2017 (10) TMI 228 - AT - Income Tax

Tribunal Upholds Assessee's Appeal Against Exclusion of Fringe Benefits. FAA's Power Clarified.

The Tribunal ruled in favor of the assessee in an appeal challenging the direction of the First Appellate Authority (FAA) to exclude Fringe Benefit (FB) ... FBT computation - determining the value of the chargeable FB - direction of the First Appellate Authority(FAA)to exclude FB declared by the assessee itself in the original and revised return of FBT, filed u/s.115W - Held that:- As decided in assessee's own case for previous years in all cases where a deduction/ exemption is not claimed by an assessee before the Assessing Officer would normally amount to giving up t he claim with regard to it. Nevertheless, this Court has held in Pruthvi Builders (2012 (7) TMI 158 - BOMBAY HIGH COURT ) it could be raised in appeal. Moreover, in the present facts, the claim had already been made by the Respondent in its Return of Fringe Benefit by way of note therein. Thus, it is not a new claim. In any case, on account of the decision of this Court in Pruthvi Brokers and Shareholders (supra), the Respondent Assessee is well entitled to raise the claim before the Appellate Authority even it not raised before the Assessing Officer Relief of Fringe Benefit Tax levied on expenses incurred as non-employees and gifts given to non-employees by following its order in CIT v/s. Tata Consultancy Services Ltd. (2013 (6) TMI 516 - ITAT MUMBAI) to hold that the relationship of employer and employee is a sine-qua-non of levy of Fringe Benefit Tax. Expenses incurred on non employees are outside the purview of FBT. Medical reimbursement, medical facilities and education facilities made available to its employees - liable to tax as perquisites in the hands of employees/individuals. Issues Involved:1. Direction of the First Appellate Authority (FAA) to exclude Fringe Benefit (FB) declared by the assessee in the original and revised return of Fringe Benefit Tax (FBT).2. Relief granted by the FAA on various expenditures under different heads such as non-employees, gifts to non-employees, medical reimbursement/expenses, education facilities, salary of drivers/pilots, insurance premium for motor car/aircraft, pre-operative expenses, and maintenance of residential accommodation in the nature of a guesthouse.Issue-wise Detailed Analysis:1. Direction of the FAA to exclude Fringe Benefit (FB) declared by the assessee in the original and revised return of FBT:The assessee filed an appeal challenging the order of the CIT(A)-13, Mumbai. The assessee had filed the FBT return showing the value of chargeable FB at Rs. 36.80 crores. The AO completed the assessment determining the value of chargeable FB at Rs. 36,80,51,213/-. The first ground of appeal (GOA-1-2) was about the direction of the FAA to exclude FB declared by the assessee in the original and revised return of FBT. The Tribunal noted that identical issues were dealt with in previous years. The Departmental Representative (DR) argued that since the assessee had filed the FBT return and offered the value taxable as FBT, it could not retract now. The DR relied on the Supreme Court decision in ITO Vs Murlidhar Bhagwan Das, asserting that the Tribunal's jurisdiction is not higher than that of the ITO.However, the Senior Counsel for the assessee relied on the decision of CIT Vs Pruthvi Brokers and Shareholders Pvt. Ltd., contending that the assessee can take a plea not taken before the assessing authorities. The Tribunal, following the jurisdictional High Court's decision, held that appellate authorities have the power to consider claims not made in the return. The Tribunal found that the assessee had returned fringe benefits with a note indicating that the value was offered for FBT out of abundant caution, which the AO acknowledged. The Tribunal decided the first effective ground of appeal against the AO.2. Relief granted by the FAA on various expenditures:a. Expenses incurred on non-employees:The AO believed that expenses incurred by the assessee on any item specified under clause (A) to (P) of Sec. 115WB are chargeable to FBT, irrespective of whether the expenses involve employees. The Tribunal, following its previous decision in CIT Vs Tata Consultancy Ltd., held that employer/employee relationship is a prerequisite for the levy of FBT. Therefore, expenses incurred on non-employees were directed to be excluded from the taxable value of FBT.b. Fringe benefits taxable in the hands of employees:The Tribunal addressed expenses under medical reimbursement, medical facilities, education facilities, maintenance of residential colony for employees, and insurance premium. It held that perquisites directly attributable to employees are outside the purview of FBT. The AO was directed to exclude these items from the taxable value of FBT.c. Salary of drivers/pilots:The Tribunal, supported by the decision of the Madras High Court in CIT Vs Sholinger Textiles Ltd., directed the AO to exclude the value of fringe benefits related to the salary of drivers/pilots from the taxable value of FBT.d. Insurance premium for motor car/aircraft:Following the Calcutta High Court's decision in CIT Vs Tungabhadra Industries Ltd., the Tribunal directed the AO to exclude the insurance premium from the taxable value of FBT.e. Pre-operative expenses:The Tribunal noted that pre-operative expenses incurred on units not yet set up are capital expenditures and should be excluded from the taxable value of FBT.f. Maintenance of residential accommodation in the nature of a guesthouse:The Tribunal held that buildings used by employees and other related visitors connected with the assessee's business are not considered guesthouses. Therefore, such expenses were directed to be excluded from the taxable value of FBT.g. Presentation articles distributed to business-related persons:The Tribunal directed the AO to exclude expenses incurred on non-employees, including presentation articles distributed to business-related persons, from the taxable value of FBT.Conclusion:The Tribunal decided all grounds of appeal against the AO and in favor of the assessee, dismissing the AO's appeal. The order was pronounced in the open court on 08th September 2017.