2015 (2) TMI 19 - HC - Income Tax

Liability for FBT - Payment of uniform allowance etc. to the employees - Held that - The facts which emerges from the record is that the respondent is a Government undertaking, operating all over India, and there is nothing on record that this issue had arisen in any State other then the State of Gujarat. In that view of the matter, it is required to be looked very seriously inasmuch as the benefits which are conferred to the other employees of the respondent-company throughout the country are accepted by the Revenue as benefit deductible and has not been considered as part of salary. Since assessee was governed FBT provision and the applicability of provision for salary will not apply and contention raised by assessee is rightly accepted by the Tribunal. We have gone through the provisions of section 12H and benefits which are conferred under section 115WB(2)(E) of the Income Tax Act. While reading clause(E), the provisions of section 17(2)(vi) whether the payment made under FBT is excluded or not, in our view, it is excluded. Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the payment of uniform allowance to employees is liable for Fringe Benefit Tax (FBT).
2. Whether the payment of uniform allowance should be considered as additional salary under Section 17(1)(iv) of the Income Tax Act, thus attracting the TDS provisions of Section 192.

Detailed Analysis:

1. Liability for Fringe Benefit Tax (FBT):
The Revenue challenged the judgment of the ITAT, which held that the payment of uniform allowance to employees by the assessee is liable for FBT. The core issue was whether these payments should be considered as fringe benefits or as part of the employees' salary, thus requiring TDS deduction.

The Tribunal examined the provisions of Section 17(2)(vi) and Section 115WB(2)(E) of the Income Tax Act. Section 17(2)(vi) excludes fringe benefits chargeable to tax under Chapter XII-H from being considered as perquisites. Section 115WB(2)(E) specifies that FBT is payable on any expenditure incurred on employees' welfare, excluding those expenditures incurred to fulfill statutory obligations or mitigate occupational hazards. The Tribunal noted that the expenditure on uniforms and washing allowances, which are not statutory obligations, falls under the category of employees' welfare and is thus subject to FBT.

The Tribunal also referred to the CBDT Circular No. 8/2005, which clarifies that expenditure incurred to meet statutory obligations is exempt from FBT. Since the uniform allowance in question was not a statutory obligation, it was liable for FBT. The Tribunal concluded that the employer's payment of FBT on these expenditures meant that they were not perquisites under Section 17(2)(vi), and therefore, no TDS was required to be deducted by the employer.

2. Consideration as Additional Salary:
The Revenue contended that the uniform allowance should be treated as additional salary under Section 17(1)(iv) and thus attract TDS provisions under Section 192. The Tribunal, however, held that since the employer had paid FBT on these expenditures, they were not considered as part of the employees' salary. The Tribunal emphasized that the FBT provisions were introduced to avoid double taxation, ensuring that the same benefit is not taxed both in the hands of the employer and the employee.

The Tribunal also referred to the Supreme Court's judgment in R & B Falcon (A) Pty. Ltd. v. Commissioner of Income-tax, which highlighted that FBT is levied on the employer for providing fringe benefits to employees and not on the employees themselves. This judgment supported the Tribunal's view that the uniform allowance, being subject to FBT, should not be considered as additional salary requiring TDS deduction.

Conclusion:
The High Court concurred with the Tribunal's findings and dismissed the Revenue's appeals. The Court held that the payment of uniform allowance, being subject to FBT, is not part of the employees' salary under Section 17(1)(iv) and does not attract TDS provisions under Section 192. The Court emphasized that the benefits provided to employees by the assessee, a government undertaking, are consistent across the country and have been accepted by the Revenue in other states as well. The Court did not examine whether the payment made is exempt under Section 10(14) of the Income Tax Act.