2012 (5) TMI 718 - AT - Income Tax

Appeal partly allowed, delay condoned. Tribunal reverses order, remands issue for further examination.

The appeal by the revenue was partly allowed for statistical purposes. The delay in filing the appeal was condoned, and the appeal was admitted for ... Computation of taxable value of fringe benefit - Fringe Benefit Tax liability not linked to employer's income - Applicability of Rule 8 (tea companies) to fringe benefit tax - Classification of expenses under clause 115WB(2) - purposive approach - Remand for determination of nature of expensesComputation of taxable value of fringe benefit - Fringe Benefit Tax liability not linked to employer's income - Applicability of Rule 8 (tea companies) to fringe benefit tax - Whether value of fringe benefit should be computed by taking only 40% of specified expenses for the assessee (a tea company) for the purpose of fringe benefit tax in AY 2007-08. - HELD THAT: - The Tribunal examined whether the rule applied to compute taxable income of tea companies (Rule 8) could be applied to determine the value of fringe benefits. It observed that fringe benefit tax under Chapter XII-H is a tax on expenditures incurred to provide benefits to employees and is leviable notwithstanding that no income-tax is payable by the employer. Hence FBT is not linked to the employer's income but to the expenditure incurred on fringe benefits. The Tribunal followed its coordinate-bench precedent in the assessee's own case for AY 2006-07 and held that the decision in respect of section 115-O (and Rule 8 application to additional tax on distributed profits) is not analogous to FBT. Applying this reasoning, the Tribunal reversed the CIT(A)'s allowance and upheld the Assessing Officer's computation (i.e., not restricting the value to 40% of the expenses). [Paras 4]Reversed CIT(A); upheld Assessing Officer's approach and allowed revenue's ground on computation of fringe benefit.Classification of expenses under clause 115WB(2) - purposive approach - Remand for determination of nature of expenses - Whether the expenses of Rs. 43,26,760/- should be classified under clause 115WB(2)(Q) (tour & travel at 5%) or under other heads attracting 20% rate for computing fringe benefit value. - HELD THAT: - CIT(A) had applied a purposive approach, treating all expenses incurred in the course of and for the purpose of travel as falling within clause (Q) and directed AO to consider the sum under clause 115WB(2)(Q). Before the Tribunal, the Assessing Officer maintained that the nature of these expenses (cost of stay, local conveyance, food, entertainment, etc.) was not explained by the assessee and thus were not necessarily within clause (Q). The Tribunal noted that the assessee failed to explain the nature of the disputed expenditure at any stage. Given the absence of particulars and the factual question as to the true nature and dominant purpose of the expenditures, the Tribunal set aside the matter to the file of the Assessing Officer for fresh consideration and directed the assessee to explain the nature of the expenses so that AO may decide the appropriate classification under section 115WB(2). [Paras 7]Issue remanded to the Assessing Officer for fresh examination of the nature of the Rs. 43,26,760/- expenditure and correct classification under section 115WB(2).Final Conclusion: Revenue appeal partly allowed: the Tribunal reversed CIT(A) on the computation principle (FBT not linked to employer's income; Rule 8 inapplicable) and allowed revenue's ground on that point; the question of classification of Rs. 43,26,760/- was remanded to the Assessing Officer for factual determination of the nature of the expenses and appropriate recomputation. Issues Involved:1. Condonation of delay in filing the appeal.2. Deletion of disallowance of expenses by adding value of Fringe Benefit on the basis of 40% of the expenses incurred under specified heads.3. Direction to consider expenses of Rs. 43,26,760/- under clause 115WB(2)(Q) of the Act.Summary:Condonation of Delay:The appeal by the revenue was time-barred by 125 days. The revenue filed a condonation petition, which was conceded by the counsel for the assessee. The delay was condoned, and the appeal was admitted for hearing.Fringe Benefit Tax (FBT) on 40% of Expenses:The first issue was regarding the deletion of disallowance of expenses by adding the value of Fringe Benefit on the basis of 40% of the expenses incurred under specified heads. The CIT(A) had allowed the claim of the assessee by relying on his own order for the assessment year 2006-07, where it was held that for assessing the value of fringe benefit u/s 115WE(3), only 40% of the expenses incurred under specified heads can be taken into account. The Tribunal, however, reversed the order of the CIT(A) by following its earlier decision in the assessee's own case for the assessment year 2006-07, where it was held that FBT is not linked with the income of an employer but with the expenditure incurred by the employer on the benefits provided to its employees. Therefore, the Tribunal upheld the action of the Assessing Officer, allowing the revenue's appeal on this issue.Consideration of Expenses under Clause 115WB(2)(Q):The second issue was against the order of CIT(A) directing the Assessing Officer to consider the expenses of Rs. 43,26,760/- under clause 115WB(2)(Q) of the Act. The CIT(A) had allowed the claim of the assessee by adopting a 'purposive approach' for classification of expenses, considering all expenses incurred in connection with foreign tours and travel as part of 'tour & travel expenses' under clause 115WB(2)(Q). However, the Tribunal noted that the nature of these expenses was not explained by the assessee before the Assessing Officer, CIT(A), or even before the Tribunal. Therefore, the Tribunal set aside this issue to the file of the Assessing Officer, directing the assessee to explain the nature of these expenses, and the Assessing Officer to decide accordingly. This ground of appeal was allowed for statistical purposes.Conclusion:The appeal of the revenue was partly allowed for statistical purposes, with the Tribunal reversing the CIT(A)'s order on the first issue and remanding the second issue back to the Assessing Officer for further examination.