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2016 (9) TMI 149 - AT - Income TaxFringe benefit tax - whether the assessee employer is liable to be charged with FBT, notwithstanding the fact that the assessee s income derived only from agriculture was exempt from income tax under section 10(1) of the Act? - Held that - The assessee in the case on hand is not liable for imposition of FBT, since its only income i.e., agricultural income is exempt from income tax under section 10(1) of the Act and this income does not form part of and is not to be included in total income. See Apeejay Tea Ltd. vs. CIT and Another 2014 (7) TMI 1118 - CALCUTTA HIGH COURT .
Issues Involved:
1. Validity of notice issued under Section 115WH read with Section 115WG of the Income Tax Act, 1961. 2. Imposition of Fringe Benefit Tax (FBT) on the assessee's agricultural income. Issue-wise Detailed Analysis: 1. Validity of Notice Issued Under Section 115WH Read with Section 115WG: The assessee challenged the validity of the notice issued under Section 115WH read with Section 115WG, claiming it was void ab initio. The grounds included the assertion that the notice was issued without obtaining satisfaction from the Chief Commissioner or the Commissioner, and the reasons provided by the CIT(A) for confirming the AO's action were insufficient and contrary to facts and evidence on record. However, during the proceedings, the assessee did not press these grounds, rendering them infructuous and leading to their dismissal. 2. Imposition of Fringe Benefit Tax (FBT) on the Assessee's Agricultural Income: The core issue was whether FBT could be imposed on the assessee, whose income was solely derived from agricultural activities and thus exempt from income tax under Section 10 of the Act. The Assessing Officer (AO) had initiated reassessment proceedings and imposed FBT at 20% on expenditures related to business promotions, conveyance, staff welfare, telephone, and traveling expenses, aggregating ?8,08,415 for AY 2006-07 and ?9,09,554 for AY 2007-08. The AO's stance was based on the provisions of Section 115WA(2), which stipulate that FBT is payable by an employer on fringe benefits provided to employees, irrespective of whether the employer's income is taxable. This position was supported by the ITAT Kolkata Bench's decision in Mcleod Russel India Ltd., which held that FBT is applicable even if no income tax is payable by the employer on its total income. The assessee argued that since its income was solely agricultural and exempt from tax, no FBT should be chargeable. The assessee relied on the Hon'ble Calcutta High Court's decision in Apeejay Tea Ltd. vs. CIT, which held that the provisions of Chapter XII-H (dealing with FBT) must be read subject to Section 10 of the Act. Therefore, imposing FBT on agricultural income would indirectly tax agricultural income, which is not permissible under Section 10(1). The Tribunal, after considering the rival contentions and relevant judicial decisions, found that the Hon'ble Calcutta High Court's decision in Apeejay Tea Ltd. squarely covered the issue. The High Court had reversed the ITAT Kolkata Bench's decision, holding that the expenditure on fringe benefits should be reduced to 40% for the purpose of computing FBT, in line with the treatment of agricultural income under Rule 8. The Tribunal concluded that the assessee was not liable for FBT, as its income was solely agricultural and exempt from income tax under Section 10(1). Consequently, the Tribunal reversed the CIT(A)'s orders for both assessment years and allowed the assessee's appeals on this ground. Conclusion: The Tribunal held that the assessee, whose income is solely derived from agricultural activities and exempt under Section 10(1), is not liable for the imposition of FBT. The appeals were partly allowed, with the Tribunal reversing the CIT(A)'s orders and dismissing the grounds related to the validity of the notice as they were not pressed by the assessee.
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