Income Tax Appellate Tribunal - Ahmedabad
Arvind Ltd.,(Earlier Known As The ... vs Assessee on 8 January, 2014
आयकर अपीलीय अिधकरण,
अिधकरण, अहमदाबाद Ûयायपीठ 'ए
ए',, अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH " A " BENCH, AHMEDABAD
सम¢ ौी एन.एस.सैनी, लेखा सदःय एवं ौी कुल भारत, Ûयाियक सदःय ।
BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER And
SHRI KUL BHARAT, JUDICIAL MEMBER
आयकर अपील सं./I.T.A. No.3148/Ahd/2010
( िनधा[रण वष[ / Assessment Year : 2006-07)
Arvind Ltd. (Earlier बनाम/ The DCIT
known as The arvind Vs. Circle-1
Mills Ltd.) Ahmedabad
Naroda Road
Ahmedabad
ःथायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AABCA 2398 D
(अपीलाथȸ /Appellant) .. (ू×यथȸ / Respondent)
अपीलाथȸ ओर से / Appellant by : Shri V.R. Chokshi, AR
ू×यथȸ कȧ ओर से/Respondent by : Shri O.P. Batheja, Sr.D.R.
सुनवाई कȧ तारȣख / Date of Hearing : 08/01/2014
घोषणा कȧ तारȣख /Date of Pronouncement : 28/01/2014
आदे श / O R D E R
PER SHRI KUL BHARAT, JUDICIAL MEMBER :
This appeal by the Assessee is directed against the order of the Ld.Commissioner of Income Tax(Appeals)-VI, Ahmedabad ('CIT(A)' for short) dated 03/09/2010 pertaining to Assessment Year (AY) 2006-
07. The Assessee has raised the following grounds of appeal:-
1.1. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in failing to appreciate that in its appeal before him the appellant had raised as many as seven grounds against the assessment order impugned before him and that, therefore, it was not open to him to treat those grounds as if they raised only one issue, by observing as under in the second para of the Appellate Order passed by him (Emphasis supplied):ITA No.3148 /Ahd/2010
Arvind Ltd. (earlier known as The Arvind Mills Ltd.) vs. DCIT Asst.Year - 2006-07 -2- "2. Appellant took 8 grounds on the levy of Fringe Benefit Tax on various expenses. However, the common argument in all grounds is in respect of levy of Fringe Benefit Tax on the business expenses not related to employees."
1.2. The learned CIT(A) ought to have appreciated that even if the grounds taken by the appellant in its appeal were to be reduced to 'effective' grounds, it was incumbent upon him got render his appellate decision at least on the following issues:
(a) On the appellant's challenge to the validity of the assessment order impugned before him, inter alia,:
(i) on the ground that the same had been passed without observing elementary principles of natural justice (vide para9 of the Statement of Facts before him);
(ii) on the ground that the relevant provisions in respect of the Fringe Benefit Tax were unconstitutional;
(b) On the appellant's challenge to the levy of Fringe Benefit Tax on the Value of Fringe Benefits of Rs.4,48,44,497 instead of Rs.3,01,74,781 shown in the appellant's return (i.e. on the additional amount of Rs.1,46,69,716 corresponding to expenditure of Rs.6,60,77,492 which, the in the contention of the appellant, was not liable to Fringe Benefit Tax), vide the assessment order impugned before him;
(c) On the appellant's challenge to the levy of interest amounting to a huge Rs.17,01,238 u/s.115WJ and 115WK (without giving Section wise details thereof) vide the assessment order impugned before him.
(d) On the appellant's plea, made vide Ground No.6 of its appeal before him, without prejudice to the foregoing issues, to direct the learned Assessing Officer not to initiate any recovery proceedings for the Fringe Benefit Tax of Rs.50,30,230 which the appellant had deposited in a separate bank account in conformity with the decision of the Gujarat High Court in the Writ Petition filed by the Gujarat Chamber of Commerce and Industries and Others;
1.3. The learned CIT(A) has accordingly grossly erred in omitting to consider and render his appellate decision on the issues listed at
(a), (c) and (d) above raised by the appellant in its appeal before him.
ITA No.3148 /Ahd/2010Arvind Ltd. (earlier known as The Arvind Mills Ltd.) vs. DCIT Asst.Year - 2006-07 -3-
2. Without prejudice to the foregoing and without prejudice in particular to the appellant's challenge to the validity of the assessment order impugned before him, including on the basis of unconstitutionally of the relevant provisions of the Income-tax Act, 1961, in law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in upholding the addition of Rs.1,46,69,716 to the returned Fringe Benefit Value corresponding to the expenditure of Rs.6,60,77,492 in respect of which Fringe Benefit Tax wax not at all leviable. He ought to have appreciated, inter alia, that when the jurisdictional High Court was seized with the issues which had been raised in the appellant's appeal and when, pending its final decision in the writ petition admitted by it, it had granted interim relief to assessees (adverted to in the SOF accompanying the appellant's appeal before him), he ought to have kept the appellant's appeal pending till the High Court had rendered its final verdict in the aforesaid writ petition.
3. The appellant prays that unless this Hon'ble Tribunal may deem it appropriate to keep the appellant's present appeal before it pending, till the Hon'ble Gujarat High Court had rendered its final decision in the Writ Petition, for being disposed of in accordance with such final decision of the Hon'ble Gujarat High Court, it may be pleased to consider and render its decision on the issues at items(a), (c) and (d) referred to in Ground No.1.2 above on which the learned CIT(A) has not rendered his appellate decision and on the issue at item (b) which the learned CIT(A) has decided against the appellant.
4. The appellant craves leave to add, amend and/or alter the ground or grounds of appeal either before or at the time of hearing of the appeal.
2. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.115WE(3) of the Income Tax Act,1961 (hereinafter referred to as "the Act") was framed vide order dated 31/12/2008, thereby the Assessing Officer(AO) made addition of 1,46,69,716/- on account of fringe benefit value. The assessee preferred an appeal before the ld.CIT(A), who after considering the submissions dismissed the appeal.
ITA No.3148 /Ahd/2010Arvind Ltd. (earlier known as The Arvind Mills Ltd.) vs. DCIT Asst.Year - 2006-07 -4-
3. The ld.counsel for the assessee submitted that the ld.CIT(A) was not justified in dismissing the appeal. He submitted that the Hon'ble Jurisdictional High Court in Special Civil Application No.21124 of 2005 in the case of Gujarat Chamber of Commerce & Industry vs. UOI Through Secretary, vide order dated 10/10/2005 has held that it would be in the fitness of things if the petitioner and similarly situated assessees are directed to deposit the amount of Fringe Benefit Tax as per installment due on 15-1-2006 in a separate account to be opened and maintained with a Scheduled Nationalized Bank, subject to the condition that the amount so deposited shall not be utilized by the assessee in any manner whatsoever for any purpose, no charge shall be created nor shall the said account be used or permitted to be used as a collateral for obtaining any loan against the same. Upon such deposit being made in separate bank account and production of the necessary proof of such deposit before the Income-tax department, it shall amount to sufficient compliance qua the provisions of the Act levying Fringe Benefit Tax. He submitted that despite having deposited the amount as envisaged in the order of the Hon'ble Gujarat High Court, the Revenue authorities disregarded the binding precedent. He submitted that in reply to the notice in para-2 of letter dated 25/02/2008, it was brought to the notice of the AO that the company has deposited Rs.50,302,230/- in Escrow account No.66003677412 opened with SBS IF Branch, Ahmedabad. He submitted that despite this, the AO chose to make addition. He further submitted that the ld.CIT(A) despite having noted the contents of the order of the Hon'ble Gujarat High Court, observed that the order has not put any stay or assessment or appeal proceedings in the matter. Since ITA No.3148 /Ahd/2010 Arvind Ltd. (earlier known as The Arvind Mills Ltd.) vs. DCIT Asst.Year - 2006-07 -5- there is no order either of Jurisdictional High Court or other Court, wherein it is held that Fringe Benefit Tax is not payable in respect of expenses not incurred for the purpose of employees' benefit, he submitted that firstly, the AO was not justified to disregard the categorical direction of the Hon'ble Gujarat High Court, wherein it has been specifically held that in the even of the deposit in the account, it shall amount to sufficient compliance the qua the provisions of the Act levying Fringe Benefit Tax. He further submitted that there are catena of judgements by the Hon'ble Coordinate Benches of this Tribunal, wherein it has been held that the employer - employee relationship is a prerequisite for charging of tax the value of fringe benefits. He submitted that there is no employer - employee relationship in respect of the addition made by the AO. He further submitted that a bare reading of the provisions of the Act and the CBDT Circular, it would be evident that the employer - employee relationship is pre-requisite for attracing provisions of FBT. He also filed written synopsis which has been placed on record.
3.1. On the contrary, ld.Sr.DR supported the orders of the authorities below and placed reliance on the various case-laws of the Hon'ble Coordinate Bench. The decisions as relied upon by the ld.Sr.DR are as under:-
Sr.No. Citation Reported at
1. ICICI Prudential Life (2013) 37 taxmann.com 222
Insurance Co.Ltd. vs. (ITAT-Mumbai) D.O.J.
ACIT 15.0.02.2013
2. Mahabir Jute Mills Ltd. (2013) 36 taxmann.com 587
vs. Jt.CIT (ITAT-Allahabad) D.O.J.
ITA No.3148 /Ahd/2010
Arvind Ltd. (earlier known as The Arvind Mills Ltd.) vs. DCIT Asst.Year - 2006-07 -6- 12.04.2013
3. Mahindra Holidays and (2012) 25 taxmann.com 147 Resorts India Ltd. vs. (Cehnnai ITAT) ACIT
4. Birla Corporation Ltd. vs. (2012) 134 ITD 142 (Kolkata DCIT - ITAT) D.O.J. 21.10.2011
4. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.counsel for the assessee has filed a synopsis which is reproduced as under:-
"BEFORE THE HON'BLE MEMBERS, ITAT, 'A'- BENCH, AHMEDABAD.
Arvind Ltd. (Earlier known as The Arvind Mills Ltd.) Versus DCIT, Circle - 1, Ahmedabad.ITA No. 3148/Ahd/2010 -- A. Y. 2006-07
SYNOPSIS
1. The primary issue involved in the aforesaid appeal filed by the assessee is as to whether for applying the provisions of Chapter XII-H of the Income-tax Act pertaining to bringing to the charge of tax the value of fringe benefits in the hands of the employer, employer - employee relationship is a prerequisite. This question involves interpretation of Sections 115WA and 115WB contained in the aforesaid Chapter XII-H. For ready reference, these provisions are reproduced below:
"Charge of fringe benefit tax.
115WA. (1) In addition to the income-tax charged under this Act, there shall be charged for every assessment year commencing on or after the 1st day of April, 2006, additional income-tax (in this Act referred to as fringe benefit tax) in respect of the fringe benefits provided or deemed to have been provided by an employer to his employees during the previous year at the rate of thirty per cent on the value of such fringe benefits.
(2) Notwithstanding that no income-tax is payable by an employer on his total income computed in accordance with the provisions of this Act, the tax on fringe benefits shall be payable by such employer.
Fringe benefits.
115WB. (1) For the purposes of this Chapter, "fringe benefits" means any consideration for employment provided by way of--
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(a) any privilege, service, facility or amenity, directly or indirectly, provided by an employer, whether by way of reimbursement or otherwise81, to his employees (including former employee or employees);
j(b) any free or concessional ticket provided by the employer for private journeys of his employees or their family members:
(c) any contribution by the employer to an approved superannuation fund for employees [; and] [(d) any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer free of cost or at concessional rate to his employees (including former employee or employees).
Explanation.--For the purposes of this clause,--
(i) "specified security" means the securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956)84 85[and, where employees' stock option has been granted under any plan or scheme therefor, includes the securities offered under such plan or scheme];
(ii) "sweat equity shares" means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.] (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 of deriving income, profits or gains) incurred any expense on, or made any payment for, the following purposes, namely:--
(A) entertainment;
(B) provision of hospitality85a 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 prescribed87;] ITA No.3148 /Ahd/2010 Arvind Ltd. (earlier known as The Arvind Mills Ltd.) vs. DCIT Asst.Year - 2006-07 -8- (C) conference (other than fee for participation by the employees in any conference).
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 88[, 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
(iii) provide first aid facilities in the hospital or dispensary run by the employer; or ITA No.3148 /Ahd/2010 Arvind Ltd. (earlier known as The Arvind Mills Ltd.) vs. DCIT Asst.Year - 2006-07 -9-
(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).] (3) For the purposes of sub-section (1), the privilege, service, facility or amenity does not include perquisites in respect of which tax is paid or payable by the employee 95[or any benefit or amenity in the nature of free or subsidised transport or any such allowance provided by the employer to his employees for journeys by the employees from their residence to the place of work or such place of work to the place of residence]."
2. From the aforesaid provisions it may kindly be seen that the charging provision is contained in sub-section (1) of Section 115WA, which stipulates that Fringe Benefit Tax is chargeable in respect of "the fringe benefits provided or deemed to have been provided by an employer to his employees". The charging provision is clear and does not suffer from any ambiguity. The primary condition is that fringe benefits are provided or deemed to have been provided by an employer to his employees. Sub- section (2) of Section 115WB is a deeming provision and is therefore, an extension of sub-section (1) of Section 115WA. Sub-section (2) of Section 115WB starts with the words "the fringe benefits shall be deemed to have been provided by the employer to his employees". The intention of the Legislature is absolutely clear that the provisions of Chapter XII-H can be applied only when any expenditure is incurred or payment is made by the employer which results into some benefit, directly or indirectly to its employees. The scope and ambit of Section 115W has been explained and clarified in detail in the Board's Circular containing Explanatory Notes on the Provisions relating to Fringe Benefit Tax introduced in the Income-tax Act by the Finance Act, 2005. Para 2.1 of this Circular explains the objective of the newly introduced provisions, and the relevant part of this para is reproduced below for ready reference:
ITA No.3148 /Ahd/2010Arvind Ltd. (earlier known as The Arvind Mills Ltd.) vs. DCIT Asst.Year - 2006-07
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"........ 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 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."
3. The above explanation regarding the objective leaves no doubt that the purpose of the new provision is to levy tax on the employer in respect of perquisites provided to the employees for the simple reason that such fringe benefits may not be taxable in the hands of the employees. In other words, the object of the provision is to discourage the employer to compensate the employees by giving them various benefits with a view to minimize tax liability of the employees. This object is commensurate with the underlying principle that levy of double taxation should be avoided. Further, kind attention is invited to clarifications contained in the above Board's Circular in the form of questions and answers. The relevant part from questions 1, 2 and 3 is reproduced below:
"Q.1 What are the pre-requisites for the levy of FBT?
Answer : FBT is payable by a person if he satisfies the following conditions:
(i) He is an employer,
(ii) He has employees based in India .....
Q.2 Whether employer-employee relationship is a prerequisite for the levy of FBR? Answer : Yes.
Q.3 Whether FBT is payable by an entity having no employee? For example, will law firms having retainer-relationship arrangements and no employees be liable to pay FBT?
Answer : An entity, which does not have any employee on its rolls, will not be liable to FBT. Therefore, law firms having retainer-relationship arrangements and no employees will not be liable to FBT."
ITA No.3148 /Ahd/2010Arvind Ltd. (earlier known as The Arvind Mills Ltd.) vs. DCIT Asst.Year - 2006-07
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4. The aforesaid clarifications are categorical and the clear mandate of the newly introduced provisions has been clarified to the effect that employer-employee relationship is a prerequisite for levy of FBT. It has been further clarified in answer to question No. 3 that an entity which does not have any employee will not be liable to FBT.
5. The relevant provisions of Section 115WA and 115WB have come up for interpretation before various Benches of the Hon'ble ITAT. In these decisions the Circular of CBDT referred to above has also been duly considered. First of all kind reference is invited to I TAT Delhi Bench decision dated 12.7.2013 in the case of T. V. Today Network Ltd. in ITA No.1375/Del/2010. At page 3 of this decision the Hon'ble Tribunal has also referred to Hon'ble Supreme Court decision in the case of R. B. Falcon Pvt. Ltd. v. CIT (301 ITR 309) and the Hon'ble Delhi High Court decision in the case of T.T. Motors Ltd. v. ACIT 341 ITR 332. At pages 5 and 6 of the order the Hon'ble Tribunal has reproduced the objective of the new provisions from para 2 of the Board's Circular. At page 7 they have also referred to question No. 2 wherein a categorical answer has been given by the Board that employer - employee relationship is a prerequisite for the levy of FBT. The Hon'ble Bench has thereafter once again at paras 9 and 10 referred to the Hon'ble Supreme Court decision in the case of R. B. Falcon (supra) and T. T. Motors (Supra). At page 8 para 11 of the order the Tribunal has recorded a finding that expenditure incurred which results into payment to third persons where there is no employer-employee relationship between the assessee and the recipient, the provisions of Sections 115WA and 115WB shall not apply.
6. Similar view has been adopted by the Hon'ble Income-tax Appellate Tribunal, Pune Bench vide order dated 31st October, 2012 in the case of Desai Brothers Ltd. v. Addl. CIT in ITA No. 168. At para 8 of this order the Hon'ble Tribunal has referred to sub-section (1) of Section 115WB which starts with the words "For the purposes of this Chapter, 'fringe benefits' means any consideration or payment provided by way of ........" It has been held that the aforesaid sub-section (1) clarifies that for the purposes of the entire Chapter XII-H, the term 'fringe benefits' means any consideration for employment. It has been held that the requirement of employer employee relationship is also a precondition for applying the deeming provisions of Section 115WB(2). In this case the Hon'ble Tribunal has elaborately considered the interpretation of the relevant provisions.
7. Same view has been adopted in the following cases rendered by different Benches of the Hon'ble Tribunal:
(1) ITAT, Bangalore decision dated 11.5.2011 in the case of Toyota Kirloskar Motor Ltd. v. ACIT in ITA No.20/Bang/2011 (2) ITAT, Bangalore decision dated 8.6.2012 in the case of ACIT v. Infosis Technology Ltd. in ITA No. 96/Bang/2011 ITA No.3148 /Ahd/2010 Arvind Ltd. (earlier known as The Arvind Mills Ltd.) vs. DCIT Asst.Year - 2006-07
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(3) ITAT, Chandigarh decision dated 19.7.2012 in the case of Glaxo mithkline Consumer Healthcare Ltd. v. ACIT in ITA No. 931/Chd./2009 (4) ITAT Ahmedabad 'A' Bench decision dated 25th October, 2013 in the case of Adani Retails Ltd. v. DCIT in ITA No. 3269/Ahd/2010 (5) DCIT v. Kotak Mahindra Old Mutual Life Insurance C. Ltd. 134 ITD388(Bom) .
(6) Arvind Fashions v. DCIT dated 13.12.2013 in ITA No. 3508/Ahd/2010
8. In the case of Infosis Technologies Ltd. (supra), at para 6.2 the Hon'ble Tribunal has noted the decision of the coordinate Bench in the case of M/s. Toyota Kirloskar Motors P. Ltd. (supra) and it has been held that payments to third parties which do not result in any benefit to employees are not liable to levy of FBT. The Board's Circular referred to above has also been discussed and considered. In the case of Glaxo Smithkline Consumer Healthcare Ltd. (supra), at para 18 the Hon'ble Tribunal has elaborately considered the phraseology of sub-sections (1) and (2) of Section 115WB. The Hon'ble Tribunal has also referred to Mumbai ITAT decision in the case of Kotak Mahindra Old Mutual Life Insurance Co. Ltd.(supra) and relevant part of that case has been reproduced wherein it has been categorically held that 'fringe benefits' cannot arise when expenditure is incurred on persons who are not employees. In the same case the Hon'ble Tribunal has also placed reliance on the Hon'ble Delhi High Court decision in the case of T. T. Motors Ltd. v. ACIT (341 ITR
332) and has reproduced relevant part of this judgment in their order.
9. From the above discussion it may kindly be appreciated that this issue has been elaborately considered by different Benches of the Hon'ble Tribunal including the Hon'ble Ahmedabad Bench and it has been uniformly and categorically held that for invoking levy of FBT, employer-employee relationship is a prerequisite. Any benefits which accrue to third parties are outside the purview of Chapter XII-H.
10. The learned Sr. DR has relied on the following cases:
(1) ICITI Prudential Lift Insurance Co. Ltd. v. ACIT (37 Taxmann.com 222) (ITAT-Mumbai) (2) Mahabir Jute Mills Ltd. v. Jt. CIT (36 Taxmann.com 598)(ITAT-Allahabad) (3) Mahindra Holidays and Resorts India Ltd. v. ACIT (25 Taxmann.com
598)(ITAT-Chennai) (4) Birla Corporation Ltd. v. DCIT (134 ITD 142) (Kolkata - ITAT)
11. The learned DR has placed strong reliance on the decision in the case of ICICl Prudential Life Insurance Co. Ltd. (supra). It has been argued by the learned DR that in this case the Hon'ble Tribunal has held that employer-employee relationship is not essential and for this conclusion they have drawn support from the Hon'ble Supreme Court decision in the case of R. & B. Falcon (A) PTY. Ltd/v. CIT (301 ITR 309). It is ITA No.3148 /Ahd/2010 Arvind Ltd. (earlier known as The Arvind Mills Ltd.) vs. DCIT Asst.Year - 2006-07
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respectfully submitted that the factual position in the case of ICICl Prudential, Life Insurance Co, Ltd. is materially different from the factual position of the present case. In that case the assessee company incurred expenditure, on sales promotion, incentives etc. for agents and it was held by the Hon'ble Tribunal that FBT was payable on the same except on such part which is incurred as ordinary business expenses. At the end of para 23 of this order the Hon'ble ITAT has observed as under:
"....,..... 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......"
12. In the above case the Hon'ble Tribunal has strongly relied on the Hon'ble Supreme Court decision in the case of R. B. Falcon (supra) and at para 15 of their order it has been noted that the Hon'ble Supreme Court has held that Section 115WB(1) and 115WB(2) operate in different fields. It is submitted that there is no quarrel that this proposition that the aforesaid sub-sections do operate in different fields, but the most important point is that the Hon'ble Supreme Court was never concerned about the question as to whether employer employee relationship is a prerequisite for levy of FBI. On the contrary, in the case before the Supreme Court all the persons on whom expenditure was incurred on transportation, were employees of the assessee company. The Hon'ble ITAT Mumbai has based its finding on questions No 14 and 56 and answers thereto of the Board's Circular referred to above, which are reproduced below for ready reference :
"Q.14. 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?
Answer : 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.
Q.56. Whether FBT will apply to the expenditure incurred for the purposes of conferences of the agents or dealers or development advisors?
Answer : 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 ITA No.3148 /Ahd/2010 Arvind Ltd. (earlier known as The Arvind Mills Ltd.) vs. DCIT Asst.Year - 2006-07
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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."
13. It may be appreciated that the answers contained at questions No. 14 and 56 are in direct conflict with the answers on questions No. 1, 2 and 3 of the Board's Circular. It has already been explained above that against question No. 2 the categorical answer of the Board's Circular is that employer employee relationship is a prerequisite for the levy of FBI. This categorical answer is further substantiated from the answers against questions No. 1 and 3 which have been reproduced above and also the part of the Circular which explains the objective of the newly introduced provisions, it may kindly be noted that the interpretation of the Board's Circular was never a subject matter before the Hon'ble Supreme Court in the case of R. & B. Falcon (supra). The Hon'ble Supreme Court was never concerned with this question. It is true that Section 115WB(2) expands the definition contained in Section 115WB(1). Further, such expansion is only with regard to certain fringe benefits which can be deemed to have been provided by the employer to his employees. The primary condition that some direct or indirect benefit must accrue to the employees has not been diluted by this deeming provisions. Even in the case of R.& B. Falcon (supra) the -Hon'ble Supreme Court has observed that u/s. 115WB(2) some indirect benefit must accrue to the employees. It may be appropriate to reproduce below the relevant part of the Hon'ble Supreme Court decision from pages 319 - 320 of the report:
"Sub-section (1) of section 115WB contains the interpretation section. It is in two parts. It provides for a direct meaning, as also an expanded meaning. The expanded meaning of the said provision is contained in sub-section (2). Whereas sub-section (1) takes within its sweep any consideration for employment, inter alia, by way of privilege, service, facility or amenity directly or indirectly, sub-section (2) thereof expands the said definition stating as to when the fringe benefit would be deemed to have been pro-vided. The expansive meaning of the said term "benefits" by reason of a legal fiction created also brings within its purview, benefits which would be deemed to have been provided by the employer to his employees during the previous year. Indisputably, sub-section (3) refers to sub-section (1) only. Ex facie, it does not have any application in regard to the matters which have been brought within the purview of the fringe benefit tax by reason of application of the deeming provision.
We are concerned herewith the question in regard to grant of exemption in respect of "conveyance" as provided for in clause (F) of sub-section (2) and "tour and travel"
which is provided for in clause (Q) of sub-section (2) of section 115WB.
The Central Board of Direct Taxes categorically states in the 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 subsection (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 ITA No.3148 /Ahd/2010 Arvind Ltd. (earlier known as The Arvind Mills Ltd.) vs. DCIT Asst.Year - 2006-07
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imposition of tax on expenditure incurred by the employer on providing its employees certain benefits. Those benefits which are directly provided are contained in sub-section (1). Some other 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 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 pro-visions of section 115WA as also sub-section (3) of section 115WB, must be held to be operating in different fields."
(emphasis supplied) j14. Kind reference is also invited to the Hon'ble Delhi High Court decision in the case of T & T. Motors Ltd. vs. CIT (341 ITR 332). Relevant part is reproduced below from pages 337 - 338 of the report:
"Clause (D) to section 115WB(2) stipulates that sales promotion including publicity are deemed to be fringe benefit. The term "sales promotion" and "publicity" have to be interpreted. These terms have not been specifically defined for the purpose of this section and, therefore, we have to read them and understand them as used in common parlance or popular sense and then interpret the words "sales promotion" and "publicity" with reference to the provisions and the context in which they have been used. Interpretation based upon normal day-to-day usage and common man's understanding of the said terms has to be kept in mind. Both the terms contemplate, expenditure incurred on efforts made to promote sales which can take various forms but are not limited to mere publication or advertisements in media but would include varied activities which can be understood and treated as sales promotion or publicity expenses.
In Smith Kline and French (India) Ltd. v. CIT [1992] 193 ITR 582 (Karn), it has been held that in normal commercial sense and in common parlance sales promotion and publicity are activities to gain goodwill in market. These need not be confined to the act of media propaganda but can involve indirect approaches. In CIT v. Statesman Ltd. [1992] 198 ITR 582 (Cal), it was observed that the term "sales promotion"
occurring under section 37 (3A), necessarily should involve the element of publicity and advertisement to popularize or increase sales.
The Supreme Court in Eskayef v. CIT [2000] 245 ITR 116 (SC) ; [2000] 6 SCC 451, approved the view taken in Smith Kline and French's case [1992] 193 ITR 582 (Karn) and held that in the case of prescription drugs, the target of any sales promotion would only be the doctors and distribution of samples of drugs to doctors was to make them aware that such drugs were available in the market and they should prescribe them in appropriate cases. This would tantamount to publicity and ITA No.3148 /Ahd/2010 Arvind Ltd. (earlier known as The Arvind Mills Ltd.) vs. DCIT Asst.Year - 2006-07
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sales promotion. The Supreme Court did not approve the view taken in CIT v. Ampro Food Products [1995] 215 ITR 904 (AP), wherein distinction was drawn between bare minimum expenses to carry on the trade (which was followed in CIT v. J and J Dechane Laboratories (P.) Ltd. [1996] 222 ITR 11 (AP)) and expenditure under the head advertisement and publicity or sales promotion.
The object and purpose behind FBT and section 115WB(2)(D) is different from section 37(3A). Expenditure incurred as stipulated in clauses (i) to (viii) have to be excluded and not to be treated as sales promotion expenditure including publicity. Clause (vii) to section 115WB(2)(D) expressly stipulates that expenditure on distribution of sample either free of cost or at concessional rate is not sales promotion or publicity for FBT.
A careful reading of clauses (i), (ii), (iv), (v), (vi) and (viii) of section 115WB(2)(D) elucidates that the Legislature has excluded from FBT expenditure in form of payments to third persons. The exemption in these clauses, it is apparent, has been granted because this is not a fringe benefit which is enjoyed by the "employee/recipient" but it is an expenditure incurred for the purpose of business and the payment is income earned by the third party. In the hands of the said recipient the expenditure is taxable as income earned."
(emphasis supplied) The Hon'ble Delhi High Court has clearly held that payments to third persons are outside the purview of FBT.
15. Even in the case of ICICI Prudential (supra) on which the Department has heavily relied, it has been observed that the status of agents of a Life Insurance Company is somewhere between employees and third persons,, and further that the agents cannot be said to be third parties. Obviously, even in this case the Hon'ble Tribunal was of the view that if any benefits are provided to third parties, FBT will not be applicable.
16. With regard to the other cases relied upon by the Department it may kindly be noted that this issue never came up for adjudication in these cases. In the case of Mahavir Jute Mills (supra), the liability of FBT on certain payments was sustained on the ground that the assessee was unable to substantiate the expenditure by producing vouchers or any • other evidence. The cases of Mahindra Holidays (supra) and Birla Corporation (supra) are on other issues which have been decided in favour of the assessees.
17. Coming to the binding nature of the circulars, the cardinal principle which has also been approved in the case of R & B Falcon (supra) is that Circulars issued by the Board are binding insofar as such Circulars do not interfere with the statutory provisions. It is an established principle that Circulars cannot alter the provisions of law as held by the Hon'ble Madras High Court in the case of ITO v. D. Manohar ITA No.3148 /Ahd/2010 Arvind Ltd. (earlier known as The Arvind Mills Ltd.) vs. DCIT Asst.Year - 2006-07
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(236 ITR 357). In this case reference has also been made to several precedents including Supreme Court decisions. Another established principle of interpretation is that Circulars favouring the assessee are binding on Income-tax Authorities which emerges from the following cases:
(1) Catholic Syrian Bank Ltd. v. CIT (343 ITR 270)(SC) (2) CIT v. Ashok Mittal (357 ITR 245)(Del)
18. As explained above, even in the Circular issued by the Board there is a contradiction and therefore as per the established position of law the view expressed in this Circular which favours the assessee must be adopted and that part of the Circular which goes against the assessee cannot have a binding force.
19. The discussion given above clearly shows that various Benches of the ITAT have clearly held that for levy of FBT, employer employee relationship is a prerequisite. The ITAT Mumbai Bench in the case of ICICI Prudential (supra), in a totally different factual scenario has held that the status of agents lies somewhere between employees and third parties. In the case of the appellant company the benefits have accrued to the third parties and not to employees or any such persons who can be deemed to be employees. Thus the legal position explained above is overwhelmingly in appellant's favour. Further, even if any provision of law is capable of different interpretations, the cardinal principle is that, the interpretation favourable to the assessee must be adopted. Kind reference is invited to the following cases:
(1) CIT v, Vegetable Products Ltd. (88 ITR 192) (SC) (2) Pradeep J. Mehta v. CIT (300 ITR 231) (SC)"
4.1. It is evident from the decisions relied upon by the ld.counsel for the assessee and the ld.Sr.DR that on this issue, there are two views expressed by the different Coordinate Benches. The ld.counsel for the assessee has urged to rely on the decision(s) of Hon'ble Supreme Court rendered in the case of CIT vs. Vegetable Products Ltd. reported at 88 ITR 192 (SC) and of Pradeep J.Metha vs. CIT reported at 300 ITR 231 (SC). we find that the ld.counsel for the assessee has given an elaborate synopsis citing the decision for and against. He also drew our attention to the decision of Hon'ble Gujarat High Court in the case of Gujarat Chamber of Commerce & Industry vs. UOI Through Secretary in Special ITA No.3148 /Ahd/2010 Arvind Ltd. (earlier known as The Arvind Mills Ltd.) vs. DCIT Asst.Year - 2006-07
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Civil Application No.21124 of 2005,dated 10/10/2005 :: (2005) 148 Taxman 3 (Guj.), wherein vide para-3 the Jurisdictional High Court has held as under:-
"3. At this juncture, it is not possible to permit any such segregation as proposed by the learned counsel. However, it would be in the fitness of things if the petitioner and similarly situated assessees are directed to deposit the amount of Fringe Benefit Tax as per installment due on 15-1-2006 in a separate account to be opened and maintained with a Scheduled Nationalized Bank, subject to the condition that the amount so deposited shall not be utilized by the assessee in any manner whatsoever for any purpose, no charge shall be created nor shall the said account be used or permitted to be used as a collateral for obtaining any loan against the same. Upon such deposit being made in separate bank account and production of the necessary proof of such deposit before the Income-tax department, it shall amount to sufficient compliance qua the provisions of the Act levying Fringe Benefit Tax. The aforesaid deposit shall be only in case where the assessee disputes the liability to the extent of being covered by category No.2 or 3 as per the say of the petitioner. Insofar as the assessee who are covered and fall under category No.1 and are not disputing their liability, they shall make the payment of the Fringe Benefit Tax with the exchequer as required in accordance with law."
4.2. In our considered view, the authorities below are not justified in making the addition despite the categorical observation by the Hon'ble High Court of Gujarat in the case of Gujarat Chamber of Commerce & Industry vs. UOI(supra), hence the order passed by the ld.CIT(A) is not justified and also the AO was not justified in making the addition. In view of the fact that the assessee itself has made the submission that the amount has been deposited in Escrow account in pursuance to the direction of the Hon'ble Gujarat High Court, we hereby direct the AO to ITA No.3148 /Ahd/2010 Arvind Ltd. (earlier known as The Arvind Mills Ltd.) vs. DCIT Asst.Year - 2006-07
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verify whether the assessee has deposited the amount as submitted in its letter dated 25/12/2008 and delete the addition. Thus, this ground of the assessee's appeal is allowed in terms as indicated hereinabove.
5. In the result, the appeal of the Assessee is allowed.
Order pronounced in Court on the date mentioned hereinabove at caption page Sd/- Sd/-
(एन.एस.सैनी) (कुल भारत)
लेखा सदःय Ûयाियक सदःय
( N.S. SAINI ) ( KUL BHARAT )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 28/01/2014
टȣ.सी.नायर, व.िन.स./T.C. NAIR, Sr. PS
आदे श कȧ ूितिलǒप अमेǒषत/Copy
षत of the Order forwarded to :
1. अपीलाथȸ / The Appellant
2. ू×यथȸ / The Respondent.
3. संबंिधत आयकर आयुƠ / Concerned CIT
4. आयकर आयुƠ(अपील) / The CIT(A)-VI, Ahmedabad
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड[ फाईल / Guard file.
आदे शानुसार/ BY ORDER, स×याǒपत ूित //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) उप/ आयकर अपीलीय अिधकरण, अिधकरण, अहमदाबाद / ITAT, Ahmedabad
1. Date of dictation .. 22.1.14(dictation-pad 10- pages attached at the end of this File)
2. Date on which the typed draft is placed before the Dictating Member ......24.1.14
3. Date on which the approved draft comes to the Sr.P.S./P.S.................
4. Date on which the fair order is placed before the Dictating Member for pronouncement......
5. Date on which fair order placed before Other Member............
6. Date on which the fair order comes back to the Sr.P.S./P.S.......28.1.14
7. Date on which the file goes to the Bench Clerk.....................28.1.14
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order..........................
10. Date of Despatch of the Order..................