TaxTMI 
TaxTMI 
2010 (7) TMI 684
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....he same; (ii) in confirming the levy of fringe benefit tax [FBT] in respect of free and concessional tickets provided to its staff; (iii) in confirming the levy of FBT of Rs.5.05 crores paid to its pilots as per diem allowances; (iv) in confirming FBT of Rs.9.99 crores paid to hotels to provided layover to its crew members; & (v) in confirming the tax on the impugned amounts which were levied based on the persons to whom or immediate and proximate purpose for which the payments were made. Prayer: to set aside the impugned order of the appellate authority with a Direction to the AO to re-compute the value of fringe benefits for the AY 06-07 at Rs.5,15,39,591 being the value of fringe benefits admitted by the assessee. 3. Briefly stated, the assessee was engaged in the operation of air transport services. During the assessment year under dispute, the assessee had furnished its return of fringe benefit admitting the value of fringe benefits at Rs.5.15 crores. After examination of the details furnished and also verification of books of account produced during the course of assessment proceedings, the AO had valued the fringe benefits on the various heads, t....
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....tended to take care of their boarding, lodging etc. it was only an allowance granted to its employees and, therefore, it cannot be said that they were incurred for travelling or for the purpose of hotels; -as the salary paid to a pilot was for the purpose of running and maintenance of the aircraft, the training expenses incurred for the pilots were also in the nature of running and maintenance of the aircrafts. - drawing support from answer to Q.No.87 of Circular 8/2005; (iii) Rs.9.99 crores was incurred for the payment to hotels to provided layover to crew. The proximate and immediate purposes of incurring these expenses were the running and maintenance of aircrafts, and, thus, not liable to tax. The expenditure was incurred in providing accommodation to the crew to be used by them during their lay over. The lay overs were short duration breaks in between the duty hours in accordance with the Safety Manual. These accommodations were provided during duty hours, and as such, these expenses did not involve the provisions of any FB and, consequently, were not liable to any FBT. (2) Brushing aside the assessee's contentions, the AO took a view that the to....
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....ile computing fringe benefits from per diem allowance paid to trainee pilots and hotel expenses incurred for layover pilots and crew which is as per Circular No.8 of 2005.......................................... 5.2. The AO has gone behind the books to discover non-treatment of some items as fringe benefits and have taxed them. Therefore, I see no violation of any provision of law or conducting inquiry into certificate issued (by) the C.A. so as to annul the order. The AO has called for details and also books and after examining them in the light of provisions of section 115WB of the Act has brought into tax net three items. I see no infirmity in the order of AO in such identification......." II. In respect of FBT on free tickets, the Ld. CIT (A) had, after examining the rival submissions, recorded that - "6.3. I see reasons in the arguments of AO. If the appellant feels that answer to Q.45 is unconstitutional it is entitled to raise the same at appropriate forum of judiciary. The Circular is binding on the AO. The specific has more binding force than the general. Thus, the AO is justified in valuing the admitted fringe benefit given in the shape of free tickets to the em....
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....indings of the CIT (A), the assessee has come up with the present appeal. The submissions made by the Ld. A R during the course of hearing are summarized as under: (i) the Finance Minister had declared that, if the tax auditor certifies that if a particular item falls within a given head mentioned in s.115 WB (2), then it will fall within that head and will attract FBT, otherwise, it will not attract FBT, that the AO has no discretion in the matter and he has to accept what the tax auditor certifies unless it turns out to be a patently false certificate; (ii) the appellate authority had erred in holding that the assessee was liable to FBT in respect of free tickets to the employees even if the cost thereof was zero to the employer; -he had erred in placing reliance on answer to query No.45 of FBT Circular No.8/2005 dt.29.8.05 in levying FBT in respect of free and concessional tickets; -he had erred in not placing reliance on answer to query No.5 of the said circular in determining the value of FB in respect of free or concessional tickets; - he had failed to consider the fact that the employees of the assessee can take a particular seat only if the general public was no....
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....d erred in holding that the payments as hotel expenses instead of holding them as aircraft maintenance/running expenses; -layover expenses were incurred as employee welfare expenses in accordance with Civil Aviation requirements and, therefore, they were covered by Explanation to s.115W(E) and not liable to tax; - (v) for the purpose of levy of FBT on the items mentioned in clauses A to P of s.115WB(2), the classification of the expenses was required to be done based on the ultimate purpose for which the expenses were incurred rather than the immediate and proximate purpose or the person to whom the payments were made. The CIT(A) had erred in confirming the tax on the impugned amounts which were levied based on the persons to whom or immediate and proximate purpose for which the payments were made; (vi) Relies the case law of Sunil Siddarth Bhai v. CIT 156 ITR 509 (SC) 6.1. Buttress his arguments; the Ld. A R furnished copies of the following documents during the course of hearing: (a) Hon'ble Finance Minister's speech while introducing the budget for the year 2005-06 and passing of the Finance Bill on 2.5.2005; (b) Civil Aviation Requirem....
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....is a genuine or a sham transaction and, even where the partnership is genuine, the transaction of transferring the personal asset to the partnership firm represents a real attempt to contribute to the share capital of the partnership firm for the purpose of carrying on the partnership business or is nothing but a device or ruse to convert the personal asset into money substantially for the benefit of the assessee while evading tax on a capital gain. The, Income-tax Officer will be entitled to consider all the relevant indicia in this regard........................................................................... ......, All these and other pertinent considerations may be taken into regard when the Income-tax Officer enters upon a scrutiny of the transaction, for, in the task of determining whether a transaction is a sham or illusory transaction or a device or ruse, he is entitled to penetrate the veil covering it and ascertain the truth." II. FBT in respect of free tickets: (1) The main grouse of the assessee was that the Ld. CIT (A) had overlooked the answer to query No.5 of FBT Circular No.8 in determining the value of FB in respect of free or concessional tickets wh....
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....e paid as per diem allowances to the pilots and the authorities below grossly erred in terming the expenses were in the nature of hotel expenses covered u/s 115WB(G)(2) of the Act. (2) As a matter of fact, the assessee had debited Rs.2547.75 lakhs as travelling expenses in its P & L account, out of which, Rs.817.66 lakhs was considered for the purpose of FBT. On being queried by the AO, the assessee came up with a lengthy explanation, justifying its claim. After due consideration of the assessee's contentions, the AO was of the view that "5.3. The main argument of the assessee company is that these expenses are incurred for running and maintenance of aircraft and hence in view of the company being engaged in the business of operating aircrafts, these expenses are not liable to FBT. The argument is not acceptable. The intent of Legislature to include the hotel, boarding and lodging expenses of aircraft operators under this head is clear when we notice that from the AY 2007-08, the airline industry has been given the special benefit of 5% value of fringe benefit due to the huge expense incurred by the industry on this count." (3) With regard to per diem allowance....