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2012 (2) TMI 30 - AT - Income TaxFringe Benefit Tax residential accommodation provided to M.D. - Deposit of Rs 5 crore made for the licence to use & occupy the property Revenue considering notional interest on such deposit under FBT Held that - The provision relating to the computation of the value of the fringe benefits is contained in section 115WC. It is a settled principle of law that where the computation provision fails, the charging section cannot be effectuated. In present case, AO has adopted 9% rate which was generally available on FDRs, one can argue that this rate may be 20% which was applicable to ICD. Therefore, it is held that though the provision of security deposit is definitely in the nature of fringe benefit under clause (a) of sub-section (1) of section 115WB, but in the absence of valuation rules, the same cannot be subjected to tax. Accordingly, order of CIT(A) is set aside and addition made is deleted Decided in favor of assessee.
Issues Involved:
1. Levy of Fringe Benefit Tax (FBT) on notional interest from an interest-free refundable deposit provided by the employer for residential accommodation of the Chairman-cum-Managing Director. Issue-wise Detailed Analysis: 1. Levy of Fringe Benefit Tax (FBT): Background: The core issue revolves around the levy of FBT on the notional interest from an interest-free refundable deposit of Rs. 5 crore paid by the assessee company for leasing a residential flat for its Chairman-cum-Managing Director. The Assessing Officer (AO) treated this as a fringe benefit under section 115WB(1) of the Income Tax Act, adding a notional interest of Rs. 45 lakhs to the value of the fringe benefit. Arguments by Assessee: The assessee contended that the deposit was made out of share capital raised and not borrowed funds. They argued that no benefit was passed on to the Chairman-cum-Managing Director as the deposit was for securing the lease of the flat. They relied on Board Circular No. 8 dated 29-08-2005, which states that if no provision for computing the value of a fringe benefit exists, it cannot be subjected to tax. They also cited the Supreme Court decision in Uco Bank vs. CIT (237 ITR 889) and the Delhi High Court decision in CIT vs. Vijay Singh (323 ITR 446), which held that notional interest does not constitute a perquisite and hence cannot be treated as a fringe benefit. Arguments by Revenue: The Revenue argued that no specific valuation rule is required for benefits mentioned in clause (a) of sub-section (1) of section 115WB, and any benefit provided by the employer should be taxable. They emphasized that the value of the benefit should be the actual cost incurred by the employer, such as the value of a gold coin given to an employee. Tribunal's Analysis: The Tribunal examined the provisions of section 115WB and 115WC, which define and provide valuation rules for fringe benefits. It noted that while section 115WB(1) lists various categories of fringe benefits, section 115WC provides valuation rules for these benefits. However, no specific valuation rule exists for benefits under clause (a) of sub-section (1) of section 115WB. The Tribunal referred to the Board Circular No. 8, which clarifies that if no provision exists for computing the value of a fringe benefit, the charging section cannot be effectuated. It also noted the principle that an Act should be interpreted to ensure no provision becomes redundant. The Tribunal acknowledged that while some benefits can be directly valued (e.g., a cook's salary or the value of a gold coin), others require specific valuation rules. Conclusion: The Tribunal concluded that in the absence of specific valuation rules for the notional interest on the security deposit, the fringe benefit cannot be subjected to tax. It emphasized that the provision of the security deposit is indeed a fringe benefit under clause (a) of sub-section (1) of section 115WB, but without valuation rules, it cannot be taxed. Consequently, the Tribunal set aside the CIT(A)'s order and deleted the addition of Rs. 45 lakhs on account of fringe benefit for each of the two assessment years in question. Final Order: The appeals by the assessee were allowed, and the addition of Rs. 45 lakhs on account of fringe benefit of notional interest was deleted for both assessment years. Order Pronounced on: 20.1.2012
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