2020 (1) TMI 990 - AT - Income Tax

Levy of FBT on the provision of free electricity by the assessee to its employees - Assessment u/s 115WE(3) - assessee s stand is that the same is a perquisite in the hands of the employees, forming part of their salary income and, therefore, excluded under FBT (s.115WB(3)) - assessee-employer deny its liability u/s. 4 r/w s. 192, as well as u/s. 115WA(1), i.e., qua a benefit to the employees, by raising a plea that the tax on former is payable by the employees, so that the tax gets collected or paid under neither - HELD THAT - Only an acceptance of it s liability to deduct and deposit income-tax on the perquisite to its employees and, rather, doing so, would operate to save the assessee of it s liability to tax u/s.115WA(1). The facts of the case are admitted and borne out by the record, being admittedly the same as for AY 2006-07, as is the position of law for both the years. The assessee does not admittedly accept its liability to deduct and deposit tax at source on the said benefit. It is accordingly liable u/s. 115WA(1). We may also clarify that inasmuch as the assessee was not heard on said denial (toward TDS) on the provision of free/concessional electricity to its employees for their household consumption, we are not issuing any final finding in the matter. Our decision rests on the premise that the said denial would render it liable to FBT u/s. 115WA(1) inasmuch as it would effectively preclude it from raising the plea of the tax on the said benefit being payable by the employees. That is, it is not open for it to take a contrarian stand, as it apparently does inasmuch as it admits to neither the tax liability on the benefit to its employees and, consequently, to deduction of tax at source and the consequential liability u/s. 201(1)/201(1A), as well as to tax u/s. 115WA(1). In fact, it does not admit to FBT even in respect of the employees not covered u/s. 17(2)(iii), i.e., on which the plea of the tax being payable by the employee is, even de hors s. 192, not applicable. Assessee's appeal dismissed.

Issues Involved:
1. Maintainability of the levy of Fringe Benefit Tax (FBT) on free electricity provided to employees.
2. Status of the appeal before the Hon’ble High Court regarding the same issue for previous assessment years.
3. Obligation of the assessee to deduct tax at source (TDS) on the perquisite of free electricity.

Detailed Analysis:

1. Maintainability of the Levy of FBT:
The primary issue in this appeal is whether the provision of free electricity by the assessee to its employees during the financial year 2007-08, valued at ?2,78,68,642, is subject to Fringe Benefit Tax (FBT). The assessee contends that this benefit is a perquisite forming part of the employees' salary income, and thus excluded from FBT under section 115WB(3) of the Income Tax Act, 1961. However, tax on this perquisite was not deducted at source due to ongoing litigation by the employees.

2. Status of the Appeal Before the Hon’ble High Court:
The assessee requested to block the instant appeal until the decision by the Hon’ble High Court on a similar issue for the assessment year 2006-07. The Tribunal noted that the assessee had not provided an update on the status of the High Court appeal, despite nearly ten years having passed. The Tribunal is bound to follow its previous order for AY 2006-07, which upheld the levy of FBT on free electricity provided to employees.

3. Obligation to Deduct Tax at Source (TDS):
The Tribunal emphasized that there is no interim order from the Hon’ble High Court to support the claim that the matter is sub-judice. The Tribunal’s order for AY 2006-07 and the subsequent petition before the High Court revealed that the employees had contested the deduction of tax at source on the perquisite of free electricity. The High Court had disposed of the matter, directing that claims be decided in light of the Supreme Court’s decision in Arun Kumar & Ors. v. Union of India. The Tribunal noted that the assessee, being an independent entity owned by the State Government, was not a party to the litigation and thus bound by the law.

The Tribunal found that the non-deduction of tax at source by the assessee, coupled with the non-payment of tax by the employees, indicated that the benefit was not regarded as a perquisite. Under section 115WB(3), only perquisites on which tax is paid or payable by the employees are excluded from FBT. The Tribunal concluded that the assessee could not deny its liability both towards TDS and FBT.

The Tribunal also clarified that TDS is a statutory obligation under section 192 read with section 4(2) of the Act. Failure to deduct and deposit tax renders the payer liable as an assessee-in-default. The Tribunal observed that the assessee had not deducted tax at source on the perquisite and that the employees had resisted such deduction, implying that the benefit was not regarded as a perquisite.

The Tribunal further explained that the exclusion from FBT under section 115WB(1) applies only if the perquisite is one on which tax has been paid or is payable by the employees. Since the employees had contested the taxability of the benefit, the exclusion did not apply.

The Tribunal concluded that the assessee’s liability under FBT arises because it did not deduct tax at source on the perquisite. The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) in maintaining the levy of FBT on the assessee.

Final Decision:
The Tribunal dismissed the assessee’s appeal, confirming the levy of FBT on the provision of free electricity to its employees for the relevant assessment year. The Tribunal emphasized that the assessee could not take a contrarian stand by denying liability under both TDS and FBT, and that the correct legal position must be adhered to.

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