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TMI Blog2013 (5) TMI 713X X X X Extracts X X X X X X X X Extracts X X X X ..... llant does not pay any benefits of an employee to the consultants. 4. The CIT(A) has erred in ignoring the clarification issued by the Central Board of Direct taxes vide Circular No.8 of 2005 dated August 29,2005. 5. The CIT(A) has erred in holding that the liability of Fringe Benefit Tax arises merely because the expenses incurred by the appellant are of the nature as contemplated by section 115W even though there are no employees. 6. The CIT(A) ought to have deleted addition in respect of expenditure such as traveling & conveyance, telephone & mobile expenses, guest house expenses, insurance expenses, entertainment expenses and club membership fees which are business expenditure and cannot be said to be fringe benefit to employees. 2. Facts in brief as emerged from the corresponding assessment order passed u/s.115WE(3) of the IT Act dated 29/12/2009 were that the assessee is a Non Resident Company and in the business of providing consultancy for crude oil and gas production. It is worth to mention that as per the return, the total value of a "Fringe Benefits" was declared at Rs.NIL. Therefore, the assessee was asked by the AO to submit a break-up of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time for the assessee and that those were under direct supervision as well as under the control of the Project Manager/GM(Operations). Those persons were paid monthly remuneration as an employee. He has concluded that the relationship with those persons were in the nature of employer-employee and not as a Consultant. On the other hand, the assessee has contended that the retainers of the company are being assessed on their income received from JTI under the head "income from other business and provision" and, therefore, retainers cannot be treated as employees for the computation of "Fringe Benefits". The AO noticed that the contentions of the assessee were not acceptable, hence the AO had rejected the claim of the assessee. The assessee was held liable for FBT and the value of the "fringe benefits" was computed at Rs.16,16,663/- in respect of the benefits, such as, conveyance, tours & travels, telephone and mobile expenses, guest house expenses, Club membership fees, etc. The AO has charged 30% tax on the total value of the "fringe benefits" computed. Being aggrieved the matter was carried before the first appellate authority. 3. Before ld.CIT(A), it was mentioned that in terms o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous expenses covered by the Assessing Officer which clearly point to a situation where the so called consultants have been using the assessee-company's facilities like any legally termed employee. It needs to be appreciated that in the entire scheme of that pertained to fringe benefit tax the emphasis is on the employer and the expenses incurred by it. If we take the position that for our purpose we have to consider the de-factor employee and necessarily de-jure employee, then the various objections raised by the appellant, including the applicability of circular No.8 of 2005 dated August 29,2005, falls through." 4. From the side of the appellant, ld.ARs - Mr.S.N.Soparkar and Mr.Y.G.Shah appeared and at the outset argued that there was no employer-employee relationship. He has pleaded that the employer is a Foreign Company registered in United States of America (USA) having a project office in India in respect of carrying out exploration of mineral oils at Dholka and Wavel oil-fields which was granted vide a Production Sharing Contract (PSC) with the Government of India. The company has a project office in India since October-1995 and carrying on the mineral oils exploration activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship agreement on principal to principal basis. 1.4.1.7 In support of contentions, the appellant relies on the decision of the Kolkata ITAT in the case of ITO vs. Calcutta Medical Research Institute (75 ITD 484) (copy of decision is enclosed as Page no.of the paper book) wherein at the time of deciding on the issue of deductibility of tax u/s.192 of the Act and levy of interest u/s.201, the Hon'ble ITAT has examined the issue of employer-employee relationship between assessee and visiting doctors. In deciding, whether there exist employer employee relationship, the learned ITAT has noted as under; "In Jowitt's Dictionary of English Law, 1959, Edn., Karnataka- "The expression "salary" is explained thus : 'a recompense or consideration generally periodically made to a person for his service in another person's business; also wages, stipend or annual allowance'" 4.1. The ld.AR has also quoted Simond's Third Edn., (Vol.25, p.450) Halsbury's Laws of England that the difference between the relationship of master and servant is that a principal has the right to direct what work an agent has to do but a master has further right to direct how the work is to be done. By referring a decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployer on his total income computed in accordance with the provisions of this Act, the tax on fringe benefits shall be payable by such employer." 6.1. For the purpose of invocation of this charging section, the fundamental requirement is that there should be a relationship of employer and employee. This charging section thus says that in respect of benefits provided by an employer to his employee shall be charged @ 30% on the value of such "Fringe Benefits". There upon section 115WB has described various benefits which are termed as "Fringe Benefits". The AO has therefore held that the relationship existed between the assessee and those persons was nothing but in the nature of employer-employee relationship. On the other hand, the assessee has emphasized that the persons in question were engaged as professionals. The assessee has drawn our attention on the terms and conditions on which those persons have been engaged by the assessee. 6.2. In this regard, we may like to place one of our observation that the introduction of this Chapter in respect of FBT is in the nature of imposition of presumptive tax. Rather, FBT is based upon the presumption of hidden fringe benefits. As far a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO is empowered to assess the value of the fringe benefits granted to the employees in consideration of their employment. If on the fact of the record, the accepted factual position is that there is no employer - employee relationship, then in our humble understanding of law, it is not fair that merely on presumption to infest or impose or thrust upon the assessee the employer/employee relationship. On this legal point alone, the issue can be decided in assessee's favour but the assessee has mainly argued on the merits of the case, therefore we proceed hereinbelow to examine the nature of employment assigned to the persons. 6.4. One of the foremost accepted factual position is that the assessee is a Foreign Company registered in USA but having project office in India for exploration of mineral oils at Dholka and Wavel oil-fields. We have been informed that the company had started its "project office" in India since October-1995 and carrying on the exploration activity of mineral oil. The assessee has, therefore, vehemently contested that there was no employee as such of the assessee in India. The assessee's contention is that the consultants have been hired on retainership basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f service". The contract was not made owing to the persons engaged but a contract was owning to the services provided by them. Since those services were professional services, therefore accordingly the fees was paid. For this legal proposition, our attention has been drawn on a decision of ITAT Bench "B" Ahmedabad pronounced in the case of ITO vs. Apollo Hospitals (supra) [authored by one of us]. This order of the Tribunal has been approved by the Hon'ble Jurisdictional High Court in Tax Appeal No.827 of 2007 vide an order dated 05/07/2012. For the sake of completeness, we hereinbelow reproduce the relevant paragraph, wherein certain connected case-laws have also been discussed as under:- "7. In the light of the above discussion, now we have to see whether the conditions of employment can be said to be within the parameters of section 192 or section 194-J of the I.T.Act, 1961. Section 192 prescribes that any person responsible for paying any income chargeable under the head "Salaries" shall at the time of payment deduct income tax on the amount payable. As against that section 194-J prescribes that any person who is responsible for paying to a resident any sum by way of (a) fees f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical / professional services. Likewise, in respect of the contract in question, it can be read as "contract in respect of service" or "contract by reason of service". Therefore, the distinction as per the meaning assigned in the dictionary in respect of these two propositions are pertinent and, therefore, the language of section 194J of the I.T.Act is more close to the language used in the Agreement, hence, required to be applied to resolve the issue. 8. There is one more reason to arrive at the conclusion that the doctors in question were covered by the provisions of section 194- J of the I.T.Act is that the section is applicable in respect of fees for professions services. The assessee's claim is that it was fees for professional services, on the other hand, the Assessing Officer's view was that it was fees of services. That is why the Assessing Officer has proceeded with the finding that FGCs are in the nature of "Contract of Services". But the assessee has tried to demonstrate that one of the clauses in the Agreement has specifically mentioned that a consultant doctor is entitled for fee for service. Therefore, the assessee's vehement contention is that the arrangement wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, dismissed." 6.7. Even in the case of Calcutta Medical Research Institute reported at (2000) 75 ITD 484 (Cal.) it was opined that when a person is engaged to manage a business, then he may be a servant or an agent according to the nature of a service. In a situation, where the liability for deduction of tax was fulfilled u/s.192 of IT Act, then it is established that there was relationship of master and servant. Considering the terms and conditions in that case, it was held that there was no relationship of master and servant. Lastly, our attention has also been drawn on Toyota Kirloskar Motor (P.) Ltd. (2012) 24 taxmann.com 149 (Bang.) for the legal proposition that the provisions of section 115-WB(2) are required to be invoked if there is an employer-employee relationship. Rather, Circular No.8 of 2005 also prescribes that the provisions of section 115WB can be invoked only if there is an employer-employee relationship. The Finance Minister in the speech while introducing of provisions of FBT has stated that when the benefits are fully attributable to the employee, then tax in the hands of the employer. The rationale behind the introduction of FBT provisions thus is to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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