2013 (8) TMI 71 - AT - Income Tax

Tribunal allows appeal on business expenses, upholds Fringe Benefit Tax on club expenses.

The tribunal partially allowed the appeal, ruling in favor of the assessee on various expenses incurred for business purposes that did not provide ... Validity of the levy of Fringe Benefit Tax (FBT) on the various fringe benefits deemed to have been allowed by the assessee - levy of tax vide order u/s. 115WE(3)- expenditure is on the maintenance of guest house - Held that:- It is only where and to the extent the guest house is used during the relevant year by the assessee's employees, that the impugned expenditure would stand to be covered u/s. 115WB(2)(K), and the said provision be said to be applicable. The total expenditure incurred during the year would therefore be required to be proportioned in the ratio of the user by the assessee's employees as against non-employees. The assessee succeeds partly, and the matter will travel to the AO to allow the assessee an opportunity to furnish the relevant details. Expenditure on hotel during travel, and motor car expenses, which are claimed by the assessee to have been incurred for the purpose of its business, leading to no benefit to the concerned employees. As evident, the same stand covered by the various decisions Tata Motors Ltd. [2013 (5) TMI 372 - ITAT MUMBAI], Tata Asset Management [2012 (6) TMI 137 - ITAT MUMBAI], Toyota Kirloskar Motor Pvt. Ltd [2012 (6) TMI 484 - ITAT, Bangalore] therefore, the same are not liable for the charge of FBT. Club expenses - Held that:- The assessee's only claim is that the club expenditure is incurred for the purpose of its business. The Revenue, however, does not dispute that, and neither is it the bone of contention between the two, so as to be relevant. What is relevant is whether the same nevertheless results in a provision of any benefit, direct or indirect, to the assessee's employees. The assessee being a company, the club expenses incurred would be so only for its employees and, therefore, in clear view fall to be covered u/s. 115WB(2)(N). The assessee's case, accordingly, is without merit - assessee's appeal is partly allowed. Issues:Validity of levy of Fringe Benefit Tax (FBT) on various fringe benefits deemed to have been allowed by the assessee.Analysis:The appeal was against the Order by the Commissioner of Income Tax (Appeals) confirming the levy of tax under section 115WE(3) of the Income Tax Act, 1961 for the assessment year 2006-07. The primary issue revolved around the validity in law of the levy of Fringe Benefit Tax (FBT) on various fringe benefits deemed to have been provided by the assessee to its employees. The tribunal analyzed the provisions of law in line with the rationale explained at the time of their introduction by the Executive before the Legislature. The tribunal emphasized that FBT could only be levied where there is a provision of benefit directly or indirectly by the assessee to their employees. The tribunal also highlighted that the deeming provision of section 115WB(2) must be strictly construed and cannot extend to cases where no benefit is provided to the employees.The tribunal examined specific expenses incurred by the assessee in different cases, such as motor car expenses, brand subscription expenses, conveyance and traveling expenses, hotel expenses, sale promotion expenses, telephone and fax charges, travel expenditure, club membership, etc. The tribunal agreed with the interpretation placed by the tribunal in previous decisions regarding the levy of FBT on different expenses. It was observed that FBT could not be levied where expenses were incurred for business purposes and did not result in any benefit to the employees.Regarding the maintenance of a guest house, the tribunal partially agreed with the assessee's argument that the expenditure on food and running of the guest house should not be covered under section 115WB(2)(K). However, it was clarified that if the guest house was used by the assessee's employees, the expenditure would be covered under the relevant provision. The tribunal also addressed expenses on hotel stays, motor car expenses, and club expenses, emphasizing that if these expenses were incurred for business purposes and did not provide any benefit to the employees, they were not liable for FBT. However, in the case of club expenses, it was determined that the expenditure incurred for club facilities did provide a benefit to the employees and therefore fell under the purview of section 115WB(2)(N).In conclusion, the tribunal partly allowed the assessee's appeal, ruling in favor of the assessee on certain grounds while upholding the levy of FBT on club expenses.