Income Tax Appellate Tribunal - Mumbai
Grindwell Norton Ltd, Mumbai vs Assessee on 10 April, 2014
अिधकरण मुंबई यायपीठ 'जी' मुंबई ।
आयकर अपीलीय अिधकरण,
IN THE INCOME TAX APPELLATE TRIBUNAL " G" BENCH, MUMBAI
सव ौी, , नरे ि कुमार ब लै!या, लेखा सदःय एवं अिमत शु(ला याियक सदःय के सम)
BEFORE SHRI N.K. BILLAIYA, AM AND SHRI AMIT SHUKLA, JM
आयकर अपील सं./I.T.A. No.6551/Mum/2011
िनधा रण वष / Assessment Year :2007-08
(िनधा
M/s. Grindwell Norton बनाम The ACIT-1(1),
बनाम/
Ltd., Aayakar Bhavan,
Vs.
C/o Kalyaniwalla & Mistry, Mumbai-400 020
Army & Nav y Bldg.,
3 r d Floor,
148, Mahatma Gandhi
Road, Fort,
Mumbai-400 001
ःथायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAACG 8725B
(अपीलाथ- /Appellant) .. (ू/यथ- / Respondent)
अपीलाथ- ओर से/ Appellant by: Shri Akram Khan
ू/यथ- क1 ओर से/Respondent by: Shri G.C. Daxini
सुनवाई क1 तार2ख / Date of Hearing : 10.04.2014
घोषणा क1 तार2ख /Date of Pronouncement :23.04.2014
आदे श / O R D E R
PER N.K. BILLAIYA, AM:
This appeal by the assessee is preferred against the order of the Ld. CIT(A)-1, Mumbai dt.15.7.2011 pertaining to A.Y. 2007-08.
2. The sole grievance of the assessee is that the Ld. CIT(A) erred in holding that salary paid to employees in the form of medical 2 ITA No. 6551/M/2011 reimbursement aggregating to Rs. 50,52,962/- was liable to the levy of fringe benefit tax.
3. During the course of the Fringe Benefit Tax assessment proceedings, the Assessing Officer noticed that the assessee has not offered medical reimbursement/allowance to the extent of Rs. 15,000/- per employee exempt in the hands of the employees from taxation. When questioned regarding the same, the assessee submitted as under:
"We have not considered 20% of exempt medical allowance amounting to Rs. 50,52,962/- for the payment of fringe benefit tax (FBT). FBT has been introduced in order to tax perquisites, which escaped taxation earlier, and not to tax specific allowances and perquisites, which were specifically exempt from taxation in the hands of the employees. In other words, FBT has not been introduced in order to tax those items which were specifically exempt under other provisions of the Act. Medical reimbursement upto Rs. 15,000/- are specifically exempt in the hands of the employee by virtue of proviso (v) below section 17(2). Hence, the same cannot be taxed in the hands of the employer as the purpose of FBT was never to tax such exempt perquisites."
4. The submission of the assessee did not find favour with the AO who , relying upon the CBDT Circular No. 8/2005 dt. 29.8.2005 , was of the opinion that 20% of the amount of Rs. 50,52,962/- deserves to be added to the value of Fringe Benefit. He accordingly added Rs. 10,10,593/- as Fringe Benefit relating to medical allowance.
5. The assessee carried the matter before the Ld. CIT(A) but without any success. The Ld. CIT(A) observed that since the medical reimbursement has not been treated as salary in the hands of the employees, the same is taxable as FBT. Drawing support from the 3 ITA No. 6551/M/2011 Circular of the CBDT (supra), the Ld. CIT(A) confirmed the additions made by the AO.
6. Aggrieved by this, the assessee is before us. The Ld. Counsel for the assessee reiterated what has been submitted before the lower authorities. It is the say of the Ld. Counsel that Sec. 115WB(3) states that Sec. 115WB(1)(a) does not include such perquisites in respect of which tax is paid or payable by the employees. The Ld. Counsel further submitted that medical reimbursement is taxable but for the exemption provided in proviso-(v) to Sec. 17(2) of the Act. Therefore, specific item of perquisite which is normally taxable in the hands of the individual employee cannot subject to FBT only for the reason that the same is exempt in the hands of the employee. To substantiate, the Ld. Counsel relied upon the decision of the Tribunal, Mumbai Bench in the case of Godrej Properties Ltd Vs ACIT 135 TTJ 426, Bangalore Bench , in the case of Vijaya Bank in ITA No. 1066/Bang/2010. The Ld. Counsel also relied upon the speech of the Finance Minister made while presenting the Finance Bill 2005.
7. Per contra, the Ld. Departmental Representative strongly supported the findings of the lower authorities. It is the say of the Ld. DR that since there are varied decisions of the Tribunal on this issue, the matter may be referred to a Special Bench.
8. We have carefully perused the orders of the lower authorities and the relevant material evidence brought on record and the judicial decisions relied upon by both sides. The objective behind the introduction of the levy of Fringe Benefit Tax on the value of certain 4 ITA No. 6551/M/2011 Fringe Benefit was explained by the CBDT in its Circular No. 8/2005 dt. 29.8.2005 which read as under:
2.1 The taxation of perquisites or fringe benefits is justified both on grounds of equity and economic efficiency. When fringe benefits are under-taxed, it violates both horizontal and vertical equity. A taxpayer receiving 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 violating horizontal equity. Further, fringe benefits are generally provided to senior executives in the organization. Therefore, under-taxation of fringe benefits also violates vertical equity. It also discriminates between companies which can provide fringe benefits and those which cannot thereby adversely affecting market structure. However, the taxation of fringe benefits raises some problems primarily because-
(a) all benefits cannot be individually attributed to employees, particularly in cases where the benefit is collectively enjoyed;
(b) of the present widespread practice of providing perquisites, wherein many perquisites are disguised as reimbursements or other miscellaneous expenses so as to enable the employees 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, some perquisites/fringe benefits were included in salary in terms of section 17 and accordingly taxed under section 15 of the Income- tax Act in the hands of the 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 employer-based disallowance method resulted in large-scale litigation on account of ambiguity in defining the tax base. Therefore, the taxation of fringe benefits by the employer-based disallowance method was withdrawn by the Finance Act, 1997.
However, the withdrawal of the provisions relating to taxation of fringe benefits by the employer-based disallowance method resulted in significant erosion of the tax base. The Finance Act, 5 ITA No. 6551/M/2011 2005 has introduced a new levy, namely, the FBT as a surrogate tax on employer, with the objective of resolving the problems enumerated in para 2.1 above, expanding the tax base and maintaining equity between employers.
9. A perusal of the objectives clearly suggests that there are certain benefits which cannot be individually attributed to employees particularly when such benefits are enjoyed collectively. Secondly, many perquisites are disguised as reimbursement or other miscellaneous expenses so as to enable the employees to escape or reduce the tax liability. The Hon'ble Finance Minister in its budget speech at the time of introduction of FBT provision has stated that perquisites/benefits which are fully/directly attributable to the employees would continue to be taxed under the existing provisions of Sec. 17(2) of the Act. However, in cases where the benefits are enjoyed collectively by the employees and cannot be attributed to an individual employee, they shall be taxed in the hands of the employer.
9.1. It is not in dispute that the medical expenses are directly attributable to each employee distinctly and it is not in the nature of collective benefit enjoyed by the employees. The medical reimbursement is definitely a perquisite as per Sec. 17(2) of the Act , though a threshold limit of exemption is provided under clause (v) at Rs. 15,000/-, nevertheless medical reimbursement expenditures are taxable as perquisites. The Circular No. 8 issued by CBDT appears to be in contradiction to the legislative intent on this specific issue. The Co- ordinate Bench of the Tribunal, Bangalore in ITA No. 1407/Bang/2008 in the case of Bosch Ltd., has considering a similar issue, has held that such payments do not attract Fringe benefit tax in the light of the budget speech of the Hon'ble Finance Minister on the floor of Parliament. A 6 ITA No. 6551/M/2011 similar view was taken by the Co ordinate Bench, Mumbai in the case of Godrej Properties 135 TTJ 426 wherein the Tribunal held as under:
"In the case on hand, tax is payable on medical advance and in certain cases tax has been paid. Only where bills have been produced by the employee to the employer it was a case of reimbursement and to the extent of the benefit given in Sec. 17(2) proviso (v) the employee need not pay tax. This is not a case where the attribution of personal benefits directly to an employee poses problem or a case where it is not feasible to tax the benefit in question in the hands of the employee. It is only a case where a benefit above a certain specified amount only is liable to be taxed in the hands of the employee. Such case, in our humble opinion, does not constitute fringe benefit as defined in S. 115WB of the Act. Thus we agree with the submissions of Mrs. Sonalee Godbole and allow this appeal of the assessee."
10. Considering the facts in totality in the light of the legislative intent, in our considered view, reimbursement of medical expenditure does not constitute Fringe Benefit as defined in Sec. 115WB of the Act. We, accordingly reverse the findings of the Ld. CIT(A) and allow the appeal.
11. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 23rd April, 2014 .
आदे श क1 धोषणा खुले यायालय म5 6दनांकः 23.4.2014 को क1 गई ।
Sd/- Sd/-
(AMIT SHUKLA ) (N.K. BILLAIYA)
याियक सदःय/JUDICIAL MEMBER लेखा सदःय / ACCOUNTANT MEMBER मुंबई Mumbai; 6दनांक Dated 23.4.2014 व.िन.स./ RJ , Sr. PS 7 ITA No. 6551/M/2011 आदे श क1 ूितिल प अमे षत/Copy षत of the Order forwarded to :
1. अपीलाथ- / The Appellant
2. ू/यथ- / The Respondent.
3. आयकर आयु:(अपील) / The CIT(A)-
4. आयकर आयु: / CIT
5. वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai
6. गाड फाईल / Guard file.
आदे शानुसार/ ार BY ORDER, स/या पत ूित //True Copy// उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुंबई / ITAT, Mumbai