY THE EMPLOYER OUT OF HIS OWN MONIES, T O THE INDIVIDUAL ACCOUNT OF AN EMPLOYEE, BUT DOES NOT INC LUDE ANY SUM CREDITED AS INTEREST. REFERRING TO PART-B, IT WAS SUBMITTED THAT THE DEFINITION PROVIDED IN PART-A APPLIES TO T HE VARIOUS TERMS USED IN PART-B IE. FOR APPROVED SUPERANNUATIO N FUND. RELYING ON THE ABOVE, IT WAS SUBMITTED THAT THERE W AS NO CONTRIBUTION MADE BY THE EMPLOYER TO THE INDIVIDUAL ACCOUNT OF THE EMPLOYEE. LD. COUNSEL RELIED ON THE MEMORANDUM EXPLAINING THE FINANCE BILL 2006 TO CONTEND THAT TH E GOVERNMENT INTENTION WAS TO EXCLUDE THE AMOUNTS FRO M FRINGE BENEFITS UNDER SECTION 115WB. HE ALSO REFERRED TO F INANCE MINISTER BUDGET SPEECH WHILE INTRODUCING THE FINANC E BILL, 2006. HE THEN REFERRED TO GAZETTE OF INDIA PUBLICAT ION DATED SEPTEMBER 29, 1995 WITH REFERENCE TO CONSTITUTION O F THE FUND 4 ITA.NO.601 & 781/HYD/2012 ANDHRA BANK, HYDERABAD. WHICH IS KNOWN AS ANDHRA BANK EMPLOYEES PENSION FU ND AND THE RULES MADE THEREIN. BY VIRTUE OF THE ACTUAR IAL ASSESSMENT OF INVESTIBLE AMOUNT OF THE FUND MADE ON EVERY 31 ST DAY OF MARCH, IT WAS THE RESPONSIBILITY OF THE BAN K TO CONTRIBUTE THE SHORT FALL TO THE ABOVE APPROVED FUN D. IT WAS SUBMITTED BY THE LD. COUNSEL THAT THERE ARE TWO TYP ES OF FUNDS BEING MANAGED BY THE BANKS PARTICULARLY, PUBLIC SEC TOR BANKS NAMELY DEFINED CONTRIBUTION SCHEME AND DEFINED B ENEFIT SCHEME. IT WAS SUBMITTED THAT IN ASSESSEES CASE A LUMP SUM CONTRIBUTION IS MADE INTO THE SCHEME IN RESPECT OF PENSION FOR ALL ELIGIBLE EMPLOYEES. THE LUMP SUM CONTRIBUTION IS CALCULATED BASED ON THE ACTUARIAL VALUATION WHICH IS IN TURN, TYPICALLY BASED ON SEVERAL UNDERLYING ASSUMPTIONS. GIVEN THE NATURE OF DEFINED BENEFIT SCHEME IT IS NOT POSSIBLE TO DERI VE THE CONTRIBUTION ON PER EMPLOYEE BASIS WHICH MAY BE USE D FOR INCOME TAX PURPOSES. IT WAS SUBMITTED THAT ASSESSEE IS HAVING MORE THAN 97 THOUSAND EMPLOYEES AND IT IS NOT POSSI BLE TO SEGREGATE THE BENEFIT AVAILABLE TO EACH PERSON. IT WAS FURTHER SUBMITTED THAT ALL EMPLOYEES ARE NOT COVERED BY THE DEFINED BENEFIT SCHEME AS SOME HAVE OPTED FOR CONTRIBUTORY PENSION FUND. HE REFERRED TO THE VARIOUS SALARY CERTIFICAT ES GIVEN TO THE EMPLOYEES AND AS AN EXAMPLE PLACED TWO SUCH CERTIFI CATES WHEREIN FOR THE PERSONS COVERED BY THE CONTRIBUTORY SCHEME THE INDIVIDUAL CREDIT TO THE ACCOUNT WAS STATED, WH EREAS, FOR THE PERSONS WHO ARE UNDER THE BENEFIT SCHEME, NO SU CH CONTRIBUTION WAS SHOWN. LD. COUNSEL EMPHASIZED THAT THE SCHEME TO WHICH ASSESSEE CONTRIBUTED DURING THE YEA R IS CALLED AS DEFINED BENEFIT SCHEME AND NO INDIVIDUAL PARAM ETERS ARE APPLIED WHILE MAKING VALUATION BY ACTUARY AND IT IS NOT POSSIBLE TO APPORTION THE CONTRIBUTION AMONGST EACH MEMBER. 5 ITA.NO.601 & 781/HYD/2012 ANDHRA BANK, HYDERABAD. 5.1. LD. COUNSEL RELIED ON THE DECISION OF AAR INR OYAL BANK OF SCOTLAND 45 TAXMAN.COM 283, DECISION OF HON BLE SUPREME COURT IN THE CASE OF LW RUSSEL 53 ITR 91 (S C) AND DECISION OF HONBLE DELHI COURT IN THE CASE OF YOSH IO KUBO 36 TAXMAN.COM 1 FOR VARIOUS PROPOSITIONS. 6. LD. D.R. HOWEVER, RELIED ON THE ORDERS OF THE A .O. TO SUBMIT THAT CONTRIBUTION TO SUPERANNUATION FUND IS TAXABLE UNDER THE PROVISIONS OF SECTION 155WB(1)(C) AND SUB MITTED THAT REVENUE IS ALSO CONTESTING THE RELIEF GRANTED BY THE LD. CIT(A) IN APPLYING THE AMENDMENT BROUGHT IN THE NEX T A.Y. TO THE YEAR UNDER CONSIDERATION AND DIRECTING THE A.O. TO EXCLUDE THE AMOUNT UPTO RS. 1 LAKH PER EMPLOYER. 7. ON A QUERY BY THE BENCH, LD. COUNSEL FAIRLY ADMITTED THAT SINCE THE CONTRIBUTION TO EMPLOYER IS NOT QUANTIFIABLE, BANK COULD NOT SUBMIT ANY INFORMATION TO THE A.O. AND THEREFORE, CONSEQUENTIAL ORDERS HAVE NOT B EEN ISSUED. THEREFORE, BOTH THE PARTIES ARE ON APPEAL. 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE FACTS PLACED ON RECORD AS WELL AS THE S CHEME OF SUPERANNUATION GUIDELINES AND ISSUES THEREIN. PROVISIONS OF SECTION 115WB (1) (C) : 9. THERE IS NO DISPUTE WITH REFERENCE TO PROVISION OF FRINGE BENEFITS UNDER SECTION 115WB GOVERNING THE I SSUE WHICH IS AS UNDER : 115WB (1) FOR THE PURPOSE OF THIS CHAPTER FRING E BENEFITS MEANS ANY CONSIDERATION FOR EMPLOYMENT PROVIDED BY WAY OF (A) (B) 6 ITA.NO.601 & 781/HYD/2012 ANDHRA BANK, HYDERABAD. (C) ANY CONTRIBUTION BY THE EMPLOYER TO AN APPROVED SUPERANNUATION FUND FOR EMPLOYEES. 9.1. AS AMENDED BY FINANCE ACT, 2006 115WC.(1) FOR THE PURPOSE OF THIS CHAPTER, THE VAL UE OF FRINGE BENEFITS SHALL BE THE AGGREGATE OF THE FOLLO WING NAMELY : -- (A) -- ---- -- (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 EMPLOYEE; EXTRACT OF SECTION 17(2) AS AMENDED BY FINANCE (NO. 2) ACT, 2009. SALARY, PERQUISITE AND PROFITS IN LIEU OF SALA RY DEFINED. 17. FOR THE PURPOSES OF SECTIONS 15 AND 16 AND OF T HIS SECTION, - (1) SALARY INCLUDES . . . . . . . . (2) PERQUISITE INCLUDES (VII) THE AMOUNT OF ANY CONTRIBUTION TO AN APPROVED SUPERANNUATION FUND BY THE EMPLOYER IN RESPECT OF THE ASSESSEE, TO THE EXTENT IT EXCEEDS ONE LAKH RUPEES; AND 9.2. CONTRIBUTION AS DEFINED IN PART-A OF FOURTH SCHEDULE IN CLUASE-2 IS AS UNDER : 2. IN THIS PART, UNLESS THE CONTEXT OTHERWISE REQU IRES,- (I) EMPLOYER MEANS ; (A) EMPLOYEE MEANS ; (B) CONTRIBUTION MEANS ANY SUM CREDITED BY OR ON BEHALF OF ANY EMPLOYEE OUT OF HIS SALARY, OR BY AN EMPLOYER OUT OF HIS OWN MONEYS, TO THE INDIVIDUAL 7 ITA.NO.601 & 781/HYD/2012 ANDHRA BANK, HYDERABAD. ACCOUNT OF AN EMPLOYEE, BUT DOES NOT INCLUDE ANY SU M CREDITED AS INTEREST; PART-B DEFINITIONS : 1. IN THIS PART, UNLESS THE CONTEXT OTHERWISE REQUIRES, EMPLOYER, EMPLOYEE, CONTRIBUTION AN D SALARY HAVE, IN RELATION TO SUPERANNUATION FUNDS, THE MEANINGS ASSIGNED TO THOSE EXPRESSIONS IN RULE 2 OF PART A IN RELATION TO PROVIDENT FUNDS. 9.3. ACCORDINGLY, THE CONTRIBUTION AS DEFINED IN THE PROVISION MEANS ANY SUM CREDITED TO THE INDIVIDUAL ACCOUNT. RATIONALIZING THE PROVISION OF FRINGE BENEFIT TAX T HE MEMORANDUM EXPLAINING THE FINANCE BILL 2006 HAS CLA RIFIED AS UNDER : IT IS PROPOSED TO AMEND THE SAID CLAUSE (B) SO AS TO PROVIDE THAT CONTRIBUTION BY AN EMPLOYER TO AN APPR OVED SUPERANNUATION FUND TO THE EXTENT IT DOES NOT EXCEE D RUPEES ONE LAKH PER EMPLOYEE IN RESPECT OF WHOM CONTRIBUTION IS MADE, SHALL NOT BE LIABLE TO FRINGE BENEFIT TAX. FOR EXAMPLE, CONSIDER AN EMPLOYER WHO HAS THRE E EMPLOYEES: A, B AND C AND HE MAKES CONTRIBUTION TO THEIR ACCOUNT IN THE APPROVED SUPERANNUATION FUND IN THE FOLLOWING MANNER : EMPLOYEE CONTRIBUTION TO APPROVED SUPERANNUATION FUND BY THE EMPLOYER. A RS. 50,000 B RS. 90,000 C RS. 2,00,000 IN CASE OF EMPLOYEES A AND B, THE VALUE OF FRINGE B ENEFITS SHALL BE TAKEN TO BE NIL SINCE CONTRIBUTIONS BY THE EMPLOYER IN RESPECT OF THESE EMPLOYEES DOES NOT EXC EED RS.1,00,000 IN EACH CASE. HOWEVER, IN THE CASE OF EMPLOYEE C THE VALUE OF FRINGE BENEFIT SHALL BE RS.1,00,000 (RS.2,00,000 1,00,000) FOR THE PURPOS ES OF LEVY OF FRINGE BENEFIT TAX. 9.4. THERE WAS ANOTHER AMENDMENT IN FINANCE (NO.2) BILL 2009 WHEREIN IT WAS CLARIFIED AS UNDER : 8 ITA.NO.601 & 781/HYD/2012 ANDHRA BANK, HYDERABAD. IT IS PROPOSED TO INSERT A NEW SECTION 115WM TO AB OLISH THE FRINGE BENEFIT TAX. CONSEQUENTLY, IT IS ALSO PR OPOSED TO RESTORE THE TAXATION OF THE FRINGE BENEFITS AS PERQ UISITES IN THE HANDS OF THE EMPLOYEES. THEREFORE, IT IS ALSO P ROPOSED TO AMEND CLAUSE (2) OF SECTION 17, - (A) BY SUBSTITUTING SUB-CLAUSE (VI) SO AS TO PROVIDE TH AT PERQUISITE SHALL INCLUDE THE VALUE OF ANY SPECIFIED SECURITY OR SWEAT EQUITY SHARES ALLOTTED OR TRANSFE RRED, DIRECTLY OR INDIRECTLY, BY THE EMPLOYER, OR FORMER EMPLOYER, FREE OF COST OR AT CONCESSIONAL RATE TO T HE ASSESSEE. FOR THIS PURPOSE, THE VALUE OF ANY SPECIF IED SECURITY OR SWEAT EQUITY SHARES, AS THE CASE MAY BE , ON THE DATE ON WHICH THE OPTION IS EXERCISED BY THE ASSESSEE AS REDUCED BY THE AMOUNT ACTUALLY PAID BY, OR RECOVERED FROM, THE ASSESSEE IN RESPECT OF SUCH SECURITY OR SHARES. THE FAIR MARKET VALUE WILL ME AN THE VALUE DETERMINED IN ACCORDANCE WITH THE METHOD AS MAY BE PRESCRIBED BY THE BOARD. (B) BY INSERTING SUB-CLAUSE (VII) TO PROVIDE THAT PERQU ISITE SHALL ALSO INCLUDE THE AMOUNT OF ANY CONTRIBUTION T O AN APPROVED SUPERANNUATION FUND BY THE EMPLOYER IN RESPECT OF THE ASSESSEE, TO THE EXTENT IT EXCEEDS O NE LAKH RUPEES. (C) BY INSERTING SUB-CLAUSE (VII) TO PROVIDE THAT PERQU ISITE SHALL ALSO INCLUDE THE VALUE OF ANY OTHER FRINGE BE NEFIT OR AMENITY AS MAY BE PRESCRIBED. 9.5. THUS, AS CAN BE SEEN FROM THE ABOVE SERIES OF AMENDMENTS AND CLARIFICATIONS ON THE ISSUE, IT IS O NLY AN AMOUNT WHICH IS CONTRIBUTED TO INDIVIDUAL ACCOUNT O F AN EMPLOYEE IN EXCESS OF RS. 1 LAKH IS EXCLUDED FROM T HE PURVIEW OF FBT FROM A.Y. 2007-08. FURTHER, IN THE IMPUGNED A.Y. THE AMENDMENT IS NOT APPLICABLE. HOWEVER, THE COORDINAT E BENCH BY ORDER DATED 27.11.2009 IN THE CASE OF RAJASTHAN RAJYA VIDYUT PRASARAN NIGAM LTD., HAS ANALYSED THIS ISSUE AND HELD AS UNDER : 9 ITA.NO.601 & 781/HYD/2012 ANDHRA BANK, HYDERABAD. THE ABOVE PRINCIPLE OF INTERPRETATION LAID DOWN IN VARIOUS JUDGMENTS OF HONBLE SUPREME COURT WHEN READ IN CON TEXT WITH THE PURCHASE AND INTENTION FOR WHICH THE AMEND MENT WAS MADE U/S 115WB(1)(C) LEAVES NO SCOPE OF DEBATE THAT THE SAID AMENDMENT WAS TO REMEDY THE UNINTENDED CONSEQUENCES AND THEREFORE, IT IS REQUIRED TO BE CONSIDERED AS RETROSPECTIVE IN OPERATION SO THAT A REASONABLE INTERPRETATION CAN BE GIVEN TO THE SCHEM E OF LEVY OF FRINGE BENEFIT TAX ON CONTRIBUTION TO SUPER ANNUATION FUND AS A WHOLE. WE, THEREFORE, HOLD THAT THE CONT RIBUTION TO SUPERANNUATION FUND IN PRESENT CASE BEING LESS T HAN RS.1.00 LAC PER EMPLOYEE, IS NOT LIABLE FOR FRINGE BENEFIT TAX. IN THE RESULT, THIS GROUND OF ASSESSEE IS ALLO WED. 9.6. ACCORDINGLY, THE PROVISIONS ARE HELD TO BE APPLICABLE EVEN FOR THE IMPUGNED A.Y. ON THE BASIS OF WHICH LD. CIT(A) GRANTED THE BENEFIT. SCHEME OF PROVIDENT FUND : 10. B ANK EMPLOYEES PENSION SCHEME WAS INTRODUCED IN BANKS IN LIEU OF CONTRIBUTORY PROVIDE NT FUND AT THE OPTION OF THE EMPLOYEES. ACCORDINGLY, A SETT LEMENT WAS SIGNED ON 29 TH OCTOBER, 1993 BETWEEN INDIAN BANKS ASSOCIATION (IBA), REPRESENTING 52 MEMBER BANKS WHI CH INCLUDE THE ASSESSEE BANK AND REPRESENTATIVES OF WORKMEN UNIONS INTRODUCING A PENSION SCHEME IN THE BANKING INDUSTRY. 10.1. IN TERMS OF THE SETTLEMENT, AN EMPLOYEE IN SERVICE AS ON 1.11.1993 WAS TO EXERCISE HIS OPTION TO SWITCH OVER TO THE PENSION SCHEME FROM THE PROVIDEN T FUND SCHEME UPON WHICH THE AMOUNT OF CPF (BANKS CONTRIBUTION) OUTSTANDING IN HIS PROVIDENT FUND ACC OUNT WOULD BE TRANSFERRED TO THE PENSION FUND OF THE BAN K. THUS THE PENSION SCHEME INTRODUCED BY BANKS WAS IN LIEU OF THE 10 ITA.NO.601 & 781/HYD/2012 ANDHRA BANK, HYDERABAD. STATUTORY PROVIDENT FUND SCHEME. THE SETTLEMENT DAT ED 01.11.1993 WAS LATER ON MADE INTO A SCHEME AND NOTI FIED ON 29TH SEPTEMBER 1995 AS BANK EMPLOYEE'S PENSION REGULATIONS, WHICH IS A SUBORDINATE REGULATION HAVI NG BEEN FRAMED BY THE BANKS' BOARDS UNDER SECTION 19(1) OF THE BANKING COMPANIES (ACQUISITION AND TRANSFER OF UNDERTAKINGS) ACT, 1980. THE PENSION FUND SCHEME THEREFORE HAS A STATUTORY CHARACTER. AFTER OBTAININ G THE NECESSARY NO OBJECTION FROM THE INCOME TAX AUTHOR ITIES, BANKS WHICH ARE PARTIES (ASSESSEE BANK IS ONE OF TH E PARTIES) TO THE SETTLEMENT DATED 29.01.1993 HAD SET UP PENSION FUNDS AND THE CONTRIBUTION MADE INTO SUCH F UNDS ARE AS LAID DOWN IN THE SCHEME AND CONSTITUTES AMON G OTHER THINGS : (I) THE CONTRIBUTION BY THE BANK AT THE RATE OF 10% PER MONTH ON THE PAY OF THE EMPLOYEE, WHICH CONTRIBUTION WAS HITHERTO BEING MADE TO THE PF ACCOUNT. (II) THE ACCUMULATED CONTRIBUTIONS OF THE BANK TO THE PROVIDENT FUND AND INTEREST ACCRUED THEREON UP TO THE DATE OF SUC H TRANSFER IN RESPECT OF THE EMPLOYEE ; (III) ADDITIONAL ANNUAL CONTRIBUTION TO THE FUND AS REQUIRED TO SECURE PAYMENT OF PENSIONARY BENEFITS TO THE MEMBERS OF THE FUND, BASED ON ACTUARIAL INVESTIGATION OF THE FUND AS AT 31ST MARCH OF EVERY FINANCIAL YEAR. 10.2. ASSESSEE BANK THEREFORE, SUBMITS THAT PENSIO N FUND IN THE BANKS ARE NOT OVER AND ABOVE CONTRIBUTI ONS TO GRATUITY AND PROVIDENT FUND. ASSESSEE ALSO SUBMITS THAT IN THE ABSENCE OF THE PENSION SCHEME, BANKS WOULD HAVE CONTINUED TO CONTRIBUTE TO THE PROVIDENT FUND ACCOU NT OF 11 ITA.NO.601 & 781/HYD/2012 ANDHRA BANK, HYDERABAD. EMPLOYEES STIPULATED AMOUNT OF CONTRIBUTION AND SUC H CONTRIBUTIONS WOULD NOT HAVE ATTRACTED FBT. THE CONTRIBUTIONS MADE BY THE BANK TO THE PENSION FUND IS ONLY TO SECURE PENSION PAYMENTS, WHICH IS A STATUTORY OB LIGATION OF THE BANKS AS BROUGHT OUT ABOVE. ACCORDINGLY, ASS ESSE BANK HAS ESTABLISHED A SUPERANNUATION SCHEME ('THE SCHEM E') FOR THE PURPOSE OF PROVIDING PENSION TO ITS ELIGIBL E EMPLOYEES. THE AFORESAID SCHEME, WHICH IS A DEFINED BENEFIT PL AN HAS BEEN APPROVED BY THE COMMISSIONER OF INCOME-TAX UNDER RU LE 2(1) OF THE PART B OF THE FOURTH SCHEDULE OF THE ACT WHETHER PROVISIONS OF SECTION 115WB(1)(C) ARE APPLI CABLE TO THE ASSESSEES CASE : 11.1. IN THE PRESENT CASE, ASSESSEE MADE A SINGLE CONTRIBUTION DURING THE YEAR TO THE SUPERANNUATION FUND FOR ALL ITS EMPLOYEES WHO WERE GOVERNED BY THIS SCHEME TAKE N TOGETHER BASED ON THE ACTUARIAL VALUATION PROVIDED BY THE ACTUARIAL VALUER. THERE IS NO DISPUTE WITH REFERENC E TO THE FACT THAT THE AMOUNT OF RS.75,25,49,000/- WAS PROVIDED A S SHORT FALL TO THE FUND FROM MAKING PENSION PAYABLE TO ELI GIBLE EMPLOYEES AND THIS AMOUNT WAS ARRIVED AT ON THE BAS IS OF VALUATION OF ACTUARIAL VALUER APPOINTED BY THE BANK . IN RESPECT OF SUCH SINGLE CONTRIBUTION MADE UNDER DEFINED BENE FIT SCHEME, THE DETAILS OF CONTRIBUTION PERTAINING TO E ACH EMPLOYEE ARE NOT AVAILABLE IN THE ACTUARIAL VALUATION REPORT , SINCE THE AMOUNT IS LUMP SUM AMOUNT CALCULATED BASED ON THE ACTUARIAL VALUATION HAVING SEVERAL UNDERLYING ASSUM PTIONS. THE SAME IS EVIDENT FROM THE ACTUARIAL VALUATION RE PORT ISSUED. 12 ITA.NO.601 & 781/HYD/2012 ANDHRA BANK, HYDERABAD. 11.2. IT WAS EXPLAINED THAT THERE COULD BE A SCENA RIO WHERE THE ASSETS OF THE SCHEME MAY BE IN SURPLUS OV ER ITS OBLIGATIONS , AS PER THE ACTUARIAL VALUATION, DUE TO VARIOUS FACTORS VIZ. REDUCTION IN THE NUMBER OF EMPLOYEES O N THE PAYROLL OF THE ASSESSEE ON THE LAST DAY OF THE FINANCIAL YEAR VIS- A-VIS FIRST DAY OF THAT YEAR, ETC. ACCORDINGLY, THE ASSESSEE MAY NOT BE REQUIRED TO CONTRIBUTE FOR THAT PARTICULAR Y EAR. LIKEWISE, IN SUBSEQUENT YEAR, THERE COULD BE A SCENARIO WHERE THE OBLIGATIONS/LIABILITIES OF THE SCHEME AS PER THE AC TUARIAL VALUATION ARE HIGHER THAN ITS ASSETS AND HENCE, ASSESSEE BANK WOULD BE REQUIRED TO CONTRIBUTE TO THE SCHEME IN TH AT PARTICULAR YEAR. 11.3. THE ACTUARIAL RISK (THAT BENEFITS WILL COST MORE THAN EXPECTED) AND INVESTMENT RISK FALL, IN SUBSTAN CE, ON THE ENTERPRISE. IF ACTUARIAL OR INVESTMENT EXPERIENCES ARE WORSE THAN EXPECTED, THE EMPLOYER'S OBLIGATION MAY INCREA SE. IN VIEW OF THE ABOVE, IT IS APPARENT THAT THE CONTRIBUTION PAID BY THE ASSESSEE BANK IS MAINLY MADE UP OF TWO COMPONENTS, FIRSTLY TO MEET THE COST OF THE ACCRUING BENEFITS DURING THE Y EAR AND SECONDLY, AN ADJUSTMENT FOR ANY DEFICIT OR SURPLUS IN THE SCHEME AT THE TIME FOR THE PAST YEAR(S). ACCORDINGL Y, IN VIEW OF THE ABOVE ARGUMENTS AND GIVEN THE NATURE OF THE 'DE FINED BENEFIT SCHEME', IT IS NOT POSSIBLE TO DERIVE THE C ONTRIBUTION ON A PER EMPLOYEES BASIS WHICH MAY BE USED FOR INCOME TAX PURPOSES. 12. IN THE CASE OF ROYAL BANK OF SCOTLAND INRE, 45 TAXMAN.COM 283, THE AUTHORITY FOR ADVANCED RULINGS HAS ANALYSED THE DEFINED BENEFIT SCHEME AND HELD THAT I N THE DEFINED BENEFIT SCHEME EMPLOYERS CONTRIBUTION TO T HE SUPERANNUATION FUND ASSURES ONLY FUTURE BENEFIT TO EMPLOYEES 13 ITA.NO.601 & 781/HYD/2012 ANDHRA BANK, HYDERABAD. AND THEY DID NOT GET ANY VESTED RIGHT AT THE TIME O F MAKING CONTRIBUTION TO THE FUND. IN THE CONTEXT OF ANALYZI NG THE TAX DEDUCTED AT SOURCE PROVISIONS, IT WAS HELD THAT SUC H CONTRIBUTION NEED NOT BE TREATED AS CHARGEABLE PERQ UISITE IN THE HANDS OF EMPLOYEE UNTIL THEY ARE ENTITLED TO RE CEIVE IT. THE HONBLE AAR FOLLOWED THE PRINCIPLES LAID DOWN BY HO NBLE SUPREME COURT IN THE CASE OF YOSHIO KUBO VS. CIT (2 013) 36 TAXMANN.COM 1 (DEL.) WHEREIN IT WAS HELD OUT THAT W HEN AN AMOUNT DOES NOT RESULT IN A DIRECT PRESENT BENEFIT TO THE EMPLOYEE WHO DOES NOT ENJOY IT BUT ASSURES HIM A FU TURE BENEFIT IN THE EVENT OF CONTINGENCY, THE PAYMENT MA DE BY THE EMPLOYER DOES NOT VEST IN THE EMPLOYEE. IN VIEW OF THE ABOVE PRINCIPLES LAID DOWN BY THE HONBLE SUPREME COURT A S WELL AS THE ADVISE GIVEN BY AUTHORITY FOR ADVANCED RULINGS WHICH, IN TURN, FOLLOWED THE HONBLE SUPREME COURT DECISION I N THE CASE OF CIT VS. L.W. RUSSEL (1964) 53 ITR 91 (SC), THE A MOUNT PAID DURING THE YEAR CANNOT BE CONSIDERED AS A CONTRIBUT ION TO SUPERANNUATION FUND AS CONTEMPLATED UNDER THE PROVI SIONS OF SECTION 115WB(1)(C). 12.1. IN VIEW OF THE ABOVE, SINCE THE AMOUNT IS NO T PAID TO THE BENEFIT OF ANY INDIVIDUAL EMPLOYEE, THE LUMP SUM CONTRIBUTION MADE UNDER THE DEFINED BENEFIT SCHEME, IN OUR OPINION, DOES NOT ATTRACT PROVISIONS OF 115WB(1)(C) . AS PER THE DEFINITION OF CONTRIBUTION, NO INDIVIDUAL EMPLOYE E HAD ANY BENEFIT EARMARKED THE PAYMENT CANNOT BE CONSIDERED AS COVERED BY THE PROVISIONS OF 115WB(1)(C). 13. AS BRIEFLY STATED EARLIER, THE LD. CIT(A) FOLL OWED THE COORDINATE BENCH DECISION IN GIVING BENEFIT OF AMEN DMENT BROUGHT IN LATER YEAR TO THE YEAR UNDER CONSIDERATI ON. IT WAS 14 ITA.NO.601 & 781/HYD/2012 ANDHRA BANK, HYDERABAD. SUBMITTED THAT THE ORDER OF THE LD. CIT(A) COULD NO T BE IMPLEMENTED AS BENEFIT OF EMPLOYEE COULD NOT BE ASC ERTAINED IN VIEW OF THE SCHEME OF THE BENEFIT FUND AND ACCOR DINGLY, EVEN THOUGH AVERAGE CONTRIBUTION TO EACH OF THE EMPLOYEE S COVERED BY THE SCHEME IS LESS THAN RS. 1 LAKH, A.O./ASSESSE E COULD NOT FURNISH ANY INFORMATION ABOUT INDIVIDUAL EMPLOYEES BENEFIT. HOWEVER, THIS ISSUE BECOMES ACADEMIC IN NATURE AS W E HAVE ALREADY HELD THAT CONTRIBUTION MADE TO THE FUND UND ER THIS BENEFIT SCHEME CANNOT BE CONSIDERED AS THE AMOUNT T O BE CONSIDERED UNDER THE PROVISIONS OF SECTION 115WB(1) (C) FOR THE PURPOSE OF FBT. IN VIEW OF THIS, ASSESSEES GROUNDS ARE ALLOWED. 14. REVENUE GROUNDS CONSEQUENT TO THE ORDERS OF TH E LD. CIT(A) ACCORDINGLY BECOMES ACADEMIC IN NATURE, SINCE WE HAVE ALREADY GRANTED FULL RELIEF TO THE ASSESSEE IN ITS APPEAL. THERE IS NO MERIT IN REVENUE CONTENTIONS. ACCORDING LY, REVENUE APPEAL ITA.NO.781/HYD/2012 IS DISMISSED. 15. IN THE RESULT, ITA.NO.601/HYD/2012 OF THE ASSESSEE IS ALLOWED AND ITA.NO.781/HYD/2012 OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.07.2014. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 16 TH JULY, 2014. VBP/- 15 ITA.NO.601 & 781/HYD/2012 ANDHRA BANK, HYDERABAD. COPY TO 1. ANDHRA BANK, 5-9-11, DR. PATTABHI BHAVAN, SAIFAB AD, HYDERABAD 500 004. 2. DCIT, CIRCLE 1(1), HYDERABAD 3. ACIT, CIRCLE 1(1), 4 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 3. CIT(A)-II, HYDERABAD 2 COPIES 4. CIT-I, HYDERABAD 5. D.R. ITAT A BENCH, HYDERABAD.