MERCURY CAR RENTALS PVT LTD,,KOLKATA vs. JCIT, R-4, KOLKATA, KOLKATA

This is an appeal by the Assessee against the order dated 27.04.2016 of CIT(A)-2, Kolkata relating to A.Y.2007-08.

The Assessee is a company. It is engaged in the business of transportation and car rental. The assessee filed its return of Fringe Benefit for the purpose of Fringe Benefit Tax on 30.10.2007 showing taxable fringe benefit of Rs.52,94,474/-. The return was processed u/s 115WE(1) of the Income Tax Act, 1961 (Act). Subsequently a notice u/s 115WE(2) r.w.s. 142(1) of the Act was issued calling for certain details and clarification.

In the course of assessment proceedings the assessee vide its letter dated 31.08.2009 brought to the notice of the AO that while computing the value of chargeable expenditure for fringe benefits the assessee had considered the reimbursement of medical expenses amounting to Rs.34,24,941/- as chargeable expenditure for calculation of fringe benefit tax. The assessee claimed that reimbursement of medical expenses will not form part of expenditure for providing Mercury Car Rentals Pvt. Ltd. A.Y. 2007-08 2 fringe benefits because the same constitutes perquisite in the hands of the employees and tax is payable by the employee on such perquisite subject to basic deduction by way of exemption allowed under the Act. For the purpose of sub-section (1) of section 115WB the fringe benefit will not include perquisites in respect of which tax is paid or payable by the employee. The assessee therefore claimed that the return of fringe benefit filed by it should be treated so as not to include reimbursement of medical expenses.

The assessee also pointed out that while computing the value of chargeable expenditure for fringe benefits under the head Employees Welfare it had considered uniform expenses amounting to Rs.70,85,767/- as chargeable expenditure for calculation of fringe benefit tax. The assessee pointed out that it was primarily engaged in providing quality car rental services to the guests of the Oberoi and the Trident hotels in India. The assessee joined hands with Avis which is a world renowned car rental company. The company in compliance with the world class standards in car rentals as a matter of policy has to ensure that the overall appearance of the chauffeurs has to be good. Towards this objective the assessee provided uniforms to all the chauffeurs. The uniforms have to be clean and ironed with proper fitting. The assessee thus submitted that there is no element of welfare involved as no benefit flows to the staff/drivers by wearing such uniform. Therefore the uniform expenses should not be considered for the purpose of calculating chargeable expenditure for fringe benefit tax.

The above submissions of the assessee were not considered by the AO. The AO in the impugned order did not take cognisance of the revised computation of fringe benefit tax as made by the assessee in its submissions dated 31.08.2009 before the AO. In the order of assessment passed u/s 115WE(3) dated 31.12.2009 the AO brought to tax the value of fringe benefit at Rs.52,92,474/- as declared in the return of fringe benefit tax filed by the assesee.

Before the CIT(A), the assessee pointed out the fact that the AO while completing the assessment had not taken note of the revised computation of value of fringe benefit filed before the AO in the course of assessment proceedings. The assessee reiterated its contention that reimbursement of medical expenses to the staff and uniform expenditure to staff (car provided) should be excluded from the gross chargeable expenditure for the purpose of determination of value of fringe benefits.

CIT(A) did not agree with the submissions so made by the assessee. According to CIT(A) since the assessee on its own has included the aforesaid two items of the expenditure in the return of fringe benefit tax and paid tax thereon the assessee cannot take a different stand. CIT(A) accordingly confirmed the action of the AO.

Aggrieved by the order of CIT(A) the assessee has preferred the present appeal before the Tribunal.

The ld. Counsel for the assessee reiterated the submissions as were made before the AO. The ld. Counsel further brought to or notice that in the state of West Bengal, West Bengal Motor Vehicles Rule 1989 Rule 20 specifically provides that the licensing authority may require that every driver of a transport vehicle shall wear uniform while driving the motor car. Rule 24(2) of the said rules further provides as follows :- “(2) A driver of a meterless taxi engaged for carrying tourists shall- (a) wear special uniform consisting of a trousers and a coat which shall be of white colour in summer and of blue colour in winter; (b) be neat and tidy and shall pay special attention to his personal cleanliness; (c) not indulge in any touting and shall not accept any commission or favour from shops, hotels or restaurants; (d) not act as a tourist guide; and (e) hold such special pass as may be specified by the State Transport Authority in this behalf and issued by the licensing authority.”

The ld. Counsel further brought to our notice the CBDT Circular No.8 of 2005 dated 29.08.2005 which specifically provides that expenses incurred to comply with statutory obligation will not be considered as expenditure for the purpose of fringe benefit tax. The following is the relevant portion of the said Circular:- “ Whether FBT is payable on expenditure incurred on providing safety shoes or uniforms or equipments to the employees or for the purposes of reimbursement of washing charges? 74. Any expenditure incurred for meeting the employer’s statutory obligations under the Employment Standing Orders Act, 1948, fall within the scope of the exclusion in the Explanation to clause (E) of sub- section (2) of section 115WB. Therefore, expenditure incurred on providing safety shoes or uniform or equipment to the employees or incurred for the purposes of reimbursement of washing charges, is exempt from FBT to the extent such expenditure is incurred to meet such statutory obligation.”

On the question of expenditure of medical reimbursement not being part of expenditure of providing fringe benefits the ld. Counsel placed reliance on the decision of ITAT Bangalore in the case of DCIT vs Wipro Ltd. (2014) 46 ITR(Trib) 179 (Bangalore). In the aforesaid decision the Tribunal held that payments made by the employee to the private hospitals and subsequent reimbursement of such payments to the employees by the employer does not attract fringe benefit tax. The Tribunal held that such reimbursement are chargeable to tax in the hands of the individual employee subject to statutory exemptions, if any and therefore cannot be regarded as Fringe benefit.

With regard to the order of CIT(A) in holding that the assesse cannot go back on what is declared in the return of fringe benefit, the ld. Counsel placed reliance on the decision of the Hon’ble Calcutta High Court in the case of CIT vs M/s. Britannia Mercury Car Rentals Pvt. Ltd. A.Y. 2007-08 5 Industries Ltd in of 2013 dated 13.07.2017 in which the Hon’ble Calcutta High Court took a view that the decision of the Hon’ble Supreme Court in the case of Goetze India Ltd. 284 ITR 326 was applicable only to the power of the assessing authority consider a claim made otherwise by way of a revised return of income, but that does not limit the power of the appellate authorities to entertain a new claim. Similar decision rendered by the Hon’ble Madras High Court in the case of CIT Abhinita Foundation (P)Ltd 396 ITR 251 (Madras) and of the decision of the Hon’ble Bombay High Court in the case of CIT vs Pruthvi Brokers & Shareholders 349 ITR 336 (Bombay) were also cited by the ld. Counsel for the assessee before us. The ld. DR relied on the order of CIT(A).

We have heard the rival submissions. As far as the power of CIT(A) to entertain the revised computation of the value of fringe benefits filed by the assessee before the AO is concerned, the law is now well settled that the appellate authorities have the power to entertain a new claim by the assessee even in the absence of a revised return of income. The decision cited in this regard by the ld. Counsel for the assessee support his contention. In our view, the CIT(A) erred in not examining the claim of the assessee for the reason that the claim made by the assessee to exclude certain items of the expenditure from value of fringe benefit was contrary to the return of fringe benefit filed by the assessee. The tax liability cannot be determined on the basis of admission and has to be in the light of the relevant statutory provision. We therefore hold that the CIT(A) was not justified in examining the claim of the assessee in this regard. We therefore proceeded to examine the correctness or otherwise of the claim by the assessee in this regard.

It is not disputed by the revenue that reimbursement of medical expenses amounting to Rs.34,24,941/- was perquisite in the hands of the employees and tax is payable on the employee on such perquisite subject to basic deduction and exemption allowed under the Act. Under section 115WB(3) of the Act such expenditure cannot be part of fringe benefit provided by the employer to the employees. Therefore the Mercury Car Rentals Pvt. Ltd. A.Y. 2007-08 6 claim of the assessee to exclude the reimbursement expenses from the chargeable expenditure for calculation of fringe benefit tax has to be accepted. The decision of ITAT Bench in the case of DCIT vs Wipro Ltd (supra) supports the plea of the assessee in this regard.

As far as the plea of the assesee for excluding the expenditure of providing uniforms to the chauffeurs is concerned it is clear from the policy of the company and the nature of its business that these are necessary for the purpose of carrying on its business and cannot be regarded as any benefit or welfare facility provided to the employee by the employer. Besides the above the provision of West Bengal Motor Vehicles Rules 1989 cited by the ld. Counsel for the assessee before us mandates drivers of meterless taxis to wear special uniform in terms of section 115WB(2)(E)(i) of the Act, expenditure to fulfil statutory obligation cannot be considered as expenditure for employees welfare and consideed as fringe benefit. Besides the above the CBDT Circular referred to by the ld. Counsel for the assessee clearly provides that similar items of expenses cannot be considered for the purpose of arriving at the value of fringe benefit. We therefore agree with the submissions of the assessee that the aforesaid item of expenditure cannot be include as expenditure in providing the fringe benefit.

The claims made by the assessee for exclusion of both the items of expenditure are accepted and the AO is directed to exclude the aforesaid expenditure from the chargeable expenditure for calculation of fringe benefit for levying of fringe benefit tax. 17. In the result the appeal by the assessee is allowed. Order pronounced in the Court on 08.12.2017. Sd/- Sd/- [Dr.A.L.Saini] [ N.V.Vasudevan ] Accountant Member Judicial Member Dated : 08.12.2017.