2013 (5) TMI 371 - AT - Income Tax

Hotel expenses on travel and motor car expenses and brand subscription fees - whether would be called as a privilege, service facility or amenity , within the meaning of 115 WB (1) - whether be charged under FBT? - Held that - As per the settled law FBT is leviable with regard to the payments that result in some benefit to the employees of the assessee. If on the touchstone of this principle case under consideration is tested it becomes clear that addition made by the AO to the value of the FB cannot be endorsed. Though the AO and the FAA have held that expenses incurred by the assessee under the head hotel expenses and car expenses were incurred for employees, yet they have nowhere referred to any material on the basis of which they arrived at the said conclusion. The fact of benefit to employees has not been established, therefore, value of car expenses and hotel expenses cannot be added to the FB value declared by the assessee company. Brand promotion expenses - Held that - They cannot be treated as FB to the employees as circular no.8 dtd.29.08.2005 CBDT has clarified that for levy of FBT employer-employee relationship is the basic condition. In the case under consideration payment had been paid to another group concern. Thus, there is no direct or indirect benefit has accrued to the employees of the appellant company. Therefore FBT cannot be levied on brand promotion expenses. See M/s. Toyota Kirloskar Motor P.Ltd. (2012 (6) TMI 484 - ITAT, Bangalore), Kotak Mahindra Old Mutual Life Insurance Ltd., (2011 (11) TMI 497 - ITAT MUMBAI) and M/s. Tata Asset Management Ltd. (2012 (6) TMI 137 - ITAT MUMBAI) - In favour of assessee.

Summary

Issues:
1. Interpretation of provisions of Fringe Benefit Tax (FBT) regarding hotel expenses, motor car expenses, and brand subscription fees.
2. Applicability of FBT on various expenditures incurred by the assessee company.
3. Assessment of whether the expenses incurred by the company benefit its employees collectively.
4. Consideration of legal precedents and judgments in determining the liability of FBT on different expenses.

Issue 1: Interpretation of FBT provisions on specific expenses

The appeal challenged the CIT(A)'s decision on various grounds related to the interpretation of FBT provisions. The appellant argued that certain expenses, such as hotel expenses during travel, motor car expenses for official work, and brand subscription fees, should not be considered as 'fringe benefits' under Section 115WB(1). The appellant contended that these expenses did not constitute a privilege, service facility, or amenity for the employees. The CIT(A) upheld the levy of FBT on these expenses, stating that employees benefited from them. The appellant further argued that brand subscription fees did not qualify as consideration for employment and, therefore, should not be subject to FBT.

Issue 2: Applicability of FBT on company expenditures

The AO assessed the company's FBT return and made disallowances on car hire, brand subscription, and hotel expenses. The AO considered these expenses as benefiting employees and added a percentage of each expense to the total value of FB. The CIT(A) confirmed these disallowances, stating that employees derived benefits from these expenditures. The appellant appealed these decisions, citing judgments from different tribunals supporting their position that these expenses were not liable to FBT.

Issue 3: Assessment of employee benefit from company expenses

The Tribunal analyzed whether the expenses incurred by the company actually benefited its employees collectively, a crucial factor in determining the applicability of FBT. The Tribunal found that the AO and CIT(A) did not provide sufficient evidence to establish that the expenses directly benefited the employees. Consequently, the Tribunal concluded that the car and hotel expenses should not be added to the FB value. Regarding brand promotion expenses, the Tribunal held that since the payment was made to another group concern and did not directly or indirectly benefit the employees, FBT could not be levied on these expenses.

Issue 4: Consideration of legal precedents

The Tribunal considered various legal precedents and judgments, including those from the Bangalore and Mumbai Benches of the Tribunal, to support its decision in favor of the assessee-company. These precedents emphasized the importance of establishing a direct benefit to employees for FBT liability. The Tribunal's decision aligned with the interpretations provided in these judgments, leading to the allowance of the appeal filed by the assessee.

In conclusion, the Tribunal allowed the appeal, ruling in favor of the assessee-company based on the lack of evidence establishing employee benefit from the incurred expenses and in alignment with legal precedents emphasizing the necessity of employee benefit for FBT liability.