2011 (12) TMI 331 - AT - Income Tax

Fringe benefit tax on actual contribution by the assessee on behalf of employees - Held That - Revenue s action in bringing the amount of undischarged liability towards contribution (Rs. 2558.01 lakhs), discharged on April 3, 2006, to tax for the relevant year, i.e., A.Y. 2006-07 is justified. Reliance placed on CIT v. Ajay Forgings (P.) Ltd (2002 - TMI - 12511 - CALCUTTA High Court),

Summary

Issues Involved
1. Determination of Fringe Benefit Tax (FBT) liability on contributions to the Employees' Superannuation Fund.
2. Interpretation of Sections 115WA, 115WB, and 115WC of the Income-tax Act, 1961.
3. Timing and recognition of fringe benefits for tax purposes.

Detailed Analysis

1. Determination of Fringe Benefit Tax (FBT) Liability on Contributions to the Employees' Superannuation Fund

The primary issue revolves around whether the entire contribution of Rs. 3286.09 lakhs to the Employees' Superannuation Fund for the financial year 2005-06 should be subject to FBT for the assessment year 2006-07. The assessee argued that only the actual contribution made during the year (Rs. 728.08 lakhs) should be considered, while the remaining amount (Rs. 2558.01 lakhs) was paid in the following financial year. The Revenue contended that FBT is payable in the year the expenditure is incurred, supported by CBDT Circular No. 8/2005.

2. Interpretation of Sections 115WA, 115WB, and 115WC of the Income-tax Act, 1961

The assessee's argument relied on the interpretation of Sections 115WA, 115WB, and 115WC. Section 115WA imposes FBT on fringe benefits provided or deemed to be provided by an employer to employees. Section 115WB(1) defines 'fringe benefits' and includes contributions to an approved superannuation fund. The assessee argued that the term 'fringe benefit' under Section 115WB(1) should only include actual contributions, not provisions in accounts. Section 115WC(1)(b) refers to the "actual amount of the contribution," which the assessee interpreted as supporting their view that only actual payments should be taxed.

3. Timing and Recognition of Fringe Benefits for Tax Purposes

The Tribunal analyzed whether the provision of fringe benefits should be recognized based on actual payment or the incurring of liability. The Tribunal noted that both Sections 115WB(1) and 115WB(2) could involve payments to third parties, not necessarily direct payments to employees. It emphasized that the provision of a benefit and the payment of the corresponding liability are distinct events. The Tribunal concluded that the critical factor is the provision of a benefit to the employee, which can occur when the employer incurs a liability, not necessarily when the payment is made.

Conclusion

The Tribunal upheld the Revenue's stance that the entire contribution of Rs. 3286.09 lakhs should be subject to FBT for the assessment year 2006-07. It clarified that the provision of fringe benefits includes both actual payments and incurred liabilities. The argument that only actual contributions should be taxed was rejected, as the legislative intent and statutory provisions did not support such an interpretation. The Tribunal directed that if the amount was taxed again in the following year, the assessment should be amended accordingly, avoiding double taxation. The assessee's appeal was dismissed on these terms.