Shipbuilding qualifies as construction business under section 115WC(2)(b) allowing 5% fringe benefit tax rate

The ITAT Visakhapatnam ruled in favor of the assessee in a fringe benefit tax dispute. The case involved whether shipbuilding constitutes "construction business" under section 115WC(2)(b) for computing fringe benefits at 5% instead of 20%. The Revenue argued that shipbuilding is distinct from construction business, requiring the higher 20% rate. The ITAT held that shipbuilding falls within the ordinary meaning of "construction business" based on dictionary definitions and CBDT Circular No.8/2005. The tribunal allowed the assessee's computation of fringe benefits at 5% for conveyance and travel expenses, deleting the addition made by the AO and confirmed by CIT(A)-NFAC.

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Issues involved:
The judgment involves the interpretation of the term "business of construction" u/s 115WC of the Income Tax Act, 1961 and the computation of fringe benefits for a Public Sector Undertaking engaged in ship building activities.

Summary:

Issue 1: Interpretation of "business of construction"
The appeal was filed against the order of the Learned Commissioner of Income Tax (Appeals) regarding the computation of fringe benefits for the AY 2006-07. The assessee, a Public Sector Undertaking engaged in ship building, admitted fringe benefits at 5% under "Conveyance, Tour & Travel." The Revenue contended that since the business was ship building and not construction per se, fringe benefits should be computed at 20%. The Tribunal referred to Circular No.8/2005, stating that the term "business of construction" should be understood in ordinary English language meaning, covering all construction activities. The Tribunal concluded that ship building falls under the definition of "business of construction," allowing fringe benefits to be computed at 5%.

Issue 2: Computation of Fringe Benefits
The Revenue authorities had determined the value of fringe benefits at Rs. 64,41,644, including an addition of Rs. 14,29,432 towards fringe benefits on conveyance, tour & travel at 20%. The assessee contended that as a ship building business, fringe benefits should be computed at 5%. The Tribunal, considering the ordinary English language meaning of "construction," ruled in favor of the assessee, allowing the appeal and deleting the addition of Rs. 14,29,432.

In conclusion, the Tribunal allowed the appeal, stating that the assessee's ship building activities fell under the "business of construction," entitling them to compute fringe benefits at 5% as per section 115WC(2)(b) of the Act.

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