HV TRANSMISSIONS LTD, MUMBAI V. ACIT (OSD) 2(1), MUMBAI

ITA 7927/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8412 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 05-11-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 16-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DINESH VYAS
• Section: 11

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H MUMBAI . . , / BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND , SHRI RAJENDRA, ACCOUNTANT MEMBER I.TA. NO. 7927/MUM/2010 ASSESSMENT YEAR 2007-08 HV TRANSMISSIONS LIMITED, 3 RD FLOOR, NANAVATI MAHALAYA, 18, HOMI MODI STREET, HUTATMA CHOWK, MUMBAI 400 001. PAN: AAACH 7626 Q VS. ACIT (OSD)-2(1), AAYAKAR BHAVAN, M.K. MARG, MUMBAI-400 020. ( / APPELLANT ) ( !' / RESPONDENT ) # / APPELLANT BY : SHRI DINESH VYAS !' $ # /RESPONDENT BY : SHRI RAKESH RANJAN % $ &' / DATE OF HEARING : 05-11-2012 ()* $ &' / DATE OF PRONOUNCEMENT : 09-11-2012 + / O R D E R PER RAJENDRA, AM - THE PRESENT APPEAL IS DIRECTED AGAINST THE ORDER DT .13.09.2010 PASSED BY THE CIT(A)-4, MUMBAI. FOLLOWING GROUNDS OF APPEAL HAVE BEEN RAI SED BY THE ASSESSEE- COMPANY : GROUND NO. I THE LEARNED CIT (A) HAS ERRED BOTH IN LAW AND ON FA CTS IN REJECTING THE ARGUMENT OF THE APPELLANT THAT AN EXPENDITURE WILL FALL WITHIN AMBI T OF FBT ONLY IF IT IS FRINGE BENEFIT WITHIN THE MEANING OF SECTION 115 WB( 1) (A) TO (D). THE L EARNED CIT(A) OUGHT TO HAVE HELD THAT HOTEL EXPENSES WHILE ON TRAVEL AND MOTOR CAR EXPENS ES WHICH WERE INCURRED IN THE COURSE OF OFFICIAL WORK AND BRAND SUBSCRIPTION FEES, COULD NO T BE CALLED AS A PRIVILEGE, SERVICE FACILITY OR AMENITY, WITHIN THE MEANING OF 115 WB (1). GROUND NO. 2 WITHOUT PREJUDICE TO GROUND NO. 1, THE LEARNED CIT (A) HAS ERRED BOTH IN LAW AND ON FACTS IN I.TA. NO. 7927/MUM/2010 HV TRANSMISSIONS LTD 2 UPHOLDING THE LEVY OF FBT ON EXPENDITURE ON HOTEL D URING TRAVEL ON THE GROUND THAT EMPLOYEES HAVE BENEFITED ON ACCOUNT OF HOTEL EXPENSES. THE LE ARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THERE WAS NO ELEMENT OF PERSONAL EXPENSES AND THAT THE EMPLOYEE HAD TRAVELLED SOLELY FOR THE PURPOSE OF COMPANY WORK. GROUND NO. 3 WITHOUT PREJUDICE TO GROUND NO. 1, THE LEARNED CIT (A) HAS ERRED BOTH IN LAW AND ON FACTS IN UPHOLDING THE LEVY OF FBT ON MOTOR CAR EXPENSES INC URRED FOR THE PURPOSE OF BUSINESS. GROUND NO. 4 WITHOUT PREJUDICE TO GROUND NO. I, THE LEARNED CIT (A) HAS ERRED BOTH IN LAW AND ON FACTS IN UPHOLDING THE LEVY OF FBT ON BRAND SUBSCRIPTION FEE S PAID BY THE APPELLANT. GROUND NO. 5 THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED THAT SECTION 11 5WB (1) DEFINES THE FRINGE BENEFIT TO MEAN ANY CONSIDERATION FOR EMPLOYMENT, AND THUS BRAND SUBSCRIPTION FEES WERE NOT LIABLE TO FBT SINCE IT DID NOT CONSTITUTE ANY C ONSIDERATION FOR EMPLOYMENT NOR IT REPRESENTED ANY BENEFIT OR PAYMENT TO AN EMPLOYEE. GROUND NO. 6 THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED THAT BRAND SUBSCRIPTION FEES WERE PAID TO THE COMPANY OWNING THE BRAND, IN CONSIDERATION OF THE S AID COMPANY UNDERTAKING CERTAIN OBLIGATIONS AND RESPONSIBILITIES FOR THE PURPOSE OF PROMOTING THE BRAND AND TOWARDS AUTHORISATION GRANTED TO THE SUBSCRIBER FOR USE OF BRAND. THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED THAT THE SAID COMPANY HAD TO INCUR EXPE NDITURE WHICH MIGHT INCLUDE EXPENDITURE COVERED BY SECTION 115 WB (2) AND WAS BOUND TO PAY FBT ON SUCH EXPENSES. THE LEARNED CIT (A) OUGHT TO HAVE CONSIDERED THAT THE SCHEME OF TAX ATION UNDER FBT DID NOT IMPLY LEVY OF FBT TWICE ON ONE OUTGO. GROUND NO. 7 THE LEARNED CIT (A) DID NOT APPRECIATE THE MERITS O F THE APPELLANTS SUBMISSION THAT AS PER THE AGREEMENT, THE PROXIMATE PURPOSE OF THE BRAND S UBSCRIPTION FEES WAS NOT SALES PROMOTION AND HENCE IT DID NOT GET COVERED UNDER ITEM D OF SE CTION 115 WB (2). GROUND NO. 8 THE LEARNED CIT (A) HAS ERRED BOTH ON FACTS AND IN LAW IN COMING TO A CONCLUSION THAT BRAND SUBSCRIPTION FEES ARE LIABLE TO FBT SINCE BRAND SUB SCRIPTION FEES COULD BE REGARDED AS FRINGE BENEFIT ON ACCOUNT OF THE FACT THAT EMPLOYEES WERE ULTIMATELY BENEFITED BY THE ACTIVITIES OF THE BRAND PROMOTION AND VARIOUS BUSINESS PROMOTION ACTI VITIES. THE LEARNED CIT (A)S CONCLUSION WAS CONTRADICTORY TO THE FACTS AND NOT SUPPORTED BY THE TERMS OF THE AGREEMENT. ASSESSEE-COMPANY, ENGAGED IN THE BUSINESS OF MANUFA CTURING OF GEAR BOXES AND PARTS, FILED ITS RETURN OF FRINGE BENEFIT TAX ( FBT) ON 30.10.2007 DISCLOSING THE VALUE OF FRINGE BENEFIT (FB) TO THE EXTENT OF RS. 6 4,88,600 /-. ASSESSING OFFICER (AO) FINALISED THE ASSESSMENT ORDER U/S.115WE (3) O F THE INCOME-TAX ACT, 1961(ACT), ON 30.12.2009, DETERMINING THE TOTAL VALUE OF FB AT RS.74.38 LAKHS. 2. DURING THE ASSESSMENT PROCEEDINGS, AO DIRECTED THE ASSESSEE TO SUBMIT THE STATEMENT RE-CONCILING THE AMOUNTS CONSIDERED FOR F BT WITH THAT OF THE AMOUNTS CLAIMED AS EXPENDITURE UNDER THE SAME/SIMILAR HEADS IN P&L A/C. VIDE ITS LETTER DT.15-12-2009, ASSESSEE FILED RE-CONCILIATION STATE MENT. AFTER CONSIDERING THE STATEMENT, AO MADE DIS-ALLOWANCES ON ACCOUNT OF CAR ON HIRE, BRAND SUBSCRIPTION EXPENSES AND HOTEL EXPENSES. BEFORE THE AO, ASSESSEE SUBMITTED THAT MOTOR- CAR EXPENSES (RS.8.26 LAKHS) WERE I.TA. NO. 7927/MUM/2010 HV TRANSMISSIONS LTD 3 INCURRED FOR THE TRAVEL OF THE EMPLOYEES, THAT EXPE NSES WERE DIRECTLY RELATED TO THE BUSINESS OF THE COMPANY, THAT EMPLOYEES DID NOT GET ANY DIRECT OR INDIRECT FB, THAT EXPENDITURE WAS NOT LIABLE TO FBT.AO HELD THAT EXPE NDITURE WAS ALSO INCURRED ON EMPLOYEES. HE ADDED 20% OF THE EXPENDITURE INCURRE D ON ACCOUNT OF CAR-EXPENSES (RS.1.65) LAKHS, TO THE VALUE OF FB DECLARED BY THE ASSESSEE, INVOKING THE PROVISIONS OF SECTION 115 WB(2)(H) OF THE ACT. AO FURTHER FOUND THAT ASSESSEE HAD INCURRED HO TEL EXPENSES AMOUNTING TO RS. 13.46 LAKHS DURING THE AY UNDER CONSIDERATION. ASSESSEE SUBMITTED THAT THE EXPENSES INCURRED BY IT WERE RELATED TO TRAVEL UNDERTAKEN FO R THE PURPOSE OF BUSINESS, THAT PROVISIONS OF FBT WERE NOT APPLICABLE WITH REGARD T O SUCH EXPENDITURE.AO HELD THAT EXPENDITURE WAS ALSO INCURRED ON EMPLOYEES. HE DIS ALLOWED RS. 2.69 LAKHS I.E., 20% OF THE TOTAL HOTEL EXPENDITURE U/S. 115 WB (2)(H) O F THE ACT. THE NEXT ADDITION TO THE VALUE OF FB WAS ON AC COUNT OF BRAND SUBSCRIPTION EXPENSES. DURING THE YEAR UNDER CONSIDERATION, COM PANY HAD INCURRED BRAND SUBSCRIPTION EXPENSES AMOUNTING TO RS.25.77 LAKHS. ASSESSEE HAD NOT OFFERED THE SAID EXPENDITURE FOR FBT. AFTER CONSIDERING THE SUB MISSIONS OF THE ASSESSEE IN THIS REGARD, AO ADDED RS. 5.15 LAKHS I.E., 20% OF 25.77 LAKHS TO THE VALUE OF FB. 3. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, HE HEL D THAT EMPLOYEES WERE ALSO BENEFITTED ON ACCOUNT OF HOTEL EXPENSES AND CAR HIR E EXPENSES, THAT ADDITIONS MADE BY THE AO WERE IN ACCORDANCE WITH THE PROVISIONS OF LA W. WITH REGARD TO BRAND SUBSCRIPTION EXPENSES, HE HELD THAT THESE EXPENSES WERE COVERED BY FBT, THAT THE BRAND SUBSCRIPTION EXPENSES WERE PAID BY THE ASSESS EE FOR USE OF BRAND, THAT EMPLOYEES OF THE COMPANY WERE ALSO ULTIMATELY BENEF ITTED BY THE ACTIVITIES OF THE ASSESSEE. REFERRING TO CLAUSE-D OF SECTION 115WB(2 ) AND THE CENTRAL BOARD OF DIRECT TAXES (CBDT) CIRCULAR NO.8/2005, HE CONFIRME D THE DISALLOWANCE MADE BY THE AO. 3.1. BEFORE US, AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT ALL THE THREE ISSUES- EXPENSES ON MOTOR-CAR, EXPENSES ON HOTEL AND EXPEND ITURE FOR BRAND PROMOTION SUBSCRIPTION-WERE COVERED IN FAVOUR OF THE ASSESSEE BY VARIOUS JUDGMENTS OF THE TRIBUNAL. WITH REGARD TO HOTEL EXPENSES OF RS. 25.7 7 LAKHS, HE REFERRED TO THE ORDER OF BANGALORE BENCH OF ITAT DELIVERED IN THE CASE OF M /S. TOYOTA KIRLOSKAR MOTOR P.LTD. (ITA NO.20/BANG/2011 DT. 11-05-2012). HE FU RTHER REFERRED TO THE ORDER OF THE ITAT, MUMBAI IN THE CASE OF KOTAK MAHINDRA OLD MUTU AL LIFE INSURANCE LTD., (134 ITD 388) WITH REFERENCE TO THE MOTOR-CAR EXPENSES I NCURRED FOR BUSINESS PURPOSES. LASTLY, HE RELIED UPON THE ORDER OF THE ITAT, MUMBA I IN THE CASE OF M/S. TATA ASSET MANAGEMENT LTD., [ITA NO.2735/MUM/2011(AY 2006-07) AND ITA NO. 2736/ MUM/ 2011(AY 2007-08)].HE FURTHER SUBMITTED THAT CIT(A) VIDE HIS ORDER DT. 30-12-2010 IN THE CASE OF TATA MOTORS LTD., A GROUP CONCERN, HAD HELD THAT BRAND PROMOTION EXPENSES WERE NOT COVERED BY THE PROVISIONS OF FBT. DEPARTMENTAL REPRESENTATIVE (DR) RELIED UPON THE ORDERS OF THE FAA AND AO. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS PER THE SETTLED LAW FBT IS LEVIABLE WITH REGARD TO THE PAYMENTS THAT RESULT IN SOME BENEFIT TO THE EMPLOYEES OF THE ASSESSEE. IF THE INCURRED EXPENDITURE DO NOT BENEFIT THE EMPLOYEE COLLECTIVELY, PROVISIONS OF FBT CANNOT BE INVOKED. IF ON THE TOUCHSTONE OF THIS PRINCIPLE CASE UNDER CONSIDERATION IS TESTED I T BECOMES CLEAR THAT ADDITION MADE BY I.TA. NO. 7927/MUM/2010 HV TRANSMISSIONS LTD 4 THE AO TO THE VALUE OF THE FB CANNOT BE ENDORSED. THOUGH THE AO AND THE FAA HAVE HELD THAT EXPENSES INCURRED BY THE ASSESSEE UNDER T HE HEAD HOTEL EXPENSES AND CAR EXPENSES WERE INCURRED FOR EMPLOYEES, YET THEY HAVE NOWHERE REFERRED TO ANY MATERIAL ON THE BASIS OF WHICH THEY ARRIVED AT THE SAID CONC LUSION. THE FACT OF BENEFIT TO EMPLOYEES HAS NOT BEEN ESTABLISHED, THEREFORE, IN O UR OPINION VALUE OF CAR EXPENSES AND HOTEL EXPENSES CANNOT BE ADDED TO THE FB VALUE DECLARED BY THE ASSESSEE- COMPANY. AS FAR AS VALUE OF BRAND PROMOTION EXPENS ES ARE CONCERNED THEY CANNOT BE TREATED AS FB TO THE EMPLOYEES. IN CIRCULAR NO.8 DT D.29.08.2005 CBDT HAS CLARIFIED THAT FOR LEVY OF FBT EMPLOYER-EMPLOYEE RELATIONSHIP IS THE BASIC CONDITION. IN THE CASE UNDER CONSIDERATION PAYMENT HAD BEEN PAID TO A NOTHER GROUP CONCERN. THUS, THERE IS NO DIRECT OR INDIRECT BENEFIT HAS ACCRUED TO THE EMPLOYEES OF THE APPELLANT COMPANY. THEREFORE, IN OUR OPINION FBT CANNOT BE L EVIED ON BRAND PROMOTION EXPENSES. CASES RELIED UPON BY THE AR ALSO SUPPORT THE SUBMISSIONS MADE BY HIM. RESPECTFULLY FOLLOWING THE DECISIONS DELIVERED BY T HE BANGALORE AND MUMBAI BENCHES OF THE TRIBUNAL IN THE CASES M/S. TOYOTA KI RLOSKAR MOTOR P.LTD. (SUPRA), KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE LTD., (SUP RA)AND M/S. TATA ASSET MANAGEMENT LTD. (SUPRA) WE DECIDE ALL THE THREE EFF ECTIVE GROUNDS OF APPEAL IN FAVOUR OF THE ASSESSEE-COMPANY. WE FIND THAT ISSUE UNDER CONSIDERATION HAVE BEEN DECIDED IN FAVOUR OF THE APPELLANT BY THE SAID DECISIONS. APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH NOVEMBER, 2012. SD/- SD/- ( . . / I.P. BANSAL ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI, -% DATE: 9 TH NOVEMBER, 2012 TNMM + + + + $ $$ $ !&. !&. !&. !&. /.*& /.*& /.*& /.*& / COPY OF THE ORDER FORWARDED TO : 1. APP ELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR H BENCH, ITAT, MUMBAI 6. GUARD FILE '.& !& //TRUE COPY// +% +% +% +% / BY ORDER, 0 00 0 / 1 1 1 1 DY./ASSTT. REGISTRAR , / ITAT, MUMBAI