2014 (10) TMI 68 - HC - Income Tax

Business of growing manufacturing and sale of tea - Rule 8 of the Income-tax Rules 1962 Computation of value of fringe benefit Inclusion of expenses in the taxable value of fringe benefit - Held that - The applicability of Rule 8 in the matter of arriving at the value of fringe benefit for the purpose of tax following the decision in CIT vs. Doom Dooma India Ltd. 2009 (2) TMI 9 - SUPREME COURT - 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 by Mrs. Gutgutia that the expenditure on account of fringe benefits has already been taken into account is not correct - once that is done 40% of the net profit and loss has to be worked out which shall be chargeable to 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 Section 10 of the Income Tax Act Decided in favour of assessee.

Summary

Issues:
1. Computation of fringe benefit value for a tea business under Income Tax Act.
2. Comparison of provisions in Section 115WA and Section 115-0 of the Act.
3. Inclusion of expenses in taxable fringe benefit value for a tea business.

Analysis:
1. The High Court addressed the computation of fringe benefit value for a tea business under the Income Tax Act. The issue revolved around the applicability of Rule 8 in determining the fringe benefit value for tax purposes. The Court referred to an unreported judgment and an illustration from a Supreme Court case to explain the matter. It was clarified that expenses incurred for fringe benefits to employees are not solely for business purposes but also for agriculture. The Court emphasized that the net profit and loss must be calculated after deducting all expenses, leading to 40% of the net profit being chargeable to tax. The judgment concluded that the expenditure on fringe benefits should be reduced to 40% for computing fringe benefit tax, ensuring agricultural income is not taxed, as per Section 10 of the Income Tax Act.

2. The Court examined the comparison between Section 115WA and Section 115-0 of the Act. It was noted that the Tribunal's decision regarding the lack of similarity between these provisions was crucial. The judgment highlighted that the issue of double taxation, which had been previously addressed in a different context, was not relevant in the current case. Ultimately, the Court found in favor of the assessee on this question, indicating that the Tribunal's decision could not be sustained.

3. Regarding the inclusion of expenses in the taxable value of fringe benefits for a tea business, the Court ruled in favor of the assessee. The judgment confirmed that the expenses included in the taxable value of fringe benefits, which were not allowed as deductions when computing total income under the Act, should not be considered for taxation purposes. The decision was based on the interpretation of relevant provisions and ensuring that the taxation of fringe benefits aligns with the overall tax framework. As a result, the appeal was allowed in favor of the assessee, with urgent certified copies of the order to be provided to the involved parties upon request.