2019 (6) TMI 1177 - AT - Income Tax

Determination of value of fringe benefit - addition u/s 115WB(2)(E) of the Act denying the claim of uniform allowance - HELD THAT - Assessee itself admitted in its fringe benefit return, the value of expenses liable to fringe benefit tax. Before the CIT(A) vide its submissions dated 09.11.2015 stated that the assessee inadvertently considered the value of expenses relating to uniform was considered as chargeable expenditure under the broad head Workmen Staff Welfare Expenses . The wearing of uniform is out of compulsion arising from employment of the assessee and it is not an option and claimed the expenses incurred for staff uniform shall be excluded from chargeable expenditure under the head Employees Welfare . CIT(A) opined that the said clothes were not protective ones and they are not uniforms and not compulsory uniform under the statute. We find that the employees uniforms have traditionally been used as a functional necessity. It is noted from the record that the assessee assumed the financial responsibility for supplying and maintaining the freshly cleaned clothing to the employees for wearing to work each day. Though they are personalized uniforms provided they are not available for employees personal use. The uniforms that are put on by the employees when they arrive at work and were taken off at the end of work. The said uniforms, it appears laundered and maintained by the assessee. It is clear that the said clothing (uniforms) are not available for general or personal wear of the employees and when the clothing is not actually used for general or personal wear, in our opinion, are not taxable under fringe benefits. There was no welfare appended to the employees of the assessee by providing uniforms. CBDT passed Circular No.8/2005 wherein it clarified to a frequently asked question. At question no.74, it was asked whether MBT is payable on expenditure incurred on providing shoes or uniform or equipments to the employees or for the purposes of reimbursement of washing charges. It was clarified to the question above that any expenditure incurred for meeting the employers statutory obligation under the Employment Standing Orders Act 1946 fall within the scope of the exclusion in the Explanation to Clause E of sub-Section 2 of Section 115WB. Therefore it is clear from above answer that the expenditure incurred on providing safety shoes or uniforms or equipments to the employees or incurred for the purposes of reimbursement of washing charges are exempted from FBT to the extent of such expenditure is incurred to meet such statutory obligation. In the present case, we find that there was no discussion by the Assessing Officer in detail in respect of the claim of the assessee under fringe benefit tax - we deem it proper to remand the matter to the file of Assessing Officer to examine the standing orders relating to assessee and assessee shall provide every detail in respect of its claim before the AO. AO considering the relevant evidence and pass order in accordance with law. Ground raised by the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Justification of CIT(A) in confirming the addition made by the Assessing Officer under Section 115WB(2)(E) of the Income Tax Act, denying the claim of uniform allowance.

Issue-wise Detailed Analysis:

1. Justification of CIT(A) in Confirming the Addition Made by the Assessing Officer under Section 115WB(2)(E) of the Income Tax Act, Denying the Claim of Uniform Allowance:

The primary issue in this appeal is whether the CIT(A) was justified in confirming the addition made by the Assessing Officer under Section 115WB(2)(E) of the Income Tax Act, which denied the claim of uniform allowance by the assessee. The assessee, a company operating in the hotel service sector, filed its return of fringe benefit, showing expenses liable to fringe benefit tax (FBT). The Assessing Officer issued a notice under Section 115WB(E)(2) read with Section 142(1) of the Act, and subsequently determined the value of fringe benefit at ?35,33,583.

The assessee contended that the uniforms provided to their staff were a necessity for performing specific duties within the hotel premises and did not constitute a welfare benefit. They argued that the uniforms were provided at the beginning of the shift and collected at the end, thus not benefiting the employees personally. The assessee cited CBDT Circular No.8/2005, which clarified that expenditure to meet statutory obligations under the Employment Standing Orders Act would not fall under the purview of FBT.

The CIT(A), however, held that the uniforms and washing allowances provided were covered under FBT, relying on the Gujarat High Court's decision in the ONGC Workshop case and the CBDT Circular No.8/2005. The CIT(A) concluded that the uniforms supplied were not under any statutory obligation and were not protective clothing, thus confirming the Assessing Officer's view.

Upon appeal, the assessee reiterated that the uniforms were necessary for business operations and did not provide any personal benefit to the employees. They referred to the standing orders framed under the Industrial Employment (Standing Orders) Act, 1946, which mandated the wearing of uniforms. The assessee also cited a Tribunal order in the case of Mercury Car Rentals Private Limited, which supported their claim that uniforms required for business purposes should not be subject to FBT.

The Tribunal noted that the assessee had admitted the value of expenses liable to FBT in their return but argued that the inclusion of uniform expenses was inadvertent. The Tribunal found that the uniforms provided were not for personal use and were maintained by the assessee, thus not qualifying as a welfare benefit. The Tribunal emphasized that the term "fringe benefits" under Section 115WB(1) did not apply to the uniforms provided by the assessee, as they were essential for employment and did not offer any privilege, service, facility, or amenity to the employees.

The Tribunal also referred to the CBDT Circular No.8/2005, which excluded expenditure on uniforms from FBT if it met statutory obligations. The Tribunal found that the Assessing Officer had not thoroughly examined the assessee's claim and remanded the matter for further examination. The Assessing Officer was directed to consider the standing orders and relevant evidence provided by the assessee before passing a new order in accordance with the law.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, remanding the matter to the Assessing Officer for a detailed examination of the assessee's claim regarding uniform expenses and their exclusion from FBT. The Tribunal emphasized that uniforms necessary for business operations and not providing personal benefit to employees should not be subject to FBT.