2017 (4) TMI 361 - HC - Income Tax

FBT - nature of expenses incurred by the assessee / employer for the services / activities - deemed Fringe Benefits provides to employees as per the provisions of Section 115WB(2) Clause A to Q of the I.T. Act, 1961 - Held that - When the language of Section 115WA and 115WB is clear and unambiguous and even the intention of the legislature while enacting sections 115WA and 115WB(2) is very clear i.e. with respect to the deemed fringe benefits , neither there is any scope for either literal and/or purposive interpretation nor there is any occasion to consider the intention and for that purpose the speech of Hon ble Prime Minister in the Parliament. At the cost of repetition it is observed that in absence of challenge to the constitutional validity of either sections 115WA or 115WB, both the aforesaid provisions are required to be read as they are. As per the cardinal principle of law, the provisions are required to be read, more particularly taxing provisions are required to be read not only as they are but even while reading such provisions one has to see that the provisions do not become nugatory and/or otiose. Considering the provisions of Sections 115W, 115WA, 115WB(1) and 115WB(2) as they are, the CBDT has rightly clarified that with respect to the expenses incurred by the assessee / employer for the services / activities referred to in clause (A) to (P) of subsection (2) of Section 115WB, there shall be FBT, is absolutely just and proper and in consonance with the provisions of the Statute more particularly sections 115WA, 115WB and 115WC. The clarifications made by the CBDT in the impugned circular cannot be said to be contrary to the provisions of the Statute more particularly Sections 115W, 115WA, 115WB(1) and 115WB(2). Under the circumstances, the challenge to the impugned circular fails and it is held that the FBT is leviable on the expenses referred to in clauses (A) to (P) of subsection (2) of Section 115WB as they are deemed to be the fringe benefits deemed to have been provided by the employer to his employees. Under the circumstances, the petitions deserve to be dismissed and are, accordingly, dismissed. Estimation of FBT - Held that - Fringe Benefit is required to be valued as per section 115WC(1) of the Act more particularly 20% of such expenses are to be treated as fringe benefits as per section 115WC(1) of the Act. Under the circumstances, learned Tribunal has materially erred in valuing the Fringe Benefit on the basis of the estimation.

Issues Involved:
1. Legality of Circular No. 8/2005 issued by the Central Board of Direct Taxes (CBDT).
2. Applicability of Fringe Benefit Tax (FBT) on specific expenses incurred by employers.
3. Interpretation of Sections 115WA and 115WB of the Income Tax Act, 1961.
4. Whether the Tribunal erred in deleting additions made by the Assessing Officer under FBT provisions.

Detailed Analysis:

1. Legality of Circular No. 8/2005 issued by the CBDT:
The petitioners challenged Circular No. 8/2005 issued by the CBDT, which clarified that FBT is leviable on various expenses incurred by employers such as entertainment, hospitality, conference, sales promotion, conveyance, tour and travel, and other specified expenditures. The petitioners argued that the circular was contrary to the object and purpose of FBT, which was to tax benefits provided to employees and not general business expenses. However, the court upheld the circular, stating that the language of Sections 115WA and 115WB is clear and unambiguous, and the circular was in consonance with the statutory provisions.

2. Applicability of FBT on Specific Expenses Incurred by Employers:
The court examined whether FBT is applicable to expenses such as sales promotion, conveyance, tour and travel, repairs and maintenance, other allowances, and telephone expenses. The petitioners contended that these expenses were not directly related to employees and should not attract FBT. The court, however, held that under Section 115WB(2), certain expenses are deemed to be fringe benefits provided by the employer to employees, irrespective of whether they are directly related to employees or not. Thus, FBT is applicable to these expenses as per the statutory provisions.

3. Interpretation of Sections 115WA and 115WB of the Income Tax Act, 1961:
The court analyzed the interpretation of Sections 115WA and 115WB, which deal with the charge of FBT and the definition of fringe benefits, respectively. The court noted that Section 115WB is in two parts: Subsection (1) covers direct fringe benefits provided by the employer to employees, while Subsection (2) expands the definition to include deemed fringe benefits based on certain expenses incurred by the employer. The court emphasized that Subsections (1) and (2) operate in different fields and that the deeming provision in Subsection (2) creates a legal fiction to expand the scope of fringe benefits. Thus, expenses listed under Subsection (2) are subject to FBT even if they are not directly related to employees.

4. Whether the Tribunal Erred in Deleting Additions Made by the Assessing Officer Under FBT Provisions:
The court reviewed several tax appeals where the Tribunal had deleted additions made by the Assessing Officer under FBT provisions. In Tax Appeal No. 474/2014, the Tribunal had deleted an addition of ?1.11 crores related to sales promotion, conveyance, tour and travel, miscellaneous repairs and maintenance, other allowances, and telephone expenses. The court held that the Tribunal erred in its decision, as these expenses fall under the deemed fringe benefits as per Section 115WB(2) and are subject to FBT. Similarly, in Tax Appeal Nos. 1155/2014 to 1157/2014 and 888/2015, the Tribunal had deleted additions related to conference, sales promotion, conveyance, hotel boarding and lodging, repairs and maintenance of motor car, maintenance of guest house, seminar and conference expenses, cost of free samples, gifts to business associates, medical expenses, and club membership fees. The court quashed the Tribunal's orders, holding that these expenses are liable to FBT under the statutory provisions.

Conclusion:
The court dismissed the petitions challenging the CBDT circular and upheld the applicability of FBT on the specified expenses as per Section 115WB(2). The court also allowed the tax appeals preferred by the Revenue, setting aside the Tribunal's orders that had deleted the additions made by the Assessing Officer under FBT provisions. The court emphasized that the statutory provisions are clear and unambiguous, and the expenses listed under Section 115WB(2) are deemed to be fringe benefits subject to FBT.

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