2010 (5) TMI 840 - AT - Income Tax

Fringe benefit tax - vehicle hire expenses for arriving at value of FBT - DR submitted that the facility of conveyance given to the employees is covered by clause (F) of sub-section 2 of section 115WB and there is no discretion left to the AO in making any exception to the rule - HELD THAT - What is intended to be taxed is a benefit attributable to employees collectively but the transport services for workers and staff are to be outside the tax net. Any form of conveyance provided by the employer to the employees would be fringe benefits, taxable in the hands of the employer. During the previous year relevant to asst. year 2006-07, the clause (F) included the words conveyance, tour and travel (including foreign travel) , while the words tour and travel (including foreign travel) were omitted by Finance Act of 2006 w.e.f. 1/4/2007 and has been inserted into clause (Q) w.e.f. 1/4/2007; therefore, in the relevant asst. year, the words conveyance, tour and travel (including foreign travel) have to be read together. In the case before us, items 1, 2 and 3 considered by the CIT(A) are for the purposes of carrying on the business activities of the assessee company by the agencies of the assessee company and it is only item 4, which is spent on the employees for attending the meetings, inspections and other official functions. From the reading of the provisions of section 115WB(2), it is clear that the benefits given to an employee directly or indirectly only would be taxable under Chapter XII-H. As rightly pointed out by the CIT(A), the other expenditure is incurred for agencies other than the employees, who are outside the scope of the provisions of section 115WB(2). Therefore, we do not see any reason to interfere with the order of the CIT(A). In the result, the appeal filed by the revenue is dismissed.

Issues:
1. Allowance of vehicle hire expenses for FBT calculation.
2. Interpretation of Circular 8/2005 regarding rent paid on lease of motor car.
3. Proof required for expenses incurred on divisions or agencies.
4. Determination of fringe benefits on conveyance expenses.

Issue 1: Allowance of vehicle hire expenses for FBT calculation
The appeal filed by the revenue challenged the CIT(A)'s decision to allow relief to the assessee in respect of vehicle hire expenses for calculating the Fringe Benefit Tax (FBT). The revenue contended that the expenses should be considered as conveyance, tour, and travel expenses, falling under section 115WB(2)(F). The AO added 20% of the vehicle hiring charges to the total value of fringe benefits. However, the CIT(A) ruled that the expenses were proximately for conveyance of employees and directed the AO to restrict the addition to 20% of the expenses directly related to conveyance for employees attending meetings, inspections, or official functions. The remaining expenses for agencies other than employees were deemed outside the scope of section 115WB(2) and were deleted.

Issue 2: Interpretation of Circular 8/2005 regarding rent paid on lease of motor car
The revenue argued that the CIT(A) erred in allowing relief without considering para-82 of Circular 8/2005 issued by the CBDT, which stipulates that rent paid on the lease of a motor car is considered expenditure for conveyance, tour, and travel. However, the CIT(A) interpreted the circular and the provisions of sub-section 2 of section 115WB to conclude that the proximate purpose of the expenses was for conveyance of employees, falling under clause (F) of section 115WB(2). The CIT(A) determined that the expenses directly related to conveyance for employees attending official functions should be included in the taxable value of fringe benefits.

Issue 3: Proof required for expenses incurred on divisions or agencies
The revenue contended that relief should not have been allowed as the assessee did not prove that the expenses were incurred on divisions or agencies of the assessee. However, the CIT(A) examined the company's books of accounts and determined that the expenses on hiring vehicles were for various divisions and agencies of the company, specifying the purposes for which the vehicles were hired. The CIT(A) differentiated between expenses directly related to conveyance for employees and those for agencies, holding that only expenses for employees should be considered for fringe benefit taxation.

Issue 4: Determination of fringe benefits on conveyance expenses
The Tribunal analyzed the provisions of section 115WB and the legislative intent behind the introduction of fringe benefit tax. It was established that benefits attributable to employees collectively were taxable, while expenses for agencies other than employees were outside the scope of fringe benefit taxation. The Tribunal upheld the CIT(A)'s decision to restrict the addition of vehicle hire charges to expenses directly related to conveyance for employees attending official functions and dismissed the revenue's appeal.

This comprehensive analysis covers the various issues raised in the legal judgment, detailing the arguments presented by both parties and the reasoning behind the Tribunal's decision in each instance.

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