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2014 (9) TMI 939 - AT - Income TaxDisallowance of claim for deduction of ₹ 1 crore relating to the value of sweat equity shares - Sweat equity shares issued to key persons - Fringe benefit tax paid on value of such shares - Held that:- As submitted by the learned Departmental representative, the income from business has to be necessarily computed in terms of sections 28 to 43 of the Act. The computation of fringe benefit tax is a subsequent exercise. Accordingly, if any expenditure is disallowed while computing the business income, then the assessee may not be liable to pay the fringe benefit tax. This position has been made clear by the Central Board of Direct Taxes in the answer to Question No. 35 given in Circular No. 8 of 2005 dated August 29, 2005 wherein it is stated that the fringe benefit tax is payable only on the amount allowed under the provisions of the Income tax Act. Hence, in our view, the Assessing Officer was right in holding that the question of allowability of the impugned claim should be independently tested in terms of the provisions of section 37(1) of the Act.In any case, the methodologies prescribed in the provisions relating to the fringe benefit tax for payment/recovery of tax may not be relevant to determine about the deductibility of an expenditure under section 37(1) of the Act. In this case, it is clear that he sweat equity shares were issued to the above said two persons for "value addition" as given in the definition of the expression "sweat equity shares". As discussed earlier, the value addition was given by the above said persons to the assessee- company in the form of their vast experience in new business concepts and professional experience. Under these set of facts, in our view, the value addition would partake the character of an intangible asset in the hands of the assessee-company. Since the sweat equity shares were issued for acquiring value addition, in our view, the tax authorities are justified in holding the same as "capital expenditure" in the hands of the assessee company. - Decided against the assessee.
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