2015 (6) TMI 932 - AT - Income Tax

Liability to payment of Fringe Benefit Tax - whether there exists a master servant relationship between the appellant & its consultants? - the liability of Fringe Benefit Tax arises merely because the expenses incurred by the appellant are of the nature as contemplated by section 115WB of the Act even though there are no employees as held by CIT(A) - Held that - As relying on assessee s own cases for previous AY s 2013 (5) TMI 713 - ITAT AHMEDABAD and 2015 (6) TMI 628 - 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.

Issues:
1. Appeal against order of CIT(A) dated 30/12/2011 for AY 2008-09.
2. Liability of the appellant to pay Fringe Benefit Tax under Chapter XII-H.
3. Existence of master-servant relationship between the appellant and its consultants.
4. Ignoring Circular No.8 of 2005 dated August 29, 2005.
5. Applicability of Fringe Benefit Tax due to expenses incurred by the appellant.
6. Deletion of certain business expenditures from the Fringe Benefit Tax calculation.
7. Benefits enjoyed collectively by employees or not.

Analysis:

1. The appellant challenged the order of the CIT(A) regarding the liability to pay Fringe Benefit Tax under Chapter XII-H for AY 2008-09. The appellant contended that the CIT(A) erred in confirming the action of the Assessing Officer (AO) despite the absence of any employees, and the existence of a master-servant relationship between the appellant and its consultants.

2. The appellant argued that the issue had been previously decided in their favor by a Coordinate Bench for AY 2006-07 and AY 2007-08. The appellant requested the Tribunal to adopt the same view due to identical facts. The Senior Departmental Representative supported the lower authorities' orders but did not dispute the appellant's assertion regarding the previous favorable decisions.

3. The Tribunal examined the material on record and noted that the CIT(A) had followed the decisions of the previous years. The Tribunal observed that the nature of expenses incurred by the consultants resembled those of employees, including welfare, entertainment, and club membership expenses. The Tribunal upheld the liability for Fringe Benefit Tax based on the master-servant relationship and rejected the appellant's contentions.

4. The Coordinate Bench's decision in ITA No.906/Ahd/2010 for AY 2006-07 emphasized that legitimate business expenditures not within the employer-employee relationship were outside the scope of Fringe Benefit Tax. The Tribunal reversed the legal findings of the lower authorities and directed relief for the appellant. A similar decision was made in another case for AY 2007-08, following the precedent set in the AY 2006-07 case.

5. Since there were no changes in the facts and circumstances of the current case, the Tribunal directed the AO to delete the Fringe Benefit Tax assessed under Section 115WE(3) of the Act. The Tribunal allowed the appellant's appeal, following the decisions of the Coordinate Bench in previous years.

6. In conclusion, the Tribunal allowed the appeal, overturning the liability for Fringe Benefit Tax based on the master-servant relationship and the nature of expenses incurred by the consultants. The Tribunal's decision aligned with the precedent set by the Coordinate Bench in similar cases, emphasizing the distinction between legitimate business expenditures and those falling within the employer-employee relationship for the purpose of Fringe Benefit Tax assessment.

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