M/S WINTAC LTD ,BANGALORE vs. DY,COMMISSIONER OF INCOME TAX CIRCLE-12(5), BANGALORE

Aggrieved by the order of this Tribunal assessee filed the appeal before Hon’ble High Court. Hon’ble High Court observed and held as under: “4. We have considered the submissions made on both sides and have perused the record. From perusal of the order passed by the Tribunal, it is evident that the Tribunal has not considered the claim of the assessee with regard to fringe benefits under Section 115WE of the Act on merits. For the facility of reference, paragraph 6.4 of the order passed by the Tribunal is reproduced below: “6.4 From a perusal of the order dt:18.11.2010 passed under section 115W(2) of the Act, we do not find any Page 3 of 12 & 1164/Bang/2017 material to establish that the Assessing Officer has investigated the issue of fringe benefits with respect to the three items of expenditure i.e., vehicle maintenance, travel and conveyance and pooja expenses and how he has applied his mind to this issue. In the course of hearings before us, the learned Authorized Representative of the assessee was required to furnish copy of the show cause notice, if any, issued by the Assessing Officer in respect of the fringe benefits of the above three items of expenditure and the reply of the assessee thereto, but no such details were available. We also find from the reply dt.19.3.2013 filed by the assessee before the learned CIT in revisionary proceedings, that the assessee has nowhere demonstrated that the Assessing Officer had issued a show cause notice or letter calling for these details and that it has filed a reply. While it is the prerogative of the Assessing Officer to pass the order of assessment in the manner he deems fit, but if discussion is not discernable there from on a particular issue, then in order to ascertain whether the Assessing Officer has applied his mind or not, the higher appellate forum can go through the show cause notice, if any, issued by him and the reply given thereto by the assessee. This would indicate that though the order of assessment is silent, the issue in question must have been discussed in the course of assessment proceedings. We find that no such material is available on record. The Hon’ble Apex Court in the case of Malabar Industries Co. V CIT (243 ITR 83) has observed that the accepting of accounting entries as it is without any enquiry being carried out by the Assessing Officer would make the assessment order erroneous and prejudicial to the interests of revenue. In the facts and circumstances of the case as discussed above, we are of the considered view that the learned CIT had rightly considered all these aspects before taking action under section 263 of the Act and therefore finding no merit in this appeal of the assessee dismiss the same."

It is evident from the aforesaid extract of the impugned order that the Tribunal has not dealt with the claim of the assessee on merits. The impugned order is therefore quashed and the matter is remitted to the Tribunal for decision afresh with regard to the claim of the assessee with reference to fringe benefits, on merits.”

In support of his contention reliance was placed on the decision of Hon’ble Karnataka High Court in case of Toyota Kirloskar Motors Pvt.Ltd vs. CIT reported in (2021)24 taxman 118 which affirmed the decision of the Tribunal reported in (2012) 24 taxman.com 149. The Ld.AR filed compilation of decisions and materials relating to FBT, in support of the proposition that, unless fringe benefits are extended to employees and the same are enjoyed by them, the question of levying FBT on the employer does not arise.

The Ld.AR placed reliance on the following decision:  Hewlett Packard India Sales Pvt Ltd v/s CIT, LTP unit Bangalore, reported in [2011] 43 SOT 124 (Bangalore).  Bosch Ltd v/s DCIT (LTU) reported in [2011] 15 taxmann.com 187 (Bangalore).  Brihan Maharashtra Sugar Syndicate Ltd. v/s DCIT reported in [2011] 15 taxmann.com 300 (Pune).  DCIT, Range-1(3) v/s Kotak Mahindra Old Mutual Life Insurance Ltd, reported in [2011] 16 taxmann.com 395 (Mumbai).  Toyota Kirloskar Motor Pvt Ltd. v/s ACIT, LTU, Bangalore reported in [2012] 24 taxmann.com 149 (Bang).  Desai Brothers Ltd. v/s ACIT, Range - 1, Pune, reported in [2013] 32 taxmann.com 278 (Pune - Trib.).  Intervalve (India) Ltd. ACIT reported in [2013] 33 taxmann.com 690 (Pune - Trib.)  T V Today Network Ltd, v/s DCIT [2013] 38 taxamnn.com 409 (Delhi - Trib.).

On the contrary, the Ld.Sr.DR submitted that, in view of the deeming fiction under section 115WB (2), it is not permissible to segregate the employee-related and non-employee-related expenses. He placed reliance on the CBDT Circular No.8 of 2005 that clearly envisages the taxability of expenditure, even if the same is not paid to/not incurred for the benefit of employee. He thus supported the orders passed by authorities below. We have perused the submissions advanced by both sides in light of records placed before us.

The requirement of employee employer relationship is a mandatory satisfaction in respect of any expenditure to come within the ambit of FBT. The memorandum explaining the provisions of FBT very clearly states that, when the benefits are fully attributable to the employee, they are taxed in the hands of the employer. The Finance Minister speech and the memorandum explaining the FBT provisions provides the same rational for levying FBT on the employer.

On a bare reading of the provisions of section 115 WB, subsection (1) covers those benefits which can be fully attributable to employees. Subsection (2) covers those benefit that is difficult to be personally attribute to the employee. The Page 9 of 12 & 1164/Bang/2017 deeming fiction under subsection (2) limits to such expenditure which results in a collective enjoyment of the benefits by the employee.

On perusal of section 115WB, we note that, the intention to bring about FBT into the statute, is to bring within its ambit, such expenditure, that results in collective enjoyment of benefits by the employees, and it is difficult to attribute the benefits personally to such employees. The legislature further clarifies that, where the benefits are fully attributable to employees the same continues to be taxable in the hands of the employees as perquisites. We refer to the following observation by coordinate bench of this Tribunal in case of Toyota Kirloskar Motors Pvt.Ltd vs. CIT reported in (2012) 24 taxman.com 149. This decision stands affirmed by Hon’ble Karnataka High Court reported in (2021) 24 taxman 118: 11.7 In the instant case, the provisions of FBT are intended to tax collective enjoyment of benefits by employees and it is not the intention of legislature to tax a legitimate business expenditure which does not result in any benefit to employees. However, it is seen in circular No.8 of 2005 that the CBDT has opined that expenditure as a result of payment to third parties is also liable for FBT. In Answer to Q.No.14, it is stated that no segregation of expenses incurred on employees and expenses incurred on others is permissible under section 115WB(2). In Answer to Q.No.15, it is stated that there is no requirement to segregate the various expenses referred to in section 115WB, between those incurred for official purposes and personal purposes. For instance in Answer to Q.No.57, it is stated that expenditure on brand or brand ambassador or celebrity endorsement is liable to FBT. In Answer to Q.No.67, it is stated that expenditure for the purpose of boarding and lodging or travel of customers/clients would be liable for FBT. There are some of the instances where the Board has taken a view that appears to be not in tandem with legislative intention. The Hon'ble Apex Court in the case of State of Madhya Pradesh v. G.S. Dall & Flour Mills [1991] 187 ITR 478 held that executive instructions can supplement a statute or cover Page 10 of 12 & 1164/Bang/2017 areas to which the statute does not extend but they cannot run contrary to statutory provisions or whittle down their effect. 11.8 Even otherwise, it is settled principle that circulars are not binding on the assessee, appellate authorities and the Courts. The proviso to section 119(1) states that no orders, instructions or directions shall be issued by the CBDT so as to require any income tax authority to make a particular assessment or dispose of a particular case in a particular manner so as to interfere with the discretion of the CIT(A) in the exercise of his appellate functions. The Hon'ble Apex Court in the case of CIT v. Hero Cycles (P.) Ltd. [1997] 228 ITR 463/ 94 Taxman 271has held that circulars can bind the ITO but will not bind the appellate authority or the Tribunal or the Court or even the assessee. The jurisdictional High Court in the case of East India Hotels Ltd. (supra) held that - "Similarly, under section 119 of the Act a power has been reserved in favour of the Central Board of Direct Taxes (in short "the Board") to issue instructions to subordinate income tax authorities for proper administration of the Act and who are required to observe and follow such instructions. None the less, it may be made clear that such instructions which may even pertain to the interpretation of a statutory provision under the Act cannot bind the taxpayers requiring to seek any remedy against the said instructions/clarifications either statutory or constitutional. But to my utter surprise the respondent/Deputy Commissioner has come on oath before this court to take a stand that the instructions issued by the Commissioners will bind the taxpayers, unless they get rid of it by availing of remedies as suggested by him in his statement quoted above. His statement to the said effect needs to be denounced as not only legal notions. I can only trust that henceforth the income tax authorities should deter from enjoying five star comforts and dinners by accepting the hospitality of corporate people by giving an illusory and ill-conceived impression that they are the final law making and clarifying authorities. It may be clarified that the income tax authorities while discharging their quasi-judicial functions having a bearing on the rights and obligations of the tax payers under the provisions of the Act may take such views on the interpretation of a particular statutory provision as may be permissible which will be always subject to the statutory remedies under the Act. But the view so taken in the particular case cannot partake of the colour of a law of general application so as to bind a whole class of taxpayers and providing them a cause of action for coming before this court seeking interference under the writ jurisdictions." In view of the above discussion, we are of the opinion that the Circular No.5 of 2008 cannot be relied upon to the disadvantage of the assessee Page 11 of 12 & 1164/Bang/2017 in support of the conclusion that the expenditure in the present case is liable for FBT.

Hon’ble Mumbai bench in case of DCIT vs Kotak Mahindra old Mutual Life Insurance Ltd., reported in (2011) 16 taxman.com 395 held that, the deeming provisions of section 115 WB(2) applies only when, the expenditure is in the nature of consideration for employment. Similar proposition is laid down by coordinate bench of this Tribunal in case of Bosch Ltd versus ACIT reported in (2011) 15 taxman.com 187 and Vijaya Bank Ltd versus DCIT reported in (2011) 48 SOT 47, wherein it is held that in the absence of collective enjoyment of benefits by the employees FBT is not leviable.

The Ld.Sr.DR vehemently opposed for the travelling and conveyance expenses incurred by assessee towards foreign tours etc., wherein, it is alleged that, these are liable to FBT. In our considered opinion, the foreign tours travelling and conveyance expenses incurred by the assessee towards any employee is attributable to such employees and therefore falls under the category of subsection (1) thereby making it outside the purview of FBT. In fact these expenses in case is for the benefit of the individual employee would be taxable as perquisite in the hands of such employee. The other expenses like vehicle maintenance and Puja expenses cannot be said to have been incurred collectively for the benefit of the employees, rather these are day- to-day expenditures, incurred for the purposes of fulfilment of the religious believes.

Based on the above analysis, we are of the opinion that the alleged expenditure incurred by assessee falls outside the Page 12 of 12 ITA Nos. 604/Bang/2013 & 1164/Bang/2017 purview of FBT as has been held by the various decisions referred to hereinabove. We therefore hold that the order passed under section 263 of the act deserves to be caused and set aside.

As we have quashed the order dated 30/03/2013 being the 263 order, the consequential assessment proceedings in filed by assessee becomes infructuous. In the result appeal filed by assessee in ITA No. 604/Bang/2013 stands allowed and appeal filed by assessee in ITA No. 1164/Bang/2017 stands dismissed as infructuous. Order pronounced in open court on 31st March, 2022.