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TMI Blog2017 (12) TMI 1161X X X X Extracts X X X X X X X X Extracts X X X X ..... menity provided by the employer to the employees'. Fringe Benefit Tax is to be levied on the employer in respect of fringe benefits provided/deemed to be provided by the employer to his employees during any financial year commencing on or after 1.4.2005. Fringe Benefit Tax is payable at the rate of 30% of the value of fringe benefits computed in the manner prescribed under the Section 115WC. Direct Fringe Benefit as classified under section 115(WB) (1) are: * Any privilege, service, facility or amenity, which is directly or indirectly provided by an employer to his employees (including former employee or employees). * Any free or concessional tickets provided by the employer for private journeys to employees or their family members. * Any contribution by the employer towards an approved superannuation fund for employees. * Any reimbursement, which is directly or indirectly made by the employer to employees for any purpose. Indirect or Deemed Fringe Benefits are: The Fringe Benefits are deemed to have been provided if the employer incurs any expenditure or makes any payment in the course of business or profession. This includes any activity whether or not such activity is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the employee. Note no.2 reads as follows :- "Note no.2 : Does not include any sum paid by the Company for expenditure actually incurred by the employees for medical treatment not exceeding Rs. 15000/- per employee in the previous year as in the opinion of the Company such reimbursement comes within the meaning of "Salary " as defined in clause (1) of Section 17 of the Income Tax Act, 1961." 5. Section 17(1)(iv) states that "salary" includes perquisites. Section 17(2) defines perquisite and has six clauses. Clause (vi) lays down that perquisite includes "(vi) the value of any other fringe benefit or amenity (excluding the fringe benefits chargeable to tax under Chapter XII-H) as may be prescribed :" Proviso to clause (vi) of Sec.17(2) has five sub-clauses and sub-claluse (v) lays down as follows: Provided that nothing in this clause shall apply to,- "(v) any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family other than the treatment referred to in clauses (i) and (ii); so, however, that such sum does not exceed fifteen thousand rupees in the previous year; " Medical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, they shall be taxed in the hands of the employer." (Emphasis ours) It was submitted that the benefit in this case is clearly identifiable with an employee and the same in the nature of perquisite of the concerned employee. Reference was made to the provisions of Section 115WB(3) which reads as follows : " For the purposes of sub-section (1), the privilege, service, facility or amenity does not include perquisites in respect of which tax is paid or payable by the employee [or any benefit or amenity in the nature of free or subsidized 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]" (Emphasis ours). It was argued that medical reimbursement was chargeable to tax in the hands of the individual employee as salary (being a perquisite) and the fact the sum in question is exempt perquisite by virtue of sub-clause (vi) of proviso to clause (v) of Sec.17(2) of the Act does not take the medical reimbursement out of the ambit of Sec.1115WB(3) of the Act. Therefore the sum in question cannot be considered as fringe benefit. The assessee sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re referred to in sub-clause (ii) of clause (14) of section 10, fall outside the scope of clauses (b) and (c) of sub-section (1) as well as sub-section (2) of section 115WB. Whether medical reimbursement up to Rs. 15,000 (exempt in the hands of the employees) and medical reimbursement over Rs, 15,000 (taxed as perquisite in the hands of the employee) is liable to FBT? 69. At present, if any sum is paid by the employer for expenditure actually incurred by the employee for medical treatment in an unapproved hospital and it exceeds Rs. 15,000 during the year, uch sum is 'salary' as defined in clause (1) of section 17 of the Income-tax Act and liable to income-tax in the hands of the employee. There is no change in this position. Since such sum is taxable in the hands ofthe employee, the same is not liable to FBT. However, if any sum is paid by the employer for expenditure actually incurred by the employee for medical treatment in an unapproved hospital and it does not exceed Rs. 15,000 during the year, such sum does not fall within the meaning of 'salary' as defined in clause (1) of section 17 of the Income-tax Act and not liable to income-tax in the hands of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gued that there was an apparent contradiction in the approach of the CBDT itself in the matter of the application of FBT on allowances / reimbursements made by the employer to the employees which are exempt from income-tax in the hands of the employees under express exemption provisions. It was argued that like LTC/LTA and other allowances, medical re-imbursement also forms part of salary as per the provisions of Section 17(2) of the Act, however, by way of specific dispensation provided in the said sub- section by way of proviso, the same is not taxable in the hands of the employee. Thus, applying the same analogy which the CBDT has adopted for non applicability of FBT on LTA/LTC and other allowances where they form part of salary but are exempted by way of specific exemption, expenses on account of medical reimbursement should also not be liable to FBT. 9. The Assessee placed reliance on the decision of the Hon'ble Mumbai ITAT "G" Bench, in the case of Grindwell Norton Ltd. vs ACIT [ITA No. 6551/Mum/2011 order dated 23.4.2014 wherein while dealing with identical issue, it was held that medical expenses were directly attributable to each employee distinctly and were not in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon'ble ITAT Mumbai in the case of M/s. Grindwell Norton Ltd.(supra). The ld. DR relied on the order of CIT(A). 13. We have given careful consideration to the rival submissions. We are of the view that the issue in question is squarely covered by the decision of the Hon'ble Mumbai bench in the case of M/s. Grindwell Norton Ltd. Vs ACIT (supra). In the case before the Hon'ble ITAT, Mumbai the issue was as to whether a sum of Rs. 15,000/- which is exempt prerequisite in the hands of the employee should be considered as expenditure towards fringe benefit for levying of fringe benefit tax. This was the issue that was considered by the tribunal. The tribunal in para 9.1. after referring to circular no.8/2005 held that the circular was contrary to legislative intention and the expenditure in question cannot be considered as fringe benefit. The Tribunal after referring to Sec.115WB(3) and the Memorandum explaining the provisions of FBT, held that where perquisites/benefits which are fully attributable to the employee and are taxed in their hands, that would be continued to be taxed under the existing provisions of section 17(2) of the Act. Only in case where the benefits are usua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FBT a per the provisions of Section 115WB(2)(C) of the Act. The relevant statutory provision applicable reads thus: "115WB (2) The fringe benefits shall be deemed to have been provided by the employer to his employees, if the employer has, in the course of his business or profession (including any activity whether or not such activity is carried on with the object of deriving income, profits or gains) incurred any expense on, or made any payment for, the following purposes, namely:- (C) conference (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 for the purposes of conference." It can be seen from clause ( C) above that expenses incurred by the employer on paying fees for conference to be attended by the employee is covered but to the extent the fee is attributable to fee for participation it is outside the ambit of clause ( C). 16. The Assessing Officer in his order u/s 115WE(3) was of the view that the estimation by the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n computing the amount of fringe benefit liable to FBT, he has considered 20% of the composite fees instead of 30% as relating to food and beverages. 4.3 It is also observed that while considering similar issue in subsequent assessment year, the Assessing officer has considered 20% of total composite participation fees as amount attributable on account of food . and beverages liable to FBT. The said attribution being reasonable, 20% of the total participation fees is considered as amount attributable on account of food and beverages liable to FBT under the provisions of Section 115WB (2) (E) and (G). Hence lsallowance of Rs. 1,33,655/- is sustained. This ground of appeal is dismissed." 19. Aggrieved by the order of CIT(A) the assessee has raised ground no.2 before the Tribunal. 20. We have heard the rival submissions. The ld. Counsel for the assessee apart from reiterating the submissions as were made before CIT(A) further brought to our notice that CBDT Circular No.8/2005 in answer to question no.11 has explained the meaning to be attributed to the purpose for which expenditure is incurred by an employer when considering whether the expenditure results in a fringe benefit to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and boarding and food will be provided incidentally but the main purpose was participation of the employee in the conference was to gain knowledge and not the purpose of enjoying the benefit of food and lodging. The CBDT Circular No.8/2005 in answer to Q.NO.11 has clarified that one has to go by the primary purpose of the expenditure. In the case of composite fee, it is difficult to apportion the component of expenditure on food and lodging and a proportionate expenditure for participation in conference by the employee. Keeping in mind the spirit of FBT as explained in the CBDT Circular, we are of the view that in the case of composite fee paid for participation of employee in a conference, the same should not be considered as fringe benefit and there is no question of resorting to apportionment of those expenses. In our view in the given facts and circumstances apportionment of the total expenditure as done by the assessee was just and proper. There is no basis for the Assessee/AO or the CIT(A) in concluding that a percentage of composite fee is attributable to food and lodging. Since we have concluded that in the case of composite fee paid with no bifurcation, the expenditure o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "1.0 That on the facts and in the circumstances of the case, the learned CIT (A) erred in confirming the action of the learned Assessing Officer in subjecting to fringe benefit tax, an amount of Rs. 20,41,559/-, being 20% of the medical expenses of Rs. 1,02,07,796/- incurred by appellant. 1.1 That on the facts and in the circumstances of the case, the learned CIT (A) failed to appreciate that reimbursement of medical expenses to employees falls within the meaning of 'Salary' and any expenditure incurred for the purposes of salary, does not fall within the purview of fringe benefit tax under the provisions of section 115WB of the Act. " "3.0 That on the facts and in the circumstances of the case, the learned CIT (A) erred in confirming the action of the learned Assessing Officer in attributing additional 10% of the composite participation fees as expenditure liable to fringe benefit tax without giving any cogent reasons and on a mere assumption, surmise and conjecture." "4.0 That on the facts and in the circumstances of the case, and without prejudice to the grounds mentioned above, the appellant being in the business of plantation and manufacturing of tea, was lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be perquisite within the meaning of Sec.17(2)(v) of the Act, whether we consider the same as falling within the meaning of 'fringe benefit' or 'amenity' within the meaning of clause (vi) to Sec.17(2) of the Act. Proviso (iii) to clause (vi) of Sec.17(2) of the Act excludes such expenditure from the purview of taxation. 30. The arguments advanced in this regard are almost identical to the expenditure on medical reimbursement upto Rs. 15,000/- whether should be considered as expenditure on providing fringe benefit for the purpose of FBT. The same reasoning given while dealing with the reimbursement of medical expenses will equally apply to this expenditure also. 31. The CIT(A) on this issue has held that the expenditure in question is liable to levying of fringe benefit tax for the following reasons :- "3.3. I have examined the assessment order as well as facts, relevant details and documents of the appellant company. Similar issue was involved in A.Y. 2006- 07 wherein in view of the CBDT circular No. 8/2005 dated 29-08-2005 I have decided that expenses incurred on medical reimbursement below Rs. 15,000/-was liable to FBT. There being no change in facts the addition is confir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t tax under the provisions of section 115WB of the Act. 2.0 That on the facts and in the circumstances of the case, the learned CIT (A) erred in confirming the action of the learned Assessing Officer in subjecting to fringe benefit tax, an amount of Rs. 19,18,302/- being 20% of the medical Insurance premium of Rs. 95,91,509/- incurred by appellant. 2.1 That on the facts and in the circumstances of the case, the learned CIT (A) failed to appreciate that the medical insurance premium paid by the appellant on behalf of the employees falls' within the meaning of 'Salary' and any expenditure incurred for the purposes of salary, does not fall within the purview of fringe benefit tax under the provisions of section 1I5WB of the Act. 3.0 That on the facts and in the circumstances of the case, the learned CIT (A) erred in confirming the action of the learned Assessing Officer in attributing additional 10% of the composite participation fees as expenditure liable to fringe benefit tax without giving any cogent reasons and on a mere assumption, surmise and conjecture. " ITA No.1870/Kol/2014 (A.Y.2009-10) "1.0 That on the facts and in the circumstances of the case, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act read with Rule 8D of the Income Tax Rules, 1962. 1 b. That on the facts and in the circumstances of the case, the learned CIT (Appeals) while confirming the action of the learned Assessing Officer in disallowing a sum of Rs. 1,60,96,045/-, failed to appreciate that no expenses over and above the amount quantified by the appellant was actually incurred in earning dividend income. 1c That on the facts and in the circumstances of the case, the learned CIT (Appeals) erred in confirming the action of the learned Assessing Officer in disallowing a sum of Rs. 1,60,96,045/- without appreciating that the learned Assessing Officer arbitrarily applied Rule 8D based on mere surmises and conjectures and without providing any cogent reason as to how the amount of Rs. 19,82,000/- quantified by the appellant was incorrect. 1 d That on the facts and in the circumstances of the case and without prejudice to Grounds taken herein above, the learned CIT (Appeals) erred in confirming the action of the learned Assessing Officer in disallowing Rs. 1,60,96,045/- under section 14A read with Rule 8D without appreciating that strategic investments made purely for business purposes ought to ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployees amounting to Rs. 19,82,000/- as expenses incurred in earning exempt dividend income. 42. The AO applied the provisions of Rule 8D(2)(iii) of the Rules and disallowed a sum of Rs. 1,60,96,045/- (0.50% of the average value of investments of Rs. 361,56,09,000) as expenditure incurred to earn exempt income and added the same to the total income of the Assessee. 43. Before CIT(A), the Assessee submitted that it had suo-motto identified and disallowed the expenses which could at best be attributable to management of these investments and thus, said to be incurred for the purpose of earning exempt dividend income. It was argued that the Assessing Officer failed to appreciate the facts and circumstances of the case of the Assessee and failed to bring any evidence record to substantiate that the Assessee had incurred expenses in earning exempt income over and above identified and offered by the Assessee. It was pointed out that the Assessing Officer has also not provided any basis or reasons for rejecting the Assessee's calculation or holding it to be inappropriate. It was submitted that the Assessing Officer arbitrarily proceeded to apply Rule 8D on mere surmise, assumption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and joint ventures which were in the nature of strategic investments in group companies for the purpose of expanding the business of the Assessee. Majority of such investments have been made by the Assessee in past years and the same are long term in nature. It was pointed out that the Assessee has neither made these investments to earn capital gains nor to earn dividend but out of business expediency to expand its business. Accordingly, the said strategic investments should not fall under the purview of rule 8D(2)(iii) and expenditure incurred, if any, in connection with such strategic investments should not be disallowed under Rule 8D(2)(iii). Reliance in this regard, was placed on the decision of the Chennai Tribunal in the case of EIH _Associated Hotels Limited vs. Dy. CIT [2012] I.T.A. No. 1503/Mds/2012 (Chennai) wherein the tribunal has held as under: "We are of the considered opinion that the investments made by the assessee in the Subsidiary company are not on account of investment for earning capital gains or dividend income. Such investments have been made by the assessee to promote subsidiary company into the hotel industry. A perusal of the order of the CIT(Appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same is misplaced in view of the recent CBDT Circular No.5 dated 11- 02-2014 where in it has been clarified that disallowance u/s 14A in respect of expenses is required to be made eve if no exempt income is earned from investments during the year. Accordingly, disallowance made by the Assessing Officer stands confirmed. " 46. Aggrieved by the order of CIT(A) the assessee is in appeal before the Tribunal. 47. The learned counsel for the Assessee reiterated submissions made before the AO. The learned DR relied on the order of the CIT(A). We have heard the rival submissions. 48. Though the Assessee has placed reliance on several judicial pronouncements, we are of the view that the decision of the Hon'ble Delhi High Court rendered in the case of H.T.Media Ltd. vs Pr. CIT (2017) 85 Taxman. Com 113 (Delhi) would be appropriate to the facts and circumstances of the present case. In the aforesaid decision the Hon'ble Delhi High Court had laid down the law with regard to disallowance u/s.14A of the Act as follows :- "In order to disallow this expense the Assessing Officer had to first record, on examining the accounts, that he was not satisfied with the correctness of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing recorded being met, the question of applying rule 8D(1) did not arise. * The Tribunal in its order recorded the submission of the assessee that the Assessing Officer did not record any satisfaction about the assessee not properly offering expenditure incurred in relation to the exempt income at Rs. 3 lakhs. The Tribunal reproduced the contents of the assessment order which contains general observations regarding earning of exempt income. This cannot be accepted as a recording by the Assessing Officer of satisfaction regarding the claim of the assessee after examining its accounts. Again, the Tribunal in its order simply reproduced the assessment order where, again, no reasons have been provided but only a conclusion has been reached that the Assessing Officer was satisfied that the assessee had incurred expenses to manage its investments which may yield exempt income. and assessee grossly failed to calculate such expenses in a reasonable manner to ascertain the true and correct picture of its income and expenses. * Consequently, on the aspect of administrative expenses being disallowed, since there was a failure by the Assessing Officer to comply with the mandatory requi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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