2014 (7) TMI 804 - AT - Income Tax

Value of FBT u/s 115WB(1)(c) Single contribution towards pension fund made for all its employees - lump sum amount - details of contribution pertaining to each employee are not available in the Actuarial Valuation Report Held that - The contribution paid by the assessee bank is mainly made up of two components, firstly to meet the cost of the accruing benefits during the year and secondly, an adjustment for any deficit or surplus in the scheme at the time for the past year(s) - it is not possible to derive the contribution on a per employees basis which may be used for income tax purposes Relying upon CIT vs. L.W. Russel 1964 (4) TMI 4 - SUPREME Court - the amount paid during the year cannot be considered as a contribution to superannuation fund as contemplated under the provisions of section 115WB(1)(c) - the amount is not paid to the benefit of any individual employee, the lump sum contribution made under the defined benefit scheme does not attract provisions of 115WB(1)(c) - as per the definition of contribution , no individual employee had any benefit earmarked the payment cannot be considered as covered by the provisions of 115WB(1)(c) thus, the contribution made to the fund under this benefit scheme cannot be considered as the amount to be considered under the provisions of section 115WB(1)(c) for the purpose of FBT Decided in favour of Assessee.

Issues Involved:
1. Applicability of Fringe Benefit Tax (FBT) on employer contributions to the pension fund under section 115WB(1)(c) of the Income Tax Act, 1961.
2. Whether the amendment to section 115WB(1)(c) applicable from A.Y. 2007-08 should be applied retrospectively to A.Y. 2006-07.
3. Nature and classification of contributions to the pension fund under the defined benefit scheme.

Issue-wise Detailed Analysis:

1. Applicability of FBT on Employer Contributions to Pension Fund:
The primary issue was whether the employer's contribution to the pension fund should be considered as a fringe benefit under section 115WB(1)(c) of the Income Tax Act, 1961. The assessee, a scheduled bank, argued that the contribution to the pension fund was a statutory liability and should not attract FBT. The Assessing Officer (A.O.) contended that the contribution to the pension fund is distinct from employee welfare and falls squarely under section 115WB(1)(c), thus subject to FBT. The A.O. added Rs. 75,25,49,000 to the FBT value, which the assessee had claimed as an expenditure towards the pension fund.

2. Retrospective Application of Amendment to Section 115WB(1)(c):
The assessee relied on a decision of the Coordinate Bench at Jaipur, which held that the amendment to section 115WB(1)(c) brought by the Finance Act, 2006, should be applied retrospectively. This amendment allowed a deduction of up to Rs. 1 lakh per employee for contributions to the pension fund. The CIT(A) directed the A.O. to verify and allow this deduction, following the Jaipur Bench's decision. The Revenue, however, contested this direction, arguing that the amendment should not apply retrospectively to A.Y. 2006-07.

3. Nature and Classification of Contributions to the Pension Fund:
The assessee maintained that the pension fund contributions were made under a "defined benefit scheme," which does not allow for the segregation of contributions on a per-employee basis. The lump sum contribution is based on actuarial valuation and is not credited to individual employee accounts. The assessee argued that since the contributions are not quantifiable per employee, they should not be considered as fringe benefits under section 115WB(1)(c). The Tribunal considered various judicial precedents, including decisions from the Hon'ble Supreme Court and the Authority for Advanced Rulings (AAR), which supported the view that contributions under a defined benefit scheme do not result in a direct present benefit to employees and thus should not be treated as fringe benefits.

Judgment:
The Tribunal held that the lump sum contribution made under the defined benefit scheme does not attract the provisions of section 115WB(1)(c) for FBT purposes. The Tribunal noted that the contributions were not credited to individual employee accounts and thus did not meet the definition of "contribution" under the relevant provisions. Consequently, the assessee's appeal was allowed, and the Revenue's appeal was dismissed. The Tribunal also concluded that the issue of applying the amendment retrospectively became academic, as the primary ground of the assessee was upheld. The order pronounced in the open court on 16.07.2014 granted full relief to the assessee.

Conclusion:
The Tribunal's decision clarified that contributions to a pension fund under a defined benefit scheme, which are not credited to individual employee accounts, do not attract FBT under section 115WB(1)(c). The Tribunal also upheld the view that the amendment allowing a deduction of up to Rs. 1 lakh per employee should apply retrospectively, although this point became moot due to the primary finding in favor of the assessee.

← Previous Next →