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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 16TH DAY OF SEPTEMBER 2020
PRESENT
THE HON’BLE MR. JUSTICE ALOK ARADHE
AND
THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD
I.T.A. NO.385 OF 2012 BETWEEN:
THE COMMISSIONER OF INCOME TAX
C.R. BUILDING, QUEENS ROAD
BANGALORE.
THE ASSISTANT COMMISSIONER OF INCOME TAX
CIRCLE-11(4), C.R. BUILDING
QUEENS ROAD, BANGALORE. ... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,)
AND:
M/S. INFOSYS TECHNOLOGIES LTD., PLOT NOS.44 & 97A, 3RD CROSS P.O. ELECTRONIC CITY HOSUR ROAD, BANGALORE-560100. ... RESPONDENT (BY SRI. T. SURYANARAYANA, ADV.) - - -
THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 08.06.2012 PASSED IN ITA NO.96/BANG/2011 FOR THE ASSESSMENT YEAR 2006-07, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO: (I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN.
(I) ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BANGALORE IN ITA NO.96/BANG/2011 DATED 08-06-2012 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-11(4), BANGALORE.
THIS ITA COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING:
JUDGMENT
This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2006-07, whereas. This appeal was admitted by a bench of this Court vide order dated 28.02.2013, on the following substantial questions of law: (i) Whether the appellate authorities were correct in holding that the expenses incurred towards visa charges and others are not liable for fringe benefit tax as the same was legitimate business expenditure, when the provisions of Section 115WB of the Act contemplates levy of surcharge in
respect of expenditure incurred towards employees during course of business and recorded a perverse finding?
(ii) Whether the appellate authorities were correct in reversing the finding of the Assessing Officer by bringing to fringe benefit tax the expenditure incurred towards visa charges and others as per Section 115WB(2)(F) & 115WB(2)(q) of the Act?
Facts leading to filing of the appeal briefly stated are that the assessee is engaged in the business of software development. The assessee filed the return of fringe benefits on 29.11.2006 for Assessment Year 2005-06 and the value of fringe benefits was shown to be Rs.33,42,28,988/-. The return was processed under Section 115WE(1) and notice was issued to the assessee. The return of assessee was selected for scrutiny. The Assessing
Officer, by an order dated 31.12.2008, made an addition of Rs.3,82,55,579/- towards value of fringe benefits in respect of visa charges and others and determined assessable fringe benefit at Rs.46,11,72,389/- and completed the assessment. The assessee filed an appeal before the Commissioner of Income Tax (Appeals), who by an order dated 19.11.2010, inter alia, held that expenditure incurred by the assessee on visa charges and others do not render any benefit not to speak of any fringe benefit to the employees. It was further held that expenditure has been incurred in one row for each employee and the sale cannot be grouped under “tour and travel”. The expenses were incurred by the assessee under the head visa charges and others to make the employees eligible to undertake an entry to foreign country and stay at work place in that country. Thus, the expenditure has been incurred for the purposes of business and the same is
not liable to fringe benefit tax. In the result, the appeal preferred by the assessee was allowed. The revenue filed an appeal before the Income Tax Appellate Tribunal. The Tribunal, by an order dated 08.06.2012, dismissed the appeal. In the aforesaid factual background, this appeal has been filed.
Learned counsel for the revenue, while referring circular No.8/2005 dated 29.08.2005, submitted that object of levy of fringe benefit tax is tax on expenditure and the value of fringe benefit is determined by a presumptive method. It is also submitted that the charge under Section 115WB(2) does not refer to benefit and wherever the exclusion is intended, the same is expressly provided. It is also argued that the finding recorded by the Tribunal that visa charges do not give any personal benefit to the employee and therefore, would not constitute fringe benefit is incorrect. It is also contended that sub- Section(1) and sub-Section (2) of Section 115WA
have to be read separately and sub-Section (2) expands the scope of sub-Section (1). In support of aforesaid submissions, reliance has been placed on decision of the Supreme Court in ‘R & B FALCON (A) PTY. LTD. Vs. COMMISSIONER OF INCOME- TAX’ (2008) 301 ITR 309 (SC) and the decision of the Gujarat High Court in ‘GUJARAT CHAMBER OF COMMERCE & INDUSTRY Vs. UNION OF INDIA’ (2017) 395 ITR 457 (GUJARAT).
On the other hand, learned counsel for the assessee submitted that the fringe benefit tax was introduced in the year 2006 and the same was withdrawn in 2010. It is further submitted that sub- Section (1) of Section 115WB has to be read along with sub-Section (2). While referring to the speech of the Finance Minister, learned counsel for the assessee submitted that the object of introduction of fringe benefit tax was in a case where the benefits are usually enjoyed collectively by the employees and
cannot to be attributed to individual employees. The memorandum with regard to the introduction of fringe benefit tax has also been brought to our notice and it is pointed out that the fringe benefit tax would be payable in a case where the expenditure incurred by the employer is ostensibly for the purpose of business but includes in part a major benefit of personal nature. It is further submitted that concurrent findings of fact have been recorded in favour of the assessee by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal, which do not suffer from any infirmity. It is also submitted that recourse can be had to the speech of the Finance Minister in the Parliament to understand the import of the provisions of the Act. In support of aforesaid submission reliance has been placed on the decision of the Supreme Court in ‘K.P.VARGHESE Vs. INCOME-TAX OFFICER’ (1981) 7 TAXMAN 13 (SC).
By way of rejoinder, learned counsel for the revenue submitted that the revenue in the instant case has invoked Section 115WB(2) of the Act and sub-Section (1) and (2) operate on different whims. It is further submitted that if there is an ambiguity in the provision then the speech of the Finance Minister in the Parliament can be taken as an external aid and since, there is no ambiguity in the provision, the speech of the Finance Minister is of no relevance in the facts of the case.
We have considered the submissions made by learned counsel for the parties and have perused the record. The object of levy of fringe benefit tax is discernable from the memorandum, which provides that rationale for levying a fringe benefit tax on the employer lies in inherent difficulty in isolating the personal element where there is collective enjoyment of such benefits and attributing the same directly to
the employee, this is so especially where the expenditure incurred by the employer is extensively for the purposes of business but includes in part a major benefit of personal nature. The relevant extract of Section 115WB(1), 115WB(2)(F) and (Q) and Section 115WB(3) read as under: 115WB. (1) For the purposes of this Chapter, “fringe benefits” means any consideration for employment provided by way of— (a) any privilege, service, facility or amenity, directly or indirectly, provided by an employer, whether by way of reimbursement or otherwise, to his employees (including former employee or employees); (b) any free or concessional ticket provided by the employer for private journeys of his employees or their family members; (c) any contribution by the employer to an approved superannuation fund for employees ; and
(d) any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer free of cost or at concessional rate to his employees (including former employee or employees). Explanation.—For the purposes of this clause,— (i) “specified security” means the securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and, where employees’ stock option has been granted under any plan or scheme therefor, includes the securities offered under such plan or scheme; (ii) “sweat equity shares” means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.
(2) The fringe benefits shall be deemed to have been provided by the
employer to his employees, if the employer has, in the course of his business or profession (including any activity whether or not such activity is carried on with the object of deriving income, profits or gains) incurred any expense on, or made any payment for, the following purposes, namely:— (A) xxxxx (B) xxxxx (C) xxxxx (D) xxxxx (E) xxxxx (F) conveyance; (Q) tour and travel (including foreign travel).
(3) 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 subsidised 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.
From perusal of the aforesaid provisions, it is evident that Section 115WB has two parts. Section 115WB(1) deals with direct fringe benefits provided by the employer to his employees, whereas, sub-Section
(2) deals with a situation where employer has incurred any expenses or has made any payment for the purposes mentioned in Section 115WB(2)(A) to 115WB(2)(P), the same can be termed as fringe benefits deemed to have been provided by the employer to the employees. The Central Board of Direct Taxes (CBDT) has also issued a Circular No.8/2005 dated 29.08.2005 with regard to the expenses incurred by the assessee for the services / activities referred to in Clause (A) to (P) of sub-Section (2) of Section 115WB.
In the instant case, the assessee has incurred expenditure on visa charges. The aforesaid expenditure does not render any benefit to the employees in the
guise of foreign travel or tour. The visa’s and other related expenditure had been incurred by the employer to send its employees to the work place abroad for the purposes of business for scientific tenures and not to move around the country for sight seeing. The expenditure under the head ‘tours and travels’ is normally recurring in nature but, in the instant case, the employees of the assessee had not under taken frequent tours and travels. The expenses have been incurred for visa charges to make the employees eligible to undertake an entry to foreign country and stay at the work place in that country. Therefore, the expenditure has been incurred for business necessity and not for providing any domestic benefit or amenity to the employee. The payment for visa and other charges are statutory obligations and fringe benefit tax cannot be levied. It is also pertinent to note that the aforesaid charges have not been paid as consideration for payment and therefore, the same cannot be subjected
to levy of fringe benefit tax. The concurrent findings of facts have been recorded by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal on the basis of meticulous appreciation of evidence on record, the aforesaid findings cannot be said to be perverse.
In view of preceding analysis, the substantial questions of law are answered in the negative and in favour of the assessee.
In the result, we do not find any merit in this appeal. The same fails and is hereby dismissed
Sd/- JUDGE
Sd/- JUDGE ss