Employee welfare expenditure under a wage agreement was held outside fringe benefit tax under the Income-tax Act.

Employee welfare expenditure incurred under the National Coal Wage Agreement, including sports and recreation facilities, was treated as arising from a binding statutory obligation and therefore not as a taxable fringe benefit. The Court noted that the other categories of welfare expenditure had already been accepted in the assessee's earlier appeal on the same basis. On that footing, the explanation to Section 115WB(2)(E) of the Income-tax Act, 1961 was not accepted as a reason to disturb the Tribunal's view, and the claim was upheld.

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Issues: Whether expenditure incurred on employee welfare, including sports and recreation facilities under the National Coal Wage Agreement, was liable to fringe benefit tax for the assessment year 2006-07.

Analysis: The expenditure on employee welfare was held to arise from a binding statutory obligation under the National Coal Wage Agreement. Sports and recreation facilities formed part of the welfare activities covered by that agreement. The Court also noted that the other heads of expenditure had already been considered in the assessee's earlier appeal and were treated as allowable on the same basis. In these circumstances, the introduction of the explanation to Section 115WB(2)(E) of the Income-tax Act, 1961 was not accepted as a basis to disturb the Tribunal's view.

Conclusion: The expenditure was not exigible to fringe benefit tax and the Tribunal's order allowing the assessee's claim was upheld.

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