PUNJAB & SIND BANK,,NEW DELHI vs. ADDLL. CIT, NEW DELHI

Common issues are involved in these appeals which were heard together so these are being disposed off by consolidated order for the sake of convenience and brevity. At the first instance, we will deal with the appeal of Punjab National Bank in for the assessment year 2006-07. Only effective ground raised

From the above ground, it is clear that the only grievance of the assessee relates to the contribution to the pension fund which was considered by the AO as a fringe benefit provided by the assessee to its employees in terms of section 115WB(1) of the Income-tax Act, 1961 (hereinafter referred to as the “Act” in short).

Facts of the case in brief are that the assessee e-filed its return of fringe benefit along with the return of income u/s 139(1) / 115WB(1) of the Act on 28.11.2006 declaring total fringe benefit at Rs. 30,58,38,466/-. The assessee although revised the return of income on 28.02.2007 but did not revise the return of fringe benefit. The AO issued notice u/s 115WE(2) to the assessee on 27.09.2007 and ask to furnish details. In response the assessee furnished the tax audit report giving month wise details of its contribution towards pension received by the trust as per following details :- Month Amt. debited to Banks contribution Banks contribution reveue code no. 10428 recd. By trust from recd.ByTrustwithin 4 1826, 4254/Del/2011, Chief Manager of Punjab National Bank 1363/Del/2011, 6379/Del/12 & 2981/Del/13 Punjab and Sind Bank Regions/divisions prescribed time APRIL’05 23042238.26 23479593.64 23042238.26 MAY’05 23620830.58 23905533.59 23620830.58 JUNE’05 23647586.62 24006906.71 23647586.62 JULY’05 30682150.73 35766611.73 30682150.73 AUG’05 34209192.17 36797197.73 34209192.17 SEPT’05 35298849.27 37492173.16 35298849.27 OCT’05 33600042.27 36779212.67 33600042.27 NOV’05 37157773.72 37297586.33 37157773.72 DEC’05 37282375.08 37822542.80 37282375.08 JAN’06 35987241.43 37716772.17 35987241.43 FEB’06 35903843.77 36897560.17 35903843.77 MARCH’06 43460767.59 36303638.83 43460767.59 Addl.Contb. 4310000000.00 Madeby bank during the year YEAR 393892891.49 404265329.53 4703892891.49

The claim of the assessee was that the contributions to approved Pension Fund of Rs. 431 crore were not liable to fringe benefit tax 5 1826, 4254/Del/2011, Chief Manager of Punjab National Bank 1363/Del/2011, 6379/Del/12 & 2981/Del/13 Punjab and Sind Bank (FBT) and accordingly no provision for FBT on such contribution was considered necessary. The AO also found that the assessee had not paid FBT u/s 115 WB(1)(C) on any contribution by the employer to any approved superannuation fund for employees.

The AO asked the assessee to explain the nature and reason or not paying FBT on the payment related to contribution to approved pension fund of Rs. 470.39 crores. The assessee submitted to the AO as under :

The AO after considering the submissions of the assessee observed that the FBT applies to expenses incurred or the payment made for the purpose of business. He further observed that from the scheme of the FBT and CBDT’s Circular, the following possibilities can arise :- a. Disallowance as well as no FBT b. Disallowance and FBT-both c. Disallowance but no FBT d. No. disallowance and no FBT 8. The AO elaborated the aforesaid four facilities and observed that if an expense is covered by clauses (A) to (Q) of section 115WB(2) is disallowed as personal expenses u/s 37(1) of the Act then FBT can not be imposed on it and if the expense is actually incurred then FBT can be imposed and there is nothing in law which deems that bogus expenses booked are expenses liable to FBT. Therefore, bogus expenses have to be disallowed and there can be no FBT on those expenses. The AO referred to CBDT’s Circular no. 8/2005 dated 29.08.2005 which states that no FBT can be charged on the capital expenditure resulting in acquisition of an asset eligible for depreciation and in case capital expenditure is not resulting in 8 1826, 4254/Del/2011, Chief Manager of Punjab National Bank 1363/Del/2011, 6379/Del/12 & 2981/Del/13 Punjab and Sind Bank acquisition of assets eligible for depreciation u/s 32 of the Act the same will be disallowed u/s 37(1) of the Act and FBT will also be payable thereon. He also observed that in case of voilation of section 40A/ 43B/36(1) (iv)/(v), there will be disallowance but no FBT. He also observed that if the various expenses excluded from the purview of FBT are compliant with the relevant provisions for allowance and disallowance, these will be cases of no disallowance and no FBT. According to him the assessee’s case fit into aforesaid situation (b) i.e. disallowance and FBT both. The AO held that the contribution to approve pension fund by the assessee was liable for tax under the provisions of fringe benefit tax (FBT). Accordingly the amount of Rs. 471,42,65,330/- was added to the value of fringe benefit of the assessee.

Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted as under :- “1. Section 19 of Banking Companies (Acquisition and Transfer of undertaking) Act, 1980 gives power to board of the bank to make regulations on various matters including on the following : “ the establishment and maintenance of superannuation, pension, provident or other funds for the benefit of officers or other employees of the corresponding new bank or of the dependents of such officers or other employees and the granting of superannuation allowances, annuities and pensions payable out of such funds.” The aforesaid powers of the board are exercisable in the following manner: “ The Board of Directors of a corresponding new bank may, after consultation with Reserve Bank of India and with the previous sanction of the Central 9 1826, 4254/Del/2011, Chief Manager of Punjab National Bank 1363/Del/2011, 6379/Del/12 & 2981/Del/13 Punjab and Sind Bank Government, [by notification in the official gazette] make regulations, not inconsistent with the provisions of this Act or any scheme made thereunder, to provide for all matters for which provision is expedient for the purpose of giving effect to the provisions fo this Act.” Relevant extracts of section 19 of Banking Companies (Acquisition and Transfer of undertaking) Act, 1980 is enclosed [Refer paper book page no. 1 to 3] a) Bank, accordingly, formed a Pension Fund namely PNB (Employees) Pension fund trust based on its “ Pension Regulations 1995” . The same was duly notified by the Central Government vide its Notification dated 29.09.1995 [Refer paper book page no. 4 to 5] It may be noticed that the notification is being issued by the Central Government and applies to all public sector banks. The Public Sector Banks are therefore bound to comply with the above notification. Further, at the time of origin of this notification the person who participated are no less than the Central Government, RBI, and also the Apex Body of the Bank namely Indian Bank Association who have come to above understanding resulting in the above notification. Therefore, it has statutory value based on the notification issued referred above on 29.09.1995 by the Central Government. It is reiterated that it is not a non-statutory payment. It is a statutory payment backed by a notification by Central Government. b) The above pension fund is an approved superannuation fund created in consultation with RBI and previous sanction of the Central Government. The said fund was approved under Rule 2(1) of Part-B of the Fourth Schedule [Refer paper book page no. 42] to the Income Tax Act, 1961. c) The above Pension Fund set up by the Bank is not voluntary in the sense that while opting for the Fund may be voluntarily; the employee has to elect either the Provident Fund or the Pension Fund. Thus, there is a compulsion on the employee to accept one of the two funds. The expression “voluntarily used by the Finance Minsiter in his speech obviously refers to a situation where the employer and employee contractually agreed to establish a fund even though it is not required by law and is either over and above the statutory fund which is not a case with the Pension Fund of our bank as it is backed by notification by the Central Government.

The assessee also referred to the extract of the Budget Speech of the Finance Minister relating to the Fringe Benefit Tax introduced in the Finance Bill, 2005, which has been reproduced at page no. 5 and 6 of the impugned order for the cost of repetition, the same is not reproduced herein. It was further stated that contribution to pension fund of the bank was not voluntary but statutory and it was not for high-end employees / high-end managers but was applicable even for peon and that the assessee bank made contribution to pension fund @ 10% per month of the pay of employees who opted for pension fund made matching contribution @ 10% which was credited to their Pension Fund Accoun. However, shortfall, if any, on actuary valuation was being met out by the Bank. It was further stated that the objective of the fringe benefit tax was to tax those benefits which 11 1826, 4254/Del/2011, Chief Manager of Punjab National Bank 1363/Del/2011, 6379/Del/12 & 2981/Del/13 Punjab and Sind Bank were not taxed in the hands of employees as perquisites. However, if contribution to Pension Fund was taxed as fringe benefit and also as pension when the employee retires, that results in double taxation which defeats the purpose of the legislation. It was contended that there was no comparison of pension fund of the nationalised bank like the assessee with any other body corporate as compared by the AO. It was accordingly submitted that the contribution to Pension Fund by the assessee being statutory and in lieu of Provident Fund was subjected to same provisions of law as applicable to provident fund and since the contribution of Provident Fund was not subject to fringe benefit tax, the contribution to pension fund too could not be subjected to fringe benefit tax.

The ld. CIT(A), however, did not find merit in the submissions of the assessee and upheld the view taken by the AO by observing in para 4.2 of the impugned order as under :- “ 4.2 I have carefully considered the facts of the case, order of the AO and submissions made by the ld. AR. The only issue of the dispute in this appeal is regarding the taxability of the fringe benefits in respect of contribution to the superannuation fund/pension fund by the appellant. The AO is of the view that there is no exception available to the appellant as far as contribution made by it to the superannuation fund/pension fund are concerned because there is no ambiguity in the provisions of section115WB(1)(c), wherein any contribution by way of employer to an approved superannuation fund (for employees) is taxable as fringe benefits. The ld. AR in his submissions and arguments has primarily emphasized that in the finance minister’s speech, at the time of bringing fringe benefits tax to the statute, it was intended that FBT applies where benefits are passed on by the employer to their high end employees, whereas the appellant bank has made contribution to 12 1826, 4254/Del/2011, Chief Manager of Punjab National Bank 1363/Del/2011, 6379/Del/12 & 2981/Del/13 Punjab and Sind Bank all the employees. It is also emphasized by the ld. AR that in the case of the appellant contributions in the pension fund have been made in lieu of PF. I do not find any force in the argumetns of the Ld. AR and inclined to agree with the finding of the AO because when the provisions of the statute are straight, then it is settled principle of law that in such a scenario different interpretation in the lgiht of circumstantial facts and evidences are not requried. It is noted that the provisions of section 115WB(1)(c) clearly covers the contributions made to superannuation fund. Therefore, it is held that the AO has correctly made the addition on account of contributions made in pension fund by the appellant. Accoridngly, the addition made by him on this account is justified, hence, the same is confirmed.” Now the assessee is in appeal.

We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that the assessee is a schedule bank governed by the provisions of the Banking Regulation Act, 1949 and made the contribution towards Pension Funds of the employees. The said contribution by the assessee as an employer was brought to tax as eligible fringe benefit tax value during the year by the AO. The contention of the assessee before the ld. CIT(A) was that the contribution to Pension Fund was made in lieu of Provident Fund, it was statutory liability and since the contribution of provident fund was not considered for valuation of Fringe Benefit Tax, the contribution to pension fund also did not attract the provisions of fringe benefit tax. The said contention of the assessee was not accepted by the ld. CIT(A) who upheld the action of the AO. To resolve of present controversy it is relevant to discuss the provisions contained in section 115WB(1)(c) of the Act which reads as under :- “115WB (1) – For the purpose of this Chapter “fringe benefits” means any consideration for employment provided by way of – (a) – (b) – (c) Any contribution by the employer to an approved superannuation fund for employees.”

From the aforesaid series of amendments and clarification it can be said that any amount which is contributed to an individual account of an employee to the extent of Rs. One lakh is excluded from the purview of Fringe Benefit Tax from assessment year 2007-08.

On a similar issue, the coordinate bench of the ITAT Hyderabad vide order dated 16.7.2014, in the case of Andra Bank Hyderabad vs. DCIT Circle 1 (1) Hyderabad (Supra) referred to the decision of the coordinate bench dated 27.11.2009 in the case of Rajasthan Rajya Vidyut Prasaran Nigam Ltd., which analysed this issue and held as under :- “The above principle of interpretation laid down in various judgments of Hon’ble Supreme Court when read in context 17 1826, 4254/Del/2011, Chief Manager of Punjab National Bank 1363/Del/2011, 6379/Del/12 & 2981/Del/13 Punjab and Sind Bank with the purpose and intention for which the amendment was made u/s 115WB(1)(c) leaves no scope of debate that the said amendment was to remedy the unintended consequences and therefore, it is required to be considered as retrospective in operation so that a reasonable interpretation can be given to the scheme of levy of fringe benefit tax on contribution to superannuation fund as a whole. We, therefore, hold that the contribution to superannuation fund in present case being less than Rs.1.00 lac per employee, is not liable for fringe benefit tax. In the result, this ground of assessee is allowed.”

From the above said discussion, it is clear that the provisions u/s 115WB(1)(c) are held to be applicable for the assessment year under consideration i.e. the assessment year 2006-07. It is also not in dispute that “Bank Employees Pension Schemes” was introduced in lieu of “contributory provident fund” at the option of employees and accordingly a settlement was signed between Indian Banks Associations represented by 52 member banks which included the assessee bank and representatives of workmen unions introducing a pension scheme in the Banking Industry and in terms of the settlement, an employee in service as on 1.11.1993 was to exercise his option to switch over to the “Pension Scheme” from the “Provident Fund Scheme”, upon which the amount of CPF ( banks’ contribution) outstanding in his Provident Fund account would be transferred to the Pension Fund of the bank. Thus, the “Pension Scheme” introduced by banks was in lieu of the statutory “Provident Fund Scheme”. The aforesaid settlement dated 1.11.1993 was later on made into scheme 18 1826, 4254/Del/2011, Chief Manager of Punjab National Bank 1363/Del/2011, 6379/Del/12 & 2981/Del/13 Punjab and Sind Bank and notified on 29th September, 1995 as “Bank Employee’s Pension Regulations”, which is a subordinate regulation having been framed by the Banks Boards under sectiuon 19(1) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980. The Pension Fund Scheme, therefore, has a statutory character and after obtaining the necessary ‘no objection’ from the Income-tax Authorities, the banks which were parties to the settlement dated 29.1.1993 had set up pension funds and the contribution made into such funds are as laid down in the scheme and constitutes among other things the following : “ (i)the contribution by the bank at the rate of 10% per month on the pay of the employee, which contribution was hitherto being made to the PF account. (ii) The accumulated contributions of the bank to the Provident Fund and interestaccrued thereon up to the date of such transfer in respect of the employee ; (iii) Additional annual contribution to the Fund as required to secure payment of pensionary benefits to the members of the Fund, based on actuarial investigation of the Fund as at 31st March of every financial year.”

In the present case, nothing is brought on record to substantiate that the contribution in the Pension Fund of the assessee bank was over and above the contributions to gratuity and provident fund. Moreover, in the absence of the Pension Scheme, the assessee would have continued to contribute the stipulate amount to the Provident Fund account of the employees and such stipulated contributions 19 1826, 4254/Del/2011, Chief Manager of Punjab National Bank 1363/Del/2011, 6379/Del/12 & 2981/Del/13 Punjab and Sind Bank would not have attracted fringe benefit tax. In our opinion, the contributions made by the assessee bank to the “Pension Fund Scheme” is only to secure pension payments which is its statutory obligation. Therefore, the assessee bank has established a superannuation Scheme for the purpose of providing pension to its eligible employees. In the present case, the assessee bank made a contribution of Rs. 471.42 crores to the Pension Fund for all its employees who were governed by the “Pension Fund Scheme” taken together based on the acturial valuation provided by the Actuarial Valuer appointed by the bank.

An identical issue has been adjudicated by the ITAT Hyderabad Benches A, Hyderabad in ITA no. 601/Hyderabad/2012 for the assessment year 2006-07 in the case of Andhra Bank Hyderabad vs. DCIT Circle 1 (1) Hyderabad and the relevant findings have been given in para 11.1 to 13 of the order dated 16th July 2014 which read as under :-

In the case of Royal Bank of Scotland Inre, 45 Taxman.com 283, the Authority for Advanced Rulings has analysed the defined benefit scheme and held that in the defined benefit scheme employer’s contribution to the superannuation fund assures only future benefit to employees and they did not get any vested right at the time of making contribution to the fund. In the context of analyzing the tax deducted at source provisions, it was held that such contribution need not be treated as chargeable perquisite in the hands of employee until they are entitled to receive it. The Hon’ble AAR followed the principles laid down by Hon’ble Delhi Court in the case of Yoshio Kubo vs. CIT (2013) 36 taxmann.com 1 (Del.) wherein it was held out that when an amount does not result in a direct present benefit to the employee who does not enjoy it but assures him a future benefit in the event of contingency, the payment made by the employer does not vest in the employee. In view of the above principles laid down by the Hon’ble Delhi Court as well as the advise given by Authority for Advanced Rulings which, in turn, followed the Hon’ble Supreme Court decision in the case of CIT vs. L.W. Russel (1964) 53 ITR 91 (SC), the amount paid during the year cannot be considered as a contribution to superannuation fund as contemplated under the provisions of section 115WB(1)(c). 12.1. In view of the above, since the amount is not paid to the benefit of any individual employee, the lump sum contribution made under the defined benefit scheme, in our opinion, does not attract provisions of 115WB(1)(c). As per the definition of ‘contribution’, no individual employee had any benefit earmarked, the payment cannot be considered as covered by the provisions of 115WB(1)(c).

As briefly stated earlier, the Ld. CIT(A) followed the Coordinate Bench decision in giving benefit of amendment brought in later year to the year under consideration. It was submitted that the order of the Ld. CIT(A) could not be implemented as benefit of employee could not be ascertained in view of the scheme of the benefit fund and accordingly, even though average contribution to each of the employees covered by the scheme is less than Rs. 1 lakh, A.O./assessee could not furnish any information about individual employee’s benefit. However, this issue becomes academic in nature as we have already held that contribution made to the fund under this benefit scheme cannot be considered as the amount to be considered under the provisions of section 115WB(1)(c) for the purpose of FBT. In view of this, assessee’s grounds are allowed.”

In the appeals relating to Punjab and Sind Bank, New Delhi in ITA Nos. 3869/Del/2015, 1363/Del/2011, 6379/Del/2012 and 2981/Del/2013 for the assessment years 2006-07, 2007-08, 2008-09, 2009-10 respectively, the issue involved is identical as was involved in the case of Punjab National Bank in ITA no. 4493/Del/2009 for the assessment year 2006-07 (Supra), therefore, the findings given in former part of this order shall apply with the same force.

One another issue relating to charging of interest u/s 115WJ and 234 D has been raised in the appeals of Punjab and Sind Bank, New Delhi. As regards to this issue, it was a common contention of both the parties that it is consequential in nature. We order accordingly.

In the result, appeals of the assessees are allowed.