TMI Blog2010 (7) TMI 684X X X X Extracts X X X X X X X X Extracts X X X X ..... NY, ACCOUNTANT MEMBER J. Appellant by : Shri S. Vishnumurthy, C.A. Respondent by : Smt. Swati S. Patil, CIT-II(DR) ORDER Per A. Mohan Alankamony, Accountant Member This appeal of the assessee company is directed against the order of the CIT(A) I, Bangalore in ITA No: 189/AC 11(5)/A.I./08-09 dated: 22.9.2009 for the assessment year 2006-07. 2. The assessee company ( the assessee in short) had raised seven grounds in an extensive and illustrative manner. Ground Nos. 1 and 7 being general and no specific issues involved, they have become non-consequential. In the remaining grounds, the substances and cruxes of the issues raised are reformulated in a concise manner as under: The CIT (A) had erred: (i) in holding that the AO was justified in conducting an enquiry into the certificate issued by the tax auditor and rejecting the same; (ii) in confirming the levy of fringe benefit tax [FBT] in respect of free and concessional tickets provided to its staff; (iii) in confirming the levy of FBT of Rs.5.05 crores paid to its pilots as per diem allowances; (iv) in confirming FBT of Rs.9.99 crores paid to hotels to provided layover to its crew members; (v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance to pilots on training hotel stay of crew members in between the flights (free travelling expenses): (1) Out of Rs.2547.75 lakhs under the head traveling expenses , the assessee had considered only Rs.817.66 lakhs for the purpose of FBT and the balance was left un-touched. On being queried, the assessee had replied thus (i) Reimbursements to consultants were not liable to FBT; (ii) Rs.5.05 crores were paid to the pilots who were on training abroad which was not considered for the purpose of levy of FBT as these expenses were for the purpose of pilots were undergoing training. The immediate and proximate purpose of the payment was for training and there was no element of FB involved in incurring such expenditure; - the assessee had only granted per diem allowance to its pilots which was intended to take care of their boarding, lodging etc. it was only an allowance granted to its employees and, therefore, it cannot be said that they were incurred for travelling or for the purpose of hotels; -as the salary paid to a pilot was for the purpose of running and maintenance of the aircraft, the training expenses incurred for the pilots were also in the nature of run ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Agitated, the assessee took up the issue with the CIT (A) for relief. I. With regard to the certificate of the tax auditor, the assessee contended, by taking sanctuary in Hon ble Finance Minister s speech on the floor of the august house while replying to the debate on Fringe Benefits Bill, that the AO had no locus standi to go behind the certificate of a CA in respect of items which should be included in s.115WB (2) of the Act. After considering the assessee s plea and also taking cue from the ruling of the Hon ble Apex Court in the case of Sunil Siddhartha Bhat (sic) Sunil Siddharthbhai v. CIT (156 ITR 509), the CIT (A) observed that 5.1 .The deeming provisions always need to be interpreted strictly which has been done by the AO in this case while computing fringe benefits from per diem allowance paid to trainee pilots and hotel expenses incurred for layover pilots and crew which is as per Circular No.8 of 2005 5.2. The AO has gone behind the books to discover non-treatment of some items as fringe benefits and have taxed them. Therefore, I see no violation of any provision of law or conducting inquiry into certificate issued (by) the C.A. so as to ann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crew members is for the layover of the crew. Layovers are short duration breaks given during the duty hours in accordance with the safety manual. These expenses were genuine business expenses and as rightly pointed out by the Finance Minister, they should not be brought within the purview of the fringe benefit and subjected to tax. However, the Ld. CIT (A) was of the view that 8.2. The argument may seems (to be) genuine but whatever may be the layover payments to hotels for the pilots and crew is certainly an amenity to them and, therefore, has to be covered under FBT . 5. In a nut-shell, the relief sought for by the assessee was turned down by the Ld. CIT (A) in toto. 6. Disillusioned with the findings of the CIT (A), the assessee has come up with the present appeal. The submissions made by the Ld. A R during the course of hearing are summarized as under: (i) the Finance Minister had declared that, if the tax auditor certifies that if a particular item falls within a given head mentioned in s.115 WB (2), then it will fall within that head and will attract FBT, otherwise, it will not attract FBT, that the AO has no discretion in the matter and he has to accept what th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made to hotels, and, thus, they have erred in levying FBT on such payments; (iv) the payments to hotels for the purpose of layover of the crew members were genuine business expenses. As per FM, the law relating to FBT was not intended to bring to tax any expenses which were genuine business expenses and, thus, confirming the levy of tax on such payments were without any basis; -the Circular clarifies in answer to query No.87 that the rent paid for garages, parking slots, airport tarmac, hangers, salary to pilots etc. were inextricably connected with the running of the aircraft and, therefore, they were in the nature of aircraft maintenance/running expenses and, thus, CIT(A) had erred in holding that the payments as hotel expenses instead of holding them as aircraft maintenance/running expenses; -layover expenses were incurred as employee welfare expenses in accordance with Civil Aviation requirements and, therefore, they were covered by Explanation to s.115W(E) and not liable to tax; - (v) for the purpose of levy of FBT on the items mentioned in clauses A to P of s.115WB(2), the classification of the expenses was required to be done based on the ultimate purpose for which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d have taxed them . We are of the firm view that the AO was within her realm to cause an inquiry into the contents of the certificate of the tax auditor. It is ordered accordingly. This view is rather in conformity with the ruling of the highest judiciary of the land in the case of Sunil Siddharthbhai v. CIT Ahmedabad Kartikeya v. Sarabhai v. CIT Ahmedabad reported in 156 ITR 509 wherein the Hon ble judiciary had observed that it will be open to the income-tax authorities to go behind the transaction and examine whether the transaction of creating the partnership is a genuine or a sham transaction and, even where the partnership is genuine, the transaction of transferring the personal asset to the partnership firm represents a real attempt to contribute to the share capital of the partnership firm for the purpose of carrying on the partnership business or is nothing but a device or ruse to convert the personal asset into money substantially for the benefit of the assessee while evading tax on a capital gain. The, Income-tax Officer will be entitled to consider all the relevant indicia in this regard , All these and other pertinent c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in her impugned order, the method of computation prescribed in s. 115 WC (1)(a) rather overrldes the general clarification mentioned in Q.5. Considering the over all facts, we are of the firm view that the AO was justified in bringing to tax net (FBT), the fringe benefit value of Rs.1,10,73,197/- - the total value of free tickets issued by the assessee. III. Per diem allowances paid to pilots Hotel stay of crew members in between the flights: (1) The theme of the assessee that the amounts were paid as per diem allowances to the pilots and the authorities below grossly erred in terming the expenses were in the nature of hotel expenses covered u/s 115WB(G)(2) of the Act. (2) As a matter of fact, the assessee had debited Rs.2547.75 lakhs as travelling expenses in its P L account, out of which, Rs.817.66 lakhs was considered for the purpose of FBT. On being queried by the AO, the assessee came up with a lengthy explanation, justifying its claim. After due consideration of the assessee s contentions, the AO was of the view that 5.3. The main argument of the assessee company is that these expenses are incurred for running and maintenance of aircraft and hence in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would fall within the scope of clause (G) of sub-section (2) of s.115WB. With regard to answer to question No.87 (on which the assessee has placed a strong reliance), it has been clarified that The salary paid to a driver of motor car or a pilot of an aircraft is for the purposes of running and maintenance of motor car or aircraft as the case may be and, accordingly, such payment of salary would have to be classified either in clause (H) or clause (I), as the case may be, of sub-section (2) of s.115WB. Therefore, it would be liable to FBT. What the clauses of (H) and (I) of sub-section (2) of s.115WB of the Act are subscribed for? S.115WB (2): (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; (6) The assessee itself taking sanctuary under Query No.87 of Circular No.8 and pleaded that the salary and other allowances paid to the pilots were expenses in the nature of running and maintenance expenses of the aircraft. However, s.115WB (2)(H) and (I) of the Act, makes it explicitly clear that repair, running and mai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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