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Deputy Commissioner of Income-tax, Circle-4, Kolkata Versus M/s. Mercury Car Rentals ltd.

2016 (7) TMI 610 - ITAT KOLKATA

Addition of consideration of tax depreciation of 5% on motor cars used exclusively for hire for the purpose of fringe benefit tax - CIT(A) deleted the addition - Held that:- We find that the assessee has paid FBT in respect of expenses incurred for vehicles which are used for office purposes as well as the expenses incurred for cars used by employees in the course of their performance of duties. However, with regard to the expenses incurred wholly and exclusively for maintenance and running of t .....

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. In the memorandum explaining the bill , it has been pointed out that the rationale for levying FBT on the employer lies in the inherent difficulty in isolating the personal element where there is collective enjoyment of such benefits and attributing the same directly to the employee. We find that the car expenses incurred for the transport business, the maintenance of such cars are separately accounted for as those car expenses have no nexus or relation to any benefit which can be even said to .....

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2772/Kol/2013 - Dated:- 8-7-2016 - Shri N. V. Vasudevan, JM & Shri M. Balaganesh, AM For The Appellant: Shri K. K. Tripathi, JCIT, Sr. DR For The Respondent: Shri A. K. Gupta, FCA ORDER Per Shri M. Balaganesh, AM: This appeal by revenue is arising out of order of CIT(A)-IV, Kolkata vide appeal No. 178/CIT(A)-IV/2010-11 dated 27.08.2013. Assessment was framed by DCIT, Circle-4, Kolkata u/s. 154/115WE(3) of the Income tax Act, 1961 (hereinafter referred to as the Act ) for AY 2006-07 vide his .....

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ndia as the master licensee of Avis Europe plc. Usually chauffeur driven cars are given on rent to customers for a period of time. The assessee operates through is branch offices situated in almost all the major cities and places of tourist interests in India. The assessee for the captioned assessment year filed its return of fringe benefits u/s. 115WD on 30.11.2006 disclosing the value of fringe benefits at ₹ 43,70,059/- . The return was processed u/s. 115WE(1) of the IT Act, 1961. Therea .....

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assed u/s. 115WE(3) of the Act and fixing the hearing on 8.9.2010. The particulars of mistake sought to be rectified was stated in letter dated 25.8.2010 under reference no. DCIT, Cir.- 4/Ko1/1 0-11/FBT/540 as under: "Scrutiny of assessment records for AY 2006-07 revealed that while calculating fringe benefit depreciation of ₹ 6,15,64,911/- on motor car for hire was not considered. As per provisions of FBT in the case of an employer engaged in the business of carriage of passengers or .....

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of India, Ministry of Finance, Dept. of Revenue, CBDT dt.29/8/2005: Explanatory Notes on The Provisions relating To FBT. Para 3.4 (c)(iv) of the said circular states that "where the employer is engaged in carriage of passengers or goods by motor car a lower rate of 5% of expenses on repair, running (including fuel) and maintenance of motor cars and depreciation thereon has been specified". Therefore, the AO was of the view that "no segregation can be made in running, maintenance a .....

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ome Tax Rules. The claim of depreciation is being accepted by the Department in assessment of income. Thus it is not disputed that the appellant has a fleet of cars out of which a particular set is exclusively used for the purpose of business (i.e., running them on hire) and the other set of cars is used by employees for official purposes. The assessee has duly discharged its FBT obligations with respect to the cars used by the employees for the performance of their duties. However, with regard .....

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% of depreciation on motor cars used for hire as the value of fringe benefits and recomputed FBT payable thereon. 4. The ld CITA observed as below in his order :- 4.2 I have examined the A.O's order passed u/s.154 dt. 21.10.2010 as well as the submissions made by the A.R. of the appellant. The larger picture that one must not forget is that FBT comes into being only in a relationship of employer and employee. The relevant section 115WB(2)(H) reads as below :- "(2) The fringe benefits sh .....

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the appellant has to be analyzed. The appellant is in the business of transportation and car rentals. Its entire fleets of motor cars are grouped into two categories i.e. motor car for hire and motor car not for hire. This distinction has not been made for first time but even in the earlier years this distinction has been made. The audit report also in the Schedule of Fixed Assets make clear cut distinction between motor car for hire where the applicable depreciation rate is 30% and motor car no .....

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enged by the A.O. It is also not the A.O.'s case that the motor cars claimed to be used by the appellant for hire purposes are being actually used by the employees. No such findings has been given by the A.O. Then, it arises whether FBT will be applicable in case of persons other than employees of the appellant company. I am of the view, that when there is no finding given by the A.O. that cars reflected in the audit report as being used for hire are actually being used by the employees, the .....

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, CBDT dated 29.08.2005, wherein it is declared as FBT. 6. The ld DR vehemently relied on the order of the ld AO and the grounds of appeal. In response to this, the ld AR vehemently relied on the order of the ld CITA and also produced a copy of the decision of the co-ordinate bench of Cochin Tribunal in the case of Popular Vehicles & Services Ltd vs. DCIT reported in (2014) 51 taxmann.com 126 dated 6.6.2014 which covers the case of the assessee. 7. We have heard the rival submissions and per .....

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levant to understand the intention behind introduction of provisions of FBT u/s 115W to 115WL w.e.f. 1.4.2006 by the Finance Act, 2005. We find that the said provision were introduced where the benefits are usually enjoyed collectively by the employees and cannot be attributed to individual employees then the same shall be taxed in the hands of the employer. In the memorandum explaining the bill , it has been pointed out that the rationale for levying FBT on the employer lies in the inherent dif .....

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t the case of the revenue that the employees were allowed to enjoy any benefit directly or indirectly from such transport services. We find from the observations of ld CITA supra that the assessee had duly bifurcated the motor cars used for hire and that not used for hire separately in the depreciation schedule itself. Hence the reliance placed by the ld AR on the co-ordinate bench decision of Cochin Tribunal in the case of Popular Vehicles & Services Ltd (supra) is well founded and supports .....

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