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TMI Blog2014 (5) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; "2. Appellant took 8 grounds on the levy of Fringe Benefit Tax on various expenses. However, the common argument in all grounds is in respect of levy of Fringe Benefit Tax on the business expenses not related to employees." 1.2. The learned CIT(A) ought to have appreciated that even if the grounds taken by the appellant in its appeal were to be reduced to 'effective' grounds, it was incumbent upon him got render his appellate decision at least on the following issues: (a) On the appellant's challenge to the validity of the assessment order impugned before him, inter alia: (i) on the ground that the same had been passed without observing elementary principles of natural justice (vide para9 of the Statement of Facts before him); (ii) on the ground that the relevant provisions in respect of the Fringe Benefit Tax were unconstitutional; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... final verdict in the aforesaid writ petition. 3. The appellant prays that unless this Hon'ble Tribunal may deem it appropriate to keep the appellant's present appeal before it pending, till the Hon'ble Gujarat High Court had rendered its final decision in the Writ Petition, for being disposed of in accordance with such final decision of the Hon'ble Gujarat High Court, it may be pleased to consider and render its decision on the issues at items(a), (c) and (d) referred to in Ground No.1.2 above on which the learned CIT(A) has not rendered his appellate decision and on the issue at item (b) which the learned CIT(A) has decided against the appellant. 4. The appellant craves leave to add, amend and/or alter the ground or grounds of appeal either before or at the time of hearing of the appeal. 2. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.115WE(3) of the Income Tax Act,1961 (hereinafter referred to as "the Act") was framed vide order dated 31/12/2008, thereby the Assessing Officer (AO) made addition of 1,46,69,716/- on account of fringe benefit value. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of the Act levying Fringe Benefit Tax. He further submitted that there are catena of judgements by the Hon'ble Coordinate Benches of this Tribunal, wherein it has been held that the employer - employee relationship is a prerequisite for charging of tax the value of fringe benefits. He submitted that there is no employer - employee relationship in respect of the addition made by the AO. He further submitted that a bare reading of the provisions of the Act and the CBDT Circular, it would be evident that the employer - employee relationship is pre-requisite for attracting provisions of FBT. He also filed written synopsis which has been placed on record. 3.1. On the contrary, ld. Sr. DR supported the orders of the authorities below and placed reliance on the various case-laws of the Hon'ble Coordinate Bench. The decisions as relied upon by the ld. Sr. DR are as under:- Sr. No. Citation Reported at 1. ICICI Prudential Life Insurance Co. Ltd. vs. ACIT (2013) 37 taxmann.com 222 (ITAT-Mumbai) D.O.J. 15.0.02.2013 2. Mahabir Jute Mills Ltd. vs. Jt.CIT (2013) 36 taxmann.com 587 (ITAT-Allahabad) D.O.J. 12.04.2013 3. Mahindra Holidays and Resorts India Ltd. vs. ACIT (2012) 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate journeys of his employees or their family members: (c) any contribution by the employer to an approved superannuation fund for employees; [and] [(d) any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer free of cost or at concessional rate to his employees (including former employee or employees). Explanation. -For the purposes of this clause,- (i) "specified security" means the securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) 84 85[and, where employees' stock option has been granted under any plan or scheme therefor, includes the securities offered under such plan or scheme]; (ii) "sweat equity shares" means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; (i) being the expenditure (including rental) on advertisement of any form in any print (including journals, catalogues or price lists) or electronic media or transport system; (ii) being the expenditure on the holding of, or the participation in, any press conference or business convention, fair or exhibition; (iii) being the expenditure on sponsorship of any sports event or any other event organised by any Government agency or trade association or body; (iv) being the expenditure on the publication in any print or electronic media of any notice required to be published by or under any law or by an order of a court or tribunal; &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (H) repair, running (including fuel), maintenance of motor cars and the amount of depreciation thereon; (I) repair, running (including fuel) and maintenance of aircrafts and the amount of depreciation thereon; (J) use of telephone (including mobile phone) other than expenditure on leased telephone lines; (K) [***] (L) festival celebrations; (M) use of health club and similar facilities; (N) use of any other club facilities; (O) gifts; and* (P) scholarships; [(Q) tour and travel (including foreign travel).] &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reby adversely affecting market structure. However, the taxation of fringe benefits raises some problems primarily because- (a) all benefits cannot be individually attributed to employees,particularly in cases where the benefit is collectively enjoyed; (b) of the present widespread practice of providing perquisites, wherein many perquisites are disguised as reimbursements or other miscellaneous expenses so as to enable the employees to escape/reduce their tax liability; and (c) of the difficulty in the valuation of the benefits." 3. The above explanation regarding the objective leaves no doubt that the purpose of the new provision is to levy tax on the employer in respect of perquisites provided to the employees for the simple reason that such fringe benefits may not be taxable in the hands of the employees. In other words, the object of the provision is to discourage the employer to compensate the employees by giving them various benefits with a view to minimiz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . ACIT 341 ITR 332. At pages 5 and 6 of the order the Hon'ble Tribunal has reproduced the objective of the new provisions from para 2 of the Board's Circular. At page 7 they have also referred to question No. 2 wherein a categorical answer has been given by the Board that employer - employee relationship is a prerequisite for the levy of FBT. The Hon'ble Bench has thereafter once again at paras 9 and 10 referred to the Hon'ble Supreme Court decision in the case of R. B. Falcon (supra) and T. T. Motors (Supra). At page 8 para 11 of the order the Tribunal has recorded a finding that expenditure incurred which results into payment to third persons where there is no employer-employee relationship between the assessee and the recipient, the provisions of Sections 115WA and 115WB shall not apply. 6. Similar view has been adopted by the Hon'ble Income-tax Appellate Tribunal, Pune Bench vide order dated 31st October, 2012 in the case of Desai Brothers Ltd. v. Addl. CIT in ITA No. 168. At para 8 of this order the Hon'ble Tribunal has referred to sub-section (1) of Section 115WB which starts with the words "For the purposes of this Chapter, 'fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n it has been categorically held that 'fringe benefits' cannot arise when expenditure is incurred on persons who are not employees. In the same case the Hon'ble Tribunal has also placed reliance on the Hon'ble Delhi High Court decision in the case of T. T. Motors Ltd. v. ACIT (341 ITR 332) and has reproduced relevant part of this judgment in their order. 9. From the above discussion it may kindly be appreciated that this issue has been elaborately considered by different Benches of the Hon'ble Tribunal including the Hon'ble Ahmedabad Bench and it has been uniformly and categorically held that for invoking levy of FBT, employer-employee relationship is a prerequisite. Any benefits which accrue to third parties are outside the purview of Chapter XII-H. 10. The learned Sr. DR has relied on the following cases: (1) ICITI Prudential Lift Insurance Co. Ltd. v. ACIT (37 Taxmann.com 222) (ITAT-Mumbai) (2) Mahabir Jute Mills Ltd. v. Jt. CIT (36 Taxmann.com 598) (ITAT-Allahabad) &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as to whether employer employee relationship is a prerequisite for levy of FBI. On the contrary, in the case before the Supreme Court all the persons on whom expenditure was incurred on transportation, were employees of the assessee company. The Hon'ble ITAT Mumbai has based its finding on questions No 14 and 56 and answers thereto of the Board's Circular referred to above, which are reproduced below for ready reference: "Q.14. Do the words "any expense" in sub-section (2) of section 115WB refer to all expenses or restricted to those incurred on the employees and their families? Answer: Under sub-section (2) of section 115WB, fringe benefits shall be deemed to have been provided by the employer to his employees, if the conditions specified therein are satisfied. Hence, if the employer has incurred any expense for any one of the purposes enumerated in clauses (A) to (P) of sub-section (2) of section 115WB, the whole of that expense falling under the relevant head shall be deemed to have been provided. No segregation as "expenses incurred on employees" or "expenses incurred on others" is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in sub-section (2). Whereas sub-section (1) takes within its sweep any consideration for employment, inter alia, by way of privilege, service, facility or amenity directly or indirectly, sub-section (2) thereof expands the said definition stating as to when the fringe benefit would be deemed to have been pro-vided. The expansive meaning of the said term "benefits" by reason of a legal fiction created also brings within its purview, benefits which would be deemed to have been provided by the employer to his employees during the previous year. Indisputably, sub-section (3) refers to sub-section (1) only. Ex facie, it does not have any application in regard to the matters which have been brought within the purview of the fringe benefit tax by reason of application of the deeming provision. We are concerned herewith the question in regard to grant of exemption in respect of "conveyance" as provided for in clause (F) of sub-section (2) and "tour and travel" which is provided for in clause (Q) of sub-section (2) of section 115WB. The Central Board of Direct Taxes categorically states in the answer to question number 7 that sub-sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to promote sales which can take various forms but are not limited to mere publication or advertisements in media but would include varied activities which can be understood and treated as sales promotion or publicity expenses. In Smith Kline and French (India) Ltd. v. CIT [1992] 193 ITR 582 (Karn), it has been held that in normal commercial sense and in common parlance sales promotion and publicity are activities to gain goodwill in market. These need not be confined to the act of media propaganda but can involve indirect approaches. In CIT v. Statesman Ltd. [1992] 198 ITR 582 (Cal), it was observed that the term "sales promotion" occurring under section 37 (3A), necessarily should involve the element of publicity and advertisement to popularize or increase sales. The Supreme Court in Eskayef v. CIT [2000] 245 ITR 116 (SC); [2000] 6 SCC 451, approved the view taken in Smith Kline and French's case [1992] 193 ITR 582 (Karn) and held that in the case of prescription drugs, the target of any sales promotion would only be the doctors and distribution of samples of drugs to doctors was to make t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases. In the case of Mahavir Jute Mills (supra), the liability of FBT on certain payments was sustained on the ground that the assessee was unable to substantiate the expenditure by producing vouchers or any other evidence. The cases of Mahindra Holidays (supra) and Birla Corporation (supra) are on other issues which have been decided in favour of the assessees. 17. Coming to the binding nature of the circulars, the cardinal principle which has also been approved in the case of R & B Falcon (supra) is that Circulars issued by the Board are binding insofar as such Circulars do not interfere with the statutory provisions. It is an established principle that Circulars cannot alter the provisions of law as held by the Hon'ble Madras High Court in the case of ITO v. D. Manohar (236 ITR 357). In this case reference has also been made to several precedents including Supreme Court decisions. Another established principle of interpretation is that Circulars favouring the assessee are binding on Income-tax Authorities which emerges from the following cases: (1) Catholic Syrian Bank Ltd. v. CIT (343 ITR 270)(SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y such segregation as proposed by the learned counsel. However, it would be in the fitness of things if the petitioner and similarly situated assessees are directed to deposit the amount of Fringe Benefit Tax as per installment due on 15-1-2006 in a separate account to be opened and maintained with a Scheduled Nationalized Bank, subject to the condition that the amount so deposited shall not be utilized by the assessee in any manner whatsoever for any purpose, no charge shall be created nor shall the said account be used or permitted to be used as a collateral for obtaining any loan against the same. Upon such deposit being made in separate bank account and production of the necessary proof of such deposit before the Income-tax department, it shall amount to sufficient compliance qua the provisions of the Act levying Fringe Benefit Tax. The aforesaid deposit shall be only in case where the assessee disputes the liability to the extent of being covered by category No.2 or 3 as per the say of the petitioner. Insofar as the assessee who are covered and fall under category No.1 and are not disputing their liability, they shall make the payment of the Fringe Benefit Tax with the exchequ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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