2011 (5) TMI 679 - AT - Income Tax

Tribunal upholds FBT computation overruling Rule 8 application, distinguishes sections 115-O and 115WA.

Deputy Commissioner of Income Tax, Circle-4, Kolkata Versus McLeod Russel India Ltd.

The Tribunal condoned the delay in filing the appeal and upheld the Assessing Officer's computation of Fringe Benefit Tax (FBT) on the entire fringe ... Value of fringe benefit - whether Rule 8 of Income Tax Rules applies to compute taxable value of fringe benefit in the case of assessee-company, which is engaged in the business of growing, manufacturing of tea and sale thereof - held that:- the contention of the ld. Authorized Representative for the assessee that value of Fringe Benefit should be computed by applying Rule 8 of Income Tax Rule has no merit as Fringe Benefit Tax is not payable on the income of an assessee but only Fringe Benefits provided by an employer to its employees. - Decided in favor of revene. Issues Involved:1. Condonation of delay in filing the appeal.2. Applicability of Rule 8 of Income Tax Rules, 1962, in computing Fringe Benefit Tax (FBT) for a company engaged in growing, manufacturing, and selling tea.3. Relevance of the decision in Jayshree Tea & Industries Ltd. v. Union of India to the case at hand.Detailed Analysis:1. Condonation of Delay in Filing the AppealThe Department filed an appeal with a delay of 39 days, accompanied by an affidavit from the Deputy Commissioner of Income Tax explaining the reasons for the delay. The Department's representative reiterated the affidavit's contents, arguing that the delay was due to a reasonable cause. The respondent's representative did not seriously dispute the affidavit but noted the reasons were vague. The Tribunal considered the affidavit and submissions, concluding that the delay was due to a reasonable cause and not due to negligence or casualness on the Department's part. Consequently, the delay was condoned, and the appeal was entertained on its merits.2. Applicability of Rule 8 of Income Tax Rules, 1962, in Computing FBTThe core issue was whether Rule 8, which stipulates that only 40% of the income from growing, manufacturing, and selling tea is taxable under the Central Income Tax, applies to the computation of FBT. The assessee contended that FBT should be computed on 40% of the total fringe benefit value, as only 40% of their income is taxable under the Central Income Tax, with the remaining 60% being agricultural income taxable under State Agricultural Tax. The Assessing Officer (AO) disagreed, stating that FBT is payable on the value of fringe benefits provided to employees, irrespective of the employer's taxable income. The AO computed FBT on the entire fringe benefit value, excluding contributions to the superannuation fund.The first appellate authority accepted the assessee's contention, directing the AO to compute FBT based on 40% of the expenses incurred. The Department appealed this decision, arguing that FBT is a tax on the facilities provided to employees and not on the employer's income. The Department cited the ITAT Kolkata Bench's decision in Apeejay Tea Ltd. v. Dy. CIT, which supported the AO's view.The Tribunal agreed with the Department, noting that FBT is levied on the expenditure incurred by the employer on benefits provided to employees, not on the employer's income. The Tribunal found no merit in the assessee's reliance on Rule 8 for computing FBT, emphasizing that FBT is payable even if no income tax is payable by the employer. The Tribunal upheld the AO's computation of FBT on the entire fringe benefit value, reversing the first appellate authority's decision.3. Relevance of the Decision in Jayshree Tea & Industries Ltd. v. Union of IndiaThe assessee relied on the decision in Jayshree Tea & Industries Ltd., where the Calcutta High Court held that additional tax under section 115-O (Dividend Distribution Tax) should be computed based on 40% of the income for a tea company, considering Rule 8. The Department argued that this decision was not applicable to FBT under section 115WA, as FBT is a tax on the expenditure incurred on employee benefits, not on the employer's income.The Tribunal concurred with the Department, distinguishing the nature of taxes under sections 115-O and 115WA. The Tribunal noted that while section 115-O deals with additional tax on distributed profits, FBT under section 115WA is levied on the expenditure incurred on fringe benefits, irrespective of the employer's taxable income. The Tribunal found no similarity between the provisions of sections 115-O and 115WA and concluded that the decision in Jayshree Tea & Industries Ltd. did not apply to the case at hand.ConclusionThe Tribunal condoned the delay in filing the appeal, upheld the AO's computation of FBT on the entire fringe benefit value, and reversed the first appellate authority's decision. The Tribunal distinguished FBT from additional tax under section 115-O, finding no merit in the assessee's reliance on Rule 8 for computing FBT. The Department's appeal was allowed.