2014 (6) TMI 696 - AT - Income Tax

Tribunal Upholds Exemption for Employee Conveyance Expenses from FBT

DCIT 1(2), Mumbai Versus M/s. Intelenet Global Services Pvt. Ltd., M/s. Serco BPO Pvt. Ltd.

The Tribunal upheld the CIT(A)'s decision to exempt conveyance expenses for employees from Fringe Benefit Tax (FBT) based on Circular no. 14 of 2006, ... Fringe Benefit Tax (FBT) - conveyance expenses met out by the assessee for its employees from place of work to place of residence and vice versa – Held that:- Benefit is exempt from FBT from assessment year 2007-08 onwards - The view of the AO has not been accepted by the CIT(A) as amended of section 115WD(3) has been brought vide Finance Act 2006 and thus the contention of the AO that the aforesaid benefit is exempt from FBT from A.Y. 2007-08 on wards only is totally erroneous and untenable – CIT(A) rightly deleted the addition of ₹ 2,42,87,175/ made by the AO – thus, there was no reason to interfere in the order of the CIT(A) – Decided against Revenue. Computation of total value of Fringe Benefit – Whether the assessee is entitled to include only 5% of the conveyance expenses for FBT purposes - Held that:- CIT(A) has noted that out of the gross income of ₹ 271,56,55,082/-, the assessee has earned ₹ 269,19,26,534/- from BPO services - This particular fact establishes that the assessee has to be considered as a company engaged in production of computer software - only 5% of the conveyance expenses should be taken for FBT purposes – thus, there was no infirmity in the order of the CIT(A) in upholding the claim of the assessee – Decided against Revenue. Issues:1. Interpretation of circular regarding conveyance expenses for FBT purposes.2. Determination of the percentage of conveyance expenses to be included for FBT purposes.3. Challenge against reopening of original FBT assessment orders.Analysis:1. The appeal involved a dispute over the treatment of conveyance expenses for Fringe Benefit Tax (FBT) purposes. The Revenue contested the CIT(A)'s decision to exempt conveyance expenses for employees from FBT based on Circular no. 8 of 2005. The CIT(A) relied on Circular no. 14 of 2006, which specifically exempted employer expenditures on employees' journeys from residence to office from FBT. The Tribunal upheld the CIT(A)'s decision, emphasizing that the benefit was exempt from FBT as per the Finance Act 2006, rejecting the AO's argument that the exemption only applied from the assessment year 2007-08 onwards.2. The second issue revolved around the calculation of conveyance expenses for FBT purposes. The Tribunal considered the nature of the assessee's business, primarily engaged in providing BPO services, and determined that only 5% of the conveyance expenses should be included for FBT purposes. The Tribunal upheld the CIT(A)'s decision in this regard, noting that the assessee's substantial income from BPO services justified the lower percentage inclusion of conveyance expenses for FBT calculation.3. The cross objection by the assessee challenged the reopening of the original FBT assessment orders under section 115WE(3). However, since the additions made by the Assessing Officer were deleted by the CIT(A) and upheld by the Tribunal, the cross objection against the reopening proceedings became unnecessary. The Tribunal dismissed both the appeal and the cross objection filed by the Revenue and the Assessee, respectively, thereby concluding the case.In conclusion, the Tribunal's judgment clarified the treatment of conveyance expenses for FBT purposes, emphasizing the exemptions provided under relevant circulars and the Finance Act 2006. Additionally, the Tribunal determined the percentage of conveyance expenses to be included for FBT calculation based on the nature of the assessee's business activities.