TATA GLOBAL BEVERAGE LIMITED,KOLKATA vs. ACIT, CIR-4, KOLKATA, KOLKATA

PER N.V.VASUDEVAN, JM:

ITA Nos. 1866 to 1868 and 1870/Kol/2014 are appeals filed by the assessee against four different orders all dated 18.07.2014 of CIT(A)-4, Kolkata relating to A.Y.2006-07, 2007-08, 2008-09 and 2009-10. All these appeals arise out of orders passed u/s 115WE(3) of the Income Tax Act, 1961 (Act), i.e., Assessment under Chapter-XIIH of the Act, i.e., “Income tax on fringe benefits”.

Direct Fringe Benefit as classified under section 115(WB) (1) are:

• Any privilege, service, facility or amenity, which is directly or indirectly provided by an employer to his employees (including former employee or employees). • Any free or concessional tickets provided by the employer for private journeys to employees or their family members. • Any contribution by the employer towards an approved superannuation fund for employees. • Any reimbursement, which is directly or indirectly made by the employer to employees for any purpose. Indirect or Deemed Fringe Benefits are: The Fringe Benefits are deemed to have been provided if the employer incurs any expenditure or makes any payment in the course of business or profession. This ITA Nos.1866 -1868,1870 & 1869/Kol/2014 Tata Global Beverages Limited A.Y.2006-07 to 2009-10

includes any activity whether or not such activity is carried on with the object of deriving income, profits or gains. Any expenditure incurred or payment made for the following constitutes deemed fringe benefit. • Entertainment • Hospitality • Conference • Sales promotion including publicity • Employee welfare • Conveyance, tours and travel • Hotel, boarding, lodging • Repair, running and maintenance of cars • Repair, running and maintenance of aircraft • Use of telephone • Maintenance of any accommodation in the nature of guest house • Festival celebrations • Health Club • Any other club • Gifts • Scholarship to employees’ children • Consumption of fuel other than industrial fuel ITA No.1866/Kol/2014 A.Y.2006-07 : 3. Ground Nos. 1 and 1.1 raised by the assessee read as follows :- “1.0 That on the facts and in the circumstances of the case, the learned CIT (A) erred in confirming the action of the learned Assessing Officer in subjecting to fringe benefit tax, an amount of Rs. 13,68,522/-, being 20% of the medical expenses of Rs. 68,42,608/- incurred by appellant.

1.1 That on the facts and in the circumstances of the case, the learned CIT CA) failed to appreciate that reimbursement of medical expenses to employees falls within the meaning of alary' and any-expenditure incurred for the purposes of salary, does not fall within the purview of fringe benefit tax under the provisions of section 115WB of the Act. “

employees. The assessee had not considered the above expense for the purpose of fringe benefit tax on the ground that medical expenses so reimbursed falls within the meaning of salary as defined u/s 17 of the Act and hence is not liable to fringe benefit tax. In Annexure-II form No.3CB which is the form of auditors report u/s 44AB of the Act, in note no.2 the assessee had explained that the medical reimbursement to employees of Rs.68,42,608/- was the basic exemption limit of Rs.15,000/- which is not chargeable to tax u/s 17(1) of the Act in the hands of the employee. Note no.2 reads as follows :- “Note no.2 : Does not include any sum paid by the Company for expenditure actually incurred by the employees for medical treatment not exceeding Rs.15000/- per employee in the previous year as in the opinion of the Company such reimbursement comes within the meaning of “Salary “ as defined in clause (1) of Section 17 of the Income Tax Act, 1961.”

Provided that nothing in this clause shall apply to,—

"(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 fifteen thousand rupees in the previous year; " Medical reimbursement, would be perquisite within the meaning of Sec.17(2)(v) of the Act, whether we consider the same as falling within the meaning of ‘fringe benefit’ or ‘amenity’ within the meaning of clause (vi) to Sec.17(2) of the Act. Proviso (v) to clause (vi) of Sec.17(2) of the Act excludes medical treatment expenditure provided by the employer to the employee from the purview of taxation upto Rs.15000/- per annum. The sum of Rs.68,42,608/- is admittedly the sum total of the basic exemption of Rs.15,000/- per employee allowed under the Act in the hands of the employee and is not taxed. Though the sum of Rs.15,000/- is the ITA Nos.1866 -1868,1870 & 1869/Kol/2014 Tata Global Beverages Limited A.Y.2006-07 to 2009-10

basic exemption yet it is in the nature of perquisite provided to the employee individually and not collectively. Therefore the Assessee did not consider the aforesaid sum as fringe benefit. The AO did not agree with the submissions made by the assessee as above and he considered 20% of the aforesaid expenses as value of fringe benefit for the purpose of levying of fringe benefit tax.

"Therefore, it is proposed to adopt a two pronged approach for the taxation of fringe benefits under the Income-tax Act. Perquisites which can be directly attributed to the employees will continue to be taxed in their hands in accordance with the existing provisions of section 17(2) of the Income tax Act and subject to the method of valuation outlined in rule 3 of the Income-tax Rules." (Emphasis ours) Attention was drawn to the Budget speech of the Finance Minister at para 160 reported in 273 ITR (St.) 25, at page 56, wherein it was observed as follows : "I have looked into the present system of taxing perquisites and I have found that many perquisites are disguised as fringe benefits, and escape tax. Neither the employer nor the employee pays any tax on these benefits which are certainly of considerable material value. At present where the benefits are fully attributable to the employee they are taxed in the hands of the employee; that position will continue. In addition, I now propose that where the benefits are usually enjoyed collectively by the employees and cannot be attributed to individual employees, they shall be taxed in the hands of the employer." (Emphasis ours) It was submitted that the benefit in this case is clearly identifiable with an employee and the same in the nature of perquisite of the concerned employee. Reference was made to the provisions of Section 115WB(3) which reads as follows :

" 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 payable by the employee [or any benefit or amenity in the nature of free or subsidized 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]" (Emphasis ours). ITA Nos.1866 -1868,1870 & 1869/Kol/2014 Tata Global Beverages Limited A.Y.2006-07 to 2009-10

It was argued that medical reimbursement was chargeable to tax in the hands of the individual employee as salary (being a perquisite) and the fact the sum in question is exempt perquisite by virtue of sub-clause (vi) of proviso to clause (v) of Sec.17(2) of the Act does not take the medical reimbursement out of the ambit of Sec.1115WB(3) of the Act. Therefore the sum in question cannot be considered as fringe benefit. The assessee submitted that even though the said amounts are exempted under the relevant provisions of the Act, tax is payable by reason of charging provision and therefore under the provisions of Section 115WB(3), the said amount being liable to tax in hands of employees even though in the quantification of tax paid the said amount is not to be included, the said amount cannot be included in computation of FBT.

Whether expenditure incurred by way of allowance to the employees, of the nature referred to in sub-clause (ii) of clause (14) of section 10 and specified in sub-Mile (2) of Mile 2BB like children education allowance, transport allowance (Rs. 800) granted to employees, which are exempt in the hands of the employee, liable to FBT?

47 . The allowances granted to the employees, of the nature referred to in sub- clause (ii) of clause (14) of section 10 and specified in sub-rule (2) of rule 2BB of Income-tax Rules are neither contributions to an approved superannuation fund nor represent the cost of free and concessional tickets for private journeys ITA Nos.1866 -1868,1870 & 1869/Kol/2014 Tata Global Beverages Limited A.Y.2006-07 to 2009-10

of employees or their family members. These allowances fall within the meaning of 'salary' as defined in clause (1) of section 17 of the Income-tax Act and, any expenditure incurred for the purposes of salary, does not fall within the scope of sub-section (2) of section 115W'B. Therefore, the allowances of the nature referred to in sub-clause (ii) of clause (14) of section 10, fall outside the scope of clauses (b) and (c) of sub-section (1) as well as sub-section (2) of section 115WB.

Whether medical reimbursement up to Rs. 15,000 (exempt in the hands of the employees) and medical reimbursement over Rs, 15,000 (taxed as perquisite in the hands of the employee) is liable to FBT? 69. At present, if any sum is paid by the employer for expenditure actually incurred by the employee for medical treatment in an unapproved hospital and it exceeds Rs. 15,000 during the year, uch sum is 'salary' as defined in clause (1) of section 17 of the Income-tax Act and liable to income-tax in the hands of the employee. There is no change in this position. Since such sum is taxable in the hands ofthe employee, the same is not liable to FBT. However, if any sum is paid by the employer for expenditure actually incurred by the employee for medical treatment in an unapproved hospital and it does not exceed Rs. 15,000 during the year, such sum does not fall within the meaning of 'salary' as defined in clause (1) of section 17 of the Income-tax Act and not liable to income-tax in the hands of the employee. There is no change in this position. Since such sum is not taxable in the hands of the employee, the same is liable to FBT. Whether expenditure incurred by the employer for the purposes of providing free or subsidized transportfor journeys to employeesfrom their residence to the place of work or such place of work to the place of residence would attract FBT ? 104. The free or subsidized transport provided to employees for journeys from their residence to the place of work or such place of work to the place of residence is in lieu of conveyance/transportation allowance, which is not liable to FBT. Accordingly, the expenditure incurred by the employer for the purposes of providing free or subsidized transport for journeys to employees from their residence to the place of work or such place of work to the place of residence will not be liable to FBT.

accordingly the same is subjected to the levy of FBT. In other words, as per the clarification issued by the CBDT, payments made by the employer to meet the costs of medical treatment of employees or their family members, to the extent taxable in the hands of the employees would not be subjected to FBT. However, the exempt portions of such medical reimbursements in the hands of the employees by virtue of proviso to section 17(2) of the Act would be subjected to FBT at the hands of the employer. However, with respect to queries relating to FBT on Leave Travel Concession (LTC) / Leave Travel Allowance (LTA) and with that relating to the allowances exempted u/s 10(14)(ii) of the Act, ( in Question 44,47 and 104) the CBDT has taken a contradictory approach while dealing with the charge of FBT with regard to the aforesaid expenses. The CBDT has clarified that these allowances fall within the meaning of 'salary' as defined in clause (1) of section 17 of the Income-tax Act (though not taxable because of specific exemption) and, any expenditure incurred for the purposes of salary, does not fall within the scope of sub-section (2) of section 115WB. Thus, it was argued that there was an apparent contradiction in the approach of the CBDT itself in the matter of the application of FBT on allowances / reimbursements made by the employer to the employees which are exempt from income-tax in the hands of the employees under express exemption provisions. It was argued that like LTC/LTA and other allowances, medical re-imbursement also forms part of salary as per the provisions of Section 17(2) of the Act, however, by way of specific dispensation provided in the said sub- section by way of proviso, the same is not taxable in the hands of the employee. Thus, applying the same analogy which the CBDT has adopted for non applicability of FBT on LTA/LTC and other allowances where they form part of salary but are exempted by way of specific exemption, expenses on account of medical reimbursement should also not be liable to FBT.

nature of collective benefit enjoyed by the employees. The Hon'ble ITAT observed that medical reimbursement was to be treated as a perquisite u/s 17(2) of Income tax Act, 1961 though a threshold limit of exemption was provided under clause (v) at Rs. 15,000. Accordingly, the ITAT held that reimbursement of medical expenditure did not constitute Fringe Benefit as defined in Sec. 115WB of the Act. In the said ruling the ITAT also referred to co-ordinate bench ruling of Hon'ble Mumbai ITAT in Bosch Ltd and Godrej Properties (2011) 135 ITJ 426(Mum.), dealing with similar issue, wherein it was held, "It is only a case where a benefit above a certain specified amount only is liable to be taxed in the hands of the employee. Such case, in our humble opinion, does not constitute fringe benefit as defined in S. 115WB of the Act."

and relied on the order of the Hon’ble ITAT Mumbai in the case of M/s. Grindwell Norton Ltd.(supra). The ld. DR relied on the order of CIT(A).

Rs.68,42,608/- cannot be considered as the value of fringe benefit for the purpose of determining the value of fringe benefit for levying of fringe benefit tax. Ground no.1 and 1.1 are allowed.

(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 for the purposes of conference.”

ITA Nos.1866 -1868,1870 & 1869/Kol/2014 Tata Global Beverages Limited A.Y.2006-07 to 2009-10

It can be seen from clause ( C) above that expenses incurred by the employer on paying fees for conference to be attended by the employee is covered but to the extent the fee is attributable to fee for participation it is outside the ambit of clause ( C).

“Whether expenditure in the nature of fee for participation by the employees in Any conference is liable to FBT?

The Assessee submitted that in its case, the organizers offered one lump-sum fee for participation which included amount on account of food/lodging. Hence, no- segregation of expenses on account of lodging/food was possible. The participation fees mainly constituted fees for conducting the programme with fees for hall, coordinator, speakers etc and the element of charges for lodging/food was very nominal since the employees stay was in the organizers campus and not in any hotel. Thus, attribution of 10% of the total participation fees towards these expenses by the Assessee was fair and reasonable. It was submitted that the AO on pure surmise and assumption has considered 30% of the fees of the fees as attributable towards fooed and lodging. It was submitted that the said attribution by the Assessing Officer was

ITA Nos.1866 -1868,1870 & 1869/Kol/2014 Tata Global Beverages Limited A.Y.2006-07 to 2009-10

excessive and unreasonable. The Assessee submitted that the amount considered by the Assessee as liable to FBT on account of participation fees should be accepted.

4.3 It is also observed that while considering similar issue in subsequent assessment year, the Assessing officer has considered 20% of total composite participation fees as amount attributable on account of food . and beverages liable to FBT. The said attribution being reasonable, 20% of the total participation fees is considered as amount attributable on account of food and beverages liable to FBT under the provisions of Section 115WB (2) (E) and (G). Hence lsallowance of Rs.1,33,655/- is sustained. This ground of appeal is dismissed.”

an advertisement plan for a product, such expenditure shall be construed to have been incurred for the proximate purpose of travelling and not the ultimate purpose of advertisement and accordingly liable to FBT.”

It was submitted by him that it was not disputed that the sum in question was a composite fee and there existed no break-up of the fee. It is a fee paid for the purpose of participation in a conference. It may be true that boarding and food will be provided incidentally but the main purpose was participation of the employee in the conference was to gain knowledge and not the purpose of enjoying the benefit of food and lodging. The ld. DR relied on the order of CIT(A) and submitted that in the absence of any break up given by the assessee attribution of 20% of the composite fee as towards food and beverages as estimated by the CIT(A) has to be upheld.

expenditure on food and lodging and a proportionate expenditure for participation in conference by the employee. Keeping in mind the spirit of FBT as explained in the CBDT Circular, we are of the view that in the case of composite fee paid for participation of employee in a conference, the same should not be considered as fringe benefit and there is no question of resorting to apportionment of those expenses. In our view in the given facts and circumstances apportionment of the total expenditure as done by the assessee was just and proper. There is no basis for the Assessee/AO or the CIT(A) in concluding that a percentage of composite fee is attributable to food and lodging. Since we have concluded that in the case of composite fee paid with no bifurcation, the expenditure on fee paid for participation of an employee in a conference or seminar will have to be not regarded as fringe benefit, we accept the contention of the assessee and hold that 10% of the composite participation fee be treated as expenditure liable to fringe benefit tax.

ITA Nos.1866 -1868,1870 & 1869/Kol/2014 Tata Global Beverages Limited A.Y.2006-07 to 2009-10

view that Rule 8 of the IT Rules, 1962, which has to be applied for determining income of a company engaged in the business of growing and manufacturing of tea and in which only 40% of the composite income from the business of growth and manufacture of tea is considered as taxable is also applicable while valuing the fringe benefit for the purpose of levy of FBT in the case of such companies.

ITA No.1867/Kol/2014 A.Y.2007-08 26. Ground No.1 and 1.1 , Gr.No.3 & 4 raised by the assessee reads as follows :- “1.0 That on the facts and in the circumstances of the case, the learned CIT (A) erred in confirming the action of the learned Assessing Officer in subjecting to fringe benefit tax, an amount of Rs. 20,41,559/-, being 20% of the medical expenses of Rs 1,02,07,796/- incurred by appellant.

1.1 That on the facts and in the circumstances of the case, the learned CIT (A) failed to appreciate that reimbursement of medical expenses to employees falls within the meaning of 'Salary' and any expenditure incurred for the purposes of salary, does not fall within the purview of fringe benefit tax under the provisions of section 115WB of the Act. “

“3.0 That on the facts and in the circumstances of the case, the learned CIT (A) erred in confirming the action of the learned Assessing Officer in attributing additional 10% of the composite participation fees as expenditure liable to fringe benefit tax without giving any cogent reasons and on a mere assumption, surmise and conjecture.”

“4.0 That on the facts and in the circumstances of the case, and without prejudice to the grounds mentioned above, the appellant being in the business of plantation and manufacturing of tea, was liable to pay fringe benefit tax only on

ITA Nos.1866 -1868,1870 & 1869/Kol/2014 Tata Global Beverages Limited A.Y.2006-07 to 2009-10

40% of the value of fringe benefit arrived at on application of Rule 8 of the Income Tax Rules, 1962.”

2.1 That on the facts and in the circumstances of the case, the learned CIT (A) failed to appreciate that the medical insurance premium paid by the appellant on behalf of the employees falls within the meaning of 'Salary' and any expenditure incurred for the purposes of salary, does not fall within the purview of fringe benefit tax under the provisions of section 115WB of the Act.”

Provided that nothing in this clause shall apply to,—

"(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 42a [or the Insurance Regulatory and Development Authority established under sub-section (1) of section 3 of the ITA Nos.1866 -1868,1870 & 1869/Kol/2014 Tata Global Beverages Limited A.Y.2006-07 to 2009-10

Insurance Regulatory and Development Authority Act, 1999 (41 of 1999),] for the purposes of clause (ib) of sub-section (1) of section 36;” Premium paid on insurance policy for an employee, would be perquisite within the meaning of Sec.17(2)(v) of the Act, whether we consider the same as falling within the meaning of ‘fringe benefit’ or ‘amenity’ within the meaning of clause (vi) to Sec.17(2) of the Act. Proviso (iii) to clause (vi) of Sec.17(2) of the Act excludes such expenditure from the purview of taxation.

3.4. It is further observed. that the appellant has made similar claim on account of medical insurance premium as not liable to FBT. It is observed that the CBDT vide question No. 70 of the Circular No. 8/2005 dated 29-08-2005 has clarified that Expenditure by the employer on Group Health Insurance or Group Medical Insurance or Group Life Insurance is for the purposes of employee welfare and, therefore, falls within the scope of clause (E) of sub-section (2) of section 115WB of the Income-tax Act. Accordingly, such expenditure is liable to FBT. However, if such expenditure is a statutory obligation, the same would not be liable to FBT. In the instant case, since the contribution to Medical insurance is contractual and not statutory, the same is liable to FBT. The CBDT Circular being very clear, there cannot be any scope of interpretation. These grounds of appeal are dismissed.”

ITA Nos.1866 -1868,1870 & 1869/Kol/2014 Tata Global Beverages Limited A.Y.2006-07 to 2009-10

ITA Nos. 1868 and 1870/Kol/2014 A.Y.2008-09 and 2009-10 : 34. Ground Nos of appeal raised in these appeals read as follows :- “1.0 That on the facts and in the circumstances of the case, the learned CIT (A) erred in confirming the action of the learned Assessing Officer in subjecting to fringe benefit tax, an amount of Rs. 16,98,080/- being 20% of the medical expenses of Rs 84,90,403/- incurred by appellant.

1.1 That on the facts and in the circumstances of the case, the learned CIT (A) failed to appreciate that reimbursement of medical expenses to employees falls within the meaning of 'Salary' and any expenditure incurred for the purposes of salary, does not fall within the purview of fringe benefit tax under the provisions of section 115WB of the Act.

2.0 That on the facts and in the circumstances of the case, the learned CIT (A) erred in confirming the action of the learned Assessing Officer in subjecting to fringe benefit tax, an amount of Rs. 19,18,302/- being 20% of the medical Insurance premium of Rs 95,91,509/- incurred by appellant.

2.1 That on the facts and in the circumstances of the case, the learned CIT (A) failed to appreciate that the medical insurance premium paid by the appellant on behalf of the employees falls' within the meaning of 'Salary' and any expenditure incurred for the purposes of salary, does not fall within the purview of fringe benefit tax under the provisions of section 1I5WB of the Act.

3.0 That on the facts and in the circumstances of the case, the learned CIT (A) erred in confirming the action of the learned Assessing Officer in attributing additional 10% of the composite participation fees as expenditure liable to fringe ITA Nos.1866 -1868,1870 & 1869/Kol/2014 Tata Global Beverages Limited A.Y.2006-07 to 2009-10

benefit tax without giving any cogent reasons and on a mere assumption, surmise and conjecture. “

ITA No.1870/Kol/2014 (A.Y.2009-10)

“1.0 That on the facts and in the circumstances of the case, the learned CIT (A) erred in confirming the action of the learned Assessing Officer in subjecting to fringe benefit tax, an amount of Rs. 15,91,000/- being 20% of the medical expenses of Rs 79,55,000/- incurred by appellant.

1.1 That on the facts and in the circumstances of the case, the learned CIT (A) failed to appreciate that reimbursement of medical expenses to employees falls within the meaning of 'Salary' and any expenditure incurred for the purposes of salary, does not fall within the purview of fringe benefit tax under the provisions of section 115WB of the Act.

2.0 That on the facts and in the circumstances of the case, the learned CIT (A) erred in confirming the action of the learned Assessing Officer in subjecting to fringe benefit tax, an amount of Rs. 26,13,540/- being 20% of the medical Insurance premium of Rs 1,30,67,698/- incurred by appellant.

2.1 That on the facts and in the circumstances of the case, the learned CIT (A) failed to appreciate that the medical insurance premium paid by the appellant on behalf of the employees falls' within the meaning of 'Salary' and any expenditure incurred for the purposes of salary, does not fall within the purview of fringe benefit tax under the provisions of section 1I5WB of the Act.

3.0 That on the facts and in the circumstances of the case, the learned CIT (A) erred in confirming the action of the learned Assessing Officer in attributing additional 10% of the composite participation fees as expenditure liable to fringe benefit tax without giving any cogent reasons and on a mere assumption, surmise and conjecture. “

ITA NO.1869/Kol/2014 A.Y.2009-10 : ITA Nos.1866 -1868,1870 & 1869/Kol/2014 Tata Global Beverages Limited A.Y.2006-07 to 2009-10

1 b. That on the facts and in the circumstances of the case, the learned CIT (Appeals) while confirming the action of the learned Assessing Officer in disallowing a sum of Rs. 1,60,96,045/-, failed to appreciate that no expenses over and above the amount quantified by the appellant was actually incurred in earning dividend income.

1c That on the facts and in the circumstances of the case, the learned CIT (Appeals) erred in confirming the action of the learned Assessing Officer in disallowing a sum of Rs. 1,60,96,045/- without appreciating that the learned Assessing Officer arbitrarily applied Rule 8D based on mere surmises and conjectures and without providing any cogent reason as to how the amount of Rs. 19,82,000/- quantified by the appellant was incorrect.

1 d That on the facts and in the circumstances of the case and without prejudice to Grounds taken herein above, the learned CIT (Appeals) erred in confirming the action of the learned Assessing Officer in disallowing Rs. 1,60,96,045/- under section 14A read with Rule 8D without appreciating that strategic investments made purely for business purposes ought to have been excluded in computing expenses disallowable under Rule 8D(2)(iii)of the Income Tax Rules.

1 e.. That on the facts and in the circumstances of the case and without prejudice to the Grounds taken herein above, the learned CIT (Appeals) erred in confirming the action of the learned Assessing Officer in disallowing Rs. 1,60,96,045/- under section 14A read with Rule 80 without appreciating the fact that only those investments on which dividend income was actually earned ought to have been considered for computing disallowance under Rule 8D(2)(iii)of the Income Tax Rules.”

ITA Nos.1866 -1868,1870 & 1869/Kol/2014 Tata Global Beverages Limited A.Y.2006-07 to 2009-10

investments and thus, said to be incurred for the purpose of earning exempt dividend income. It was argued that the Assessing Officer failed to appreciate the facts and circumstances of the case of the Assessee and failed to bring any evidence record to substantiate that the Assessee had incurred expenses in earning exempt income over and above identified and offered by the Assessee. It was pointed out that the Assessing Officer has also not provided any basis or reasons for rejecting the Assessee's calculation or holding it to be inappropriate. It was submitted that the Assessing Officer arbitrarily proceeded to apply Rule 8D on mere surmise, assumption and conjecture. Reliance was placed on the following decisions wherein it has been held that where the Assessing Officer did not bring any evidence on record to establish that any expenditure had been incurred by assessee for earning exempt income, disallowance u/s 14A read with Rule 8D could not be made: - DCIT vs. Ashish Jhunjhunwala [2013] I.T.A No. 1809/Kol/2012 (Kol) CITvs. Hero Cycles Ltd. [2010] 323 ITR518 (Punj & Har) ACIT vs. SIL Investment Ltd. [2012] 54 SOT 54 (Delhi) Priya Exhibitors (P.) Ltd. vs. ACIT [2012] 54 SOT 356 (Delhi) Raj Sri Production Pvt. Ltd. [TS~570~ITAT~2013(Mum)] It was submitted that since the Assessing Officer has failed to discharge his onus of establishing the fact that expenditure over and above identified by the Assessee was incurred in earning dividend income, the action of the Assessing Officer in applying Rule 8D is baseless and should be struck down. Reliance in this regard is also placed on following decisions wherein it has been held that provision of Rule 8D comes into play only when the AO records a finding that he is not satisfied with the assessee's method and the said Rule cannot be arbitrarily applied by the Assessing Officer without showing how the assesses method of calculation of disallowance u/s 14A is incorrect. Assistant Commissioner of Income-tax, Circle 10, Kolkata v. Champion Commercial Co. Ltd. [2013] 152 TTJ 241 (Kolkata) Commissioner of Income-tax—vs- Consolidated Photo & Finvest Ltd. [2012] 211 Taxman 184 (Delhi High Court) Maxopp Investments Limited - vs CIT (2012) 347 ITR 272 (Delhi) ITA Nos.1866 -1868,1870 & 1869/Kol/2014 Tata Global Beverages Limited A.Y.2006-07 to 2009-10

DCIT -vs.- Jindal Photo Limited -ITA NO. 814 (Del) 2011

Auchtel Products Ltd. -vs.~ Assistant Commissioner of Income-tax, Circle-6(1), Mumbai [2012] 52 SOT 39 (Mum) Raj Shipping Agencies Ltd vs. ACIT [2013] 38 taxman.com 345(Mum) DCIT vs. Allied Investments Housing P. Ltd [2013] (ITAT Chennai) ReIaxo Footwears Ltd. vs Addl. CIT [2012] 50 SOT 102 (Delhi)

It was argued that since the Assessing Officer has failed to record a finding that the assessee's method is incorrect and not satisfactory, the action of the Assessing Officer in applying Rule 8D is erroneous and accordingly, should be struck down. 44. Without prejudice to the above submission, it was submitted that out of the total investments, majority of the investments were made by the Assessee in subsidiaries, associate companies and joint ventures which were in the nature of strategic investments in group companies for the purpose of expanding the business of the Assessee. Majority of such investments have been made by the Assessee in past years and the same are long term in nature. It was pointed out that the Assessee has neither made these investments to earn capital gains nor to earn dividend but out of business expediency to expand its business. Accordingly, the said strategic investments should not fall under the purview of rule 8D(2)(iii) and expenditure incurred, if any, in connection with such strategic investments should not be disallowed under Rule 8D(2)(iii). Reliance in this regard, was placed on the decision of the Chennai Tribunal in the case of EIH _Associated Hotels Limited vs. Dy. CIT [2012] I.T.A. No. 1503/Mds/2012 (Chennai) wherein the tribunal has held as under: “We are of the considered opinion that the investments made by the assessee in the Subsidiary company are not on account of investment for earning capital gains or dividend income. Such investments have been made by the assessee to promote subsidiary company into the hotel industry. A perusal of the order of the CIT(Appeals) shows that out of total investment of Rs. 64,18,19,775/-, Rs. 63,31,25,715/- is invested in wholly owned subsidiary. This fact supports the case of the assessee that the assesee is not into the business of investment and the investments made by the assessee are on account of business expediency. Any dividend earned by the assessee from investment in subsidiary company is purely incidental. Therefore, the investment made by the assessee in its subsidiary are not to be reckoned for dis-allowance u/s. 14A r.w.r. 8D. The Assessing Officer is directed to re-compute the average value of investment ITA Nos.1866 -1868,1870 & 1869/Kol/2014 Tata Global Beverages Limited A.Y.2006-07 to 2009-10

under the provisions of Rule 8D after deleting investments made by the assessee in subsidiary company. Accordingly, this ground of appeal of the assessee is partly allowed and that of the Revenue is dismissed.”

It was pointed out that in the case of the Assessee also out of total investment considered by the AO for calculating average value of investment, investments of Rs.83318.07 lacs were in the nature of strategic investments and have been made by the Assessee in subsidiaries, associate companies and joint ventures for the purpose of expanding business and not with the intention of earning exempt income. The dividend income earned if any is only incidental. Accordingly, no disallowance is called for under section 14A of the Act r.w. Rule 8D(2)(iii). 45. The CIT(A) however did not agree with the submissions made by the assessee and he confirmed the order of the AO by observing as follows :- “3.3. I have gone through the submissions filed by the appellant. Though the appellant has suo moto disallowed salary expenses of various employees, it cannot be denied that various administrative expenses must have been incurred in managing the investment and earning dividend income. Accordingly, the Assessing Officer was correct in applying Rule 80(2)(iii) and disallowing 0.5% of the average value of investment of Rs. 1,60,96,045/- for computing disallowance u/s 14A of the Act.

3.4 As regard the reliance placed by the appellant on the decision of Rei Agro Ltd. [2013] 35 taxmann.com 404 (Kolkata - Trib.) in holding that only those investments on which dividend has been earned by the appellant should have been considered for computing 0.5% of Average value of investments and not all investments on which no dividend has been earned during the relevant financial year, the same is misplaced in view of the recent CBDT Circular No.5 dated 11- 02-2014 where in it has been clarified that disallowance u/s 14A in respect of expenses is required to be made eve if no exempt income is earned from investments during the year. Accordingly, disallowance made by the Assessing Officer stands confirmed. “

ITA Nos.1866 -1868,1870 & 1869/Kol/2014 Tata Global Beverages Limited A.Y.2006-07 to 2009-10

• In the assessment order, the Assessing Officer records that, in answer to the query posed by the Assessing Officer requiring it to produce calculation for disallowances, the assessee 'submitted that they have not incurred any expenditure for earning the dividend income.' Thereafter, the Assessing Officer records that it has considered the submissions of the assessee and found not to be acceptable. Thereafter, the Assessing Officer proceeded to deal with the said provisions of section 14A and rule 8D and observed that making of investment, maintaining or continuing investment and time of exit from investment are well informed and well coordinated management decisions that, in relation to earning of income, are embedded in indirect expenses. It is then stated that, the provisions of sub-section (2) of section 14A and rule 8D of the rules are in operation and therefore, will strictly be adhered to by the assessee. Thereafter, discussing section 14A(I) read with rule 80 and referring to the decision of the Bombay High Court in Godrej & Boyce Mfg. Co. Ltd. v. CIT [2010] 328 ITR 81/194 Taxman 203, the Assessing Officer simply stated that he was satisfied that the assessee had incurred expenses to manage its investments which may yield exempt income, and assessee grossly failed to calculate such expenses in a reasonable manner to ascertain the true and correct picture of its income and expenses.

• It is viewed that the above observations of the Assessing Officer in the assessment order are of a broad general nature not with particular reference to the facts of the case on hand.

• There being concurrent findings of both the Commissioner (Appeals) as well as the Tribunal on this aspect is not agreeable. The Commissioner (Appeals) disallowed the exempt expenses by merely repeating what the Assessing Officer had stated about the cost that is built into so called 'passive' investments and simply recorded that the Assessing Officer was bound to rule 8D and, therefore, ITA Nos.1866 -1868,1870 & 1869/Kol/2014 Tata Global Beverages Limited A.Y.2006-07 to 2009-10

was justified in determining administrative costs at 0.5 per cent. Here again, the Commissioner (Appeals) failed to note that without the mandatory requirement under section 14A and rule 8D of the rules, of satisfaction being recorded being met, the question of applying rule 8D(1) did not arise.

• The Tribunal in its order recorded the submission of the assessee that the Assessing Officer did not record any satisfaction about the assessee not properly offering expenditure incurred in relation to the exempt income at Rs. 3 lakhs. The Tribunal reproduced the contents of the assessment order which contains general observations regarding earning of exempt income. This cannot be accepted as a recording by the Assessing Officer of satisfaction regarding the claim of the assessee after examining its accounts. Again, the Tribunal in its order simply reproduced the assessment order where, again, no reasons have been provided but only a conclusion has been reached that the Assessing Officer was satisfied that the assessee had incurred expenses to manage its investments which may yield exempt income. and assessee grossly failed to calculate such expenses in a reasonable manner to ascertain the true and correct picture of its income and expenses.

• Consequently, on the aspect of administrative expenses being disallowed, since there was a failure by the Assessing Officer to comply with the mandatory requirement of section 14A(2) read with rule 8D( 1 )(a) of the rules and record his satisfaction as required there under, the question of applying rule 8D(2)(iii) of the rules did not arise.

investments are strategic investments in group companies for the purpose of expansion of the business and the assessee does not trade in these investments with the purpose of earning capital gains or dividend. The assessee has also explained that considering that the some managerial time has been spent on portfolio related work, a sum of Rs.19,82,000/- was offered as expenses incurred in earning exempt dividend income. These submissions of the assessee have neither been dealt with by the revenue authorities in our view, found to be not correct. In these circumstance, we are of the view that the disallowance made by the AO and confirmed by the CIT(A) cannot be sustained. The same is directed to be deleted and ground of appeal are allowed. 50. In the result ITA No.1869/Kol/2014 is allowed. 51. In the result, ITA No.1866 & 1867/Kol/2014 are partly allowed. While ITA No.1868 & 1870/Kol/2014 are allowed. ITA No.1869/Kol/2014 is allowed. Order pronounced in the open Court on 13.12.2017.

Sd/- Sd/- [Dr.Arjun Lal Saini] [ N.V.Vasudevan ] Accountant Member Judicial Member Dated : 13.12.2017. [RG Sr.PS] Copy of the order forwarded to: 1.Tata Global Beverages Ltd., 1, Bishop Lefroy Road, Kolkata-700029. 2.A.C.I.T., Circle-4, Kolkata../Addl. C.I.T., Circle-4/D.C.I.T., Circle-4, Kolkata. 3. CIT(A)-IV, Kolkata. 4. CIT-II, Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata. True Copy By order,

Senior Private Secretary Head of Office/D.D.O., ITAT, Kolkata Benches ITA Nos.1866 -1868,1870 & 1869/Kol/2014 Tata Global Beverages Limited A.Y.2006-07 to 2009-10

ITA Nos.1866 -1868,1870 & 1869/Kol/2014 Tata Global Beverages Limited A.Y.2006-07 to 2009-10