2024 (6) TMI 212 - AT - Income Tax

Assessment u/s. 115WE(3) r.w.s 115WG - Interpretation of Term business of construction - determining the value of fringe benefits which includes an addition towards fringe benefits @ 20% on conveyance, tour travel as against 5% admitted by the assessee - as argued that all the activities involving construction including ship building / construction would be covered within the scope of the term business of construction referred to in section 115WC(2) - AR pleaded that since the assessee-company is engaged in the business of construction of ships which falls under the category of construction business and hence the assessee is eligible for computation of fringe benefit tax value @ 5% as per the provisions of section 115WC Whether the activity of building / construction of ships is covered under the word construction or not and whether the assessee is right in admitting 5% of fringe benefits on conveyance, tour travel as against 20% adopted by the Revenue? - HELD THAT - In the present case there is no dispute that the assessee is engaged in the business of execution of works contracts for building / construction of ships and offshore platforms. While filing the fringe benefit statement along with the audit report in Form-3CD for the year under consideration the assessee had admitted the fringe benefits @ 5% under the head Conveyance, Tour Travel . The contention of the Revenue is that since the assessee s business is ship building / construction and not construction business per se, therefore the assessee is required to compute its fringe benefits @ 20% instead of 5% as was done by the assessee. Circular No.8/2005, dated 29/08/2005 wherein vide answer to Q. No. 106 of the Frequently Asked Questions at Item No. 11 explained the term business of construction clarified that the term business of construction must be understood by giving the ordinary English language meaning to it. In the instant case, there is no dispute on the fact that the assessee is involved in ship building / construction and therefore it is within the definition of the term business of construction . English language meaning of the words construct and construction is extracted from Webster s Comprehensive Dictionary of the English Language meaning of the word construct or construction , one can safely conclude that the meaning includes build . In the present case, the assessee is engaged in the activity of construction including ship building / construction and therefore in our considered view it is covered by the above definition. In the present case, the assessee-company is engaged in the business of construction of ships which falls under the category of construction of business as discussed above. Therefore, as per the provisions of section 115WC(2)(b) the assessee is eligible for computation of fringe benefit tax value at the rate of 5% instead of 20% computed by the Revenue. Therefore, no hesitation to delete the additio made by the Ld. AO and confirmed by the Ld.CIT(A)-NFAC towards fringe benefits on conveyance, tours and travel. Thus, all the grounds raised by the assessee are allowed.

Summary

Issues involved:
The judgment involves the interpretation of the term "business of construction" u/s 115WC of the Income Tax Act, 1961 and the computation of fringe benefits for a Public Sector Undertaking engaged in ship building activities.

Summary:

Issue 1: Interpretation of "business of construction"
The appeal was filed against the order of the Learned Commissioner of Income Tax (Appeals) regarding the computation of fringe benefits for the AY 2006-07. The assessee, a Public Sector Undertaking engaged in ship building, admitted fringe benefits at 5% under "Conveyance, Tour & Travel." The Revenue contended that since the business was ship building and not construction per se, fringe benefits should be computed at 20%. The Tribunal referred to Circular No.8/2005, stating that the term "business of construction" should be understood in ordinary English language meaning, covering all construction activities. The Tribunal concluded that ship building falls under the definition of "business of construction," allowing fringe benefits to be computed at 5%.

Issue 2: Computation of Fringe Benefits
The Revenue authorities had determined the value of fringe benefits at Rs. 64,41,644, including an addition of Rs. 14,29,432 towards fringe benefits on conveyance, tour & travel at 20%. The assessee contended that as a ship building business, fringe benefits should be computed at 5%. The Tribunal, considering the ordinary English language meaning of "construction," ruled in favor of the assessee, allowing the appeal and deleting the addition of Rs. 14,29,432.

In conclusion, the Tribunal allowed the appeal, stating that the assessee's ship building activities fell under the "business of construction," entitling them to compute fringe benefits at 5% as per section 115WC(2)(b) of the Act.