2018 (4) TMI 1136 - HC - Income Tax

Computing the value of Fringe benefit for the purpose of FBT - Addition on account of FBT on total expenses and not merely on expenses pertaining to employees - Tribunal deleted the addition - Held that - In the present facts, we find that the Tribunal has rendered a finding of fact that the expenditure has been incurred to make payment to third parties. Inasmuch as, this payment nowhere arises out of the employee/employer relationship. It is a business expenditure, pure and simple as also accepted by the Assessing Officer in the Assessment Order dated 20th December, 2008 (statement annexed thereto). It is not even the case of the Revenue that payments were made to the employees and not their parties. As accepted by the Revenue that the issue in the context of the present facts, stands concluded by the decisions of this Court in Tata Consultancy Services (2015 (5) TMI 518 - BOMBAY HIGH COURT) and Lionbridge Technologies Pvt. Ltd., (2018 (4) TMI 1069 - BOMBAY HIGH COURT). - Decided against revenue

Summary

Issues:
Challenge to order by Income Tax Appellate Tribunal regarding Fringe Benefit Tax (FBT) on total expenses.

Analysis:
The appeal under Section 260A of the Income Tax Act, 1961 challenges the order passed by the Income Tax Appellate Tribunal for Assessment Years 2006-07, 2007-08, 2008-09, and 2009-10. The key question raised is whether the Tribunal was correct in deleting the addition made by the Assessing Officer and confirmed by the CIT(A) on account of FBT on total expenses, not just on expenses related to employees. The issue pertains to the interpretation of Section 115WB(2) of the Act, which deems certain expenses as fringe benefits subject to FBT under Section 115WA.

The Respondent, engaged in pharmaceutical manufacturing and trading, initially declared total income for FBT at ?12.04 Crores. However, the Assessing Officer increased this to ?26.81 Crores, including business expenses in the FBT calculation, irrespective of an employee/employer relationship. The CIT(A) upheld this decision based on the deeming provision in Section 115WB(2) of the Act, which includes specified expenditures as subject to FBT under Section 115WA.

Upon appeal to the Tribunal, the Respondent's appeal was allowed. The Tribunal found that the expenses were for business purposes and not employee-related, following the Delhi High Court's decision in TT Motors Ltd. v/s. Assistant Commissioner of Income Tax. The Tribunal held that payments to third parties, not related to employees, should not be subject to FBT under Section 115WA.

The Counsel for the Respondent cited previous judgments by the High Court, including CIT v/s. Tata Consultancy Services Ltd. and CIT v/s. Lionbridge Technologies Pvt. Ltd., which established that FBT applies only to expenses arising from an employee/employer relationship. The Tribunal's factual finding that the payments were to third parties and not employees was crucial in determining that the expenses were business-related and not subject to FBT.

Given the precedents and the factual findings, the Court concluded that the issue was settled in favor of the Respondent. The question raised did not present any substantial legal issue, leading to the dismissal of all appeals. No costs were awarded in the judgment.