TMI Blog2014 (5) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... duction 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 authorities below are not justified in making the addition - the order passed by the CIT(A) is not justified and also the AO was not justified in making the addition - the assessee itself has made the submission that the amount has been deposited in Escrow account in pursuance to the direction – the AO is directed to verify whether the assessee has deposited the amount and delete the addition – Decided in favour of Assessee. - ITA No.3148/Ahd/2010 - - - Dated:- 28-1-2014 - SHRI N.S. SAINI AND SHRI KUL BHARAT, JJ. For the Appellant : Shri V R Chokshi, AR For the Respondent: Shri O P Batheja, Sr. D.R. JUDGEMENT Per: Kul Bharat: This appeal by the Assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals)-VI, Ahmedabad ( CIT(A) for short) dated 03/09/2010 pertaining to Assessment Year (AY) 2006-07. The Assessee has raised the following grounds of appeal:- 1.1. In law and in the facts and circumstances of the appellant s case, the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The learned CIT(A) has accordingly grossly erred in omitting to consider and render his appellate decision on the issues listed at (a), (c) and (d) above raised by the appellant in its appeal before him. 2. Without prejudice to the foregoing and without prejudice in particular to the appellant s challenge to the validity of the assessment order impugned before him, including on the basis of unconstitutionally of the relevant provisions of the Income-tax Act, 1961, in law and in the facts and circumstances of the appellant s case, the learned CIT(A) has grossly erred in upholding the addition of Rs.1,46,69,716 to the returned Fringe Benefit Value corresponding to the expenditure of Rs.6,60,77,492 in respect of which Fringe Benefit Tax wax not at all leviable. He ought to have appreciated, inter alia, that when the jurisdictional High Court was seized with the issues which had been raised in the appellant s appeal and when, pending its final decision in the writ petition admitted by it, it had granted interim relief to assessees (adverted to in the SOF accompanying the appellant s appeal before him), he ought to have kept the appellant s appeal pending till the High Court ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it Tax. He submitted that despite having deposited the amount as envisaged in the order of the Hon ble Gujarat High Court, the Revenue authorities disregarded the binding precedent. He submitted that in reply to the notice in para-2 of letter dated 25/02/2008, it was brought to the notice of the AO that the company has deposited Rs.50,302,230/- in Escrow account No.66003677412 opened with SBS IF Branch, Ahmedabad. He submitted that despite this, the AO chose to make addition. He further submitted that the ld.CIT(A) despite having noted the contents of the order of the Hon ble Gujarat High Court, observed that the order has not put any stay or assessment or appeal proceedings in the matter. Since there is no order either of Jurisdictional High Court or other Court, wherein it is held that Fringe Benefit Tax is not payable in respect of expenses not incurred for the purpose of employees benefit, he submitted that firstly, the AO was not justified to disregard the categorical direction of the Hon ble Gujarat High Court, wherein it has been specifically held that in the even of the deposit in the account, it shall amount to sufficient compliance the qua the provisions of the Act levyi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Sections 115WA and 115WB contained in the aforesaid Chapter XII-H. For ready reference, these provisions are reproduced below: Charge of fringe benefit tax. 115WA. (1) In addition to the income-tax charged under this Act, there shall be charged for every assessment year commencing on or after the 1st day of April, 2006, additional income-tax (in this Act referred to as fringe benefit tax) in respect of the fringe benefits provided or deemed to have been provided by an employer to his employees during the previous year at the rate of thirty per cent on the value of such fringe benefits. (2) Notwithstanding that no income-tax is payable by an employer on his total income computed in accordance with the provisions of this Act, the tax on fringe benefits shall be payable by such employer. Fringe benefits. 115WB. (1) For the purposes of this Chapter, fringe benefits means any consideration for employment provided by way of- (a) any privilege, service, facility or amenity, directly or indirectly, provided by an employer, whether by way of reimbursement or otherwise81, to his employees (including former employee or employees); ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence (other than fee for participation by the employees in any conference). Explanation. -For the purposes of this clause, any expenditure on conveyance, tour and travel (including foreign travel), on hotel, or boarding and lodging in connection with any conference shall be deemed to be expenditure incurred for the purposes of conference; (D) sales promotion including publicity: Provided that any expenditure on advertisement,- (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit or amenity in the nature of free or subsidised transport or any such allowance provided by the employer to his employees for journeys by the employees from their residence to the place of work or such place of work to the place of residence]. 2. From the aforesaid provisions it may kindly be seen that the charging provision is contained in sub-section (1) of Section 115WA, which stipulates that Fringe Benefit Tax is chargeable in respect of the fringe benefits provided or deemed to have been provided by an employer to his employees . The charging provision is clear and does not suffer from any ambiguity. The primary condition is that fringe benefits are provided or deemed to have been provided by an employer to his employees. Subsection (2) of Section 115WB is a deeming provision and is therefore, an extension of sub-section (1) of Section 115WA. Sub-section (2) of Section 115WB starts with the words the fringe benefits shall be deemed to have been provided by the employer to his employees . The intention of the Legislature is absolutely clear that the provisions of Chapter XII-H can be applied only when any expenditure is incurred or payment is made by the employe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Answer: FBT is payable by a person if he satisfies the following conditions: (i) He is an employer, (ii) He has employees based in India . Q.2 Whether employer-employee relationship is a prerequisite for the levy of FBR? Answer: Yes. Q.3 Whether FBT is payable by an entity having no employee? For example, will law firms having retainer-relationship arrangements and no employees be liable to pay FBT? Answer: An entity, which does not have any employee on its rolls, will not be liable to FBT. Therefore, law firms having retainer-relationship arrangements and no employees will not be liable to FBT. 4. The aforesaid clarifications are categorical and the clear mandate of the newly introduced provisions has been clarified to the effect that employer-employee relationship is a prerequisite for levy of FBT. It has been further clarified in answer to question No. 3 that an entity which does not have any employee will not be liable to FBT. 5. The relevant provisions of Section 115WA and 115WB have come up for interpretation before various Benches of the Hon'ble ITAT. In these decisions the Circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA No.20/Bang/2011 (2) ITAT, Bangalore decision dated 8.6.2012 in the case of ACIT v. Infosis Technology Ltd. in ITA No. 96/Bang/2011 (3) ITAT, Chandigarh decision dated 19.7.2012 in the case of Glaxo mithkline Consumer Healthcare Ltd. v. ACIT in ITA No. 931/Chd./2009 (4) ITAT Ahmedabad 'A' Bench decision dated 25th October, 2013 in the case of Adani Retails Ltd. v. DCIT in ITA No. 3269/Ahd/2010 (5) DCIT v. Kotak Mahindra Old Mutual Life Insurance C. Ltd. 134 ITD 388 (Bom) (6) Arvind Fashions v. DCIT dated 13.12.2013 in ITA No. 3508/Ahd/2010 8. In the case of Infosis Technologies Ltd. (supra), at para 6.2 the Hon'ble Tribunal has noted the decision of the coordinate Bench in the case of M/s. Toyota Kirloskar Motors P. Ltd. (supra) and it has been held that payments to third parties which do not result in any benefit to employees are not liable to levy of FBT. The Board's Circular referred to above has also been discussed and considered. In the case of Glaxo Smithkline Consumer Healthcare Ltd. (supra), at para 18 the Hon'ble Tribunal has elaborately considered the phraseology of sub-sections (1) and ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ... Status of the agents is somewhere in between the status of employees and third person. If the agents cannot be said to be employees of the company, at the same time they cannot be said to be the third parties. The indirect incentives, benefits and perquisites which are collectively enjoyed by the agents provided by the employer company are neither taxed individually at the hands of the agents nor at the hands of the employer company. To bring into the purview and subject these type of expenditure incurred by the employer company on certain persons like agents, provisions of section 115WB(2) have been enacted... 12. In the above case the Hon'ble Tribunal has strongly relied on the Hon'ble Supreme Court decision in the case of R. B. Falcon (supra) and at para 15 of their order it has been noted that the Hon'ble Supreme Court has held that Section 115WB(1) and 115WB(2) operate in different fields. It is submitted that there is no quarrel that this proposition that the aforesaid sub-sections do operate in different fields, but the most important point is that the Hon'ble Supreme Court was never concerned about the question as to whether employer employee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in the case of R. B. Falcon (supra). The Hon'ble Supreme Court was never concerned with this question. It is true that Section 115WB(2) expands the definition contained in Section 115WB(1). Further, such expansion is only with regard to certain fringe benefits which can be deemed to have been provided by the employer to his employees. The primary condition that some direct or indirect benefit must accrue to the employees has not been diluted by this deeming provisions. Even in the case of R. B. Falcon (supra) the -Hon'ble Supreme Court has observed that u/s. 115WB(2) some indirect benefit must accrue to the employees. It may be appropriate to reproduce below the relevant part of the Hon'ble Supreme Court decision from pages 319 - 320 of the report: Sub-section (1) of section 115WB contains the interpretation section. It is in two parts. It provides for a direct meaning, as also an expanded meaning. The expanded meaning of the said provision is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision in the case of T T. Motors Ltd. vs. CIT (341 ITR 332). Relevant part is reproduced below from pages 337 - 338 of the report: Clause (D) to section 115WB(2) stipulates that sales promotion including publicity are deemed to be fringe benefit. The term sales promotion and publicity have to be interpreted. These terms have not been specifically defined for the purpose of this section and, therefore, we have to read them and understand them as used in common parlance or popular sense and then interpret the words sales promotion and publicity with reference to the provisions and the context in which they have been used. Interpretation based upon normal day-to-day usage and common man's understanding of the said terms has to be kept in mind. Both the terms contemplate, expenditure incurred on efforts made 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 sens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersons are outside the purview of FBT. 15. Even in the case of ICICI Prudential (supra) on which the Department has heavily relied, it has been observed that the status of agents of a Life Insurance Company is somewhere between employees and third persons,, and further that the agents cannot be said to be third parties. Obviously, even in this case the Hon'ble Tribunal was of the view that if any benefits are provided to third parties, FBT will not be applicable. 16. With regard to the other cases relied upon by the Department it may kindly be noted that this issue never came up for adjudication in these 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aborate synopsis citing the decision for and against. He also drew our attention to the decision of Hon ble Gujarat High Court in the case of Gujarat Chamber of Commerce Industry vs. UOI Through Secretary in Special Civil Application No.21124 of 2005,dated 10/10/2005:: (2005) 148 Taxman 3 (Guj.), wherein vide para-3 the Jurisdictional High Court has held as under:- 3. At this juncture, it is not possible to permit any 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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