2011 (8) TMI 751 - AT - Income Tax

Fringe Benefits - additions to the fringe benefits computation - Addition of Medical Aid - where perquisites /benefits which are fully attributable to the employee and are taxed in their hands would be continued to be taxed under the existing provisions of section 17(2) of the Act. Only in case where the benefits are usually enjoyed collectively by the employees and cannot be attributed to an individual employee they shall be taxed in the hands of the employer - Held that - specific item of perquisite which is normally taxable in the hands of individual employee cannot be subjected to FBT only for the reason that the same is exempt in the hands of the employees when an item which is to be treated as a perquisite is exempt in the hands of the individual employee the same could not be subjected to FBT Entertainment Expenses inside the office Premises - assessee explained that the amount represented expenditure incurred for providing snacks/refreshments to customers within the office premises and therefore the same is to be excluded from the fringe benefit as per the provisions of section 115WB(2)(B)(i). contention was rejected by the Assessing Officer on the ground that the exemption was provided only for expenditure incurred on his employees; whereas the assessee provided snacks/refreshments to its customers and accordingly treated as fringe benefit by the Assessing Officer and brought to tax - said reason without substance since the basis of fiction contained in section 115WB(2) is that certain expenses if incurred shall be deemed to have been provided by the employer to his employees. Therefore if certain species of expenditure incurred on the employees are excluded from the purview of FBT the same exclusion will also hold good for other persons appeal allowed Conference fees - expenditure was incurred for the assessee s employees to attend conference. Apart from these two receipts the assessee has not produced any factual evidence to show that these are expenses incurred as fees for participation by its employees in a conference - if these amounts were found to be participation fee for attending conference by the assessee s employees the same should not be included as fringe benefit - Matter remanded to Assessing Officer to verify the genuineness of the claim.

Summary

Issues Involved:
1. Addition of Medical Aid
2. Entertainment expenses inside the office premises
3. Conference fees

Detailed Analysis of the Judgment:

(i) Addition of Medical Aid - Rs. 45,00,000

The assessee bank contested the addition of Rs. 45,00,000 made by the Assessing Officer (AO) under fringe benefits for medical aid expenses. The bank argued that these expenses were medical reimbursements treated as perquisites under section 17 of the Income-tax Act, 1961, and thus should not be taxed as fringe benefits. The AO rejected this explanation, stating the bank did not specify if reimbursements exceeded Rs. 15,000 per employee, which would be treated as perquisites under section 17 and fringe benefits under section 115WB(2)(E) if less than Rs. 15,000.

The CIT(A) upheld the AO's decision, referencing Board's Instruction No. 8 of 2005. The assessee's counsel cited the Mumbai Tribunal's decision in Godrej Properties Ltd. v Addl. CIT and the Finance Minister's budget speech, arguing that perquisites directly attributed to employees should be taxed in their hands, not as fringe benefits.

The Tribunal agreed with the assessee, noting that section 17(2) proviso (v) exempts medical reimbursements up to Rs. 15,000 from being taxed as perquisites. Section 115WB(3) excludes perquisites taxed in employees' hands from fringe benefits. The Tribunal concluded that exempt perquisites should not be subjected to fringe benefit tax (FBT), citing the Mumbai Tribunal's decision in Godrej Properties Ltd. The appeal on this ground was allowed.

(ii) Entertainment expenses inside the office premises - Rs. 49,04,111

The assessee bank argued that Rs. 49,04,111 spent on snacks/refreshments for customers within office premises should be excluded from fringe benefits under section 115WB(2)(B)(i). The AO and CIT(A) rejected this, stating the exemption applies only to employees, not customers.

The Tribunal examined section 115WB(2)(B), which extends the term "fringe benefits" to specific expenses. It noted that expenses for providing snacks/refreshments to employees are excluded from fringe benefits. The Tribunal reasoned that if such expenses are excluded for employees, they should also be excluded for other persons. The appeal on this ground was allowed.

(iii) Conference fees - Rs. 3,14,438

The assessee bank claimed Rs. 3,14,438 as conference fees for employee participation, which should be exempt under section 115WB(2)(C). The AO and CIT(A) included this in fringe benefits, arguing that the assessee did not provide evidence that the fees did not include other expenses like travel or lodging.

The Tribunal noted the assessee provided receipts for Rs. 17,000 and Rs. 23,597 as conference fees but lacked comprehensive evidence. The Tribunal remitted the issue to the AO to verify the genuineness of the claim. If verified as participation fees, these should not be included as fringe benefits.

Conclusion:

The appeal was partly allowed, with the Tribunal ruling in favor of the assessee on medical aid and entertainment expenses but remitting the conference fees issue for further verification.