2014 (9) TMI 953 - AT - Income Tax

Fringe benefits tax - reimbursement of medical expenses to the employees - Held that - Tribunal in the assessee s own case for the assessment year 2006-07 held that the payments made by the employees to the approved hospitals and the subsequent reimbursement of such payments to the employees by the employer do not attract fringe benefits tax. It was held that when an item which is to be treated as perquisite in the hands of the employees, is exempt in the hands of the individual employee the same cannot be subjected to fringe benefits tax. - Decided in favour of assessee. Fringe benefits tax - sales promotion expenses including publicity expenses - Held that -Tribunal in the case of Toyota Kirloskar Motor Pvt. Ltd., 2012 (6) TMI 484 - ITAT, Bangalore has held that any expenditure which is not incurred directly or indirectly for the benefit of employees is not liable for fringe benefits tax. In the case before us also, the employees of the assessee-company are not the beneficiaries. The customers are the beneficiaries. Therefore, respectfully following the decision of the coordinate Bench of the Tribunal to which one of us i.e., the Judicial Member is a signatory, these grounds of appeals are allowed. there is no benefit derived by the employees of the assessee-company from bundling of one product with another and therefore, fringe benefits tax is not attracted. - Decided in favour of assessee. Fringe benefits tax - expenses incurred towards payment of fees, venue hiring charges on trainees enrolled as students in BITS and scholarship given to the trainees - Held that - the assessee, in association with BITS, has incurred certain expenditure on training programme of fresh gradu ates to prepare them to work with the application programmes and for this purpose has incurred an expenditure of ₹ 4,41,96,480 towards payment of stipend to the trainees which is in the nature of salary, course fees, venue hiring charges etc. It is the contention of the assessee that the amount paid towards training is taxable in the hands of the trainees as perquisites under section 17(2) which is exempt under section 10(16) as the same is paid to meet the cost of education of student and hence, it is not to be included as fringe benefits under section 115WB(2). - Decided in favour of assessee.

Summary

Issues Involved:
1. Liability for fringe benefits tax (FBT) on reimbursement of medical expenses.
2. Applicability of FBT on sales promotion expenses.
3. Applicability of FBT on expenses for trainees' education and scholarships.

Detailed Analysis:

1. Liability for Fringe Benefits Tax on Reimbursement of Medical Expenses:

The primary issue revolves around whether the reimbursement of medical expenses up to Rs. 15,000 to employees is liable for fringe benefits tax (FBT). The Revenue argued that the Commissioner of Income-tax (Appeals) erred in holding that the assessee is not liable for FBT on such reimbursements, emphasizing that the exempt portion of medical reimbursement should be considered a fringe benefit under section 115WB(2) of the Income-tax Act. The Assessing Officer had included these reimbursements in the taxable value of fringe benefits.

On appeal, the Commissioner of Income-tax (Appeals) followed the Tribunal's decision in the assessee's own case for the assessment year 2006-07, which ruled that reimbursements of medical expenses up to Rs. 15,000, being exempt in the hands of employees, do not attract FBT. The Tribunal upheld this view, citing that the Revenue's pending appeal against the Tribunal's earlier decision does not preclude following the established precedent.

2. Applicability of Fringe Benefits Tax on Sales Promotion Expenses:

The Revenue contended that the Commissioner of Income-tax (Appeals) erred in holding that FBT provisions do not apply to sales promotion expenses, including publicity expenses incurred by the assessee. The Assessing Officer had invoked section 115WB(2)(D) and 115WC(1)(c) to include these expenses as fringe benefits, arguing that there is no distinction between expenses incurred towards employees and non-employees.

The Commissioner of Income-tax (Appeals) again relied on the Tribunal's decision for the assessment year 2006-07, which held that expenses incurred on bundled products (offered as free along with other products) are not liable for FBT as they do not benefit the employees but the customers. The Tribunal upheld this decision, noting that the employees are not the beneficiaries of such promotional schemes, thus FBT is not applicable.

3. Applicability of Fringe Benefits Tax on Expenses for Trainees' Education and Scholarships:

The Revenue challenged the Commissioner of Income-tax (Appeals)'s decision that FBT provisions do not apply to expenses incurred on payment of fees, venue hiring charges for trainees, and scholarships. The Assessing Officer had classified these expenses as fringe benefits under section 115WB(2)(P) and taxed them at 50% as per section 115WC(1)(d).

The Commissioner of Income-tax (Appeals) followed the Tribunal's ruling for the assessment year 2006-07, which stated that expenses on education and training of non-employees (trainees) are not subject to FBT. The Tribunal reiterated that such expenses, being in the nature of scholarships exempt under section 10(16), do not constitute fringe benefits since they do not provide collective enjoyment to employees.

Conclusion:

The Tribunal dismissed all the appeals by the Revenue, affirming the Commissioner of Income-tax (Appeals)'s decisions. The Tribunal consistently applied its previous rulings in the assessee's own case, emphasizing that reimbursements exempt in employees' hands, promotional expenses benefiting customers, and educational expenses for non-employees do not attract FBT. The Revenue's pending appeals against these decisions were deemed insufficient to alter the established legal position.