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2016 (6) TMI 731 - ITAT DELHI

2016 (6) TMI 731 - ITAT DELHI - TMI - Value of FBT u/s 115WB - Contributions to approved Pension Fund - liability to fringe benefit tax (FBT) - Held that:- As relying on Andhra Bank, Hyderabad Versus DCIT, Circle 1(1), Hyderabad [2014 (7) TMI 804 - ITAT HYDERABAD ] we set aside the impugned order and direct the AO to allow the claim of the assessee and not to consider the impugned contribution of the assessee to the “Pension Fund” as a Fringe Benefit provided by the assessee to its employees. As .....

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1, ITA No. 6379/Del/2012, ITA No. 2981/Del/2013 - Dated:- 15-6-2016 - Sh. N. K. Saini, AM And Smt. Beena A. Pillai, JM For the Assessee : Sh. K. Sampath Adv. Raj Kumar, Adv For the Revenue : Sh. Ramesh Chand, C.I.T, DR ORDER Per Bench The appeals by the assessee i.e. Punjab National Bank for the Assessment Years 2006-07, 2007-08 and 2008-09 are directed against the separate orders of the ld. CIT(A)-XVII, New Delhi dated 15.09.2009, 31.01.2011 and 25.07.2011 respectively. While in the case of Pun .....

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the assessment year 2006-07. Only effective ground raised in this appeal reads as under : 2. That on facts and in the circumstances of the case and in law the authorities below erred in holding that statutory contribution to Pension Fund in a sum of ₹ 471,43,65,330/- is a fringe benefit provided by the company to the employees in terms of section 115WB(1) of the Income Tax Act, 1961 and thereby determining the value of fringe benefits at ₹ 502,01,03,796/- as against the returned val .....

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4. Facts of the case in brief are that the assessee e-filed its return of fringe benefit along with the return of income u/s 139(1) / 115WB(1) of the Act on 28.11.2006 declaring total fringe benefit at ₹ 30,58,38,466/-. The assessee although revised the return of income on 28.02.2007 but did not revise the return of fringe benefit. The AO issued notice u/s 115WE(2) to the assessee on 27.09.2007 and ask to furnish details. In response the assessee furnished the tax audit report giving month .....

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92173.16 35298849.27 OCT 05 33600042.27 36779212.67 33600042.27 NOV 05 37157773.72 37297586.33 37157773.72 DEC 05 37282375.08 37822542.80 37282375.08 JAN 06 35987241.43 37716772.17 35987241.43 FEB 06 35903843.77 36897560.17 35903843.77 MARCH 06 43460767.59 36303638.83 43460767.59 Addl. Contb. Madeby bank during the year 4310000000.00 YEAR 393892891.49 404265329.53 4703892891.49 5. The claim of the assessee was that the contributions to approved Pension Fund of ₹ 431 crore were not liable t .....

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up for clarification regarding taxability of an expenditure which has been disallowed u/s 37 of the Income Tax Act. The Department has clarified this question at point no. 35 and 36 of Circular no. 8/2005 dated 29.8.2005, the relevant extract is reproduced herewith : Question No. 35 : Whether expenses disallowed under section 37 of the Income Tax Act on the plea that the expenses are personal in nature, would also be liable to Fringe Benefit Tax ? Section 37 of the Income Tax Act provides that .....

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employer are personal in nature and have, therefore, been disallowed under section 37 of the Income Tax Act, such disallowance would not be liable to Fringe Benefit Tax. For example, let us assume a firm being an employer, has incurred an expenditure of ₹ 100 towards tour and travel, of which ₹ 40 is personal in nature. Therefore, the amount of ₹ 40, being personal in nature, will be disaloowed under section 37 of the Income Tax Act, and Fringe Benefit Tax will be levied on 20 .....

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on the plea that it has not been actually incurred, the same is not allowed as a deduction under section 37 of the Income Tax Act. Accordingly, FBT will be levied only on such expenditure as is actually incurred for the purposes referred to in sub section 2 of section 115 WB. For example, if an employer has incurred ₹ 1000 towards travel, of which ₹ 200 is disallowed under section 37 of the Income Tax Act on the plea that it is bogus , Fringe Benefit Tax will be payable on 20 per ce .....

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llowable expenditure for the purpose of Fringe Benefit Tax because then only Fringe Benefit Tax can be levied. This ambiguity in treatment of an expenditure should not be made. Suppose, Contribution of ₹ 100 crores to Pension Tax @ 33.66% Fund disallowed under Income Tax Act If disallowed under fringe benefit tax Tax @ 33.66% Total Tax 67.32% The objective of the Fringe Benefit Tax is to tax those benefits which are not taxed in the hands of employees as perquisite. However, if contributio .....

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at from the scheme of the FBT and CBDT s Circular, the following possibilities can arise :- a. Disallowance as well as no FBT b. Disallowance and FBT-both c. Disallowance but no FBT d. No. disallowance and no FBT 8. The AO elaborated the aforesaid four facilities and observed that if an expense is covered by clauses (A) to (Q) of section 115WB(2) is disallowed as personal expenses u/s 37(1) of the Act then FBT can not be imposed on it and if the expense is actually incurred then FBT can be impos .....

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the same will be disallowed u/s 37(1) of the Act and FBT will also be payable thereon. He also observed that in case of voilation of section 40A/ 43B/36(1) (iv)/(v), there will be disallowance but no FBT. He also observed that if the various expenses excluded from the purview of FBT are compliant with the relevant provisions for allowance and disallowance, these will be cases of no disallowance and no FBT. According to him the assessee s case fit into aforesaid situation (b) i.e. disallowance an .....

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various matters including on the following : the establishment and maintenance of superannuation, pension, provident or other funds for the benefit of officers or other employees of the corresponding new bank or of the dependents of such officers or other employees and the granting of superannuation allowances, annuities and pensions payable out of such funds. The aforesaid powers of the board are exercisable in the following manner: The Board of Directors of a corresponding new bank may, after .....

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ge no. 1 to 3] a) Bank, accordingly, formed a Pension Fund namely PNB (Employees) Pension fund trust based on its Pension Regulations 1995 . The same was duly notified by the Central Government vide its Notification dated 29.09.1995 [Refer paper book page no. 4 to 5] It may be noticed that the notification is being issued by the Central Government and applies to all public sector banks. The Public Sector Banks are therefore bound to comply with the above notification. Further, at the time of ori .....

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above pension fund is an approved superannuation fund created in consultation with RBI and previous sanction of the Central Government. The said fund was approved under Rule 2(1) of Part-B of the Fourth Schedule [Refer paper book page no. 42] to the Income Tax Act, 1961. c) The above Pension Fund set up by the Bank is not voluntary in the sense that while opting for the Fund may be voluntarily; the employee has to elect either the Provident Fund or the Pension Fund. Thus, there is a compulsion o .....

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ds are in the nature of statutory liability of the bank. II. Employees can either opt for Provident fund or for Pension Fund and not for both Funds. Further, option once exercised is final and can not be changed. On opting for pension fund by employee, his balance in provident fund (employer s contribution) is transferred to pension fund. Accordingly, the bank s contributions to Pension Fund are in lieu of bank s contributions towards the provident fund. (Refer Paper Book page no. 6 for CBDT let .....

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of the Finance Minister relating to the Fringe Benefit Tax introduced in the Finance Bill, 2005, which has been reproduced at page no. 5 and 6 of the impugned order for the cost of repetition, the same is not reproduced herein. It was further stated that contribution to pension fund of the bank was not voluntary but statutory and it was not for high-end employees / high-end managers but was applicable even for peon and that the assessee bank made contribution to pension fund @ 10% per month of t .....

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ble taxation which defeats the purpose of the legislation. It was contended that there was no comparison of pension fund of the nationalised bank like the assessee with any other body corporate as compared by the AO. It was accordingly submitted that the contribution to Pension Fund by the assessee being statutory and in lieu of Provident Fund was subjected to same provisions of law as applicable to provident fund and since the contribution of Provident Fund was not subject to fringe benefit tax .....

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superannuation fund/pension fund by the appellant. The AO is of the view that there is no exception available to the appellant as far as contribution made by it to the superannuation fund/pension fund are concerned because there is no ambiguity in the provisions of section115WB(1)(c), wherein any contribution by way of employer to an approved superannuation fund (for employees) is taxable as fringe benefits. The ld. AR in his submissions and arguments has primarily emphasized that in the finance .....

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use when the provisions of the statute are straight, then it is settled principle of law that in such a scenario different interpretation in the lgiht of circumstantial facts and evidences are not requried. It is noted that the provisions of section 115WB(1)(c) clearly covers the contributions made to superannuation fund. Therefore, it is held that the AO has correctly made the addition on account of contributions made in pension fund by the appellant. Accoridngly, the addition made by him on th .....

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fund for employees. It was further submitted that the issue under consideration is squarely covered by the decision of the ITAT, Hyderabad Bench A , Hyderabad in the case of Andhra Bank, Hyderabad vs. DCIT, Circle 1 (1), Hyderabad in ITA no.601 / Hyderabad / 2012 for the assessment year 2006-07 vide order dated 16.7.2014, reliance was also placed on the following case law :- 1. Yoshio Kubo vs. CIT, 357 ITR 452 (Del) [2013] 2. The Royal Bank of Scotland, M.V., In Re (2014) 364 ITR 373 (AAR) 13. I .....

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the employees. The said contribution by the assessee as an employer was brought to tax as eligible fringe benefit tax value during the year by the AO. The contention of the assessee before the ld. CIT(A) was that the contribution to Pension Fund was made in lieu of Provident Fund, it was statutory liability and since the contribution of provident fund was not considered for valuation of Fringe Benefit Tax, the contribution to pension fund also did not attract the provisions of fringe benefit tax .....

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inate bench of the I.T.A.T i.e. Hyderabad Benches A , Hyderabad, analysed the various amendments and definitions relevant for the aforesaid section, in the case of Andhra Bank, Hyderabad vs. DCIT 1(1) Hyderabad (Supra) which read as under :- 9.1. As amended by Finance Act, 2006 - 115WC.(1) For the purpose of this Chapter, the value of fringe benefits shall be the aggregate of the following namely : - (a) - (b) The amount of contribution referred to in clause (c) of subsection( 1) of section 115W .....

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fined in Part-A of Fourth Schedule in Cluase-2 is as under : 2. In this Part, unless the context otherwise requires,- (i) employer means………; (a) employee means………; (b) contribution means any sum credited by or on behalf of any employee out of his salary, or by an employer out of his own moneys, to the individual account of an employee, but does not include any sum credited as interest; PART-B Definitions : 1. In this Part, unless the context otherwise re .....

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ution by an employer to an approved superannuation fund to the extent it does not exceed rupees one lakh per employee in respect of whom contribution is made, shall not be liable to fringe benefit tax. For example, consider an employer who has three employees: A, B and C and he makes contribution to their account in the approved superannuation fund in the following manner : Employee Contribution to approved superannuation fund by the employer. A ₹ 50,000 B ₹ 90,000 C ₹ 2,00,000 .....

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n 115WM to abolish the fringe benefit tax. Consequently, it is also proposed to restore the taxation of the fringe benefits as perquisites in the hands of the employees. Therefore, it is also proposed to amend clause (2) of section 17, - (a) By substituting sub-clause (vi) so as to provide that perquisite shall include the value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional ra .....

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t of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds one lakh rupees. (c) By inserting sub-clause (vii) to provide that perquisite shall also include the value of any other fringe benefit or amenity as may be prescribed . 16. From the aforesaid series of amendments and clarification it can be said that any amount which is contributed to an individual account of an employee to the extent of Rs. One lakh is excluded from the .....

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n read in context with the purpose and intention for which the amendment was made u/s 115WB(1)(c) leaves no scope of debate that the said amendment was to remedy the unintended consequences and therefore, it is required to be considered as retrospective in operation so that a reasonable interpretation can be given to the scheme of levy of fringe benefit tax on contribution to superannuation fund as a whole. We, therefore, hold that the contribution to superannuation fund in present case being le .....

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etween Indian Banks Associations represented by 52 member banks which included the assessee bank and representatives of workmen unions introducing a pension scheme in the Banking Industry and in terms of the settlement, an employee in service as on 1.11.1993 was to exercise his option to switch over to the Pension Scheme from the Provident Fund Scheme , upon which the amount of CPF ( banks contribution) outstanding in his Provident Fund account would be transferred to the Pension Fund of the ban .....

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ning the necessary no objection from the Income-tax Authorities, the banks which were parties to the settlement dated 29.1.1993 had set up pension funds and the contribution made into such funds are as laid down in the scheme and constitutes among other things the following : (i) the contribution by the bank at the rate of 10% per month on the pay of the employee, which contribution was hitherto being made to the PF account. (ii) The accumulated contributions of the bank to the Provident Fund an .....

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fund. Moreover, in the absence of the Pension Scheme, the assessee would have continued to contribute the stipulate amount to the Provident Fund account of the employees and such stipulated contributions would not have attracted fringe benefit tax. In our opinion, the contributions made by the assessee bank to the Pension Fund Scheme is only to secure pension payments which is its statutory obligation. Therefore, the assessee bank has established a superannuation Scheme for the purpose of provid .....

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s. DCIT Circle 1 (1) Hyderabad and the relevant findings have been given in para 11.1 to 13 of the order dated 16th July 2014 which read as under :- 11.1. In the present case, assessee made a single contribution during the year to the superannuation fund for all its employees who were governed by this scheme taken together based on the actuarial valuation provided by the Actuarial Valuer. There is no dispute with reference to the fact that the amount of ₹ 75,25,49,000/- was provided as sho .....

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Actuarial Valuation Report issued. 11.2. It was explained that there could be a scenario where the assets of the Scheme may be in surplus over its obligations, as per the actuarial valuation, due to various factors viz. reduction in the number of employees on the payroll of the assessee on the last day of the financial year visa- vis first day of that year, etc. Accordingly, the assessee may not be required to contribute for that particular year. Likewise, in subsequent year, there could be a s .....

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ution paid by the assessee bank is mainly made up of two components, firstly to meet the cost of the accruing benefits during the year and secondly, an adjustment for any deficit or surplus in the scheme at the time for the past year(s). Accordingly, in view of the above arguments and given the nature of the 'Defined Benefit Scheme', it is not possible to derive the contribution on a per employees basis which may be used for income tax purposes. 12. In the case of Royal Bank of Scotland .....

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they are entitled to receive it. The Hon ble AAR followed the principles laid down by Hon ble Delhi Court in the case of Yoshio Kubo vs. CIT (2013) 36 taxmann.com 1 (Del.) wherein it was held out that when an amount does not result in a direct present benefit to the employee who does not enjoy it but assures him a future benefit in the event of contingency, the payment made by the employer does not vest in the employee. In view of the above principles laid down by the Hon ble Delhi Court as well .....

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opinion, does not attract provisions of 115WB(1)(c). As per the definition of contribution , no individual employee had any benefit earmarked, the payment cannot be considered as covered by the provisions of 115WB(1)(c). 13. As briefly stated earlier, the Ld. CIT(A) followed the Coordinate Bench decision in giving benefit of amendment brought in later year to the year under consideration. It was submitted that the order of the Ld. CIT(A) could not be implemented as benefit of employee could not .....

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