Tribunal directs reassessment of fringe benefits valuation method for employee tickets

The Tribunal directed the Assessing Officer to value the fringe benefits of free/concessional tickets provided to employees based on the Frequent Flyer Programme (FFP) valuation method, reducing costs recovered from employees. The Tribunal found the method used by the AO to be inappropriate as the tickets issued to employees did not guarantee boarding. The appeal of the Revenue was allowed for statistical purposes, and the issue was remanded back to the AO for valuation in accordance with the FFP method.

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Issues Involved:
1. Valuation of fringe benefits in respect of free/concessional tickets provided to employees.
2. Method of computation of Fringe Benefit Tax (FBT) on such tickets.

Issue-Wise Detailed Analysis:

1. Valuation of Fringe Benefits in Respect of Free/Concessional Tickets Provided to Employees:

The primary issue in this case revolves around the valuation of fringe benefits concerning free or concessional tickets given to employees and their family members. The assessee had declared the value of these fringe benefits as 'Nil' in their Fringe Benefit Tax (FBT) return for the Assessment Year (A.Y.) 2006-07. However, the Assessing Officer (AO) determined the value of these fringe benefits to be Rs. 86,42,22,000/-. The assessee contested this assessment before the Commissioner of Income Tax (Appeals) [CIT(A)], who directed the AO to verify the fringe benefit value in line with the Frequent Flyer Programme (FFP) provisions.

The Tribunal found that the issue of valuation of fringe benefits was already covered by a previous decision in the case of Jet Airways India Ltd. vs. DCIT, where it was held that the valuation of free/concessional tickets should be done considering the specific nature of these tickets, which are subject to load and vacancies and cannot be equated with tickets sold to the general public. The Tribunal noted that the tickets provided to employees are standby tickets, which means they are only provided if there are vacant seats, unlike tickets sold to the general public that guarantee a seat.

2. Method of Computation of Fringe Benefit Tax (FBT) on Such Tickets:

The Tribunal referred to the previous case of Jet Airways, where three methods of valuation were discussed:
- Minimum Fare Method: Adopting the minimum value at which a ticket is sold to the general public.
- Cost to the Company Method: Evaluating the fringe benefit value based on the break-up value, considering costs like aircraft fuel, CRs charges, food and cabin charges, and printing & stationery, resulting in a value per ticket of Rs. 446.06.
- J.P. Mileage Method: Valuation based on the net concession given to frequent flyers.

The AO had rejected the assessee's methods and adopted the value of Rs. 5510 per ticket as determined by special auditors. However, the Tribunal found that the AO's method was not appropriate, as the tickets issued to employees do not guarantee boarding and are subject to availability, unlike tickets sold to the general public.

The Tribunal concluded that the valuation method used for the Frequent Flyer Programme (FFP) should be adopted for computing the fringe benefit value of free/concessional tickets provided to employees. This method had been accepted by the department in earlier years and was considered scientific and reasonable. The Tribunal directed the AO to value the fringe benefits as per the FFP valuation method, reducing the cost recovered from the employees accordingly.

Conclusion:

The Tribunal restored the issue back to the AO with directions to value the fringe benefits of free/concessional tickets as per the FFP valuation method and to reduce the costs recovered from the employees. The appeal of the Revenue was allowed for statistical purposes.

Order Pronouncement:

The order was pronounced on 04/06/2021 by way of proper mentioning in the notice board.

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