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2016 (9) TMI 149 - ITAT MUMBAI

2016 (9) TMI 149 - ITAT MUMBAI - TMI - Fringe benefit tax - whether the assessee employer is liable to be charged with FBT, notwithstanding the fact that the assessee’s income derived only from agriculture was exempt from income tax under section 10(1) of the Act? - Held that:- The assessee in the case on hand is not liable for imposition of FBT, since its only income i.e., agricultural income is exempt from income tax under section 10(1) of the Act and this income does not form part of and is n .....

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s 2006-07 and 2007-08. 2. The facts of the case as emanate from the record, briefly, are as under:- 2.1 The assessee is a company engaged in farming and agriculture. 2.1.1 For assessment year 2006-07, the assessee furnished its return of fringe benefits on 25/11/2006 declaring the value of fringe benefits at Nil . The assessment was completed under section 115WE(3) of the Income Tax Act, 1961 ( in short the Act ) vide order dated 11/12/2008, wherein the total value of fringe benefits was determi .....

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Officer issued notice under section. 115WH of the Act to the assessee in this regard, after recording reasons for reopening the assessment. In response thereto, the assessee requested that the original return filed on 25/11/2006 be treated as filed in response to the notice under section. 115WH of the Act. The Assessing Officer proceeded to complete the re-assessment under section 115WG of the Act vide order dated 29/1/2013 and levied FBT @ 20% of the fringe benefits amounting to ₹ 8,08,4 .....

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eyance, staff welfare, telephone and travelling expenses which constitute fringe benefits provided to employees as per Section 115WA(2) of the Act were exigible to FBT @ 20% thereof. The Assessing Officer issued notice under section 115WH of the Act to the assessee in this regard, after recording reasons for re-opening the assessment. The assessment was completed under section. 115WG of the Act vide order dated 29/1/2013, wherein the Assessing Officer levied FBT @ 20% of the fringe benefits amou .....

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le by him/it on his total income computed in accordance with the provisions of the Act. The Assessing Officer in this context, came to the view that in the case on hand, though the assessee had only agricultural income which was exempt from income-tax, even then the assessee is liable to FBT for fringe benefits provided by the assessee to its employees. In coming to this finding, the Assessing Officer placed reliance on the decision of the ITAT, Kolkata Bench in the case of Mcleod Russel India L .....

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n (2) of section 115WA starts with an non obstante clause and states that notwithstanding that no income- tax is p,1yable by an employer to its total income computed in accordance with the provisions of the Act, the tax on Fringe Benefits shall be payable by such an employer. Therefore, an employer is liable to pay Fringe Benefit Tax even when no income-tax is payable by an employer on his total income computed in accordance with the provisions of the Income Tax Act. Therefore, the contention of .....

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rejecting grounds of appeal taken by the assessee. Respectfully following the Tribunal's decision we reverse the order of err (A) and this issue of revenue's appeal is allowed." 3. Aggrieved by the orders under section 115WG of the Act dated 29/1/2013 for both assessment years 2006-07 and 2007-08, the assessee carried the matter in appeal before the Ld CIT(Appeals)-4, Mumbai. The Ld. CIT(A) vide separate orders dated 12/2/2013, dismissed the assesee s appeals. 4. The assessee, aggri .....

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fficient and contrary to facts and evidence on record. 3. In the facts and circumstances of the case, the Notice issued u/s. 115WH r/w. section 115WG of the Act is void ab initio as the same is issued without obtaining satisfaction from Chief Commissioner or the Commissioner. 4. In the facts and circumstances of the case, and in law, the learned CIT- (A) erred in confirming AO's action of imposing Fringe Benefit Tax of ₹ 3,00,149/- including interest of ₹ 1,35,232/- u/s. 115WJ(5) .....

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cumstances of the case and in law, the Notice issued u/s.115WH r/w. section 115WG of the Income Tax Act, 1961, is void ab initio. 2. The reasons given by CIT-(A) for confirming the AO.'s action of initiating Notice u/s. 115WH r/w. section 115WG of the Act is wrong, insufficient and contrary to facts and evidence on record. 3. In the facts and circumstances of the case, the Notice issued u/s. 115WH r/w. section 115WG of the Act is void ab initio as the same is issued without obtaining satisfa .....

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Act, 1961, are wrong, insufficient and contrary to facts and evidence on record. 6. Appellant craves leave to add, amend, alter, modify or omit any of the aforesaid Grounds of Appeal as occasion may arise of demand. 5. Grounds 1 to 3 and 6: 5.1 At the outset, the Ld. Representative for the assessee submitted that the assessee is not pressing or urging the grounds raised at Sl.No.1 to 3 and 6 in these appeals. Since, grounds Nos.1 to 3 and 6 are not being pressed by the assessee in its appeals fo .....

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was exempt from Income Tax under section. 10 of the Act the Ld. Representative for the assessee contended that no FBT was chargeable, since the expenditure incurred by the assessee in extending fringe benefits to its employees was solely for the purpose of its agricultural activities. In support of this proposition, the ld. AR for the assessee placed reliance on the ratio of the decision of the Hon'ble Calcutta High Court in the case of Apeejay Tea Ltd. vs. CIT and Another (2015) 370 ITR 775 .....

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uthorities below. 6.3.1 We have heard the rival contentions and perused carefully considered the material on record; including the judicial decisions cited. The question before us for consideration in the case on hand is whether the assessee employer is liable to be charged with FBT, notwithstanding the fact that the assessee s income derived only from agriculture was exempt from income tax under section 10(1) of the Act. 6.3.2 According to the authorities below, as in the case on hand, in view .....

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We have carefully considered the submissions of the Id. Representatives of the parties and orders of the authorities below. We have also considered the relevant provisions, ie. Section 115WA, 115WB & 115 WE of the Income Tax Act. We observe that an employer assessee is liable to pay Fringe Benefit Tax under section 115WA of the Income Tax Act, in relation to Fringe Benefits provided by him to its employees. Sub-section (2) of section 115WA starts with an non obstante clause and states that n .....

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nefit should be computed by applying Rule 8 of Income Tax Rule has no merit as Fringe Benefit Tax is not payable on the income of an assessee but only Fringe Benefits provided by an employer to its employees. In view of the above, we agree with the Id. Departmental Representative that the contention of the Id. Authorized Representative for the assessee has no merit and accordingly, we uphold the order f the Id. CIT(A) by rejecting grounds of appeal taken by the assessee. Respectfully following t .....

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he case relied on by Revenue i.e. Mcleod Russel India Ltd. (supra); the finding of which we have extracted at para 6.3.2 of this order (supra).The relevant finding in the case of apeejay Tea Ltd. by Kolkatta ITAT (supra) at para-7 thereof is extracted hereunder for the sake of clarity :- 7. We have carefully considered the submissions of the learned representatives of the parties and the orders of the authorities below. We have also considered the relevant provisions, i.e., sections 115WA, 115WB .....

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erefore, an employer is liable to pay fringe benefit tax even when no income-tax is payable by an employer on his total income computed in accordance with the pro- visions of the Income-tax Act. Therefore, the contention of the learned authorised representative for the assessee that the value of fringe benefit should be computed by applying rule 8 of the Income- tax Rules has no merit as fringe benefit tax is not payable on the income of the assessee but only fringe benefits provided by an emplo .....

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atta Bench in Apeejay Tea Ltd. (supra), holding it to be unsustainable. At paras 8 to 11 of this order, their Lordships held as under:- 8. We have considered the rival submissions advanced by me learned advocates. For the purpose of resolving the disputes, we would like to refer to the illustration appearing from the judgment of the apex court in the case of CIT v. Doom DOO1na India Ltd. (supra). The illustration in para- graphs 12 and 13 of the judgment reads as follows (page 397) : "Be th .....

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subject to charge of Income Tax(40% of 600) 240 Analysing the above two charts, we find that at the end of computation the income' chargeable to tax by applying rule 8 comes to ₹ 240. Under illustration A, the normal depreciation is ₹ 100 which is deductible from RS:1,OOO heiIi.g the income from sale of tea. On the other hand, under illustration B, we have' taken 40 per cent. of each of the items, namely, income 'from sale' of tea, depreciation and other expenses. Acc .....

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le 8 comes to ₹ 240 in both the cases. The only difference is that in illustration, B we have gone by pro rata basis." 9. The question for consideration before their Lordships was whether deduction on account of depreciation is allowable from the business income arrived at after applying rule 8. This question was answered, by their Lordships in the affirmative. From illustration A, it would appear that business profit after taking into account the expenses was computed at ₹ 600. .....

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uted at ₹ 300 and illustration B would show that other expenses were computed at ₹ 120, in other words, 40 per cent of ₹ 300 had been taken into account. 10. We shall take assistance of the illustration to resolve the issue. Let us 10 assume that the other expenses in illustration A amounting to ₹ 300 include ₹ 100 spent by the employer on account of fringe benefits made available to its employees. In that case, 40 per cent. of the aforesaid sum of ₹ 100 would .....

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re on account of fringe benefits has already been taken into account is not correct. The net profit. and loss of the business has to be arrived at after deducting all the expenses as indicated in illustration A in the case of Doom Dooma(supra). Once that is done 40 per cent. of the net profit and loss has to be, worked out which shall be chargeable to tax. Once this is done the expenditure on account of fringe benefits would automa- tically stand reduced to 40 per cent. as would appear from illu .....

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