2011 (5) TMI 544 - AT - Income Tax

Fringe benefit on the tours and travel expenses - @ 20% Or 5% - Held that - The word construction though mainly connected to the building but it includes within its ambit a bridge under construction building erection elevation establishment assembly manufacture fabrication. It also includes an impressive construction structure building edifice assembly framework. Therefore its ambit has not been restricted to only to construction of building. It includes impressive construction structure building edifice assembly framework etc. The nature of plants made by the assessee included fixation of certain equipments on land for managing waste and it include also certain degree of civil construction. A structure is created through which the waste is managed by those equipments. It also requires land to establish such erections and to put plant thereon. Therefore it cannot be said that assessee s activity does not involve business of construction. Even at the cost of repetition it may be mentioned here that the word utilized in the provision is only construction and not civil construction. Therefore the application of sec. 115WC(2)(b) cannot be restricted only to the business relating to civil construction and it will cover the business activity of the assessee carried on in the present case. Therefore no substance in the addition which has been upheld by CIT(A) the same is deleted - Decided in favour of assessee.

Summary

Issues:
1. Calculation of fringe benefit tax on tour and travel expenses at 20% instead of 5%.
2. Determination of whether the assessee is engaged in the business of construction for fringe benefit tax purposes.

Analysis:
1. The appeal was against the order of the ld. CIT(A) regarding the calculation of fringe benefit tax at 20% on tour and travel expenses instead of the claimed 5% for the assessment year 2006-07. The AO assessed the fringe benefit at Rs. 1,52,522, adding Rs. 1,06,815 to the assessee's value. The assessee contended that its activities involving manufacturing specialized equipment required construction work, justifying the 5% rate. However, the AO rejected this claim, stating the assessee's activities did not include construction as claimed. The AO's decision led to a tax demand of Rs. 47,622. The assessee challenged this decision in the appeal.

2. The main issue was whether the assessee's activities constituted engagement in the business of construction, warranting the lower fringe benefit tax rate of 5%. The assessee argued that the installation of specialized equipment required significant civil construction work, supported by drawings and definitions of "construction." The ld. CIT(A) disagreed, deeming the civil construction activities ancillary to the primary manufacturing activity. The CIT(A) upheld the AO's decision, denying the assessee the 5% rate. The Tribunal noted that the term "construction" was not defined in the Income Tax Act and interpreted it broadly to include activities beyond civil construction. Considering the nature of the plants made by the assessee, which involved erecting equipment on land for waste management, the Tribunal concluded that the assessee's activities indeed fell within the ambit of construction. As a result, the Tribunal allowed the appeal, overturning the CIT(A)'s decision and deleting the additional tax imposed by the AO.

This detailed analysis of the judgment highlights the key issues, arguments presented, and the Tribunal's decision on each matter, providing a comprehensive understanding of the legal aspects involved in the case.