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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI KUL BHARAT & SHRI MANISH BORAD
Appellant by Shri Manoj Munshi, A.R. Respondent by Smt. Ashima Gupta, D.R. Date of Hearing: 11.09.2019 Date of Pronouncement: 11.10.2019 आदेश / O R D E R PER KUL BHARAT, J.M: This appeal by the assessee is directed against order of the CIT(A)-1, Bhopal dated 12.12.2017 pertaining to the [ITA No.181/Ind/2018] [M/s. Madhya Pradesh Madhya Kshetra Vidyut Viteran Company Ltd., Bhopal] assessment year 2009-10. The assessee has raised following grounds of appeal:
1. On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals)-1, Bhopal, erred in sustaining the addition of expenses amounting to Rs.7,36,09,000/- relating to supply of electricity at concessional rates to employees as Fringe benefit and levying tax thereon by the Ld. Assessing Officer in the hands of the assessee company.
2. On the facts and in the circumstances of the case, the Ld. Assessing Officer, erred in not considering in proper perspective, the submissions made by the appellant.
3. On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals)-1, erred in not giving sufficient opportunity to the assessee company to be heard.
4. The appellant craves leaved to add, amend alter or otherwise raise any other ground of appeal.
2, Facts giving rise to the present appeal are that the assessee company is engaged in the distribution of power in the state of Madhya Pradesh. The A.O. issued a notice u/s 115WH of the Income Tax Act, 1961 (hereinafter called as ‘the Act’). In response thereto, the assessee filed written submissions. The A.O. after considering the submissions made addition of Rs.7,36,09,000/- as Fringe Benefit Tax (in short ‘FBT’). Further, on account of mistake of the assessee in respect of valuation of the fringe benefit, the assessment order u/s 115WG r.w.s. 115WE of the Act was 2
[ITA No.181/Ind/2018] [M/s. Madhya Pradesh Madhya Kshetra Vidyut Viteran Company Ltd., Bhopal] passed on 29.12.2016 by making the aforementioned additions.
Aggrieved against this, the assessee preferred an appeal before Ld. CIT(A), who after considering the submissions dismissed the appeal. Thereby, the additions made by the A.O. were confirmed. Ld. Counsel for the assessee Shri Manoj Munshi vehemently argued that the authorities below were not justified in making the additions. Ld. Counsel for the assessee reiterated the submissions as made before the Ld. CIT(A). Ld. Counsel contended that the assessee company supplies electricity to its employees at concessional rates as a perquisite. Ld. Counsel submitted that it was categorically submitted that the benefit given in the form of concessional supply of electricity is treated as perquisite; therefore, the same would be out of the purview of the FBT. In support of this,
[ITA No.181/Ind/2018] [M/s. Madhya Pradesh Madhya Kshetra Vidyut Viteran Company Ltd., Bhopal] the Ld. Counsel has drew our attention to the tax payer’s information series 36 in respect of valuation of perquisites.
Ld. Counsel submitted that it has been clarified that certain perquisites are taxed in the hands of the employees as part of salary income and the other fringe benefits are taxed in the hands of the employer by levying of FBT.
However, where the perquisite is taxed in the hands of the employee, it is not taxed in the hands of the employer. Ld. Counsel has further taken us through the relevant provisions to buttress his contention that the supply of electricity on concessional rates is a perquisite and would be liable to be taxed in the hands of the employees of the assessee.
Per contra, Ld. D.R. supported the orders of the authorities below. Ld. D.R. strongly relied upon the impugned order. She further contended that the assessee
[ITA No.181/Ind/2018] [M/s. Madhya Pradesh Madhya Kshetra Vidyut Viteran Company Ltd., Bhopal] failed to furnish evidence in support of its contention that the employees have offered the benefit for taxation and the assessee has deducted tax thereof. In the absence of such material evidence, the authorities below were justified in treating the same as fringe benefit.
We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. The only question that requires our consideration is that whether electricity provided to the employees at the concessional rates would be treated as fringe benefit to be taxed at the hands of the employer or perquisite to be taxed at the hands of the employee. We find that Ld. CIT(A) has decided the issue in paragraph 5 to 10 of his order as under:
[ITA No.181/Ind/2018] [M/s. Madhya Pradesh Madhya Kshetra Vidyut Viteran Company Ltd., Bhopal]
[ITA No.181/Ind/2018] [M/s. Madhya Pradesh Madhya Kshetra Vidyut Viteran Company Ltd., Bhopal]
[ITA No.181/Ind/2018] [M/s. Madhya Pradesh Madhya Kshetra Vidyut Viteran Company Ltd., Bhopal]
There is no dispute with regard to the taxability of the benefit provided by the assessee to its employees. The contention of the assessee that the benefit provided to the [ITA No.181/Ind/2018] [M/s. Madhya Pradesh Madhya Kshetra Vidyut Viteran Company Ltd., Bhopal] employees in the form of electricity at concessional rates would partake the character of the perquisite and would be taxable at the hands of the employees. Ld. CIT(A) rejected this claim on the basis that the assessee could not support its contention by furnishing material evidences proving that perquisite has already been taxed in the hands of the employees. Moreover, auditor of the assessee company opined that the amount which required to be taxed as FBT.
Ld. Counsel submitted that opinion of the auditor would not replace or supersede the law. He took us through the relevant provisions of the Act. For the sake of clarity, section 115WB of the Act is reproduced as under:
“Section 115WB of Income Tax Act "Fringe benefits" Section 115WB. (1) For the purposes of this Chapter, "fringe benefits" means any consideration for employment provided by way of- (a) any privilege, service, facility or amenity, directly or indirectly, provided by an employer, whether by way of reimbursement or otherwise, to his employees (including former employee or employees); (b) any free or concessional ticket provided by the employer for private journeys of his employees or their family members;
[ITA No.181/Ind/2018] [M/s. Madhya Pradesh Madhya Kshetra Vidyut Viteran Company Ltd., Bhopal] (c) any contribution by the employer to an approved superannuation fund for employees; and (d) any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer free of cost or at concessional rate to his employees (including former employee or employees).
Explanation.-For the purposes of this clause,- (i) "specified security" means the securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and, where employees' stock option has been granted under any plan or scheme therefor, includes the securities offered under such plan or scheme; (ii) "sweat equity shares" means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.
(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:-
(A) entertainment; (B) provision of hospitality of every kind by the employer to any person, whether by way of provision of food or beverages or in any other manner whatsoever and whether or not such provision is made by reason of any express or implied contract or custom or usage of trade but does not include- (i) any expenditure on, or payment for, food or beverages provided by the employer to his employees in office or factory; (ii) any expenditure on or payment through paid vouchers which are not transferable and usable only at eating joints or outlets;
[ITA No.181/Ind/2018] [M/s. Madhya Pradesh Madhya Kshetra Vidyut Viteran Company Ltd., Bhopal] (iii) any expenditure on or payment through non-transferable pre-paid electronic meal card usable only at eating joints or outlets and which fulfils such other conditions as may be prescribed; (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 incurred for the purposes of conference; (D) sales promotion including publicity: Provided that any expenditure on advertisement,- (i) being the expenditure (including rental) on advertisement of any form in any print (including journals, catalogues or price lists) or electronic media or transport system; (ii) being the expenditure on the holding of, or the participation in, any press conference or business convention, fair or exhibition; (iii) being the expenditure on sponsorship of any sports event or any other event organised by any Government agency or trade association or body; (iv) being the expenditure on the publication in any print or electronic media of any notice required to be published by or under any law or by an order of a court or tribunal; (v) being the expenditure on advertisement by way of signs, art work, painting, banners, awnings, direct mail, electric spectaculars, kiosks, hoardings, bill boards, display of products or by way of such other medium of advertisement;
[ITA No.181/Ind/2018] [M/s. Madhya Pradesh Madhya Kshetra Vidyut Viteran Company Ltd., Bhopal] (vi) being the expenditure by way of payment to any advertising agency for the purposes of clauses (i) to (v) above; (vii) being the expenditure on distribution of samples either free of cost or at concessional rate; and (viii) being the expenditure by way of payment to any person of repute for promoting the sale of goods or services of the business of the employer, shall not be considered as expenditure on sales promotion including publicity; (E) employees' welfare.
Explanation.-For the purposes of this clause, any expenditure incurred or payment made to- (i) fulfil any statutory obligation; or (ii) mitigate occupational hazards; or (iii) provide first aid facilities in the hospital or dispensary run by the employer; or (iv) provide creche facility for the children of the employee; or (v) sponsor a sportsman, being an employee; or (vi) organise sports events for employees, shall not be considered as expenditure for employees' welfare;
[ITA No.181/Ind/2018] [M/s. Madhya Pradesh Madhya Kshetra Vidyut Viteran Company Ltd., Bhopal] (F) conveyance; (G) use of hotel, boarding and lodging facilities; (H) repair, running (including fuel), maintenance of motor cars and the amount of depreciation thereon; (I) repair, running (including fuel) and maintenance of aircrafts and the amount of depreciation thereon; (J) use of telephone (including mobile phone) other than expenditure on leased telephone lines; (K) [***] (L) festival celebrations; (M) use of health club and similar facilities; (N) use of any other club facilities; (O) gifts; and* (P) scholarships; (Q) tour and travel (including foreign travel).
(3) 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 [ITA No.181/Ind/2018] [M/s. Madhya Pradesh Madhya Kshetra Vidyut Viteran Company Ltd., Bhopal] payable by the employee or any benefit or amenity in the nature of free or subsidised 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.”
From the aforesaid provision, it is clear that as per sub-section 3 of section 115WB of the Act, the perquisite in respect of which taxes are paid or payable by the employee are excluded from the ambit of the levy of FBT. Further, section 17(2) of the Act defines perquisite as under:
“17(2) of the Income Tax Act: "perquisite" includes— (i) the value of rent-free accommodation provided to the assessee by his employer; (ii) the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer; [Explanation 1.—For the purposes of this sub-clause, concession in the matter of rent shall be deemed to have been provided if,— [(a) in a case where an unfurnished accommodation is provided by any employer other than the Central Government or any State Government and— (i) the accommodation is owned by the employer, the value of the accommodation determined at the specified rate in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the rent recoverable from, or payable by, the assessee; (ii) the accommodation is taken on lease or rent by the employer, the value of the accommodation being the actual amount of lease rental paid or payable by the employer or fifteen per cent of salary, whichever is lower, in respect of the period during which the said accommodation was occupied by the assessee
[ITA No.181/Ind/2018] [M/s. Madhya Pradesh Madhya Kshetra Vidyut Viteran Company Ltd., Bhopal] during the previous year, exceeds the rent recoverable from, or payable by, the assessee;] (b) in a case where a furnished accommodation is provided by the Central Government or any State Government, the licence fee determined by the Central Government or any State Government in respect of the accommodation in accordance with the rules framed by such Government as increased by the value of furniture and fixtures in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the aggregate of the rent recoverable from, or payable by, the assessee and any charges paid or payable for the furniture and fixtures by the assessee; (c) in a case where a furnished accommodation is provided by an employer other than the Central Government or any State Government and— (i) the accommodation is owned by the employer, the value of the accommodation determined under sub-clause (i) of clause (a) as increased by the value of the furniture and fixtures in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the rent recoverable from, or payable by, the assessee; (ii) the accommodation is taken on lease or rent by the employer, the value of the accommodation determined under sub-clause (ii) of clause (a) as increased by the value of the furniture and fixtures in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the rent recoverable from, or payable by, the assessee; (d) in a case where the accommodation is provided by the employer in a hotel (except where the assessee is provided such accommodation for a period not exceeding in aggregate fifteen days on his transfer from one place to another), the value of the accommodation determined at the rate of twenty-four per cent of salary paid or payable for the previous year or the actual charges paid or payable to such hotel, whichever is lower, for the period during which such accommodation is provided, exceeds the rent recoverable from, or payable by, the assessee. Explanation 2.—For the purposes of this sub-clause, value of furniture and fixture shall be ten per cent per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air- conditioning plant or equipment or other similar appliances or gadgets) or if such furniture is hired from a third party, the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the assessee during the previous year.
[ITA No.181/Ind/2018] [M/s. Madhya Pradesh Madhya Kshetra Vidyut Viteran Company Ltd., Bhopal]
Explanation 3.—For the purposes of this sub-clause, "salary" includes the pay, allowances, bonus or commission payable monthly or otherwise or any monetary payment, by whatever name called, from one or more employers, as the case may be, but does not include the following, namely:— (a) dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the employee concerned; www.taxmann.com h (b) employer's contribution to the provident fund account of the employee; (c) allowances which are exempted from the payment of tax; (d) value of the perquisites specified in this clause; (e) any payment or expenditure specifically excluded under the proviso to this clause.] [Explanation 4.—For the purposes of this sub-clause, "specified rate" shall be— (i) fifteen per cent of salary in cities having population exceeding twenty-five lakhs as per 2001 census; (ii) ten per cent of salary in cities having population exceeding ten lakhs but not exceeding twenty-five lakhs as per 2001 census; and (iii) seven and one-half per cent of salary in any other place;] (iii) the value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases— (a) by a company to an employee who is a director thereof; (b) by a company to an employee being a person who has a substantial interest in the company; (c) by any employer (including a company) to an employee to whom the provisions of paragraphs (a) and (b) of this sub-clause do not apply and whose income 17[under the head "Salaries" (whether due from, or paid or allowed by, one or more employers), exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds 18[fifty] thousand rupees:] 19[***] [Explanation.—For the removal of doubts, it is hereby declared that the use of any vehicle provided by a company or an employer for journey by the assessee from his residence to his office or other place of work, or from such office or place to his residence, shall not be regarded as a benefit or amenity granted or provided to him free of cost or at concessional rate for the purposes of this sub- clause;] (iiia) 21[***]
[ITA No.181/Ind/2018] [M/s. Madhya Pradesh Madhya Kshetra Vidyut Viteran Company Ltd., Bhopal]
(iv) any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee; (iv) any sum payable by the employer, whether directly or through a fund, other than a recognised provident fund or an approved superannuation fund 22[or a Deposit-linked Insurance Fund established under section 3G of the Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948 (46 of 1948), or, as the case may be, section 6C of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952)], to effect an assurance on the life of the assessee or to effect a contract for an annuity; 23[***] 24[ (vi) 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 rate to the assessee. Explanation.—For the purposes of this sub-clause,— (a) "specified security" means the securities as defined in clause (h) of www.taxmann.com section 225 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and, where employees' stock option has been granted under any plan or scheme therefor, includes the securities offered under such plan or scheme; (b) "sweat equity shares" means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called; (c) the value of any specified security or sweat equity shares shall be the fair market value of the specified security or sweat equity shares, as the case may be, on the date on which the option is exercised by the assessee as reduced by the amount actually paid by, or recovered from, the assessee in respect of such security or shares; (d) "fair market value" means the value determined in accordance with the method as may be prescribed; (e) "option" means a right but not an obligation granted to an employee to apply for the specified security or sweat equity shares at a predetermined price; (vii) the amount of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds one lakh rupees; and (viii) the value of any other fringe benefit or amenity26 as may be prescribed27:] 17
[ITA No.181/Ind/2018] [M/s. Madhya Pradesh Madhya Kshetra Vidyut Viteran Company Ltd., Bhopal]
[Provided that nothing in this clause shall apply to,— (i) the value of any medical treatment provided to an employee or any member of his family in any hospital maintained by the employer; 2 (ii) [(ii) 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— (a) in any hospital maintained by the Government or any local authority or any other hospital approved30 by the Government for the purposes of medical treatment of its employees; (b) in respect of the prescribed diseases31 or ailments, in any hospital approved by the 32[Principal Chief Commissioner or] Chief Commissioner having regard to the prescribed guidelines33 : Provided that, in a case falling in sub-clause (b), the employee shall attach34 with his return of income a certificate from the hospital specifying the disease or ailment for which medical treatment was required and the receipt for the amount paid to the hospital;] (iii) any portion of the premium paid by an employer in relation to an employee, to effect or to keep in force an insurance on the health of such employee under any scheme approved by the Central Government 35-36[or the Insurance Regulatory and Development Authority established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999),] for the purposes of clause (ib) of sub-section (1) of section 36; (iv) any sum paid by the employer in respect of any premium paid by the employee to effect or to keep in force an insurance on his health or the health of any www.taxmann.com member of his family under any scheme approved by the Central Government 35-36[or the Insurance Regulatory and Development Authority established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999),] for the purposes of section 80D; (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 37[fifteen] thousand rupees in the previous year; (vi) any expenditure incurred by the employer on— (1) medical treatment of the employee, or any member of the family of such employee, outside India; 18
[ITA No.181/Ind/2018] [M/s. Madhya Pradesh Madhya Kshetra Vidyut Viteran Company Ltd., Bhopal]
(2) travel 38[and] stay abroad of the employee or any member of the family of such employee for medical treatment; (3) travel and stay abroad of one attendant who accompanies the patient in connection with such treatment, 39[subject to the condition that— (A) the expenditure on medical treatment and stay abroad shall be excluded from perquisite only to the extent permitted by the Reserve Bank of India; and (B) the expenditure on travel shall be excluded from perquisite only in the case of an employee whose gross total income, as computed before including therein the said expenditure, does not exceed two lakh rupees;] (vii) any sum paid by the employer in respect of any expenditure actually incurred by the employee for any of the purposes specified in clause (vi) subject to the conditions specified in or under that clause : [Provided further that for the assessment year beginning on the 1st day of April, 2002, nothing contained in this clause shall apply to any employee whose income under the head "Salaries" (whether due from, or paid or allowed by, one or more employers) exclusive of the value of all perquisites not provided for by way of monetary payment, does not exceed one lakh rupees.] Explanation.—For the purposes of clause (2),— (i) "hospital" includes a dispensary or a clinic 41[or a nursing home]; (ii) "family", in relation to an individual, shall have the same meaning as in clause (5) of section 10; and (iii) "gross total income" shall have the same meaning as in clause (5) of section 80B;]”
Therefore, in our considered view, the supply of electricity by the assessee to its employees at concessional rates would certainly be perquisite in terms of section 17(2) of the Act. However, it is incumbent upon the assessee to furnish evidence that the benefit given to employees in the [ITA No.181/Ind/2018] [M/s. Madhya Pradesh Madhya Kshetra Vidyut Viteran Company Ltd., Bhopal] form of supply on concessional rates is treated as perquisite and due taxes has been deducted at source. In the absence of such evidences, no fault can be found with the finding of the authorities below. Ld. Counsel for the assessee during the course of hearing prayed that the issue may be restored to the file of the A.O. who can verify this fact by conducting requisite enquiries. However, Ld. D.R. strongly opposed this submission and stated that assessee was provided with sufficient opportunity in this regard. It will give second innings to the assessee without any reasonable cause. We have given our thoughtful consideration to the submissions made by the Ld. Counsel for the assessee and the Ld. D.R. The law is well settled that levy of tax should be at the right hand. In the case in hand, we have held that supply of electricity to its employees at a concessional rate would be a perquisite for [ITA No.181/Ind/2018] [M/s. Madhya Pradesh Madhya Kshetra Vidyut Viteran Company Ltd., Bhopal] the employees. Under these circumstances, the revenue is at liberty to proceed against the assessee for non-deduction of tax at source in the event, if the employees have offered the benefit for taxation in their respective returns, the assessee would not be liable for the FBT. It would be tantamount to double taxation. We therefore, set aside the orders of the authorities below and restore the issue to the file of the A.O. for verifying whether the employees offered such benefit in their returns, if any. The assessee would cooperate by furnishing the requisite information to the A.O. If the assessee fails to prove that these benefits were treated as perquisite in the accounts of the assessee and the due tax has been deducted thereon, the A.O. would be at liberty to make the addition as per law. The grounds raised in this appeal are allowed for statistical purposes.
[ITA No.181/Ind/2018] [M/s. Madhya Pradesh Madhya Kshetra Vidyut Viteran Company Ltd., Bhopal]
In the result, the appeal filed by the assessee in for the A.Y. 2009-10 is allowed for statistical purposes.
Order was pronounced in the open court on 11.10.2019.