2012 (8) TMI 648 - AT - Income Tax

Fringe Benefit Tax whether the mere incurrence of the expenditure listed in Clauses (A) to (Q) of section 115WB(2) is enough to trigger the deeming prescription contained in the section or that it is further required to be established that specified expenditure has been incurred on account of consideration for employment so as to attract levy of FBT contemplated in section 115WA(1) Revenue contending levy of FBT in respect of expenditure on travelling of non-employees i.e. customers/outsider placing reliance on Circular No. 8 of 2005 - Held that - It is evident that the interpretation sought to be advanced by the Revenue is not borne out of the statutory provisions. Circular No. 8 of 2005 seeks to enlarge the scope of levy of FBT, which is not supported by the language of the statute. Circulars issued by CBDT cannot override the provisions of the Act. Therefore, expenses prescribed therein are liable to be considered as fringe benefits only to the extent the same are incurred in consideration for employment. Levy deleted FBT on insurance premium paid under Group Accident Policy assessee contending non levy on ground of it being expenditure on employees welfare arising out of statutory obligation or to mitigate occupational hazards - Held that - CIT(A) rightly observed that impugned expenditure is not on account of a statutory obligation and, therefore, the same does not fall within the exceptions provided in the Explanation to section 115WB(2)(E) Levy confirmed. FBT on the reimbursement of medical expenses to the extent of Rs 15,000/-. Held that - Medical reimbursement is taxable as perquisite in the hands of individual employees and merely because grant of such exemptions, same cannot be said to be a fringe benefit for the purposes of Chapter XII-H. Levy deleted. FBT on part of the expenses under the head depreciation and expenses on Aircraft and Club expenses, disallowed in the assessment finalized u/s 143(3) for personal in nature Held that - We remand the matter back to the file of the Assessing Officer who shall rework the liability of FBT on such dis-allowable expenses in accordance with the clarification issued by the CBDT in its Circular No. 8 of 2005 Decided partly in favor of assessee

Issues Involved:
1. Computation of Fringe Benefit Tax (FBT) liability.
2. Levy of FBT on travelling expenses.
3. Levy of FBT on sales promotion expenses.
4. Levy of FBT on insurance premium paid on Group Accident Policy.
5. Levy of FBT on reimbursement of medical expenses.
6. Levy of FBT on disallowed expenses under the head depreciation and expenses on Aircraft and Club expenses.

Detailed Analysis:

1. Computation of Fringe Benefit Tax (FBT) liability:
The primary issue in this appeal is the manner of computing the assessee's liability to pay FBT as per section 115WA of the Income-tax Act, 1961. The assessee contends that FBT should only apply to expenses incurred on employees, not on non-employees. The Revenue argues that section 115WB(2) lists 16 items of deemed fringe benefits, and any such expenses incurred by an assessee are liable to FBT, regardless of whether they are incurred on employees. The Tribunal concluded that the overriding condition for incurring expenditure in consideration for employment is relevant for assessing fringe benefits under section 115WB(2) as well. Therefore, the Tribunal directed the Assessing Officer to rework the FBT liability accordingly.

2. Levy of FBT on travelling expenses:
The assessee challenged the levy of FBT on travelling expenses at 20% instead of 5%. However, this aspect of the controversy was not pressed and was accordingly dismissed.

3. Levy of FBT on sales promotion expenses:
The assessee contested the levy of FBT on the entire amount of sales promotion expenses, arguing that a portion was not incurred on employees. The Tribunal directed the Assessing Officer to rework the chargeability of FBT in line with its discussion on the first issue, thus allowing the assessee's claim for statistical purposes.

4. Levy of FBT on insurance premium paid on Group Accident Policy:
The assessee claimed that the insurance premium paid under a Group Accident Policy should not attract FBT as it was meant to mitigate occupational hazards. The Tribunal found that the Commissioner of Income-tax (Appeals) rightly observed that the expenditure was not on account of a statutory obligation and upheld the levy of FBT on this amount.

5. Levy of FBT on reimbursement of medical expenses:
The assessee argued that reimbursement of medical expenses up to Rs 15,000/- is exempt in the hands of the employee and should not attract FBT. The Tribunal agreed with the assessee, citing precedents from other Tribunal Benches, and held that such medical reimbursements are not fringe benefits for the purposes of Chapter XII-H of the Act.

6. Levy of FBT on disallowed expenses under the head depreciation and expenses on Aircraft and Club expenses:
The assessee contended that disallowed expenses under these heads should not attract FBT. The Tribunal noted that the Commissioner of Income-tax (Appeals) had directed the Assessing Officer to consider the claim after finality of the disallowance matter. The Tribunal remanded the matter back to the Assessing Officer to rework the FBT liability in accordance with the CBDT's Circular No. 8 of 2005.

Conclusion:
The appeal of the assessee was partly allowed, with specific directions to the Assessing Officer to rework the FBT liability in accordance with the Tribunal's findings and relevant statutory provisions. The Tribunal's decision emphasized the necessity of linking fringe benefits to employment considerations as per the statutory framework of the Income-tax Act, 1961.

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