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Income Tax Appellate Tribunal, “SMC” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM ]
IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH : KOLKATA [Before Hon’ble Sri N.V.Vasudevan, JM ] I.T.A No. 2240/Kol/2014 Assessment Year : 2006-07
M/s Hamilton Research & Technology -vs.- D.C.I.T., Circle-2, Pvt. Ltd., Kolkata Kolkata [PAN : AAACH 6752 M] (Respondent) (Appellant) For the Appellant : Shri S.M.Surana, Advocate For the Respondent : Smt. Ranu Biswas, Addl DIT Date of Hearing : 23.01.2018. Date of Pronouncement : 02.02.2018. ORDER This is an appeal by the assessee against the order dated 04.09.2014 of CIT(A)- I, Kolkata relating to A.Y.2006-07. 2. This appeal arises out of an assessment under Chapter – XII H of the Act viz., income tax on fringe benefits. It is not in dispute that the assessee incurred an expenditure on conveyance, tour and travel of Rs.20,41,180/- and expenses on use of hotels and boardings of Rs.4,44,972/-. It is also not dispute that the aforesaid expenses was a fringe benefit provided by the assessee to its employee and liable to be taxed u/s 115WA of the Income Tax Act, 1961 (Act). The expenses on conveyance, tour and travel and the expenses on use of hotel, boardings and lodging facilities are fringe benefits falling within the ambit of section 115WB(2)(F)(G) of the Act respectively. Under section 115WC(1)(c) of the Act, 20% of the expenses referred to in clauses (F)(G) of section 115WB(2) of the Act should be taken as valuation of fringe benefit on which fringe benefit tax is to be paid.
As per the provision of section 115WC(2) (d) if an employer is engaged in the business of manufacture or production of computer software, the value of fringe
2 ITA No.2240/Kol/2014 M/s. Hamilton Research & Technology Pvt. Ltd. A.Yr.2006-07 benefits u/s 115WB(2)(F)(G) of the Act shall be 5%. The issue before the AO was therefore whether 20% of the conveyance, tour and travel expenses and 20% of the hotel and other expenses should be taken as value of fringe benefits or 5% of those expenses taken as value of fringe benefit by virtue of section 115WB(2) (d) of the Act.
The assessee is a manufacturr of a micro processing based equipments. The assessee pleaded that it was manufacturing or producing computer software because micro based equipments have software embedded in them. The plea of the assesee was rejected by the AO for the following reasons :- “It was noted that the assessee has claimed lower rate of fringe benefits on tour and travel and use of hotel, boarding and other facilities, i.e. 5% instead of 20%. The benefit of lower rate of fringe benefits is available only to those employers who are engaged in the business of manufacture or production of pharmaceuticals or computer software. The assessee is a manufacturer of Micro processor based equipment which may be at best be considered as Hardware and not computer software. Hence the benefit of lower rate of fringe benefits will not be available. “
On appeal by the assessee the CIT(A) confirmed the order of AO. The following were the relevant observations of CIT(A): “The submissions Of the Appellant as above have been considered. It is seen that the A.O. has disallowed the Appellant's claim of lower rate of Fringe Benefit Value at 5% on Tour & Travel and use of Hotel, Boarding facilities, on the ground that the lower rate of Fringe Benefit was available only to those Employers engaged in the business of manufacturer or production of Pharmaceuticals or Computer Software, whereas the Appellant was manufacturer of Microprocessor based equipment which may be at best be considered as Hardware and not Computer Software. The A.O. therefore applied the normal rate of Fringe Benefit Tax at 20% on expenses relating to Tour & Travel, Conveyance and Hotel, Boarding etc. of Rs.20,41,180/- and Rs.4,44,972/- respectively. It is seen that the Appellant is engaged in manufacturing of Electronic Pot Controllers and other Microprocessor based equipment. It is also seen from the copy of registration submitted with the nature of export product has been mentioned as "Microprocessor based Control equipment and Software". It is seen from the above description that the Appellant is a Hardware manufacturing Unit and providing Processor Control solutions which uses Software its functioning . However, the same cannot be said to be production of manufacturer of 'Computer Software' to be sold in the market and the 2
3 ITA No.2240/Kol/2014 M/s. Hamilton Research & Technology Pvt. Ltd. A.Yr.2006-07 software is only a part of the Process Control equipment manufactured by the Appellant and not stand alone Computer Software utilized by others and sold in the market. Therefore, considering the same, while the Appellant can be considered as manufacturer of Electronic equipment run by means of a Software, however it cannot be considered as manufacturing of 'Computer Software' for the purpose of benefit of lower rate for the purpose of Fringe Benefit Value u/s 115WE of the Income Tax Act, 1961. Accordingly, the addition made by the AO is held to be justified and the same is confirmed.”
Aggrieved by the order of CIT(A) the assessee is in appeal before the Tribunal. 7. The ld. Counsel for the assessee reiterated the submissions made before the revenue authorities. He further pleaded that under section 115WC(b) of the Act in the case of an employer engaged in the business of construction the value of fringe benefit should be taken as 5% of the expenses incurred by the employer in providing fringe benefit and not 20%. In this regard the ld. Counsel submitted before me that the provision of section 115WC(b) of the Act talks only about business of construction. The assesee by manufacturing micro processor equipment can also said to be engaged in the business of construction. My attention was drawn to the meaning of the word “constructed” as per Stroud’s Dictionary 4th edition page 566 which reads as follows :- “(9) Tractors fitted with equipment for dragging and loading timber. but adapted and used primarily for hauling the timber on a trailer were held to be "constructed and used on public roads for haulage solely". within s. 4 (2) (f) of the Vehicles (Excise) Act 1949 (c. 89) (T. K. Worgan & Sons v. Gloucestershire County Council 1961] 2 Q.B. 123)
(11) "Constructed" (Road Traffic Act 1960 (c. 16). s. 253) means "completely constructed" and therefore excludes a commercial chassis being driven to a place where it is to receive. a body (Millard v. Turvey [1968(2 Q.B. 390).
Stat. Def.. Coastal Flooding (Emergency Provisions) Act 1953 (c. 18). (1).”
I have considered the submissions made by the ld. Counsel for the assessee. I am of the view that in so far as the applicability of the provision of section 115WC(2)(d) of the Act the assessee was not in the business of manufacture or 3
4 ITA No.2240/Kol/2014 M/s. Hamilton Research & Technology Pvt. Ltd. A.Yr.2006-07 production of computer software. The fact that the assessee uses computer software in the micro processor equipments manufactured by him, cannot be the basis to say that the assessee was engaged in the business of manufacturing or construction of computer software. With regard to the applicability of section 115WC(2)(b) of the Act, I am of the view that the assessee cannot also be said to be in the business of construction. The expression ‘Construction” cannot be stretched to include manufacture of micro processor. The meaning of the expression “constructed” as found in the Stroud’s dictionary referred to by the ld. DR are in the context of a specific statutory provision. Moreover, they are in the context of the expression “constructed” whereas I am concerned in this case with the expression “construction”. In my view the plea put forth by the ld. Counsel for the assessee cannot therefore be accepted. I, therefore, upheld the order of CIT(A) and dismiss the appeal of the assessee. 9. In the result the appeal of the assessee is dismissed. Order pronounced in the Court on 02.02.2018.
Sd/- [ N.V.Vasudevan ] Judicial Member
Dated 02.02.2018. [RG Sr.PS]
Copy of the order forwarded to:
M/s Hamilton Research Technology Pvt. Ltd, 13A, New Road, Kolkata-700027. 2. D.C.I.T., Circle-2, Kolkata. 3. CIT(A)-I, Kolkata 4. C.I.T-I, Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.