2021 (12) TMI 208 - HC - Income Tax

Computation of Fringe Benefits Tax - Whether expenses incurred by the employer towards payment of Fringe Benefit to its employees in case of Tea Company is subjected to Rule 8 of the Income Tax Rules - HELD THAT - It cannot be disputed that the amount of expenditure incurred by the assessee in extending fringe benefits to its employees was not solely for the purpose of business. The expenditure incurred is both for the purpose of business and for the purpose of agriculture. The submission made that the expenditure on account of fringe benefits has already been taken into account is not correct. The net profit and loss of the business has to be arrived at after deducting all the expenses as indicated in illustration A in the case of Doom Dooma 2009 (2) TMI 9 - SUPREME COURT . Once that is done 40% of the net profit and loss has to be worked out which shall be chargeable to tax. Once this is done the expenditure on account of fringe benefits would automatically stand reduced to 40% as would appear from illustration B in the case of Doom Dooma supra . The revenue is interested in contending as would appear from the impugned orders that the expenditure on account of fringe benefit cannot be reduced to 40% for the purpose of computing fringe benefit tax. If that is done, the result would be that the agricultural income itself would become liable to tax, which is not permissible under sub-Section 1 of Section10 of the Income Tax Act. The provisions contained in Chapter XII H of the Income Tax Act have to be read subject to Section 10 of the Income Tax Act. For the aforesaid reasons, we are of the opinion that the judgment of the learned Tribunal cannot be sustained. The submissions advanced naturally do not help the revenue. The judgment cited by her was with regard to the question as to whether fringe benefit tax amounts to double taxation. That question was answered by Their Lordships in the negative. Before us, the question of double taxation has not arisen for consideration. The question formulated above is, therefore, answered in the affirmative and in favour of the assessee.

Summary

Issues Involved:
1. Applicability of Rule 8 of the Income Tax Rules for the computation of Fringe Benefits Tax (FBT) in the case of a Tea Company.
2. Relief at 40% of the taxable value of the Fringe Benefit as against 100%.

Detailed Analysis:

Issue 1: Applicability of Rule 8 for FBT Computation
The primary question was whether Rule 8 of the Income Tax Rules applies to the computation of Fringe Benefits Tax (FBT) for a Tea Company. The court referred to earlier decisions, including the case of M/S. APEEJAY TEA LTD. -VS- COMMISSIONER OF INCOME TAX, CENTRAL-I & ANR., where it was held that Rule 8 does not apply to the valuation of fringe benefits under Chapter XII H of the Income Tax Act.

The court noted that Section 115WA imposes FBT on employers irrespective of their taxable income. Therefore, the argument that Rule 8 should apply to FBT computation has no merit because FBT is levied on the fringe benefits provided by an employer to its employees, not on the employer's income. This was supported by previous judgments, including CIT Vs. Doom Dooma India Limited and Jayshree Tea and Industries Limited vs. Union of India, which clarified that Rule 8 applies to income computation but not to additional taxes like FBT.

Issue 2: Relief at 40% of the Taxable Value of Fringe Benefit
The court addressed whether the relief at 40% of the taxable value of the Fringe Benefit, as opposed to 100%, was justified. The Revenue argued that Rule 8 should not provide any relief in computing FBT. However, the court referred to the Supreme Court's judgment in CIT vs. Doom Dooma India Ltd., which provided an illustration showing that 40% of the net profit and loss, including fringe benefits, should be chargeable to tax.

The court reasoned that since the expenditure on fringe benefits is partly for business and partly for agriculture, only 40% of such expenditure should be considered for FBT. This ensures that agricultural income remains non-taxable, aligning with Section 10 of the Income Tax Act. The court found that the Tribunal's decision to allow relief at 40% was consistent with this principle and upheld it.

Conclusion:
The court concluded that Rule 8 does not apply to the computation of FBT and that the relief at 40% of the taxable value of the Fringe Benefit is justified. The appeal by the Revenue was dismissed, and the substantial questions of law were answered against the Revenue. The judgment of the Tribunal was upheld, ensuring that the agricultural income remains non-taxable and only 40% of the fringe benefit expenditure is considered for FBT.