2010 (7) TMI 684 - AT - Income Tax

Conducting inquiry and rejection of certificate issued by tax auditor - FBT on free and concessional tickets provided to staff - FBT on diem allowance - FBT on payments made to hotels to provided layover to its crew members - Held that - In respect of certificate issued by tax auditor, AO was within her realm to cause an inquiry into the contents of the certificate of the tax auditor. In respect of free tickets - AO was justified in bringing to tax net (FBT), the fringe benefit value of Rs.1,10,73,197/- - the total value of free tickets issued by the assessee. In respect of diem allowance and payment made to hotels - The assessee itself taking sanctuary under Query No.87 of Circular No.8 and pleaded that the salary and other allowances paid to the pilots were expenses in the nature of running and maintenance expenses of the aircraft. - (i) per diem allowances paid to pilots and (ii) payments made to hotels would be liable to FBT.

Summary

Issues Involved:
1. Rejection of the certificate issued by the tax auditor.
2. Levy of Fringe Benefit Tax (FBT) on free and concessional tickets provided to staff.
3. Levy of FBT on per diem allowances paid to pilots.
4. Levy of FBT on payments to hotels for the layover of crew members.
5. Basis for classifying expenses for FBT purposes.

Issue-wise Detailed Analysis:

I. Rejection of the Certificate Issued by the Tax Auditor:
The appellant argued that the Assessing Officer (AO) had no authority to question the certificate issued by the tax auditor, as per the Finance Minister's speech, unless it was patently false. The AO, however, conducted an inquiry into the certificate, leading to the contention that the AO was justified in doing so. The ruling cited the Supreme Court case of Sunil Siddharthbhai v. CIT, which allows tax authorities to scrutinize transactions to determine their genuineness. The Tribunal upheld the AO's right to investigate the certificate, affirming that the AO acted within legal bounds.

II. Levy of FBT on Free and Concessional Tickets Provided to Staff:
The appellant contended that free tickets given to employees on a "subject to load" basis should not attract FBT, as they involved no cost to the employer. The AO, referencing Q.45 of FBT Circular No.8/2005, determined that the value of such tickets should be based on the standard fare, as per section 115WC (1)(a) of the Act. The CIT(A) concurred with the AO, stating that the specific provisions of the Act override general clarifications. The Tribunal agreed with the AO and CIT(A), confirming the FBT on the value of free tickets at Rs.1,10,73,197.

III. Levy of FBT on Per Diem Allowances Paid to Pilots:
The appellant argued that per diem allowances paid to pilots during training were for training purposes and should not be considered as fringe benefits. The AO, referencing Q.79 of Circular No.8/2005, treated these allowances as fringe benefits, as they were paid for lodging and boarding. The CIT(A) upheld this view, stating that per diem allowances directly benefited employees and fell under the definition of fringe benefits in section 115WB(1)(a). The Tribunal agreed, affirming the inclusion of per diem allowances in the FBT calculation.

IV. Levy of FBT on Payments to Hotels for Layover of Crew Members:
The appellant argued that payments to hotels for crew layovers were genuine business expenses and should not attract FBT. The AO and CIT(A) considered these payments as amenities provided to employees, thus falling under FBT. The Tribunal upheld this view, referencing Q.79 of Circular No.8/2005, which clarifies that expenses for hotel, boarding, and lodging facilities fall within the scope of FBT. The Tribunal confirmed the inclusion of Rs.9.99 crores in the FBT calculation.

V. Basis for Classifying Expenses for FBT Purposes:
The appellant argued that expenses should be classified based on their ultimate purpose rather than the immediate and proximate purpose or the recipient. The Tribunal, however, upheld the AO's and CIT(A)'s approach of classifying expenses based on the immediate and proximate purpose, as per the provisions of section 115WB(2).

Conclusion:
The Tribunal dismissed the appeal, affirming the AO's and CIT(A)'s decisions on all issues. The AO's inquiry into the tax auditor's certificate was justified, and the FBT levied on free tickets, per diem allowances, and hotel payments for crew layovers was upheld. The classification of expenses for FBT purposes based on immediate and proximate purpose was also confirmed.