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TMI Blog2016 (6) TMI 844X X X X Extracts X X X X X X X X Extracts X X X X ..... s completed on 29.12.2008 accepting the returned fringe benefit value of Rs. 15,53,808/-. Thereafter a notice u/s 115WH of the Act was issued on 26.03.2012 after duly recording the reasons for the same. In reply thereto the assessee filed letter dated 10.4.12 stating that return filed originally on 31.12.2006 may be treated as FBT return. Necessary information was called for which was supplied by assessee. The case was discussed and value of FBT was assessed at Rs. 55,47,478/- after making additions in value of Fring Benefit at Rs. 39,93,670/- on account of following :- Expenses in schedule 10 of P & L a/c Total expenses (Rs.) Offered by the assessee (Rs.) Difference (Rs.) Percentage Value of fringe benefits (Rs.) Sales promotions/ lodging expenses 86,48,475 2,05,595 84,42,880 20 16,88,576 Telephone 15,95,171 8,91,304 7,03,867 20 1,40,773 Girft 43,50,495 21,853 43,28,642 50 21,64,321 Total 39,93,670 3. Aggrieved, assessee went in appeal before ld. CIT(A) wherein the impugned addition of Rs. 39,93,670/- was deleted, however, the ground of assessee against the order passed u/s 115WE(3) r.w.s. 115WG of the Act challenging the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business of issuing membership cards to various members/customers which entitle them to certain benefits and facilities on the basis on the basis of various rights mentioned to the members in those cards which are available to the members. Against issuance of these cards, assessee collects the fees from the members/customers on a periodical basis and in return provides the services including free holiday packages, prizes, accidental death coverage, festival bonanza coupons etc. and cost of these services provided to its members is met out of the fees collected from the members. During the year assessee incurred resort expenses at Rs. 86,48,475/- out of which expenditure Rs. 2,05,595/- was offered by assessee for being subject to fringe benefits tax to be calculated on 20% of Rs. 2,05,595/- as value of fringe benefit and the remaining amount of Rs. 84,42,880/- was specifically incurred for the travelling package cost of its members from whom advance fees was already recovered and there was no element of any facility or benefit directly or indirectly provided to its employees. We further observe that ld. CIT(A) has deleted the impugned addition of value of fringe benefit of Rs. 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from them. On careful consideration of provisions of Section 115WB read with Finance Minister's speech at the time of introducing Finance Bill and notes on clauses, it is clear that Section 115WB(1) defines the scope of Fringe Benefit Tax provided by employers to employees and deeming provisions contained in Section 115WB(2) cannot be invoked mechanically and in respect of every item of expenditure, it is necessary first to correlate the benefit of employees arising out of their employment before the expenditure can be categorized to be resulting into fringe benefit and if the expenditure incurred by the Assessee Company is for the purpose of its business and not incurred for the benefit of employees, fringe benefits tax (FBT) cannot be levied on these expenditure. These provisions are elaborately discussed by Hon'ble Pune I.T.A.T. in case of Desai Brolhers Ltd 32 Taxmann.com 278 (2013) wherein the Hon'ble I.T.A.T, at para 8 has held as under: "8. To appreciate the legal position, we may again refer to the meaning of the expression "Fringe benefits", as contained in section 115WB(1) of the Act. As noted earlier, Sub-section (1) of section 115WB contains the expressio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supported by the language of the statute. The Hon'ble Supreme Court in the case of Kerala Financial Corpn. v. CIT [1994] 210 ITR 129/75 Taxman 573 (SC) has clearly opined that the Circulars issued by CBDT cannot override the provisions of the Act. In any case, it is quite well-settled that an executive instruction/circular cannot create any additional liability on the assessee. Secondly, it is also to be appreciated that the stand of the Revenue is also not in consonance with the legislative intent. The import and intent of introducing Chapter XII-H was to tax such benefits which are collectively enjoyed by the employees and cannot be attributed to any individual employee. Such benefits escape taxation as perquisite in the hands of the individual employees as they are not attributable to any individual employee. Therefore, such benefits were sought to be taxed in the hands of the concerned employer. Though the speech of the Hon'ble Finance Minister may not be a decisive test, so however, it is indeed a relevant and contemporaneous exposition of the legislative intent and can be relied upon, as propounded by the Hon'ble Supreme Court in the case of K.P. Varghese v. ITO [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It may be clarified that the income tax authorities while discharging their quasi-judicial functions having a bearing on the rights and obligations of the tax payers under the provisions of the Act may take such views on the interpretation of a particular statutory provision as may be permissible which will be always subject to the statutory remedies under the Act. But the view so taken in the particular case cannot partake of the colour of a law of general application so as to bind a whole class of taxpayers and providing them a cause of action for coming before this court seeking interference under the writ jurisdictions..." . The Hon'ble Bangalore I.T.A.T. in case of Toyota Kirloskar Motor Pvt. Limited 24 Taxman 148 after considering Circular No. 8 of 2005 and legal precedent on binding nature of circular at para 11.7 has observed that the Hon'ble Apex Court in the case of State of Madhya Pradesh v. G.S. Dall & Flour Mills [1991 ] 187ITR 478 held that executive instructions can supplement a statute or cover areas to which the statute does not extend but they cannot run contrary to statutory provisions or whittle down their effect. Further, Hon'ble I.T.A.T. at pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and presents as gift and relied upon clarification in Answer No. 98 of Circular No. 8 dated 29th August, 2005 and observed that gift to a customer even if for the purpose of sales promotion would fall within the scope of provisions of Section 115WB(2)(O). On careful consideration of explanation provided by the appellant both at the time of Assessment Proceedings and Appellate Proceedings along with necessary supporting evidences, it is observed that during the course of its business of providing various membership fee cards to its customers, it has appointed agents across the country and these agents are compensated in the form of commission and through rewards which are directly linked with the performance of those agents. The agents, chains of agents, who have achieved the prescribed targets given by the Company, are provided with gifts according to terms and conditions of the various contests prevailing during the period. These gifts are not provided to customers as observed by Assessing Officer hence answer to Question No. 98 of the Circular No. 8 relied upon by the Assessing Officer do not apply in this case. On the contrary, Question No. 61 of the said Circular clearly stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 tax a benefit which is enjoyed collectively by the employees. Hitherto that was taxed in the hands of the employees and the employer was claiming deduction. 6.8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, ld. DR supported the order of Assessing Officer. 13. We have heard the rival contentions and perused the material on record. Through this ground Revenue is aggrieved with the action of ld. CIT(A) deleting the addition of Rs. 1,40,173/- on the value of FBT calculated by ld. Assessing Officer on the telephone expenditure of Rs. 7,03,867/-. We observe that the amount of Rs. 7,03,867/- has been incurred towards telephone lease lines and they were specifically not attributable to the employees. We further observe that ld. CIT(A) while deleting the impugned addition of Rs. 1,40,173/- has observed as under :- So far as second issue is concerned, Assessing Officer has observed that appellant has claimed telephone expenses of Rs. 15,95,171/- in Profit & Loss Account against which it has paid FBT on expenses of Rs. 8,91,304 hence balance telephone expenses of Rs, 7,03,867/- is considered for levy of FBT and addition of Rs. 1,40,773/-has been made. On the other hand, appellant both during the course of Assessment Proceedings and in Appellate Proceedings has submitted that as per Clause (J) of Section 115WB(2) telephone expenses other than expenditure on leased telephone line is liable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the customers for sales promotion purposes within the scope of section 115WB(2)(O) of the Act. Ld. AR further submitted that looking to the nature of business, assessee is engaged into, the cost towards providing facilities like package tour, gift etc. are all incurred out of the membership received from them periodically which thereby push up the market of the company amongst other persons which gives more business to the company. Ld. AR further submitted that on the basis of these facts and circumstances, ld. CIT(A) has rightly deleted the impugned addition by relying on the decision of the co-ordinate bench that gifts were provided to the members during the course of its business for getting increase in number of members and as such there was no benefit to the employees. 17. On the other hand, ld. DR supported the order of Assessing Officer. 18. We have heard the rival contentions and perused the material on record. Through this ground Revenue is aggrieved with the action of ld. CIT(A) in deleting the addition of Rs. 21,64,321/- made out of gift expenditure. We observe that looking to the nature of business of the assessee gifts amount of Rs. 43,28,642/- has been incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utors for meeting sales targets (including free goods for achieving certain sales target and cash incentives adjustable against future supplies) do not fall within the scope of clause (D) of sub-section (2) of section 115WB and, therefore, not liable to FBT." Even on the basis of Circular No. 8 of 2005 relied upon by the Assessing Officer, appellant is not liable to FBT on expenditure of gifts provided to its agents as it is target oriented which is not at all sales promotion as per answer to Question No. 61 of said Circular reproduced herein above. Even in preceding para at 3.3.1,1 have carefully considered the provisions of FBT, Circular issued by CBDT as well as decisions of Hon'ble ITAT's and observed that FBT is not leviable on expenditure incurred for the purpose of business which does not give any benefit to employees. Appellant has provided the gifts to its agents on achieving the various sales targets and such gifts are not provided to employees hence even on this ground also appellant is not liable to FBT. 19. From going through the observation of ld. CIT(A) and also respectfully following the decision of Co-ordinate bench discussed above in para 8 above in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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