Income Tax Appellate Tribunal - Mumbai
Icici Prudential Life Insurance ... vs Department Of Income Tax on 17 January, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
"I" Bench, Mumbai
Before Rajendra Singh(AM) & Shri Sanjay Garg(JM)
I.T.A. No. 8817/Mum/2010
(Asse ssme nt Ye ar : 2006-07)
ICICI Prudential Life Insurance ACIT, Circle 6(1)
Company Ltd. R.No. 506, 5 t h Floor
Vs.
1089, Appasaheb Marathe Marg Aayakar Bhav an
Prabhadevi M.K.Road
Mumbai-400025. Mumbai
PAN/GIR No. AAACI7351P
(Appellant) .. (Respondent)
I.T.A. No. 8939/Mum/2010
(Asse ssme nt Ye ar : 2006-07)
ACIT, Circle 6(1) ICICI Prudential Life Insurance
R.No. 506, 5 t h Floor Company Ltd.
Vs.
Aayakar Bhav an 1089, Appasaheb Marathe Marg
M.K.Road Prabhadevi
Mumbai Mumbai-400025.
PAN/GIR No. AAACI7351P
(Appellant) .. (Respondent)
Assessee by : Smt. Arati Visanji
Department by: Shri P.K. Shukla
Date of He aring : 17.1.2013
Date of Pronounceme nt : 15.2.2013
ORDER
Per Sanjay Garg (JM) :
1. These two appeals, one filed by the assessee (ITA No. 8817/Mum/2010) and the other filed by the revenue (ITA No. 8939/Mum/2010) are directed against the order of learned CIT(A) dated 29.9.2010 partly allowing the appeal of the assessee against the assessment order dated 31.12.2008 for A.Y. 2006-07 relating to fringe benefit tax.
2. Brief facts of the case are that the assessee, a life insurance company, filed its return for fringe benefit for A.Y. 2006-07 declaring total value of fringe benefit at Rs.2
ICICI Prudential Life Insurance Company Ltd.
18,59,40,850/-. The Assessing Officervide order dated 31.12.2008 passed u/s. 115WE(3) of the Income Tax Act held that the following expenses claimed by the assessee as exempt were infact liable to be subjected to fringe benefit tax :-
A Sales promotions Rs. 3,79,14,000
B Advertisement sponsorship Rs. 89,000
C Incentive and conference Rs. 4,77,86,000
D Financial charges other Rs. 4,000
E Agents retraining Rs. 6,000
F Agents sales material Rs. 3,06,00,000
G Agents training Rs. 1,56,80,000
Rs. 13,20,79,000
The Assessing Officer thus included the above amount in the value of fringe benefit and 20% thereof as provided u/s. 115WE was computed to be liable for fringe benefit tax which worked out at Rs. 2,64,15,800/- and as such added the same to the value of fringe benefit. Aggrieved against the order of the Assessing Officer, the assessee filed appeal before learned CIT(A). Learned CIT(A) after considering submissions of the learned AR deleted some of the additions made under certain heads i.e. under the head "advertisement sponsorship expenses" amounting to Rs. 89,000/- holding that the same were on account of participation fee for conference for employee and thus were liable to be excluded as per clause (C) of section 115WE(2),further under the head 'incentive and conference' amounting to Rs. 4,77,86,000/- and 'financial charges' amounting to Rs. 4,000/- treating them as incentive to agents and normal ordinary business expenses.
However, additions made by the Assessing Officer under the remaining heads were confirmed by learned CIT(A). The assessee is thus in appeal before us challenging subjection of the following expenses to fringe benefit tax :-
a) Sales promotion Rs. 3,79,14,000/-
b) Agents retraining Rs. 6,000/-
c) Agents sales material Rs. 3,06,00,000/-
d) Agents training Rs. 1,56,80,000/-
Total Rs. 8,42,00,000/-
Revenue is also in appeal against the deletion of expenses by the learned CIT(A) under the following Head:
a) 'incentive and conference' amounting to Rs. 4,77,86,000/-3
ICICI Prudential Life Insurance Company Ltd.
3. We have heard the learned representatives of the parties and also gone through the material on record.
4. Learned AR has relied upon the CBDT Circular No. 8 of 2005 dated 29.8.2005 claiming the said expenses to be exempt. She has further submitted that the expenditures as claimed in her grounds of appeal are ordinary business expenses in the shape of advertisement including printing of product brochure, forms, training and incentive and providing of sales literature etc. to the agents. She has further submitted that the agents are not employees of the insurance company and hence any expenses incurred in relation to incentives, training and marketing material to agents do not fall within the purview of the provisions of section 115WB of the Income Tax Act. No benefit has been derived out from the above expenditure to any employee or other individual.She has further relied upon an authority of the Co-ordinate Bench of the ITAT at Bangalore styled as M/s. Toyota Kirloskar Motor Pvt. Ltd. Vs. Addl. CIT, LTU Bangalore (ITA Nos. 20/Bang/2011 & 88/Bang/2011 dated 11.5.2011). She has further relied upon an authority of the Pune Bench of ITAT styled as Intervalve (India) Ltd. Vs. Add. CIT (2012)[77 DTR (Pune)(Trib) 113].
5. On the other hand learned Departmental Representative has submitted that the above expenses are directly covered u/s. 115WB(2) and are liable to fringe benefit tax. He has also relied upon the CBDT Circular No. 8 of 2005 dated 29.8.2005
6. Two moot questions before us are that
(i) whether the existence of employer and employee relationship and element of employee benefit is necessary for subjecting the expenditure under different heads as listed u/s. 115WB(2) to fringe benefit tax; and
(ii) whether the agents are the third parties and the expenses incurred in providing incentives, training etc. to the agents, being third parties, are not liable to be subjected to fringe benefit tax.
Our findings in this respect are as under :-
7. Chapter XIIH 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 4 ICICI Prudential Life Insurance Company Ltd.
chargeable under the Act, there shall be charged for every assessment year commencing on or after 1.4.2006, 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. Section 115WB of the Act describes 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 "For the purposes of this Chapter, "fringe benefits" means any consideration for employment provided 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 employees.
Sub-section (2) of section 115WB, which is the focus of controversy before us reads as under:
"(2) The fringe benefits shall be deemed to have been 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 activity is carried on with the object ofderiving income, profits or gains) incurred any expense on, or made any payment for,the following purposes, namely:-
(A) entertainment;
(B) provision of hospitality of every kind by the employer to any person, whether by way of provision of food or beverages or in any other manner whatsoever and whether or not such provision is made by reason of any express or implied contract or custom or usage of trade but does not include--
(i) any expenditure on, or payment for, food or beverages provided by the employer to his employees in office or factory;
(ii) any expenditure on or payment through paid vouchers which are not transferable and usable only at eating joints or outlets;
[(iii) any expenditure on or payment through non-transferable pre- paid electronic meal card usable only at eating joints or outlets and which fulfils such other conditions as may be prescribed] (C) conference (other than fee for participation by the employees in any conference).
5ICICI Prudential Life Insurance Company Ltd.
Explanation.--For the purposes of this clause, any expenditure on conveyance, tour and travel (including foreign travel), on hotel, or boarding and lodging in connection with any conference shall be deemed to be expenditure incurred for the purposes of conference;
(D) sales promotion including publicity:
Provided that any expenditure on advertisement,--
(i) being the expenditure (including rental) on advertisement of any form in any print (including journals, catalogues or price lists) or electronic media or transport system;
(ii) being the expenditure on the holding of, or the participation in, any press conference or business convention, fair or exhibition;
(iii) being the expenditure on sponsorship of any sports event or any other event organised by any Government agency or trade association or body;
(iv) being the expenditure on the publication in any print or electronic media of any notice required to be published by or under any law or by an order of a court or tribunal;
(v) being the expenditure on advertisement by way of signs, art work, painting, banners, awnings, direct mail, electric spectaculars, kiosks, hoardings, bill boards [, display of products] or by way of such other medium of advertisement; [***]
(vi) being the expenditure by way of payment to any advertising agency for the purposes of clauses (i) to (v) above;
[(vii) being the expenditure on distribution of samples either free of cost or at concessional rate; and]
(viii) being the expenditure by way of payment to any person of repute for promoting the sale of goods or services of the business of the employer,] shall not be considered as expenditure on sales promotion including publicity;
(E) employees' welfare.
[Explanation.--For the purposes of this clause, any expenditure incurred or payment made to--
(i) fulfil any statutory obligation; or
(ii) mitigate occupational hazards; or 6 ICICI Prudential Life Insurance Company Ltd.
(iii) provide first aid facilities in the hospital or dispensary run by the employer; or
(iv) provide creche facility for the children of the employee; or
(v) sponsor a sportsman, being an employee; or
(vi) organise sports events for employees, shall not be considered as expenditure for employees' welfare;] (F) conveyance (G) use of hotel, boarding and lodging facilities;
(H) repair, running (including fuel), maintenance of motor cars and the amount of depreciation thereon;
(I) repair, running (including fuel) and maintenance of aircrafts and the amount of depreciation thereon;
(J) use of telephone (including mobile phone) other than expenditure on leased telephone lines;
(K) [***] (L) festival celebrations;
(M) use of health club and similar facilities;
(N) use of any other club facilities;
(O) gifts; and (P) scholarships;
[(Q) tour and travel (including foreign travel).]"
8. Sub-section (2) of section 115WB of the Act elucidates the fringebenefits 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 orprofession incurs any expenditure for the purposes set out therein, it shall bedeemed that 'fringe benefit' has been provided by the employer to theemployees. We may observe that u/s. 115WB(1)the expenses incurred by the employer, in consideration for employment,for the benefits, services etc. as mentioned under clause (A) to (D) of his employee 7 ICICI Prudential Life Insurance Company Ltd.
including former employee or employees are liable to be subjected to fringe benefit tax. The words "consideration for employment", "employer", "employee", "employees" have been repeatedly mentioned not only in main section but also in every clause of section 115WB(1).
Section 115WB(2) is a deeming provision. Here the words i.e. "consideration for employment", 'employee', 'employees' have been deliberately omitted by the framers of the Statute.
9. For proper interpretation of the said section, we now discuss various provisions/clauses of sub-section 115WB(2).
a) Under clause (B) instead of word "employee" as has been repeatedly used u/s. 115WB(1), the word "any person" has been used.
b) Under clause (D) i.e. "sales promotionincluding publicity" the head itself suggests thatthese type of expenses have nothing to do with employees-employer relation or any benefit to the employees.
c) Further under the exclusion clause of clause (D), we may observe that as mentioned under sub-clause (i), any expenditure incurred by the employer on advertisement in any print, electronic media and transport system cannot be said in any manner relating to consideration for employment.
d) Similarly, as mentioned under sub-clause (iii) any expenditure incurred on sponsorship of any sports event or any other event organized by any Government agency or trade association or body are also exempt. Again such type of expenditure hasnothing to do with employee-employer relationship or any benefit to the employees.
e) Any expenses incurred as per clause (iv) being publication of any notice required by an order under any law or any court or Tribunal has no connection with any employee-employer relationship.
f) Any expenditure as mentioned under sub-clauses (v) and clause (vi) i.e. expenses relating to advertising or payment to any advertising agency and further under sub clause (viii) any expenditure by way of payment to any person of repute for promoting the sale etc. also has no connection with the employee-employer relationship or any benefit element to the employees.8
ICICI Prudential Life Insurance Company Ltd.
The Parliament in its own wisdom has not used the word "any employee of repute" rather has used "person of repute" under clause (viii) of clause (D) of sub- section 115WB(2).
g) Under clause (E) of sub-section 115WB(2), the expenses as mentioned therein are relating to the welfare of employees and as such words 'employees' welfare' have been specifically mentioned and are subjected to fringe benefit tax excluding expenditure as mentioned under exclusion clauses (i) to (vi).
So a perusal of the entire section 115WB(2) reveals that wherever the Parliament has intention to include the expenditure from which any benefit is derived out to the employees, the word "employees" has been specifically used. Whereas, the expenditure as mentioned under other heads, as discussed above, the word "employee" has been intentionally omitted, rather the word 'any person' has been used. Even certain expenses as mentioned therein which are generally incurred by the employer in the ordinary course of business and cannot be in any manner said to be incurred by the employer for the welfare or benefit of the employee,the nature of those expenses being such, even without any remote benefit to the employees, have been subjected to fringe benefit tax through express provisions of the statute. The language of the section is clear unambiguous and straight and there is no place for insertion or subtraction or substitution of any word into it. A careful reading of the entire section reveals without any doubt that sub-section (2) is an independent section and is not controlled by sub-section (1) and both sub-section (1) & sub-section (2) operate in a different fields. Any inference that sub-section (2) is controlled by sub- section (1) and any expenditure which is not a consideration for employment as mentioned under different heads of sub-section (2) cannot be considered as fringe benefit, will lead most of the provisions of sub-section (2) as redundant, otiose or meaningless. It is a settled principle of law that a statute should ordinarily be given purposive construction and any interpretation cannot be made which will result in an anomaly or absurdity. A simple and plain reading of section 115WB(2) reveals that if the employer incurs any of the expenditure as mentioned under Clauses (A) to (Q), though may or may not have been incurred by the employer in consideration of employment or for providing any benefit or incentive to the employees, but also for benefit to any third person, but in the course of business or profession,is deemed to have been provided by the employer to the employees. With this deeming provision the scope of the fringe benefit tax has been expended covering those expenses, which have 9 ICICI Prudential Life Insurance Company Ltd.
been mentioned under the sub-section (2), even though the employee-employer relationship may or may not be present or even though any benefit is derived out or not to the employees.
Now coming again to the wordings of section 115WB(2), we may observe that a careful reading of clause (B) as well as clauses (i),(ii)(iv)(v)(vi) & (viii) of section 115WB(2)(D) reveals that the legislature has excluded from the purview of fringe benefit tax certain specific forms of payments to third parties as detailed therein. The reasonable presumption is that the specific type of expenditure in the form of payment to third persons which have been specifically excluded under the statute is not liable to fringe benefit tax, but the remaining as mentioned under different heads of sub-section (2) relating to payment to third parties is subjected to fringe benefit tax. It is further revealed that where the expenditure in the form of payment to the employees has to be included, the word "employee" has been specifically usede.g. clause (E) of section 115WB(2), but not otherwise.
10. In our view this Tribunal has no jurisdiction to add or substitute the word "employee" in the provisions of the statute when the legislature has intentionally omitted the same. Neither any presumption nor any inference can be drawn in that respect; rather language of the section reveals that the expenditure mentioned there in is relating to payment to third persons except where the word employee has been specifically used. The principles of legal interpretation do not allow any different type of interpretation of this provision. The Statute is to be read as a whole so as to give meaning to the entire statute instead of making a part of it redundant, otiose or meaningless Hon'ble Supreme Court in 'Saraswati Sugar Mills Vs. Haryana State Board'1992 AIR 224, has held that every Act of the Parliament must be read according to the strict natural construction of its words.
11. It may be further observed that a careful reading of Section 115 WB(1) reveals that the words "any privilege,service, facilityor amenity, directly or indirectly" are wide enough to cover the expenditure incurred by the employer for the employees for entertainment, hospitalityin any manner whether by way of food or beverages or in any other manner whatsoever, conveyance, use of hotel, boarding and lodging facilities, repair and maintenance of motor cars and air crafts, telephone, festival celebrations, use of health club and similar facilities, use of any other club facilities, 10 ICICI Prudential Life Insurance Company Ltd.
gifts, scholarships, tour and travel including foreign travel of the employees. There was no need for the parliament to enact and mention above noted expenses separately under clauses (A), (B), (F), (G), (H),(I), (J), (L), (M), (N), (O), (P) &(Q) of Section 115WB(2). The reasonable inference that can be drawn is that this type of expenditure though does not relates to employee- employer relationship yet, is deemed to be incurred by the employer on the employee so as to expand and cover the above mentioned type of expenditure under FBT.
12. As per the settled law, the words cannot be added or substituted in a statute to give it a different meaning when the words or language of the Statute is clear and unambiguous. The question of interpretation of statute arises only when there is any doubt, ambiguity, inconsistency, incompleteness or lacuna in the language or construction of the Statute. Hon'ble Supreme Court in the case of Calcutta Jute Manufacturing Co. Vs. Commercial Tax Officer,1997 AIR 2920, has held that in case of interpreting a taxing statute, one has to look into what is clearly stated. There is no room for searching the intentions, presumptions or equity. Giving words their ordinary and natural meaning is known as literal interpretation or litera legis. It is the duty of the court not to modify the language of the Act and if such meaning is clear and unambiguous, effect should be to the provisions of a statute whatever may be the consequence. The idea behind such a principle is that the legislature, being the supreme law making body must know what it intends in the words of the statue. Literal interpretation has been called the safest rule because the legislature's intention can be deduced only from the language through which it has expressed itself. The bare words of the Act must be construed to get the meaning of the statute and one need not probe into the intention of the legislature. The words of a statue must prima facie be given their ordinary meaning, this interpretation is called the golden rule of interpretation.
Hon'ble Supreme Court in the case of Southern Petrochemical Industries Co. Ltd. Vs. Electricity Inspector and E.T.I.O & Ors., TPL(LE) 38534 SC, has held that a taxing statute, as is well known, must receive strict interpretation (Manish Maheshwari Vs. Assistant Commissioner of Income Tax and Another 2007 (3) SCLAE 627).
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Hon'ble Supreme Court in State of M.P. Vs. Rakesh Kohli & Anr., Civil Appeal No. 684 of 2004 decided in 11.5.2012, while summing up the law related to the interpretation and validity of taxing statute has observed as under :-
"In Commissioner of Income Tax, Madras Vs. RSV Sr. Arunachalam Chettiar (12), a three Judge Bench of this Court, inter alia observed in paragraph 13 (at page 1220-21) of the Report, "equity is out of place in tax law; a particular income is either exigible to tax under the taxing statute or it is not."
"The court highlighted that the court could not concern itself with the intention of the Legislature when the language expressing such intention was plain and unambiguous.
20 . In P. Laxmi Devi (Smt.)7, a two-Judge Bench of this Court was concerned with a judgment of the Andhra Pradesh High Court. The High Court had declared Section 47-A of the 1899 Act as amended by A.P. Act 8 of 1998 that required a party to deposit 50% deficit stamp duty as a condition precedent for a reference to a Collector under Section 47-A unconstitutional. The Court said in P. Laxmi Devi (Smt.)7 as follows : "19. It is well settled that stamp duty is a tax, and hardship is not relevant in construing taxing statutes which are to be construed strictly. As often said, there is no equity in a tax vide CIT v. V.MR.P. Firm Muar. If the words used in a taxing statute are clear, one cannot try to find out the intention and the object of the statute. Hence the High Court fell in error in trying to go by the supposed object and intendment of the Stamp Act, and by seeking to find out the hardship which will be caused to a party by the impugned amendment of 1998.
21. It has been held by a Constitution Bench of this Court in ITO v. T.S. Devinatha Nadar (vide AIR paras 23 to 28) that where the language of a taxing provision is plain, the court cannot concern itself with the intention of the legislature. Hence, in our opinion the High Court erred in its approach of trying to find out the intention of the legislature in enacting the impugned amendment to the Stamp Act."
13. Hon'ble Supreme Court in the above said authority has further held that the Court must make every effort to uphold the constitutional validity of a statute, even if that requires giving a strained construction or narrowing down its scope. It is none of the concern of the court whether the legislation in its opinion is wise or unwise. Court must not invalidate a statute lightly for as observed above invalidation of a statute made by the legislature elected by the people is a grave step. Hon'ble Supreme Court, while relying upon various earlier judgements of Hon'ble Supreme Court itself, further observed that the legislature is the best judge of what is good for the community, by whose suffrage, it comes into existence. Hon'ble Supreme Court referring to R.K. Garg's case observed that the Constitutional Bench of the Supreme Court stated that 12 ICICI Prudential Life Insurance Company Ltd.
loss relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. Hon'ble Supreme Court after making discussion upon the law laid down by Hon'ble Supreme Court in various cases has summed up the following principles :-
(i) There is always presumption in favour of constitutionality of a law made by Parliament or a State Legislature
(ii) No enactment can be struck down by just saying that it is arbitrary or unreasonable or irrational but some constitutional infirmity has to be found.
(iii) The court is not concerned with the wisdom or unwisdom, the justice or injustice of the law as the Parliament and State Legislatures are supposed to be alive to the needs of the people whom they represent and they are the best judge of the community by whose suffrage they come into existence.
(iv) Hardship is not relevant in pronouncing on the constitutional validity of a fiscal statute or economic law.
(v) In the field of taxation, the Legislature enjoys greater latitude for classification.
14. The matter relating to fringe benefit tax came into consideration and discussion before Hon'ble Supreme Court in R& B Falcon (A) Pty Ltd. Vs. CIT, Civil Appeal No. 3326 of 2008.Since the point in dispute before us was not under consideration before Supreme Court hence, Hon'ble Supreme Court did not make any specific observation regarding point in dispute we are dealing with. However, the law laid down in the above authority by the Hon'ble Supreme Court relating to the operation of section 115WB(1), section 115WB(2) vis-à-vis section 115WB(3) is very relevant and can be squarely applied in the case in hand. Hon'ble Supreme Court in paragraph 14 of the Judgement has observed as under :-
"14. CBDT categorically states in answer to question number 7 that sub- section (2) provides for an expansive definition. Does it mean that sub-section (2) is merely an extension of sub- section (1) or it is an independent provision? If sub-
section (2) is merely an extension of sub-section (1), Mr. Ganesh may be right but we must notice that Section 115WA provides for imposition of tax on expenditure incurred by the employer or providing its employees certain benefits. Those benefits which are directly provided are contained in sub-section (1). Some other 13 ICICI Prudential Life Insurance Company Ltd.
benefits, however, which the employer provides to the employees by incurring any expenditure or making any payment for the purpose enumerated therein in the course of his business or profession, irrespective of the fact as to whether any such activity would be carried on a regular basis or not, e.g., entertainment would, by reason of the legal fiction created, also be deemed to have been provided by the employer for the purpose of sub-section (2). Whereas sub-section (1) envisages any amount paid to the employee by way of consideration for employment, what would be the limits thereof are only enumerated in sub- Section (2). We, therefore, are of the opinion that sub-sections (1) and (2), having regard to the provisions of Section 115WA as also sub-section (3) of Section 115WB, must be held to be operating in different fields."
Hon'ble Supreme Court further in paragraphs 17 to 19 has observed as under :-
"17. It is now a well settled principle of law that a statute should ordinarily be given a purposive construction. {See New India Assurance Company Ltd. v. Nusli Neville Wadia and Anr. [2007 (14) SCALE 556]; Tanna and Modi v. C.I.T., Mumbai XXV and Ors. [2007 (8) SCALE 511] and Udai Singh Dagar and Ors. v. Union of India (UOI) and Ors. [2007 (7) SCALE 278]}.
18. The Parliament, in introducing the concept of fringe benefits, was clear in its mind in so for as on the one hand it avoided imposition of double taxation, i.e., tax both on the hands of the employees and employers; on the other, it intended to bring succour to the employers offering some privilege, service, facility or amenity which was otherwise thought to be necessary or expedient. If any other construction is put to sub-sections (1) and (3), the purpose of grant of exemption shall be defeated. If the latter part of sub- section (3) cannot be given any meaning, it will result in an anomaly or absurdity. It is also now a well settled principle of law that the court shall avoid such constructions which would render a part of the statutory provision otiose or meaningless. [See Visitor and Ors. v. K.S. Misra [(2007) 8 SCC 593]; Commissioner of Sales Tax, Delhi and Ors. v. Shri Krishna Engg. Company and Ors. [(2005) 2 SCC 692].
19. We, therefore, are of the opinion that AAR was right in its opinion that the matters enumerated in sub-section (2) of Section 115WB are not covered by sub- section (3) thereof, and the amenity in the nature of free or subsidized transport is covered by sub-section (1)."
15. The Hon'ble Supreme Court is clear in terms while holding that section 115 WB(1)and 115WB(2) operate in different fileds. Hon'ble Supreme Court has also held that the courts should avoid such constructions which would render a part of statutory provisions otiose or meaningless. Though,the hon'ble Supreme Court was concerned with the point that whether matter enumerated in sub-section (3) of section 115WB are covered with sub-section 115WB(2) or 115WB(1) yet, the hon'ble Supreme 14 ICICI Prudential Life Insurance Company Ltd.
Courthas in clear terms held that section 115WB(1) and 115WB(3) are interconnected whereas section 115WB(2) is an independent section and the matters enumerated in sub-section 115WB(2) operate in a different field.
16. In the present case, both the parties have relied upon a circular by CBDT bearing No. 8/2005. The circular provides for explanatory notes onthe Provisions relating to Fringe Benefit Tax. Under the heading frequently asked questions, the Question No. 14 and its answer by the said circular is relevant, which part of the circular for the sake of convenience is reproduced as under :-
"Do the words 'any expense' in sub-section (2) of section 115WB refer to all expenses or restricted to those incurred on the employees and their families?
14.Under sub-section (2) of section 115WB, fringe benefits shall be deemed to have been provided by the employer to his employees, if the conditions specified therein are satisfied. Hence, if the employer has incurred any expense for any one of the purposes enumerated in clauses (A) to (P) of sub-section (2) of section 115WB, the whole of that expense falling under the relevant head shall be deemed to have been provided. No segregation as 'expenses incurred on employees' or 'expenses incurred on others' is permissible".
17. Further Question No. 56 is also relevant, which is reproduced as under :-
"Whether FBT will apply to the expenditure incurred for the purposes of conferences of the agents or dealers or development advisors?
56.In terms of the provisions of clause (C) of sub-section (2) of section 115WB, any expenditure incurred for the purposes of conference is liable to FBT irrespective of whether the conference is of agents or dealers or development advisors or any other persons. Therefore, the expenditure incurred for the purposes of agents or dealers or development advisors is liable to FBT".
18. The validity of the said circular also came in question before Hon'ble Supreme Court in R& B Falcon (A) Pty Ltd. Vs. CIT (supra) case. Hon'ble Supreme Court in paragraph 22 has observed as under :-
"CBDT has the requisite jurisdiction to interpret the provisions of Income-tax Act. The interpretation of CBDT being in the realm of executive construction, should ordinarily be held to be binding, save and except where it violates any provisions of law or is contrary to any judgment rendered by the courts. The reason for giving effect to such executive construction is not only same as contemporaneous which would come within the purview of the maxim temporania caste pesto, even in certain situation a representation made by an authority like Minister presenting the Bill before the Parliament may also be found bound thereby".15
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19. Hon'ble Supreme Court relying upon various case laws as discussed in paragraph 22 to 27of the said judgement has upheld the validity and applicability of the circular No. 8/2005 (i.e. circular in question). Though the matter in question before Hon'ble Supreme Court was relating to some other provisions of the circular, but Hon'ble Supreme Court in the last paragraph of the judgement has upheld not only the validity of the said circular but also held that the interpretation of the CBDT of the provisions of the Income Tax Act should ordinarily be held to be binding, save and except where it violates provisions of law or is contrary to any judgement rendered by the courts. Incidentally CBDT circular No. 8/2005 is neither violative of the provisions of law nor any court of law has set aside the circular in question.
20. It may be further observed that that it is not within the jurisdiction of this Tribunal to quash or strike down any provision of the Act, however, harsh or unreasonable it may be. Thisjurisdiction vests withthe High Courts or Supreme Court. If Hon'ble Supreme Court or High Court thinks that the statute is arbitrary or unreasonable or unconstitutional, it may quash or strike down the statute or some specific provisions of the statute. However this Jurisdiction does not vest with this Tribunal. The provisions of the statute cannot be quashed or struck down by judicial interpretation by the ITAT so as to render the same otiose or meaningless. The principle of judicial interpretation has the limited scope, whereas if the provisions of the statute are arbitrary or unconstitutional, the same can only be struck down by the court of competent jurisdiction but cannot be nullified by way of judicial interpretation.
21. Our attention has been drawn to certain passing referances made by the hon'ble High Court of Delhi in 'T&T Motors Ltd. Vs. ACIT', Income Tax appeal No. 899 of 2010 decided on 24.1.2012 and the hon'ble supreme court in R& B Falcon (A) Pty Ltd. Vs. CIT (supra).
The hon'ble Delhi High Court while dealing with the contention to the effect that the customers of a company are neither the employees nor are deemed to be employees, hence the employer cannot be subjected to fringe benefit tax, has observed in para 8 of the judgement as follows :- "One of the contentions raised by the appellant is that customers are not employees and are not deemed to be employees under any of the provisions of Chapter XIIH. The said contention may or may not have 16 ICICI Prudential Life Insurance Company Ltd.
merit but for the purpose of present case, we do not think we are required to go into this larger question."
So the Hon'ble High Court did not deem it fit to decide this question of law for the purpose of deciding the lis before it. So, under such circumstances any observation made by the Hon'ble High Court while deciding the said case has no effect so as to point in dispute before us is concerned. It may be further observed that mere direction of the Supreme Court without laying down any principle of law is not precedent. Hon'ble Supreme Court in"State of U.P. Versus Jeet S. Bisht"2007(6) SCC 586in para No.66 and 67 of the judgment has observed as under :-
"66. It is well settled that a mere direction of the Supreme Court without laying down any principle of law is not a precedent. It is only where the Supreme Court lays down a principle of law that it will amount to a precedent.
67. In Municipal Committee, Amritsar Vs. Hazara Singh, AIR 1975 SC 1087, the Supreme Court observed that only a statement of law in a decision is binding. In State of PunjabVs. Baldev Singh,1999 (6) SCC 172, this Court observed that everything in a decision is not a precedent. In Delhi Administration Vs. Manoharlal,AIR 2002 SC 3088, the Supreme Court observed that a mere direction without laying down any principle of law is not a precedent. In Divisional Controller, KSRTC vs. Mahadeva Shetty, 2003 (7) SCC 197, this Court observed as follows:
"..... The decision ordinarily is a decision on the case before the Court, while the principle underlying the decision would be binding as a precedent in a case which comes up for decision subsequently. The scope and authority of a precedent should never be expanded unnecessarily beyond the needs of a given situation. The only thing binding as an authority upon a subsequent judge is the principle, upon which the case was decided....."."
22. So any stray observation or passing reference without laying down any principle of law by higher courts cannot be held to be a binding precedent. Whereas observations made by the Hon'ble Supreme Court after discussion of relevant sections and thus laying down the principle of law relating to the scope of operation of section 115WB(1) & 115WB(2) can be said to hold a binding precedent. The decision of the hon'ble Apex Court of the country perhaps was not brought into the notice of the ld. Co-ordinate benches of the tribunal at the time of adjudication in casesM/s. Toyota Kirloskar Motor Pvt. Ltd. Vs. Addl. CIT, LTU Bangalore(supra) & Intervalve (India) Ltd. Vs. Add. CIT (supra). With due respect, in our view, the law laid down by the ld.
17ICICI Prudential Life Insurance Company Ltd.
Coordinate benches of the tribunal does not hold a binding precedent in view of the findings of the Apex Court in 'F & B Falcon(A) Pty Ltd.'(supra), which we are bound to follow and thus we do accordingly.
23. Now coming to the next point, admittedly the assessee is a life insurance company, life insurance agents are appointed under the statute and they are given licenses by the Government to act as such. They are given extensive training by the insurance companies. The success of the business of the insurance company depends upon the services and continuation in service of the agents. The services are rendered by the agents personally as no one can act on their behalf and theycannot delegate further their authority to any other person. They perform work for significant period and at regular interval they are provided training and retraining.More often after achieving a particular target or continuation as an agent for a specific period they are also absorbed as regular employees as filed officers or development officers in the same Insurance company withwhich they work. The agents are provided not only the training but also selling material, brochure etc. by the employer company. An agent like an employees, do not have any risk of loss in case of the loss to or failure of the company as except the only risk of loss employment as compared to the independent contractors. No investment of the agent is involved in rendering his services to the insurance company. The company provides not only the work achieving based commission but the employer company also gives lot of benefits in the shape of amenities, perquisites and services to its agents. Apart from that, the training, conference components, travel expenses and certain hospitality expenses are also borne by the company for the agents. No doubt as observed in common law, the agents are not the employees of the company but it can be safely said that they have the colour of the employees. Status of the agents is somewhere in between the status of employees and third person. If the agents cannot be said to be employees of the company, at the same time they cannot be said to be the third parties. The indirect incentives, benefits and perquisites which are collectively enjoyed by the agents provided by the employer company are neither taxed individually at the hands of the agents nor at the hands of the employer company. To bring into the purview and subject these type of expenditure incurred by the employer company on certain persons like agents, provisions of section 115WB(2) have been enacted. In the case in hand also, most of the expenses have been incurred by the assessee on conference, 18 ICICI Prudential Life Insurance Company Ltd.
perquisite and training of the agents, these cannot be said to be ordinary business expenses rather these type of expenses are squarely covered within the provisions of section 115WB(2) of the Income Tax Act. The Parliament in its own wisdom has enacted the deeming provisions of section 115WB(2) to cover the expenditure on persons having the colour of employees but due to strict definition of term "employee" they escape the tax. Neither the employer pays tax nor on such type of expenditure nor the beneficiary is individually taxed. Section 115WB(2) covers such type of cases by way of expanding the scope of fringe benefit tax.
24. Now, coming to the factual matrix of the case. We hereby discuss the different heads one by one.
(A) Sales Promotion - Rs. 3,79,14,000/- :-
Learned AR has submitted that these expenses are in the nature of printing product brochure, forms, product booklets etc. and has further pleaded that these type expenses have been specifically excluded from the ambit of fringe benefit tax by provisos (i) and (iv) to clause (D) of section 115WB(2). A perusal of clause (D) of section 115WB(2) reveals that the expenses incurred on the activities of sales promotion including publicity have been specifically included and subjected to fringe benefit tax. What has been excluded is the advertisement in any print or electronic media or transport system as per clause (i); and further as per clause (iv) any expenditure on publication of any notice required to be published by or under any law or by an order of a court or Tribunal has been excluded. So the contention of the assessee that the said expenses are excluded under clause (i) & (iv) of clause (D) of section 115WB(2) is wrong. However, we may observe that the expenses incurred on printing of product brochure, forms, product booklets etc. are ordinary business expenses. These cannot be said to be expenses relating to sales promotion. The Assessing Officer has subjected the said expenses to fringe benefit tax as the assessee has claimed the said expenses under 'sales promotion' head. The assessee has not filed any details/bifurcation as to which of the expenses are covered under sales promotion and which of the expenses are covered under print of brochure and forms which can be said to be ordinary business expenses. Under such circumstances, a proper course will be to remand back the case to the file of the Assessing Officer for de-novo assessment giving opportunity to the assessee to file the bifurcation/split up of 19 ICICI Prudential Life Insurance Company Ltd.
expenses claimed under sales promotion. The Assessing Officer after giving proper opportunity of hearing to the assessee and after verification of the details will assess and subject the expenses incurred by the assessee to fringe benefit tax excluding the expenses incurred on print product brochure, form, product booklets etc. which in our view are ordinary business expenses.
(B) Incentive and Conference Rs. 4,77,86,000/- :-
The revenue has come into appeal against the deletion of the said expenses. Learned CIT(A) has deleted the said expenses considering the submissions of the assessee that the same are in the nature of performance based incentives to agents. However, no bifurcation/split up of the expenses has been given by the assessee. It is observed that the commission or incentives, which are taxable at the hands of the individual beneficiary, cannot be subjected to fringe benefit tax. However, incentives and perquisites paid collectively to the agents will specifically attract the provisions of section 115WB(2). Under clause (C) of section 115WB(2), expenses incurred on conference have been specifically included. CBDT circular's answer to question no.56 as reproduced above is also clear in this respect. In terms of our order as under
heading "sales promotion" we restore back the case to the Assessing Officer who after giving an opportunity to the assessee, will verify as to which expenses are liable to be subjected to fringe benefit and which of the expenses are not taxable under the said head.
(C) Agents retraining amounting to Rs. 6,000/- :-
Agents retraining cannot be said to be ordinary business expenses rather the same are covered under clause (C) of sub-section 115WB(2) i.e. "conference" and clause (D) "Sales Promotion", hence findings of learned CIT(A) pertaining to above said expenses are upheld.
(D) Agents sales material Rs. 3,06,00,000/- :-
The learned AR has submitted that these are covered under the exclusion clause (i) &(iv) of clause (D) of section 115WB(2). On the other hand, learned Departmental Representative has submitted that the above said clauses are not applicable and hence expenses have rightly subjected to fringe benefit tax. As per submissions of learned AR, the said expenses relate to printing product presenter, 20 ICICI Prudential Life Insurance Company Ltd.
photocopy sales literature etc. It is again observe that these type of expenses are not covered under provisions of (i) &(iv) to Clause (D) as discussed under the head (A), rather these type of expense can be said to be ordinary business expenses. It is again observed that no details/ bifurcation orsplit up of expenses has been given.In view of our observation under the heading (A), this issue is also remanded back to the file of the Assessing Officer to verify the details and exclude the expenses which are ordinary business expenses being incurred on printing product presenter, photocopy sales literature etc. (E) The Agents Training Rs. 1.57 cores :-
Learned AR has submitted that the food and beverages component of these expenses has already been offered to fringe benefit tax. Other expenses such as stationery, training material, equipment, venue charges are being considered as normal business expenses and are not liable to fringe benefit tax. As we have observed under the head 'Agents training', such type of expenses are covered under clause (C)&(D) of section 115WB(2). Hence, findings of learned CIT(A) relating to these components is upheld.
25. In view of our above observations, both the appeals are hereby disposed off being partly allowed.
Order pronounced in the open court on 15.2.2013.
Sd/- Sd/-
(RAJENDRA SINGH) (SANJAY GARG)
ACCOUNTANTMEMBER JUDICIAL MEMBER
Mumbai; Dated : 15/2/2013
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The CIT(A)
4. CIT
21
ICICI Prudential Life Insurance Company Ltd.
5. DR, ITAT, Mumbai
6. Guard file.
BY ORDER,
//True Copy//
(Asstt.Registrar)
ITAT, Mumbai
PS
FIT FOR PUBLICATION
AM JM