THE FEDERAL BANK LTD. vs. THE ASSISTANT COMMISSIONER OF INCOME TAX

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ITA/189/2012HC KeralaKLHC01024111201218 December 2018Author: HONOURABLE MR.JUSTICE K.VINOD CHANDRAN,HONOURABLE MR. JUSTICE ASHOK MENON5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held in favour of the Revenue and against the assessee. The Court reasoned that the valuation of fringe benefits, specifically for contributions to approved superannuation funds under Section 115 WB(i)(c) and Section 115 WC(b) as it existed for the assessment year 2006-2007, refers to the 'actual amount of contribution'. This wording implies that the tax is leviable on the total contribution that becomes a liability for the employer in the assessment year, irrespective of whether the entire amount was physically paid within that financial year. The Court found that the mercantile system of accounting, which the assessee follows, means that the liability accrues when it is incurred. Therefore, the entire contribution payable for the assessment year is subject to fringe benefit tax. The appeal was rejected, upholding the Tribunal's order.

What were the facts?

The appeal concerns the assessment year 2006-2007. The assessee, The Federal Bank Ltd., made contributions to its employees' superannuation fund. A portion of the contribution payable for the assessment year was paid in the previous financial year, while the remaining portion was paid in the subsequent financial year. The dispute revolves around whether the assessee is liable to pay tax on the entire contribution payable for the assessment year, even though part of it was paid later. The order under challenge is the Income Tax Appellate Tribunal's order in ITA No. 261/2009 dated 09-12-2011, which upheld the revenue's position.

What were the issues?

1. Whether, for the purpose of fringe benefit tax under Chapter XIIH of the Income Tax Act, 1961, the tax is leviable on the actual amount of contribution to an approved superannuation fund payable in an assessment year, or only on the amount actually paid within that assessment year? Assessee's contention: The learned counsel for the assessee argued that the provision indicates tax is leviable only upon actual payment. They also pointed out that for deductions, provisions are not allowed. The definition of 'paid' in Section 43(2) was also highlighted. Revenue's contention: The learned Standing Counsel for the revenue contended that the assessee maintains accounts on a mercantile system, and thus, the tax is payable the moment the liability accrues. They relied on the definition of 'paid' in Section 43(2) and the specific wording of Section 115 WB(i)(c) and Section 115 WC(b) concerning the valuation of fringe benefits.

Which sections of the Income-tax Act were involved?

Section 115WB,Section 115WC,Section 43(2)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUESDAY, THE 18TH DAY OF DECEMBER 2018/27TH AGRAHAYANA, 1940 ITA. No.189 of 2012 AGAINST THE ORDER IN ITA NO.261/2009 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH DATED 09-12-2011 APPELLANT: THE FEDERAL BANK LTD. FEDERAL TOWERS, ALUVA - 683 101. BY ADVS. SRI.V.ABRAHAM MARKOS SRI.BINU MATHEW SRI.B.J.JOHN PRAKASH SRI.MATHEWS K.UTHUPPACHAN SRI.TERRY V.JAMES SRI.TOM THOMAS (KAKKUZHIYIL) RESPONDENT: THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1 (2), ALUVA- 683 106. BY ADVS. SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH SC FOR INCOME TAX SRI.P.K.R.MENONSR.COUNSEL GOITAXES THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 18.12.2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA. No.189 of 2012 2

JUDGMENT K. Vinod Chandran, J. The short question that arises for consideration in the aforesaid appeal is as to whether the assessee is obliged to pay tax on the fringe benefit, which was actually paid in the subsequent assessment year. The assessment order coming up for consideration before us is 2006-2007. The assessee had a superannuation fund for its employees, to which the assessee was making contributions as the employer, in every assessment year. In the subject assessment year, a portion of the contribution was paid to the fund in the previous financial year relevant to the assessment year. The balance portion was paid only in the subsequent financial year. The question is as to whether the assessee has to pay the tax on the entire contribution actually payable by the assessee in the assessment year.

2.

The learned Senior Counsel appearing for the assessee Bank would submit that the words employed in the provision would indicate that tax would be leviable only when there is a payment actually made. It is also pointed out that in the case of deduction, the Department would not permit any provision to be allowed as a deduction.

3.

The learned Standing Counsel, Government of India [Taxes], would contend that the assessee is maintaining accounts in the mercantile system and the moment the liability accrues, the tax is payable in so far as the fringe benefits under Chapter XIIH of the Income Tax Act, 1961 is concerned. Section 43(2) defines paid as “means actually paid or incurred according to the method of accounting upon the basis on which the profits and gains are computed under the head “Profits and gains of business or profession”.

4.

The fringe benefit, which is taxable herein, is as spoken of under Section 115 WB (i) (c) 'any contribution by the employer to an approved

superannuation

funds

for its employees'. Value of fringe benefits as spoken of under Section 115 WC (b) as it existed in the subject assessment year is 'actual amount of contribution referred to in Clause (c) of sub- section (i) of Section 115 WB'. The valuation specifically speaks of actual amount of contribution and not the paid up amounts. In such circumstances, we answer the question of law in favour of the Revenue and against the assessee. The appeal stands rejected, upholding the order of the Tribunal. There is no order as to costs. K. VINOD CHANDRAN JUDGE ASHOK MENON JUDGE sp/19/12/18 //// P.A. To Judge

Appendix — schedule of exhibits
APPENDIX PETITIONER'S EXHIBITS: ANNEXURE-A TRUE COPY OF ASSESSMENT ORDER DATED 05.12.2008 OF THE RESPONDENT ANNEXURE-B TRUE COPY OF APPELLATE ORDER DATED 16.03.2009 OF THE COMMISSIONER [APPEALS] OF INCOME TAX, KOCHI. ANNEXURE-C TRUE COPY OF APPEAL DATED 30.04.2009 FILED BY THE APPELLANT BEFORE THE INCOME TAX APPELLATE TRIBUNAL, KOCHI. ANNEXURE-D CERTIFIED COPY OF ORDER DATED 09.12.2011 OF THE INCOME TAX APPELLATE TRIBUNAL, KOCHI IN I.T.A. NO.261/COCH/2009. RESPONDENT'S EXHIBITS:- NIL //TRUE COPY// P.A. TO JUDGE

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