Income Tax Appellate Tribunal - Hyderabad
M/S.Andhra Bank,, Hyderabad vs Department Of Income Tax on 16 July, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "A" : HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
AND
SHRI SAKTIJIT DEY, JUDICIAL MEMBER
ITA.No.601/Hyd//2012
Assessment Year 2006-2007
Andhra Bank, vs. DCIT, Circle 1(1)
Hyderabad - 500 001. Hyderabad.
PAN AABCA-7375C
(Appellant) (Respondent)
ITA.No.781/Hyd//2012
Assessment Year 2007-2008
ACIT, Circle 1(1) vs. Andhra Bank,
Hyderabad. Hyderabad - 500 001.
PAN AABCA-7375C
(Appellant) (Respondent)
For Assessee Mr. S. Ananthan
For Revenue Mr. P. Somasekhar Reddy
Date of Hearing 21.05.2014
Date of pronouncement 16.07.2014
ORDER
PER B. RAMAKOTAIAH, A.M.
These cross-appeals are by Assessee and Revenue against the Order of CIT(A)-II, Hyderabad dated 15.03.2012 on the issue of value of FBT brought to tax by the A.O. under the provisions of section 115WB(1)(c) of Income Tax Act, 1961.
2. Briefly stated, assessee is a schedule bank governed by the provisions of Banking Regulation Act, 1949. It filed its return of income for A.Y. 2006-07 on 29.11.2006 admitting Fringe Benefit Tax (In short "FBT") value of Rs.14,36,39,345/-. A.O. completed the assessment 2 ITA.No.601 & 781/Hyd/2012 Andhra Bank, Hyderabad.
determining the FBT value at Rs.89,61,88,345/-, by making an addition of Rs.75,25,49,000/- which was claimed as an expenditure by the assessee as contribution by the employer towards pension fund. A.O. noticed that as per the provisions of section 115WB(1)(c) of the I.T. Act, the above contribution made by the employer needs to brought to tax as eligible FBT value during the year. It was the contention of assessee that it falls under employee's welfare and also in the nature of statutory obligation. A.O. however, was of the view that pension fund contribution is class apart from employee welfare and squarely falls under the said provision. He also relied that the amendment made to section 115WB (1)(c) for A.Y. 2007-08 onwards that amount of contribution, which exceeds Rs. 1 lakh in respect of each employee clearly distinguishes the contribution to such funds and accordingly, he brought the amount to tax.
3. Before the Ld. CIT(A), assessee contended that contribution to pension fund which was made in lieu of P.F. is a statutory liability and since the contribution to P.F. is not considered for valuation of FBT, contribution to pension fund shall also does not attract FBT. Assessee alternatively relied on the decision of Coordinate Bench at Jaipur in the case of DCIT vs. State Bank of Bikaner and Jaipur in ITA.No.538/JP/2011 for A.Y. 2006-07 dated 21.10.2011 wherein it was considered that the amendment brought subsequently will be applicable retrospectively, therefore, assessee shall be eligible to get deduction of Rs. 1 lakh per employee. Following the above order of the ITAT, Ld. CIT(A), directed the A.O. to verify and allow the contribution to the fund up to Rs. 1 lakh for each employee.
3ITA.No.601 & 781/Hyd/2012 Andhra Bank, Hyderabad.
4. Assessee is aggrieved that this payment was not attracted towards provisions of FBT whereas, Revenue is aggrieved on the direction of the Ld. CIT(A) in applying amendment brought in the later year to the year under consideration. Accordingly, both raised the respective grounds.
5. Ld. Counsel submitted that section 115WB(1)(c) does include fringe benefits by way of any contribution by the employer to an approved superannuation fund for employees. He also explained various amendments brought to section 115WB(1)(c) by Finance Act, 2006 and also to section 17(2) with reference to perquisite so as to exclude the amount up to Rs. 1 lakh per employee. Ld. Counsel's contention was that the word used 'contribution' has not been defined under the provisions of FBT but Fourth Schedule Part-A under the Head "Recognised P.F." defines the word 'contribution' which means 'any sum credited by or on behalf of any employee out of his salary or by the employer out of his own monies', to the individual account of an employee, but does not include any sum credited as interest'. Referring to Part-B, it was submitted that the definition provided in Part-A applies to the various terms used in Part-B ie. for approved superannuation fund. Relying on the above, it was submitted that there was no contribution made by the employer to the individual account of the employee. Ld. Counsel relied on the memorandum explaining the Finance Bill 2006 to contend that the Government intention was to exclude the amounts from fringe benefits under section 115WB. He also referred to Finance Minister Budget speech while introducing the Finance Bill, 2006. He then referred to Gazette of India Publication dated September 29, 1995 with reference to constitution of the fund 4 ITA.No.601 & 781/Hyd/2012 Andhra Bank, Hyderabad.
which is known as 'Andhra Bank Employees Pension Fund' and the Rules made therein. By virtue of the actuarial assessment of Investible amount of the fund made on every 31st day of March, it was the responsibility of the Bank to contribute the short fall to the above approved fund. It was submitted by the Ld. Counsel that there are two types of funds being managed by the Banks particularly, public sector banks namely 'defined contribution scheme' and 'defined benefit scheme'. It was submitted that in assessee's case a lump sum contribution is made into the scheme in respect of pension for all eligible employees. The lump sum contribution is calculated based on the Actuarial Valuation which is in turn, typically based on several underlying assumptions. Given the nature of 'defined benefit scheme' it is not possible to derive the contribution on per employee basis which may be used for Income Tax purposes. It was submitted that assessee is having more than 97 thousand employees and it is not possible to segregate the benefit available to each person. It was further submitted that all employees are not covered by the defined benefit scheme as some have opted for 'contributory pension fund'. He referred to the various salary certificates given to the Employees and as an example placed two such certificates wherein for the persons covered by the contributory scheme the individual credit to the account was stated, whereas, for the persons who are under the benefit scheme, no such contribution was shown. Ld. Counsel emphasized that the scheme to which assessee contributed during the year is called as 'defined benefit scheme' and no individual parameters are applied while making valuation by Actuary and it is not possible to apportion the contribution amongst each member.
5ITA.No.601 & 781/Hyd/2012 Andhra Bank, Hyderabad.
5.1. Ld. Counsel relied on the decision of AAR inRoyal Bank of Scotland 45 Taxman.com 283, decision of Hon'ble Supreme Court in the case of LW Russel 53 ITR 91 (SC) and decision of Hon'ble Delhi Court in the case of Yoshio Kubo 36 Taxman.com 1 for various propositions.
6. Ld. D.R. however, relied on the orders of the A.O. to submit that contribution to superannuation fund is taxable under the provisions of section 155WB(1)(c) and submitted that Revenue is also contesting the relief granted by the Ld. CIT(A) in applying the amendment brought in the next A.Y. to the year under consideration and directing the A.O. to exclude the amount upto Rs. 1 lakh per employer.
7. On a query by the Bench, Ld. Counsel fairly admitted that since the contribution to employer is not quantifiable, Bank could not submit any information to the A.O. and therefore, consequential orders have not been issued. Therefore, both the parties are on appeal.
8. We have considered the rival contentions and perused the facts placed on record as well as the scheme of superannuation guidelines and issues therein.
PROVISIONS OF SECTION 115WB (1) (c) :
9. There is no dispute with reference to provision of fringe benefits under section 115WB governing the issue which is as under :
"115WB (1) - For the purpose of this Chapter "fringe benefits" means any consideration for employment provided by way of -
(a) -
(b) -6
ITA.No.601 & 781/Hyd/2012 Andhra Bank, Hyderabad.
(c) Any contribution by the employer to an approved superannuation fund for employees".
9.1. As amended by Finance Act, 2006 -
"115WC.(1) For the purpose of this Chapter, the value of fringe benefits shall be the aggregate of the following namely : --
(a) -- ---- --
(b) The amount of contribution referred to in clause
(c) of sub-section(1) of section 115WB which exceeds one lakh rupees in respect of each employee;
Extract of Section 17(2) as amended by Finance (No.2) Act, 2009.
"Salary", "perquisite" and "profits in lieu of salary"
defined.
17. For the purposes of sections 15 and 16 and of this section, -
(1) "salary" includes -
........
(2) "perquisite" includes -
(vii) the amount of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds one lakh rupees; and 9.2. Contribution as defined in Part-A of Fourth Schedule in Cluase-2 is as under :
"2. In this Part, unless the context otherwise requires,-
(i) "employer" means.........;
(a) "employee" means.........;
(b) "contribution" means any sum credited by or on behalf of any employee out of his salary, or by an employer out of his own moneys, to the individual 7 ITA.No.601 & 781/Hyd/2012 Andhra Bank, Hyderabad.
account of an employee, but does not include any sum credited as interest;
PART-B Definitions : 1. In this Part, unless the context otherwise requires, "employer", "employee", "contribution" and "salary" have, in relation to superannuation funds, the meanings assigned to those expressions in Rule 2 of Part A in relation to provident funds."
9.3. Accordingly, the 'contribution' as defined in the provision means any sum credited to the individual account. Rationalizing the provision of fringe benefit tax the memorandum explaining the Finance Bill 2006 has clarified as under :
"It is proposed to amend the said clause (b) so as to provide that contribution by an employer to an approved superannuation fund to the extent it does not exceed rupees one lakh per employee in respect of whom contribution is made, shall not be liable to fringe benefit tax. For example, consider an employer who has three employees: A, B and C and he makes contribution to their account in the approved superannuation fund in the following manner :
Employee Contribution to approved superannuation fund by the employer.
A Rs. 50,000
B Rs. 90,000
C Rs. 2,00,000
In case of employees A and B, the value of fringe benefits shall be taken to be nil since contributions by the employer in respect of these employees does not exceed Rs.1,00,000 in each case. However, in the case of employee C the value of fringe benefit shall be Rs.1,00,000 (Rs.2,00,000 - 1,00,000) for the purposes of levy of fringe benefit tax".
9.4. There was another amendment in Finance (No.2) Bill 2009 wherein it was clarified as under :
8ITA.No.601 & 781/Hyd/2012 Andhra Bank, Hyderabad.
"It is proposed to insert a new section 115WM to abolish the fringe benefit tax. Consequently, it is also proposed to restore the taxation of the fringe benefits as perquisites in the hands of the employees. Therefore, it is also proposed to amend clause (2) of section 17, -
(a) By substituting sub-clause (vi) so as to provide that perquisite shall include the value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the assessee. For this purpose, the value of any specified security or sweat equity shares, as the case may be, on the date on which the option is exercised by the assessee as reduced by the amount actually paid by, or recovered from, the assessee in respect of such security or shares. The "fair market value" will mean the value determined in accordance with the method as may be prescribed by the Board.
(b) By inserting sub-clause (vii) to provide that perquisite shall also include the amount of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds one lakh rupees.
(c) By inserting sub-clause (vii) to provide that perquisite shall also include the value of any other fringe benefit or amenity as may be prescribed".
9.5. Thus, as can be seen from the above series of amendments and clarifications on the issue, it is only an amount which is contributed to individual account of an employee in excess of Rs. 1 lakh is excluded from the purview of FBT from A.Y. 2007-08. Further, in the impugned A.Y. the amendment is not applicable. However, the Coordinate Bench by order dated 27.11.2009 in the case of Rajasthan Rajya Vidyut Prasaran Nigam Ltd., has analysed this issue and held as under :
9ITA.No.601 & 781/Hyd/2012 Andhra Bank, Hyderabad.
"The above principle of interpretation laid down in various judgments of Hon'ble Supreme Court when read in context with the purchase and intention for which the amendment was made u/s 115WB(1)(c) leaves no scope of debate that the said amendment was to remedy the unintended consequences and therefore, it is required to be considered as retrospective in operation so that a reasonable interpretation can be given to the scheme of levy of fringe benefit tax on contribution to superannuation fund as a whole. We, therefore, hold that the contribution to superannuation fund in present case being less than Rs.1.00 lac per employee, is not liable for fringe benefit tax. In the result, this ground of assessee is allowed."
9.6. Accordingly, the provisions are held to be applicable even for the impugned A.Y. on the basis of which Ld. CIT(A) granted the benefit.
SCHEME OF PROVIDENT FUND :
10. Bank employees pension scheme was introduced in banks in lieu of contributory provident fund at the option of the employees. Accordingly, a settlement was signed on 29th October, 1993 between Indian Banks Association (IBA), representing 52 member banks which include the assessee Bank and representatives of workmen unions introducing a Pension Scheme in the banking industry.
10.1. In terms of the settlement, an employee in service as on 1.11.1993 was to exercise his option to switch over to the Pension Scheme from the Provident Fund Scheme upon which the amount of CPF (banks' contribution) outstanding in his Provident Fund account would be transferred to the Pension Fund of the bank. Thus the Pension Scheme introduced by banks was in lieu of the 10 ITA.No.601 & 781/Hyd/2012 Andhra Bank, Hyderabad.
statutory Provident Fund Scheme. The settlement dated 01.11.1993 was later on made into a scheme and notified on 29th September 1995 as Bank Employee's Pension Regulations, which is a subordinate regulation having been framed by the Banks' Boards under section 19(1) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980. The Pension Fund Scheme therefore has a statutory character. After obtaining the necessary 'no objection' from the Income Tax authorities, banks which are parties (Assessee bank is one of the parties) to the settlement dated 29.01.1993 had set up Pension Funds and the contribution made into such funds are as laid down in the Scheme and constitutes among other things :
(i) the contribution by the bank at the rate of 10% per month on the pay of the employee, which contribution was hitherto being made to the PF account.
(ii) The accumulated contributions of the bank to the Provident Fund and interest accrued thereon up to the date of such transfer in respect of the employee ;
(iii) Additional annual contribution to the Fund as required to secure payment of pensionary benefits to the members of the Fund, based on actuarial investigation of the Fund as at 31st March of every financial year.
10.2. Assessee bank therefore, submits that Pension Fund in the banks are not over and above contributions to gratuity and provident fund. Assessee also submits that in the absence of the Pension Scheme, banks would have continued to contribute to the Provident Fund account of 11 ITA.No.601 & 781/Hyd/2012 Andhra Bank, Hyderabad.
employees stipulated amount of contribution and such contributions would not have attracted FBT. The contributions made by the bank to the Pension Fund is only to secure pension payments, which is a statutory obligation of the Banks as brought out above. Accordingly, assesse bank has established a superannuation scheme ('the Scheme') for the purpose of providing pension to its eligible employees. The aforesaid Scheme, which is a defined benefit plan has been approved by the Commissioner of Income-Tax under Rule 2(1) of the Part B of the Fourth Schedule of the Act Whether provisions of section 115WB(1)(c) are applicable to the assessee's case:
11.1. In the present case, assessee made a single contribution during the year to the superannuation fund for all its employees who were governed by this scheme taken together based on the actuarial valuation provided by the Actuarial Valuer. There is no dispute with reference to the fact that the amount of Rs.75,25,49,000/- was provided as short fall to the fund from making pension payable to eligible employees and this amount was arrived at on the basis of valuation of Actuarial Valuer appointed by the Bank. In respect of such single contribution made under defined benefit scheme, the details of contribution pertaining to each employee are not available in the Actuarial Valuation Report, since the amount is lump sum amount calculated based on the Actuarial Valuation having several underlying assumptions. The same is evident from the Actuarial Valuation Report issued.
12ITA.No.601 & 781/Hyd/2012 Andhra Bank, Hyderabad.
11.2. It was explained that there could be a scenario where the assets of the Scheme may be in surplus over its obligations, as per the actuarial valuation, due to various factors viz. reduction in the number of employees on the payroll of the assessee on the last day of the financial year vis- a-vis first day of that year, etc. Accordingly, the assessee may not be required to contribute for that particular year. Likewise, in subsequent year, there could be a scenario where the obligations/liabilities of the Scheme as per the actuarial valuation are higher than its assets and hence, assessee bank would be required to contribute to the Scheme in that particular year.
11.3. The actuarial risk (that benefits will cost more than expected) and investment risk fall, in substance, on the enterprise. If actuarial or investment experiences are worse than expected, the employer's obligation may increase. In view of the above, it is apparent that the contribution paid by the assessee bank is mainly made up of two components, firstly to meet the cost of the accruing benefits during the year and secondly, an adjustment for any deficit or surplus in the scheme at the time for the past year(s). Accordingly, in view of the above arguments and given the nature of the 'Defined Benefit Scheme', it is not possible to derive the contribution on a per employees basis which may be used for income tax purposes.
12. In the case of Royal Bank of Scotland Inre, 45 Taxman.com 283, the Authority for Advanced Rulings has analysed the defined benefit scheme and held that in the defined benefit scheme employer's contribution to the superannuation fund assures only future benefit to employees 13 ITA.No.601 & 781/Hyd/2012 Andhra Bank, Hyderabad.
and they did not get any vested right at the time of making contribution to the fund. In the context of analyzing the tax deducted at source provisions, it was held that such contribution need not be treated as chargeable perquisite in the hands of employee until they are entitled to receive it. The Hon'ble AAR followed the principles laid down by Hon'ble Supreme Court in the case of Yoshio Kubo vs. CIT (2013) 36 taxmann.com 1 (Del.) wherein it was held out that when an amount does not result in a direct present benefit to the employee who does not enjoy it but assures him a future benefit in the event of contingency, the payment made by the employer does not vest in the employee. In view of the above principles laid down by the Hon'ble Supreme Court as well as the advise given by Authority for Advanced Rulings which, in turn, followed the Hon'ble Supreme Court decision in the case of CIT vs. L.W. Russel (1964) 53 ITR 91 (SC), the amount paid during the year cannot be considered as a contribution to superannuation fund as contemplated under the provisions of section 115WB(1)(c).
12.1. In view of the above, since the amount is not paid to the benefit of any individual employee, the lump sum contribution made under the defined benefit scheme, in our opinion, does not attract provisions of 115WB(1)(c). As per the definition of 'contribution', no individual employee had any benefit earmarked the payment cannot be considered as covered by the provisions of 115WB(1)(c).
13. As briefly stated earlier, the Ld. CIT(A) followed the Coordinate Bench decision in giving benefit of amendment brought in later year to the year under consideration. It was 14 ITA.No.601 & 781/Hyd/2012 Andhra Bank, Hyderabad.
submitted that the order of the Ld. CIT(A) could not be implemented as benefit of employee could not be ascertained in view of the scheme of the benefit fund and accordingly, even though average contribution to each of the employees covered by the scheme is less than Rs. 1 lakh, A.O./assessee could not furnish any information about individual employee's benefit. However, this issue becomes academic in nature as we have already held that contribution made to the fund under this benefit scheme cannot be considered as the amount to be considered under the provisions of section 115WB(1)(c) for the purpose of FBT. In view of this, assessee's grounds are allowed.
14. Revenue grounds consequent to the Orders of the Ld. CIT(A) accordingly becomes academic in nature, since we have already granted full relief to the assessee in its appeal. There is no merit in Revenue contentions. Accordingly, Revenue appeal ITA.No.781/Hyd/2012 is dismissed.
15. In the result, ITA.No.601/Hyd/2012 of the Assessee is allowed and ITA.No.781/Hyd/2012 of the Revenue is dismissed.
Order pronounced in the open Court on 16.07.2014.
Sd/- Sd/-
(SAKTIJIT DEY) (B.RAMAKOTAIAH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated 16th July, 2014.
VBP/-
15
ITA.No.601 & 781/Hyd/2012
Andhra Bank, Hyderabad.
Copy to
1. Andhra Bank, 5-9-11, Dr. Pattabhi Bhavan, Saifabad, Hyderabad - 500 004.
2. DCIT, Circle 1(1), Hyderabad
3. ACIT, Circle 1(1), 4th Floor, Aayakar Bhavan, Basheerbagh, Hyderabad.
3. CIT(A)-II, Hyderabad 2 copies
4. CIT-I, Hyderabad
5. D.R. ITAT 'A' Bench, Hyderabad.