2017 (12) TMI 1161 - AT - Income Tax

Income tax on fringe benefits - fringe benefit tax being 20% of the medical expenses incurred by appellant - whether CIT (A) failed to appreciate that reimbursement of medical expenses to employees falls within the meaning of salary and does not fall within the purview of fringe benefit tax - Held that - See Grindwell Norton Ltd. vs ACIT 2014 (4) TMI 1203 - ITAT MUMBAI wherein while dealing with identical issue, it was held that medical expenses were directly attributable to each employee distinctly and were not in the nature of collective benefit enjoyed by the employees. The Hon ble ITAT observed that medical reimbursement was to be treated as a perquisite u/s 17(2) of Income tax Act, 1961 though a threshold limit of exemption was provided under clause (v) at ₹ 15,000. Accordingly, the ITAT correctly held that reimbursement of medical expenditure did not constitute Fringe Benefit as defined in Sec. 115WB of the Act - Decided in favour of assessee Attributing additional 10% of the composite participation fees as expenditure liable to fringe benefit tax - Held that - The CBDT Circular No.8/2005 in answer to Q.NO.11 has clarified that one has to go by the primary purpose of the expenditure. In the case of composite fee, it is difficult to apportion the component of expenditure on food and lodging and a proportionate expenditure for participation in conference by the employee. Keeping in mind the spirit of FBT as explained in the CBDT Circular, we are of the view that in the case of composite fee paid for participation of employee in a conference, the same should not be considered as fringe benefit and there is no question of resorting to apportionment of those expenses. In our view in the given facts and circumstances apportionment of the total expenditure as done by the assessee was just and proper. There is no basis for the Assessee/AO or the CIT(A) in concluding that a percentage of composite fee is attributable to food and lodging. Since we have concluded that in the case of composite fee paid with no bifurcation, the expenditure on fee paid for participation of an employee in a conference or seminar will have to be not regarded as fringe benefit, we accept the contention of the assessee and hold that 10% of the composite participation fee be treated as expenditure liable to fringe benefit tax. Liability to FBT - whether the appellant being in the business of plantation and manufacturing of tea, was liable to pay fringe benefit tax only on 40% of the value of fringe benefit arrived at on application of Rule 8 ? - Held that - As in the case of Apeejay Tea Ltd. (2014 (7) TMI 1118 - CALCUTTA HIGH COURT) wherein took a view that Rule 8 of the IT Rules, 1962, which has to be applied for determining income of a company engaged in the business of growing and manufacturing of tea and in which only 40% of the composite income from the business of growth and manufacture of tea is considered as taxable is also applicable while valuing the fringe benefit for the purpose of levy of FBT in the case of such companies. Addition u/s 14A - Held that - Referring to the plea of the assessee that the majority of the investment were made by the assessee in the past years and have been carried forward year after year. It was also pleaded by the assessee that major investments are strategic investments in group companies for the purpose of expansion of the business and the assessee does not trade in these investments with the purpose of earning capital gains or dividend. The assessee has also explained that considering that the some managerial time has been spent on portfolio related work, a sum of ₹ 19,82,000/- was offered as expenses incurred in earning exempt dividend income. These submissions of the assessee have neither been dealt with by the revenue authorities in our view, found to be not correct. In these circumstance, we are of the view that the disallowance made by the AO and confirmed by the CIT(A) cannot be sustained. The same is directed to be deleted and ground of appeal are allowed.

Summary

Issues Involved:
1. Taxability of medical reimbursements under Fringe Benefit Tax (FBT).
2. Attribution of additional expenses for conference participation fees under FBT.
3. Applicability of Rule 8 of the Income Tax Rules, 1962, to FBT for companies engaged in tea plantation and manufacturing.
4. Taxability of medical insurance premiums under FBT.
5. Disallowance under Section 14A read with Rule 8D for exempt income.

Issue-wise Detailed Analysis:

1. Taxability of Medical Reimbursements under FBT:
The assessee argued that medical reimbursements up to ?15,000 per employee should be considered as "salary" and not subject to FBT under Section 115WB. The AO included 20% of medical reimbursements as fringe benefits. The CIT(A) upheld the AO's decision, relying on CBDT Circular No. 8/2005, which states that medical reimbursements below ?15,000 are not considered "salary" and thus subject to FBT. However, the Tribunal cited the Mumbai ITAT decision in M/s. Grindwell Norton Ltd., which held that medical reimbursements are perquisites under Section 17(2) and should not be considered fringe benefits. The Tribunal allowed the assessee's appeal, concluding that ?68,42,608/- cannot be considered as fringe benefits for FBT.

2. Attribution of Additional Expenses for Conference Participation Fees under FBT:
The assessee had attributed 10% of the composite participation fees for training, seminars, etc., to food and lodging expenses and included this in the FBT calculation. The AO increased this attribution to 30%, while the CIT(A) reduced it to 20%. The Tribunal found that the primary purpose of the expenditure was participation in the conference, not food and lodging. The Tribunal held that in the case of composite fees, the entire amount should not be regarded as fringe benefits. Therefore, the Tribunal accepted the assessee's 10% attribution as reasonable and allowed the appeal.

3. Applicability of Rule 8 of the Income Tax Rules, 1962, to FBT for Companies Engaged in Tea Plantation and Manufacturing:
The assessee raised a new legal ground that only 40% of the value of fringe benefits should be subject to FBT, as per Rule 8, applicable to companies engaged in tea plantation and manufacturing. The Tribunal noted that since the other grounds were adjudicated in favor of the assessee, this ground did not require adjudication and was dismissed without being addressed.

4. Taxability of Medical Insurance Premiums under FBT:
The assessee argued that medical insurance premiums paid on behalf of employees should be considered "salary" and not subject to FBT. The AO and CIT(A) included 20% of the medical insurance premiums as fringe benefits. The Tribunal referred to the same reasoning applied to medical reimbursements and concluded that medical insurance premiums should not be considered fringe benefits. The Tribunal allowed the assessee's appeal on this ground.

5. Disallowance under Section 14A read with Rule 8D for Exempt Income:
The AO disallowed ?1,60,96,045/- under Section 14A read with Rule 8D, while the assessee had suo-motto disallowed ?19,82,000/-. The CIT(A) upheld the AO's decision. The Tribunal found that the AO and CIT(A) did not provide specific reasons for rejecting the assessee's calculation. The Tribunal cited the Delhi High Court's decision in H.T. Media Ltd., which emphasized the need for the AO to record satisfaction regarding the correctness of the assessee's claim before applying Rule 8D. The Tribunal concluded that the AO's and CIT(A)'s disallowance was not justified and allowed the assessee's appeal.

Conclusion:
The Tribunal allowed the appeals in favor of the assessee on most grounds, including the taxability of medical reimbursements and insurance premiums under FBT, and the disallowance under Section 14A. The ground regarding Rule 8's applicability to FBT was dismissed without adjudication. The Tribunal's decisions were based on detailed legal reasoning and precedents, ensuring that the assessee's claims were thoroughly considered and upheld where justified.