2016 (6) TMI 731 - AT - Income Tax

Value of FBT u/s 115WB - Contributions to approved Pension Fund - liability to fringe benefit tax (FBT) - Held that - As relying on Andhra Bank, Hyderabad Versus DCIT, Circle 1(1), Hyderabad 2014 (7) TMI 804 - ITAT HYDERABAD we set aside the impugned order and direct the AO to allow the claim of the assessee and not to consider the impugned contribution of the assessee to the Pension Fund as a Fringe Benefit provided by the assessee to its employees. 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. Whether the statutory contribution to the Pension Fund by the assessee is considered a fringe benefit under section 115WB(1) of the Income Tax Act, 1961.
2. The applicability of fringe benefit tax (FBT) on contributions to the Pension Fund.
3. Whether the statutory nature of the contribution to the Pension Fund exempts it from FBT.
4. The implications of double taxation on contributions to the Pension Fund.
5. The treatment of contributions to the Pension Fund in lieu of Provident Fund under FBT provisions.
6. The retrospective application of amendments related to FBT on contributions to the Pension Fund.
7. The calculation of FBT on lump sum contributions to the Pension Fund under a defined benefit scheme.
8. Charging of interest under sections 115WJ and 234D.

Detailed Analysis:
1. Statutory Contribution to Pension Fund as Fringe Benefit:
The primary grievance of the assessee was that the statutory contribution to the Pension Fund was considered by the AO as a fringe benefit under section 115WB(1) of the Income Tax Act, 1961. The AO held that the contribution to the approved Pension Fund by the assessee was liable for tax under FBT provisions, adding ?471,42,65,330 to the value of fringe benefits.

2. Applicability of FBT on Contributions to Pension Fund:
The AO observed that FBT applies to expenses incurred or payments made for business purposes. He elaborated that if an expense covered by clauses (A) to (Q) of section 115WB(2) is disallowed as personal expenses under section 37(1), FBT cannot be imposed. However, if the expense is actually incurred, FBT can be imposed. The AO referred to CBDT's Circular No. 8/2005, which states that no FBT can be charged on capital expenditure resulting in asset acquisition eligible for depreciation.

3. Statutory Nature of Contribution to Pension Fund:
The assessee argued that the contributions to the Pension Fund were statutory, backed by a notification from the Central Government, and in lieu of Provident Fund contributions. The contributions were not voluntary and were a statutory liability of the bank. The assessee contended that since Provident Fund contributions were not subject to FBT, the Pension Fund contributions should also be exempt.

4. Double Taxation:
The assessee argued that taxing contributions to the Pension Fund as fringe benefits and also as pension when the employee retires results in double taxation, defeating the purpose of the legislation. The objective of FBT was to tax benefits not taxed as perquisites in the hands of employees.

5. Contributions to Pension Fund in Lieu of Provident Fund:
The assessee stated that employees could either opt for the Provident Fund or the Pension Fund, but not both. Contributions to the Pension Fund were in lieu of Provident Fund contributions, and the bank's contributions to the Pension Fund were statutory. The assessee cited the ITAT Hyderabad Bench's decision in the case of Andhra Bank, which held that contributions to the Pension Fund were not liable for FBT.

6. Retrospective Application of Amendments:
The ITAT Hyderabad Bench in the case of Andhra Bank analyzed the amendments and definitions relevant to section 115WB(1)(c) and concluded that contributions to the Pension Fund up to ?1 lakh per employee were excluded from FBT from the assessment year 2007-08. The amendments were considered retrospective in operation to remedy unintended consequences.

7. Calculation of FBT on Lump Sum Contributions:
The ITAT Hyderabad Bench held that lump sum contributions to the Pension Fund under a defined benefit scheme do not attract FBT provisions. The contributions were made based on actuarial valuation, and individual employee benefits were not earmarked. Therefore, the lump sum contributions could not be considered under section 115WB(1)(c) for FBT purposes.

8. Charging of Interest under Sections 115WJ and 234D:
The issue of charging interest under sections 115WJ and 234D was considered consequential in nature by both parties.

Conclusion:
The ITAT Delhi ruled in favor of the assessee, setting aside the impugned order and directing the AO not to consider the contributions to the Pension Fund as fringe benefits. The decision was based on the statutory nature of the contributions, the objective of FBT, and the retrospective application of relevant amendments. The appeals of the assessees were allowed, and the issue of charging interest under sections 115WJ and 234D was deemed consequential.

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