2015 (6) TMI 628 - AT - Income Tax

Liability to payment of Fringe Benefit Tax - whether there exists a master servant relationship between the appellant and its consultants? - Held that - As relying on assessee s own case 2013 (5) TMI 713 - ITAT AHMEDABAD FBT is eligible only in a case where expenditure is incurred by the employer ostensibly for the purpose of business but includes partially a benefit of a personal nature passed on to the employee. But, a legitimate business expenditure not within the ambits of employer & employee relationship is outside the scope of FBT. In view of these observations, we hereby hold that the FBT provisions have wrongly been invoked in the present case. We hereby reverse the legal findings of the authorities below and direct the AO to give relief accordingly - Decided in favour of assessee.

Summary

Issues:
1. Confirmation of liability to pay Fringe Benefit Tax under chapter XII-H of the Act.
2. Existence of a master-servant relationship between the appellant and its consultants.

Analysis:
1. The appeal was filed by the assessee challenging the order of the CIT(A) confirming the liability to pay Fringe Benefit Tax (FBT) under chapter XII-H of the Act. The appellant argued that they did not have any employees and, therefore, should not be liable to pay FBT. The ITAT, Ahmedabad, referred to a previous decision for A.Y. 2006-2007 where it was held that FBT is applicable only when a benefit of a personal nature is passed on to the employee through business expenditure. Since the appellant did not have an employer-employee relationship with its consultants, the FBT provisions were wrongly invoked. The ITAT reversed the findings of the authorities below and allowed the grounds of the assessee based on the precedent set in the previous case.

2. The second issue revolved around the existence of a master-servant relationship between the appellant and its consultants. The CIT(A) had confirmed the existence of such a relationship despite the appellant not providing any employee benefits to the consultants. However, the ITAT, Ahmedabad, relying on the decision for A.Y. 2006-2007, held that a legitimate business expenditure not falling within the employer-employee relationship is outside the scope of FBT. As there was no benefit of a personal nature passed on to the consultants, the FBT provisions were not applicable. The ITAT reversed the findings of the authorities below and allowed the appeal of the assessee on this ground as well.

In conclusion, the ITAT, Ahmedabad, allowed the appeal of the assessee, overturning the decisions of the authorities below regarding the liability to pay Fringe Benefit Tax and the existence of a master-servant relationship. The judgment was based on the interpretation of the FBT provisions and the absence of personal benefits passed on to employees or consultants, as established in a previous case for A.Y. 2006-2007.