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TMI Blog2017 (12) TMI 1161X X X X Extracts X X X X X X X X Extracts X X X X ..... re liable to fringe benefit tax - Held that:- The CBDT Circular No.8/2005 in answer to Q.NO.11 has clarified that one has to go by the primary purpose of the expenditure. In the case of composite fee, it is difficult to apportion the component of expenditure on food and lodging and a proportionate expenditure for participation in conference by the employee. Keeping in mind the spirit of FBT as explained in the CBDT Circular, we are of the view that in the case of composite fee paid for participation of employee in a conference, the same should not be considered as fringe benefit and there is no question of resorting to apportionment of those expenses. In our view in the given facts and circumstances apportionment of the total expenditure as done by the assessee was just and proper. There is no basis for the Assessee/AO or the CIT(A) in concluding that a percentage of composite fee is attributable to food and lodging. Since we have concluded that in the case of composite fee paid with no bifurcation, the expenditure on fee paid for participation of an employee in a conference or seminar will have to be not regarded as fringe benefit, we accept the contention of the assessee and hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009-10. All these appeals arise out of orders passed u/s 115WE(3) of the Income Tax Act, 1961 (Act), i.e., Assessment under Chapter-XIIH of the Act, i.e., Income tax on fringe benefits . 2. Fringe Benefit Tax (FBT) was introduced as part of Finance Act, 2005 as an additional income-tax and came into force from April 1, 2005. The term Fringe Benefits means any consideration for employment provided by way of any privilege, service, facility or amenity provided by the employer to the employees . Fringe Benefit Tax is to be levied on the employer in respect of fringe benefits provided/deemed to be provided by the employer to his employees during any financial year commencing on or after 1.4.2005. Fringe Benefit Tax is payable at the rate of 30% of the value of fringe benefits computed in the manner prescribed under the Section 115WC . Direct Fringe Benefit as classified under section 115(WB) (1) are: Any privilege, service, facility or amenity, which is directly or indirectly provided by an employer to his employees (including former employee or employees). Any free or concessional tickets provided by the employer for private journeys to employees or their fam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered the above expense for the purpose of fringe benefit tax on the ground that medical expenses so reimbursed falls within the meaning of salary as defined u/s 17 of the Act and hence is not liable to fringe benefit tax. In Annexure-II form No.3CB which is the form of auditors report u/s 44AB of the Act, in note no.2 the assessee had explained that the medical reimbursement to employees of ₹ 68,42,608/- was the basic exemption limit of ₹ 15,000/- which is not chargeable to tax u/s 17(1) of the Act in the hands of the employee. Note no.2 reads as follows :- Note no.2 : Does not include any sum paid by the Company for expenditure actually incurred by the employees for medical treatment not exceeding ₹ 15000/- per employee in the previous year as in the opinion of the Company such reimbursement comes within the meaning of Salary as defined in clause (1) of Section 17 of the Income Tax Act, 1961. 5. Section 17(1)(iv) states that salary includes perquisites. Section 17(2) defines perquisite and has six clauses. Clause (vi) lays down that perquisite includes ( vi ) the value of any other fringe benefit or amenity (excluding the fringe benefits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed as follows : I have looked into the present system of taxing perquisites and I have found that many perquisites are disguised as fringe benefits, and escape tax. Neither the employer nor the employee pays any tax on these benefits which are certainly of considerable material value. At present where the benefits are fully attributable to the employee they are taxed in the hands of the employee; that position will continue. In addition, I now propose that where the benefits are usually enjoyed collectively by the employees and cannot be attributed to individual employees, they shall be taxed in the hands of the employer. (Emphasis ours) It was submitted that the benefit in this case is clearly identifiable with an employee and the same in the nature of perquisite of the concerned employee. Reference was made to the provisions of Section 115WB(3) which reads as follows : For the purposes of sub-section (1), the privilege, service, facility or amenity does not include perquisites in respect of which tax is paid or payable by the employee [or any benefit or amenity in the nature of free or subsidized transport or any such allowance provided by the employer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the employees, of the nature referred to in subclause (ii) of clause (14) of section 10 and specified in sub-rule (2) of rule 2BB of Income-tax Rules are neither contributions to an approved superannuation fund nor represent the cost of free and concessional tickets for private journeys of employees or their family members. These allowances fall within the meaning of 'salary' as defined in clause (1) of section 17 of the Income-tax Act and, any expenditure incurred for the purposes of salary, does not fall within the scope of sub-section (2) of section 115W'B. Therefore, the allowances of the nature referred to in sub-clause (ii) of clause (14) of section 10, fall outside the scope of clauses (b) and (c) of sub-section (1) as well as sub-section (2) of section 115WB. Whether medical reimbursement up to ₹ 15,000 (exempt in the hands of the employees) and medical reimbursement over Rs, 15,000 (taxed as perquisite in the hands of the employee) is liable to FBT? 69. At present, if any sum is paid by the employer for expenditure actually incurred by the employee for medical treatment in an unapproved hospital and it exceeds ₹ 15,000 during the year, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elating to FBT on Leave Travel Concession (LTC) / Leave Travel Allowance (LTA) and with that relating to the allowances exempted u/s 10(14)(ii) of the Act, ( in Question 44,47 and 104) the CBDT has taken a contradictory approach while dealing with the charge of FBT with regard to the aforesaid expenses. The CBDT has clarified that these allowances fall within the meaning of 'salary' as defined in clause (1) of section 17 of the Income-tax Act (though not taxable because of specific exemption) and, any expenditure incurred for the purposes of salary, does not fall within the scope of sub-section (2) of section 115WB. Thus, it was argued that there was an apparent contradiction in the approach of the CBDT itself in the matter of the application of FBT on allowances / reimbursements made by the employer to the employees which are exempt from income-tax in the hands of the employees under express exemption provisions. It was argued that like LTC/LTA and other allowances, medical re-imbursement also forms part of salary as per the provisions of Section 17(2) of the Act, however, by way of specific dispensation provided in the said sub- section by way of proviso, the same is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he meaning of 'salary' as defined in clause (1) of section 17 of the Income-tax Act and is therefore not liable to income-tax in the hands of the employee. Since such sum is not taxable in the hands of the employee, the same is liable to FBT. The CBDT Circular being very clear, there cannot be any scope of interpretation. This ground of appeal is dismissed. 11. Aggrieved by the order of CIT(A) the assessee has raised ground no.1 and 1.1 before the tribunal. 12. We have heard the submissions of the ld. Counsel for the assessee and the learned DR. The learned counsel for the Assessee reiterated submissions made before CIT(A) and relied on the order of the Hon ble ITAT Mumbai in the case of M/s. Grindwell Norton Ltd.(supra). The ld. DR relied on the order of CIT(A). 13. We have given careful consideration to the rival submissions. We are of the view that the issue in question is squarely covered by the decision of the Hon ble Mumbai bench in the case of M/s. Grindwell Norton Ltd. Vs ACIT (supra). In the case before the Hon ble ITAT, Mumbai the issue was as to whether a sum of ₹ 15,000/- which is exempt prerequisite in the hands of the employee should be cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. .During the previous year relevant to the assessment year under consideration the appellant incurred an amount of ₹ 66,82,748/- towards employees participation fees for training, seminar etc. The said participation fees paid was a composite fee paid to the organizers which primarily was towards conducting the program along with fees for hall, coordinator and speakers. However, since the said composite fees also included some charges for boarding, food expenses, the Assessee, in absence of any break up, suo motto considered 10% of the total expenditure amounting to ₹ 6,68,275/- as attributable towards such expenses and accordingly computed the value of Fringe benefits liable to FBT a per the provisions of Section 115WB(2)(C) of the Act. The relevant statutory provision applicable reads thus: 115WB (2) The fringe benefits shall be deemed to have been provided by the employer to his employees, if the employer has, in the course of his business or profession (including any activity whether or not such activity is carried on with the object of deriving income, profits or gains) incurred any expense on, or made any payment for, the following purposes, namel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ards fooed and lodging. It was submitted that the said attribution by the Assessing Officer was excessive and unreasonable. The Assessee submitted that the amount considered by the Assessee as liable to FBT on account of participation fees should be accepted. 18. The CIT(A) however did not agree with the aforesaid submissions of the assessee and he held that 20% of the aforesaid participation fee should be taken as fringe benefit liable to fringe benefit tax. The following were his conclusions :- 4.2 I have examined the assessment order as well as facts/relevant details/ documents of the appellant. The Assessing officer in his order has increased the quantum of attribution from 10% to 30% as relating to food and beverages. However, in computing the amount of fringe benefit liable to FBT, he has considered 20% of the composite fees instead of 30% as relating to food and beverages. 4.3 It is also observed that while considering similar issue in subsequent assessment year, the Assessing officer has considered 20% of total composite participation fees as amount attributable on account of food . and beverages liable to FBT. The said attribution being reasonable, 20% of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the employee attending conference. Fee paid for participation by the employees is however excluded and not considered as fringe benefit. The statutory provisions are silent where the fee for participation by the employee in any conference is a composite fee which comprises of expenses set out in Explanation to section 115WB(2)(C) of the Act. From a reading of the aforesaid explanation it can be concluded that it is only in case where expenditure on conveyance, tour and travel and hotel or boarding or in connection with any conference that can be considered as expenditure incurred for the purpose of conference, where the fee for participation is not a composite fee with bifurcation. The main purpose of participation by the employee in conference is to gain knowledge and boarding and food will be provided incidentally but the main purpose was participation of the employee in the conference was to gain knowledge and not the purpose of enjoying the benefit of food and lodging. The CBDT Circular No.8/2005 in answer to Q.NO.11 has clarified that one has to go by the primary purpose of the expenditure. In the case of composite fee, it is difficult to apportion the component of expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the business of growing and manufacturing of tea and in which only 40% of the composite income from the business of growth and manufacture of tea is considered as taxable is also applicable while valuing the fringe benefit for the purpose of levy of FBT in the case of such companies. 24. We have considered the rival submissions and are of the view that since both the grounds of appeal raised by the assessee have been adjudicated in favour of the assessee, there is no necessity to adjudicate this ground of appeal. The issue is left open for the present and the ground is dismissed as not adjudicated. 25. In the result ITA No.1866/Kol/2014 is partly allowed. I TA No.1867/Kol/2014 A.Y.2007-08 26. Ground No.1 and 1.1, Gr.No.3 4 raised by the assessee reads as follows :- 1.0 That on the facts and in the circumstances of the case, the learned CIT (A) erred in confirming the action of the learned Assessing Officer in subjecting to fringe benefit tax, an amount of ₹ 20,41,559/-, being 20% of the medical expenses of ₹ 1,02,07,796/- incurred by appellant. 1.1 That on the facts and in the circumstances of the case, the learned CIT (A) failed to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat perquisite includes ( vi ) the value of any other fringe benefit or amenity (excluding the fringe benefits chargeable to tax under Chapter XII-H) as may be prescribed : Proviso to clause (vi) of Sec.17(2) has five sub-clauses and sub-claluse (v) lays down as follows: Provided that nothing in this clause shall apply to,- ( iii ) any portion of the premium paid by an employer in relation to an employee, to effect or to keep in force an insurance on the health of such employee under any scheme approved by the Central Government 42a [ or the Insurance Regulatory and Development Authority established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), ] for the purposes of clause ( ib ) of sub-section (1) of section 36; Premium paid on insurance policy for an employee, would be perquisite within the meaning of Sec.17(2)(v) of the Act, whether we consider the same as falling within the meaning of fringe benefit or amenity within the meaning of clause (vi) to Sec.17(2) of the Act. Proviso (iii) to clause (vi) of Sec.17(2) of the Act excludes such expenditure from the purview of taxation. 30. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t expenditure in question cannot be considered as a fringe benefit. Gr.No.2 2.1 is accordingly allowed. 33. In the result ITA No.1867/Kol/2014 is partly allowed. ITA Nos. 1868 and 1870/Kol/2014 A.Y.2008-09 and 2009-10 : 34. Ground Nos of appeal raised in these appeals read as follows :- 1.0 That on the facts and in the circumstances of the case, the learned CIT (A) erred in confirming the action of the learned Assessing Officer in subjecting to fringe benefit tax, an amount of ₹ 16,98,080/- being 20% of the medical expenses of ₹ 84,90,403/- incurred by appellant. 1.1 That on the facts and in the circumstances of the case, the learned CIT (A) failed to appreciate that reimbursement of medical expenses to employees falls within the meaning of 'Salary' and any expenditure incurred for the purposes of salary, does not fall within the purview of fringe benefit tax under the provisions of section 115WB of the Act. 2.0 That on the facts and in the circumstances of the case, the learned CIT (A) erred in confirming the action of the learned Assessing Officer in subjecting to fringe benefit tax, an amount of ₹ 19,18,302/- being 20% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer in attributing additional 10% of the composite participation fees as expenditure liable to fringe benefit tax without giving any cogent reasons and on a mere assumption, surmise and conjecture. 35. These grounds are identical to ground nos. 1 to 3 raised by the assessee in A.Y.2007-08. For the reasons stated while adjudicating ground nos. 1 to 3 in A.Y.2007-08 the same are allowed. 36. In the result ITA Nos.1868 and 1870/Kol/2014 are allowed. ITA NO.1869/Kol/2014 A.Y.2009-10 : 37. This is an appeal by the assesse against the order dated 23.01.2014 of CIT(A)-4, Kolkata relating to A.Y.2009-10. This appeal arises out of order of assessment passed u/s.143(3) of the Act. 38. Grounds of appeal raised by the assessee read as follows :- 1.a That on the facts and in the circumstances of the case, the learned CIT (Appeals) erred in confirming the action of the learned Assessing Officer in disallowing a sum of ₹ 1,60,96,045/-, under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962. 1 b. That on the facts and in the circumstances of the case, the learned CIT (Appeals) while confirming the action of the learned Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be disallowed u/s 14A of the Act while computing total income. 41. In the course of assessment proceedings, the Assessee provided workings of arriving at the amount of ₹ 19,82,000/- which was offered to tax u/s 14A. The copy of the said workings is annexed to this order as Annexure 1. It was submitted by the Assessee before the AO that no direct expenditure was incurred by the Assessee in earning dividend income. Majority of the investments have been made by the Assessee in past years and have been carried forward year after year. Majority of the investments are strategic investments in group companies for the purpose of expansion of business and the Assessee does not trade in these investments with the purpose of earning capital gains or dividend. Accordingly, no direct expenditure has been incurred in respect of these investments. However, considering the fact that some of the managerial/staff time were spent on investment related work of the company, the Assessee has suo-motto offered a portion of salary of such employees amounting to ₹ 19,82,000/- as expenses incurred in earning exempt dividend income. 42. The AO applied the provisions of Rule 8D(2)(iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax, Circle 10, Kolkata v. Champion Commercial Co. Ltd. [2013] 152 TTJ 241 (Kolkata) Commissioner of Income-tax-vs- Consolidated Photo Finvest Ltd. [2012] 211 Taxman 184 (Delhi High Court) Maxopp Investments Limited - vs CIT (2012) 347 ITR 272 (Delhi) DCIT -vs.- Jindal Photo Limited -ITA NO. 814 (Del) 2011 Auchtel Products Ltd. -vs.~ Assistant Commissioner of Income-tax, Circle-6(1), Mumbai [2012] 52 SOT 39 (Mum) Raj Shipping Agencies Ltd vs. ACIT [2013] 38 taxman.com 345(Mum) DCIT vs. Allied Investments Housing P. Ltd [2013] (ITAT Chennai) ReIaxo Footwears Ltd. vs Addl. CIT [2012] 50 SOT 102 (Delhi) It was argued that since the Assessing Officer has failed to record a finding that the assessee's method is incorrect and not satisfactory, the action of the Assessing Officer in applying Rule 8D is erroneous and accordingly, should be struck down. 44. Without prejudice to the above submission, it was submitted that out of the total investments, majority of the investments were made by the Assessee in subsidiaries, associate companies and joint ventures which were in the nature of strategic investments in group companies for the purpose of expanding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce is called for under section 14A of the Act r.w. Rule 8D(2)(iii). 45. The CIT(A) however did not agree with the submissions made by the assessee and he confirmed the order of the AO by observing as follows :- 3.3. I have gone through the submissions filed by the appellant. Though the appellant has suo moto disallowed salary expenses of various employees, it cannot be denied that various administrative expenses must have been incurred in managing the investment and earning dividend income. Accordingly, the Assessing Officer was correct in applying Rule 80(2)(iii) and disallowing 0.5% of the average value of investment of ₹ 1,60,96,045/- for computing disallowance u/s 14A of the Act. 3.4 As regard the reliance placed by the appellant on the decision of Rei Agro Ltd. [2013] 35 taxmann.com 404 (Kolkata - Trib.) in holding that only those investments on which dividend has been earned by the appellant should have been considered for computing 0.5% of Average value of investments and not all investments on which no dividend has been earned during the relevant financial year, the same is misplaced in view of the recent CBDT Circular No.5 dated 11- 02-2014 where in i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 194 Taxman 203, the Assessing Officer simply stated that he was satisfied that the assessee had incurred expenses to manage its investments which may yield exempt income, and assessee grossly failed to calculate such expenses in a reasonable manner to ascertain the true and correct picture of its income and expenses. It is viewed that the above observations of the Assessing Officer in the assessment order are of a broad general nature not with particular reference to the facts of the case on hand. There being concurrent findings of both the Commissioner (Appeals) as well as the Tribunal on this aspect is not agreeable. The Commissioner (Appeals) disallowed the exempt expenses by merely repeating what the Assessing Officer had stated about the cost that is built into so called 'passive' investments and simply recorded that the Assessing Officer was bound to rule 8D and, therefore, was justified in determining administrative costs at 0.5 per cent. Here again, the Commissioner (Appeals) failed to note that without the mandatory requirement under section 14A and rule 8D of the rules, of satisfaction being recorded being met, the question of applying rule 8D( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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