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Income Tax Appellate Tribunal, BENCH “C”, KOLKATA
Before: Shri M.Balaganesh, AM & Shri S.S.Viswanethra Ravi, JM]
These appeals of the assessee arise out of the order of the Learned CITA in Appeal No. 139/CIT(A)-IV/2010-11 dated 15.11.2012 for the Asst Year 2008-09 and in Appeal No. 139/CIT(A)-IV/2011-12 dated 16.11.2012 for the Asst Year 2009-10 passed against the order of assessment framed by the Learned AO u/s 115WE(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’). As the issues involved are identical in nature, both the appeals are taken up together and disposed off by a common order for the sake of convenience.
2. Shri.Ajoy Kr.Gupta, FCA, the Learned AR argued on behalf of the assessee and Shri. Mrinal Kanti Biswas, JCIT, the Learned DR argued on behalf of the revenue.
The only issue to be decided in this issue is as to whether the assessee is entitled to avail the concessional rate of tax prescribed under Rule 8 of Income Tax Rules to determine the taxable value of fringe benefits.
The brief facts of this issue is that the assessee is engaged in the business of growing and manufacturing tea. The return of fringe benefits for the Asst Years 2008- 09 & 2009-10 was filed by the assessee declaring taxable value of fringe benefits in 2 McLeod Russel India Ltd. A.Yrs.2008-09& 2009-10 accordance with Rule 8 of Income Tax Rules. The assessee claimed that since for the purpose of income tax, only 40% of the profits alone shall be treated as the taxable income and 60% of profits shall be assessable under State Agricultural Tax in accordance with Rule 8 of Income Tax Rules. Accordingly, the assessee claimed that the same analogy should be made applicable for determining the taxable value of fringe benefits i.e only 40% of value of fringe benefits shall be taxable under section 115WC of the Act. However, the Learned AO did not accept to the contentions of the assessee and proceeded to determine the taxable value of fringe benefits @ 100% as against 40% declared in the return by the assessee. According to Learned AO, the fringe benefit tax shall be payable irrespective of the fact whether any income tax is payable by the assessee under the provisions of the Act as prescribed in section 115WA of the Act. On first appeal, the Learned CITA upheld the action of the Learned AO. Aggrieved, the assessee is in appeal before us.
The Learned AR argued that the taxable value of fringe benefits should be computed in accordance with Rule 8 of Income Tax Rules only as Fringe Benefit Tax is charged u/s 115WA of the Act which admittedly is part of the Income Tax Act, 1961. When the taxable income under the provisions of the Act are to be determined @ 40% of profits, the same analogy should equally be made applicable for determining the taxable value of fringe benefits. The Learned AR argued that the issue is covered by the decision of the Jurisdictional High Court in the case of Moran Tea Co. (I) Ltd vs CIT reported in (2014) 51 taxmann.com 520 (Calcutta) vide order dated 1.9.2014. In response to this, the Learned DR argued that the provisions of section 115WA of the Act makes it clear that the Fringe Benefit Tax (FBT) shall be payable by the assessee irrespective of the fact the assessee pays income under the provisions of the Act or not. Hence FBT operates as an independent code by itself.
We have heard the rival submissions and perused the materials available on record. At the outset, we are not in agreement with the arguments of the Learned DR that FBT is an independent code by itself and operates separately irrespective of the fact of income tax liability on the assessee under the normal provisions of the Act.
Section 115WA – Charge of Fringe Benefit Tax (1) In addition to the income tax charged under this Act, there shall be charged for every assessment year commencing on or after 1st day of April 2006 , additional income tax (in this Act referred to as fringe benefit tax) in respect of the fringe benefits provided or deemed to have been provided by an employer to his employees during the previous year at the rate of thirty percent on the value of such fringe benefits . (2) Notwithstanding that no income tax is payable by an employer on his total income computed in accordance with the provisions of the Act , the tax on fringe benefits shall be payable by such employer.
The above provisions make it very clear that Fringe Benefit Tax is also charged as per the provisions of Income Tax Act. Hence it is incorrect to argue that it would operate independently away from Income Tax Act read with rules thereon. It is pertinent to note that the legislature in its wisdom had not provided for the non obstante clause in the charging section 115WA of the Act to give an independent and overriding operation. The charging section 115WA of the Act only states that an assessee employer shall pay FBT whether or not the employer assessee pays income tax under normal provisions of the Act. The employer assessee may be exempt from payment of income tax due to allowance of various exemptions / deductions u/s 10 A / 10B / 10AA / 80IA etc of the Act thereby resulting in nil tax liability. However, that would not automatically exonerate the said employer assessee from making payment of FBT. This is what is intended by the provisions of section 115WA of the Act. Hence it can safely be concluded that the provisions of FBT fall within the ambit of Income Tax Act, 1961 read with Income Tax Rules, 1962 and hence does not operate independently.
Looking at the impugned issue from the above perspective, the assessee being engaged in the business of growing and manufacture of tea is entitled to offer its taxable income in accordance with Rule 8 of Income Tax Rules. Similarly the taxable 4 McLeod Russel India Ltd. A.Yrs.2008-09& 2009-10 value of fringe benefits also could have to be determined only in accordance with Rule 8 of Income Tax Rules thereon. We also find that the case law relied upon by the Learned AR is well placed . In Moran Tea Co. (I) Ltd vs CIT reported in (2014) 51 taxmann.com 520 (Calcutta), the questions raised before the Hon’ble Jurisdictional High Court were as below:- “1. Whether the Tribunal below committed substantial error of law in upholding the computation of the value of fringe benefit in the case of assessee engaged in the business of growing, manufacturing and sale of tea without having regard to the relevant provisions of the Income-tax Act, 1961 read with Rule 8 of the Income-tax Rules 1962.
Whether the Tribunal below committed substantial error of law in holding that there was no similarity between the provisions of Section 115WA vis-à-vis section 115-O of the Act.
3. Whether the Tribunal below committed substantial error of law in upholding the inclusion of expenses in the taxable value of fringe benefit in the case of an assessee engaged in the business of growing, manufacturing and sale of tea although expenses included were not allowed as deduction when computing the total income under the Act ?”
Their Lordships of Calcutta High Court while deciding the questions raised hereinabove held as below:-
“3. We find the questions arose out of the issue decided by the Tribunal regarding the applicability of Rule 8 in the matter of arriving at the value of fringe benefit for the purpose of tax therein. The issue has been decided in the unreported judgment delivered on 3rd July, 2014 in ITAT 165 of 2013. G.A.No.3135 of 2013. Apeejay Tea Ltd. v. CIT in considering an illustration given by the Hon’ble Supreme Court in CIT v. Doom Dooma India Ltd. [2009] 310 ITR 392/178 Taxman 261. We set out the relevant portion of the said judgment : “….We shall take assistance of the illustration to resolve the issue. Let us assume that the other expenses in illustration (a) amounting to Rs.300/- include Rs.100/- spent by the employer on account of fringe benefits made available to its employees. In that case, 40% of the aforesaid sum of Rs.100/- would also be includible in illustration (b). Therefore, the question posed before us has really been answered by the illustration given by the Apex Court in the aforesaid judgment. It cannot be disputed that the amount of expenditure incurred by the assessee in extending fringe benefits to its employees was not solely for the purpose of business. The expenditure incurred is both for the purpose of business and for the purpose of agriculture. The submission made by Mrs. Gulgutia that the expenditure on account of fringe benefits has already been taken into account is not correct. The net profit and loss of the business has to be arrived at after deducting all the expenses as indicated in illustration ‘A ‘ in the case of Dom Dooma (supra). Once that is done 40% of the net profit and loss has to be worked out which shall be chargeable to tax. Once this is done the expenditure on account of fringe 5 McLeod Russel India Ltd. A.Yrs.2008-09& 2009-10 benefits would automatically stand reduced to 40% as would appear from illustration “in the case of Doom Dooma (supra). The revenue is interested in contending as would appear from the impugned orders that the expenditure on account of fringe benefit cannot be reduced to 40% for the purpose of computing fringe benefit tax. If that is done, the result would that the agricultural income itself would become liable to tax, which is not permissible under sub-section 1 of Section 10 of the Income tax Act. The provisions contained in Chapter XII H of the Income Tax Act have to be read subject to Section 10 of the Income Tax Act. For the aforesaid reasons, we are of the opinion that the judgment of the learned Tribunal cannot be sustained. The submissions advanced by Ms.Gutgutia naturally do not help the revenue. The judgment cited by her was with regard to the question as to whether fringe benefit tax amounts to double taxation. That question was answered by Their Lordships in the negative. Before us, the question of double taxation has not arisen for consideration. The question formulated above is, therefore, answered in the affirmative and in favour of the assessee. “ 4. Since the issue stands decided, the questions arising there from are answered as follows : Question No.1 is in the negative and in favour of the assessee; and Question no.4 is in the negative and in favour of the assessee 5. So far as question no.2 is concerned , as it arises out of the reasoning given in the impugned order passed by the Tribunal on the issue decided, the same is redundant and need not be answered.
6. Therefore, the appeal is allowed.”
We hold that what has been allowed as the business expenditure (i.e the expenditure that are subjected to FBT) is only to the extent of 40% thereon in accordance with Rule 8 of the Income Tax Rules, 1962. Hence logically the said business expenditure for the purpose of FBT also should be considered at only 40% of the same as against 100%.
We also find that the decision of this tribunal rendered in assessee’s own case against assessee for the Asst Year 2006-07 vide order dated 6.5.2011 is no longer relevant as the issue adjudicated by this tribunal had been overruled by the Jurisdictional High Court in the case mentioned hereinabove.
Hence in view of the aforesaid facts and circumstances and respectfully following the decision of the Jurisdictional High Court , we hold that the assessee employer shall be entitled to claim relief at 40% of taxable value of fringe benefits as 6 McLeod Russel India Ltd. A.Yrs.2008-09& 2009-10 against 100% determined by the Learned AO and accordingly we direct the Learned AO to recomputed the value of fringe benefits in accordance with Rule 8 of Income Tax Rules. Hence the grounds raised by the assessee in this regard for both the years are allowed.
In the result, the appeals of the assessee are allowed.
Order pronounced in the court on 08.10.2015.