TMI Blog2014 (9) TMI 939X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - I.T.A. No.2654/Mum/2012 - - - Dated:- 19-9-2014 - S/SHRI D. MANMOHAN AND B.R.BASKARAN, JJ. For the Appellant : Shri Vipul Joshi For the Respondent : Shri Sambit Mishra ORDER B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer held that the abovesaid claim is not allowable under section 37 of the Act. In this regard, he placed reliance on the decision rendered by the Income-tax Appellate Tribunal in the case of Ranbaxy Laboratories Ltd. v. Addl. CIT [2009] 124 TTJ (Delhi) 771. Accordingly, the Assessing Officer disallowed the claim of ₹ 1 crore made by the assessee. 3. The learned Commissioner of Income-tax (Appeals) also confirmed the disallowance made by the Assessing Officer, by placing reliance on the decision rendered in the case of Ranbaxy Laboratories Ltd. v. Addl. CIT [2009] 124 TTJ (Delhi) 771. Aggrieved, the assessee has filed this appeal before us. 4. Before us, the learned authorised representative mainly placed reliance on the provisions relating to fringe benefit tax to contend that the sweat equity shares issued to the employees would fall in the category of revenue expenditure. He submitted that the salary package given to the two key employees provided for issue of sweat equity shares at free of cost and their respective salary package has also been approved by the Central Government. He further submitted that the decision rendered in the case of Ranbax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Departmental representative submitted that the issuance of sweat equity shares is dependent upon the development to be achieved by the employees and if the developments are not satisfactorily achieved in the first year, the option of sweat equity shares would lapse. Accordingly, the learned Departmental representative submitted that the issuance of sweat equity shares cannot be considered as part of salary package, but it is only an optional one, which is dependent upon the developments achieved. He further submitted that the business income of the assessee has to be computed in accordance with the provisions of sections 28 to 43 of the Act and the fact that value of free shares allotted to the key employees has suffered fringe benefit tax would not give ticket to convert a capital expenditure into revenue expenditure. The learned Departmental representative further pointed out that the sweat equity shares have been classified as a capital asset under section 2(42A)(hb) of the Act. 6. In the rejoinder, the learned authorised representative invited our attention to the letter dated January 7, 2008 given to the Assessing Officer, which is placed at page 29 of the paper boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ([2005] 277 ITR (St.) 20 ) 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. Further our attention was invited to the provisions of section 115WKA which provide for recovery of fringe benefit tax by the employer from employee and also to the provisions of section 115WKB of the Act which states that the fringe benefit tax so recovered shall be deemed to be the tax paid by such employee in respect of the value of fringe benefit as determined under section 115WC(1)(ba) of the Act. Hence, a specific question was put to the learned authorised representative as to whether the above said employees have disclosed the value of sweat equity shares as their respective income, the learned authorised representative submitted that they have not declared the same as their respective income. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e consideration for proposed issue of sweat equity shares to both employees. In the said report, it is stated that the business concept of selling staples such as sugar, rice, pulses, wheat/atta etc., in open drums was introduced by Mr. Baheti (one of the employees) for the first time in the name of Food bazaar , which became a great hit with the consumers. Considering the vast experience in the trading, procurement, business development and managing qualities of Mr. Narendra Baheti, he was made the managing director of the assessee-company. Another employee Shri Rajendra Baheti is a chartered accountant and he had joined hands with Mr. Narendra Baheti in developing food bazaars and was in-charge of procurement of staples. Hence he was appointed as Zonal Head-North. 11. From the valuation report furnished by the consultant cited above, we notice that the issuing of sweat equity shares was authorised with the stipulation that they will be entitled for the same after the completion of one year from the date of commencement of business subject to the condition that he will develop the supply chain to meet PRIL (holding company) requirement for their food and grocery outlets and fr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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