ACIT-5(1)(1), MUMBAI, MUMBAI vs. M/S. INDIAN AIRLINES LTD. ( NOW KNOWN AS NATIONAL AVIATION COMPANY OF INDIA LTD.), DELHI

This appeal in A.Y.2006-07 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-34, New Delhi in appeal No.269/2009-10 dated 29/07/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.115WE(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) by the ld. Dy. Commissioner of Income Tax, Circle- 11(1), New Delhi(hereinafter referred to as ld. AO).

The revenue has raised the following grounds of appeal:-

We have heard rival submissions and perused the materials available on record. We find that assessee had filed its return of fringe benefits for the A.Y.2006-07 declaring total fringe benefits of Rs.25,21,45,000/-. In this Fringe Benefit Tax (FBT) return, the value of fringe benefits on account of free/concessional tickets provided to its employees and their family members was considered at ‘Nil’ by the assessee. The ld. AO in the assessment framed u/s.115WE(3) of the Act for fringe benefit tax, determined the value of fringe benefits on account of free / concessional tickets given to employees and their family members at Rs.86,42,22,000/-. The assessee agitated this assessment before the ld. CIT(A). We find that the ld. CIT(A) by placing reliance on the Co-ordinate Bench decision of this Tribunal in the case of Jet Airways India Ltd., vs. DCIT reported in 153 TTJ 624 for A.Y.2006-07 to 2008-09 directed the ld. AO to verify the fringe benefit in respect of free / concessional air tickets given to the employees and their family members at par with the provision made in respect of Frequent Flyer Programme (FFP). Before us, the ld. DR vehemently argued that the valuation of fringe benefits in respect of free / concessional air tickets given to employees is to be done by following the valuation method prescribed in CBDT Circular No.8/2005 dated 29/08/2005. He also argued that the Frequent Flyer Programme of every airline operates on different parameters and that the value of FFP of one airline cannot be adopted for other airline.

However, the submissions made by the assessee did not find favour from the AO who was of the opinion that provisions of Sec. 115WC(1A) squarely applies on the facts of the case and the method of computation of the value of FBT is also provided under the Act and accordingly proceeded to adopt the value of each concessional/free tickets at Rs. 5510/- as worked out by the special auditors and rejecting the No. of tickets as pointed out by the assessee, took the No. of tickets as pointed out by the special auditors and computed the value of taxable fringe benefit at Rs.136,83,20,340/-.

Aggrieved, assessee agitated this matter before the Ld. CIT(A) but without any success. Ld. CIT(A) was convinced that provisions of Sec. 115WC(1A) r.w. CBDT Circular No. 8 dt. 29.8.2005 applied on the facts of the case and held that the AO has correctly computed the value of fringe benefit at Rs. 136,83,20,340/- under the head free/concessional tickets for employees or their family members.

Aggrieved by this finding of Ld. CIT(A), assessee is before us. The Ld. Counsel for the assessee strongly submitted that FBT is not at all leviable on the impugned free/concessional tickets provided to the employees or their family members for their private journeys. It is the say of the Counsel that the assessee company never issued any ticket to the employee therefore provisions of Sec. 115WB(1B) are not applicable. The Ld. Counsel further submitted that even if it is assumed that the slips/coupons come within the purview of tickets then also the basis of valuation adopted by the AO is incorrect and against the facts of the case. The Ld. Counsel further pointed out that the special auditors in their supplementary audit report exhibited from pages 35 to 49 of the Paper Book have accepted that 76633 coupons were only issued to the employees for vacation which may be considered as the fringe benefit to employees therefore the total number of coupons taken by the AO at 248334 is against the finding of the special auditors. 7.1 The Ld. Counsel for the assessee further pointed out that the value of fringe benefit have to be taken as per provisions of Sec. 115WC(1A) which provides that "cost at which the benefits referred to in clause (b) of sub- section (1) of Sec. 115 WB is provided by the employer to the general public as reduced by the amount, if any, paid by or recovered from its employees. It is the say of the Counsel that the tickets issued to the employees cannot be compared with the tickets issued to the general public for the following reasons: i) Tickets issued to the employees do not give any inherent right to board the flight because an employee would be allowed to board the flight only if there is availability of the load or the seat is vacant whereas ticket issued to the general public give them vested right to board the plane. ii) If the seat is not vacant or the load does not permit, the employee has to return back without taking the flight. The same cannot be said to the member of the general public. iii) Further tickets issued to the general public give confirmed booking for the date of travel, flight etc. whereas confirm ticketing is not given to free/concessional tickets to employees. Such tickets are only " stand by " tickets subject to load/vacancies which means that the tickets issued to the employees carry lowest priority. 7.2. Pointing out further difference between the two, the Ld. Counsel stated that in case of the flight is delayed or cancelled, passenger from the general public is entitled to hotel accommodation convenience and other facilities whereas the employees are not entitled to such facilities. Further if for some reason, the boarding is denied to the passenger from general public, it is the duty of the airline to provide alternative flight whereas the same facility is not provided to the employees of the company who have been given free/concessional tickets. The Ld. Counsel thus concluded that the cost of the ticket issued to the general public is not at par with the tickets issued to the employees. 7.3. In alternative, the Ld. Counsel suggested that if at all some value has to be allocated towards the cost of the fringe benefit provided by the employer, then the method consistently adopted by the company for making provision in case of the tickets to be issued under the Frequent Flyer Programme (FFP) should be adopted. Thereafter, the Ld. Counsel explained the scheme of FFP. It was explained that the Jet Privilege members earn JP miles every time they fly Jet airways. In addition, they also earned JP miles whenever they fly through partner airlines or stay at any partner hotels or use partner car rentals or telecom partner services. The Jet Airways has reciprocal FFP Agreements with British Airways, KLM and Northwest Airlines. By virtue of it, JP members can redeem their miles for free flights across the world on British Airways, KLM and Northwest Airlines. The Ld. Counsel further explained that Jet Airways has a company branded credit card with Citibank. This card is available in Gold variant and has an annual fee payable towards the same. The advantage of this credit card is that the card user collects JP Miles for all his spends using the Jet Airways Citibank Co. branded credit card. These JP Miles are credited to the Jet Privilege account of the member and can be used by him for free flights on Jet Airways or any of its partner airline. The programme gets rewarding depending on the membership status, i.e. Platinum, Gold, Silver, Blue Plus or Blue. Other benefits include upgrades to premiere, check-in at Club Premiere Desks, Tele Check-in and excess baggage allowance etc. JP Gold and Platinum Members also enjoy access to lounges of Jet Airways partner airlines, i.e. KLM, British Airways and North West Airlines. To track the miles earned by each member, a member is required to mention his JP membership numbers at the time of making a booking or at the time of checking in for a flight. Based on this information available in the system, the miles are then updated in each member's account. The cost of the unutilised mileage lying to the credit of the passengers is then provided for in the books of accounts each year. Every passenger who is admitted to the Frequent Flyer Programme is entitled to redeem the unutilised miles he has earned and the company is under an obligation to give the benefit of free travel based on the mileage he redeems out of his accumulated mileage. Based on the above criteria the total number of miles earned is ascertained and a provision is made in the Books of Accounts for the cost of travel in future against the number of the unutilised, redeemable miles. The provision is calculated on a year to year basis as per the JP miles accumulated, average miles per redemption & variable cost per passenger. The computation of the cost of the ticket to be adopted for free/concessional tickets issued under FFP is accepted by the department in earlier years. The ascertaining of the liability is on a scientific basis. In this regard, it is pertinent to note that the Hon'ble ITAT, Mumbai for A.Y.1999-00 to A.Y.2005-06 has accepted the method followed by the assessee and has allowed the claim of the assessee in respect of the provision made on account of FFP. 7.4. The Ld. Counsel concluded that the value taken for A.Y. 2006-07 for the provisions of FFP at Rs. 446.06 is the most reasonable and fair value to be adopted for computing the fringe benefit on tickets provided free/concessional to the employees.

Per contra, the Ld. Departmental Representative strongly placed reliance on the orders of the lower authorities. The DR pointed out that the charging section as well as the computation section is absolutely clear and unambiguous in computing the value of fringe benefit and therefore the same should be adopted.

We have considered the rival submissions and perused the orders of the lower authorities. We have also considered the Paper book submitted by the assessee. At the very outset, we do not agree with the submissions of the Counsel that FBT is not leviable on the facts of the present issue. Section 115WB(1)(B) specifically provides as under"

As it is not in dispute that the assessee has provided free/concessional tickets to its employees during the year under consideration, it is liable for fringe benefit tax. The only dispute remains now is what should be the value assigned to such fringe benefit. Though Sec. 115WC(2)(a) contains the provisions for computing the cost of such benefit but in our considerate view that method cannot be applied on the facts of the present case for the simple reason that the cost at which the benefits are provided to the employee cannot be equated with the cost provided by the employer to the general public. To this extent, we agree with the submissions of the Counsel that the nearest available, logical and acceptable method is to value the benefit as per the cost assigned for provisions for FFP in the books of account. More so, because such provision has been accepted by the department in assessee's own case from assessment year 1999-2000 till assessment year 2005-06 and as this method is scientific and has attained finality in the due course of time since A.Y. 1999-2000 , keeping in mind that the members of the FFP scheme are from general public. We, therefore, in the interest of justice and fair play, restore this issue back to the files of the AO. The AO is directed to value the fringe benefit of free/concessional tickets as per the valuation of FFP as provided by the assessee in its books of account at Rs.446.06 as the same has also been accepted by the department while making provisions for ' Frequent Flyer Programme ' for earning JP Mileage, and if there are costs for foreign travels the same should be eliminated from the same , thereafter , the AO is also directed to reduce the cost recovered from the employees .”

In the result, appeal of the Revenue is allowed for statistical purposes.