TaxTMI 
TaxTMI 
2017 (4) TMI 361
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....rce and Industries and others for an appropriate writ, direction and order to quash and set aside the Circular No.8/2005 dated 29.08.2005 (hereinafter referred to as "impugned circular") issued by the Central Board of Direct Taxes (hereinafter referred to as "CBDT") and restrain the respondents from enforcing the impugned circular or applying the impugned circular to the employers who are made liable for FBT (hereinafter referred to as "FBT") under the provisions of Chapter XIIH of the Income Tax Act, 1961 (hereinafter referred to as "Act"). [2.1] Feeling aggrieved and dissatisfied with the impugned judgment and order dated 25.10.2013 passed by the learned Income Tax Appellate Tribunal, Ahmedabad Bench, Ahmedabad (hereinafter referred to as "Tribunal") in ITA No.3269/Ahd/10 for AY 200607 by which the learned Tribunal has allowed the said appeal preferred by the respondent assessee and has deleted the levy of FBT on Rs. 1,11,61,364/, which was levied by the Assessing Officer and confirmed by the learned CIT(A) in respect of sales promotion expenditure, conveyance, tour and travel expenditure, miscellaneous repairs and maintenance, other allowances, telephone expenses, the Revenue....
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....at for applicability of provisions of section 115WB(2), the expenses necessarily are required to be incurred directly for the benefit of the employees? B. Whether the Appellate Tribunal on the above basis is right in deleting the additions towards seminar and conference expenses aggregating to Rs. 10,89,19,812, Sales promotion expenses aggregating to Rs. 20,34,43,795 and cost of free samples aggregating to Rs. 7,24,41,000? C. Whether the Appellate Tribunal is justified in law in deleting the addition to the extent of 50% in respect of expenditure on gifts to business associates aggregating to Rs. 17,33,767 and club membership fees aggregating to Rs. 72,450 without any justifiable basis? D. Whether the Appellate Tribunal is justified in law in deleting the addition in respect of reimbursement of medical expenses aggregating to Rs. 3,36,74,477 and whether the Tribunal's interpretation of section 115WB(3) r.w. proviso (v) to Section 17(2) is correct in law?" [3.0] For the sake of convenience, Special Civil Application No.21124/2005 which has been preferred by the Gujarat Chamber of Commerce and Industries and another is treated as a lead matter. [4.0] The Finance Ac....
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....y the employerbased disallowance method resulted in significant erosion of the tax base. The Finance Act, 2005 has introduced a new levy, namely, the FBT as a surrogate tax on employer, with the objective of resolving the problems enumerated in para 2.1 above, expanding the tax base and maintaining equity between employers." [4.2] The tax base for the purposes of FBT is the value of fringe benefits provided or deemed to have been provided by an employer to his employees during the previous year. The determination of the tax base comprises of three elements viz. (a) the scope of the term 'fringe benefits provided'; (b) the scope of the term 'fringe benefits deemed to have been provided'; and (c) the basis of valuation of (a) and (b). It is based on a presumptive method applied to certain heads of expenditure as a measure / indicator of fringe benefits. After the introduction of new Chapter XIIH of the Act and sections 115W to 115WL of the Act brought on the statute under which the FBT was levied, number of issues / questions arose. Therefore, the CBDT ultimately came out with the impugned circular in the form of question - answers. By the impugned circular the CBDT has clarifi....
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....s repairs and maintenance; other allowances; telephone expenses etc. and more particularly as clarified by the CBDT in the impugned circular with any of the services provided to its employees. [6.2] It is submitted that as per the reasons as elaborated by the Finance Minister while introducing the FBT, while presenting the Union Budget, it was stated that where the benefits are usually enjoyed collectively by the employees and cannot be attributed to individual employees, they shall be taxed in the hands of the employer. It is submitted that it was also stated that the transport services for workers and staff and canteen services in their office and factory will be outside the tax net. It is submitted that it was also stated that the tax is not a new tax. [6.3] It is further submitted that even in the Memorandum to the Finance Act, 2005 and in the explanatory note in relation to FBT it was stated that the taxation of perquisites provided by an employer to its employees, in addition to the cash salary or wages paid, is subject to varying treatment in different countries. It is further stated that the said benefits are either taxed in the hands of the employees themselves or th....
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....tion. [6.7] It is submitted that by and in the impugned circular issued by the CBDT, the CBDT has clarified that the FBT shall be levied on expenditure which is totally connected with the employees, former employees or their families. [6.8] It is submitted that by the impugned circular it is clarified by the CBDT that the expenditure made by the employer on traveling, hotel etc. the expenditure incurred by the employer for any of the purposes enumerated in clauses (A) to (P) of subsection (2) of section 115WB, the FBT is leviable, which is absolutely contrary to the object and purpose to levy the FBT, as the expenses incurred by the employer for any one of the purposes enumerated in clauses (A) to (P) of subsection (2) of section 115WB are not relatable to the employees and therefore, the FBT is not leviable on such expenses. [6.9] It is submitted that therefore, the impugned circular is substantially running beyond the legislative intent underlying Chapter XIIH. It is submitted that the circular issued by the CBDT, in exercise of powers under Section 119 of the Act are always in the aid of the main section and cannot be contrary to the legislative intent. [6.10] It is ....
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....imited reported in (1991)197 ITR 1, the Bombay High Court has held that a legal fiction has to be carried to its logical conclusion but only within the parameter of the purpose for which the fiction is created. It is submitted that it is held that as far as possible, the legal fiction should not be given a meaning so as to cause injustice. [6.16] It is submitted that in the case of CIT vs. Vadilal Lallubhai reported in (1972)86 ITR 2 (SC), the Hon'ble Supreme Court has held that the legal fictions are only for a definite purpose and they are limited to the purpose for which they are created and should not be extended beyond their legitimate field. [6.17] It is vehemently submitted that in the case of K.P. Varghese (Supra), the Hon'ble Supreme Court has observed and held that the CBDT circulars are aid in construction of statute. The circulars issued by the CBDT are in the nature of contempovanea expositio and they furnish legitimate aid in construction of statutory provision. It is submitted that it is further observed by the Hon'ble Supreme Court in the said decision that the task of interpretation of statutory enactment shall not be a mechanical one. It is submitted that it....
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....urposes specified in subsection (2) of section 119 and such an order, instruction or direction cannot overwrite the provisions of the Act; that would be destructive of all the known principles of law, as the same would really amount to giving power to a delegated authority to even amend the provision of law enacted by the Parliament. [6.20] It is further submitted by Shri Patel, learned Advocate appearing on behalf of the respective petitioners that in the case of Commissioner of Incometax (LTU) vs. Tata Consultancy Services Ltd. reported in (2015) 60 Taxmann.com 332 (Bombay), the Bombay High Court has observed that while levying the FBT the legislature always had in mind a relationship of employer - employee and by virtue of which, these benefits are admissible to the employees. It is submitted that after taking note of the Budget speech of the Minister of Finance while presenting the budget for the year 2005-06, the Explanatory Notes and the circulars, it is observed and held that the basis of tax is the benefits or perquisites which emanate out of an employeremployee relationship. It is held that there is a perquisite for levy of FBT. It is submitted that in the said decision....
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....even when the validity of the statute is not in question because interpretation of a statutory provision will not depend upon the nature of legislation before the Court. In support of his above submissions, Shri Soparkar, learned Senior Advocate has heavily relied upon the decision of the Hon'ble Supreme Court in the case of Assam Company Limited vs. State of Assam reported in 248 ITR 567 (Para 8) and the decision of the Hon'ble Supreme Court in the case of K.P. Varghese (Supra) (Paras 5, 6 and 8). [7.3] It is further submitted by Shri Soparkar, learned Senior Advocate appearing on behalf of the respective assessees that Rule of construction as laid down in Heydon's case may be applicable to the facts and circumstances of the present case. Heydon's Principle Facts of the present case What was the common law before the making of the Act The employees, and not the employer, have to pay tax on the value of perquisites enjoyed by them. What was the mischief and defect for which the common law did not provide Several perquisites which were disguised as Fringe Benefit escaped taxes when they were collectively enjoyed by the employees and where it was difficult to att....
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....ax Appeals shall be discussed hereinafter. [8.0] All these petitions are vehemently opposed by Shri M.R. Bhatt, learned Senior Advocate appearing on behalf of the Revenue. It is vehemently submitted by Shri Bhatt, learned Senior Advocate appearing on behalf of the Revenue that in the present case vires of none of the provisions of Chapter XIIH of the Act are under challenge. It is submitted that therefore one is required to consider the provisions of the statute as they are. [8.1] It is submitted that section 115WA and 115WB are unambiguous and straight and therefore, there is no place for insertion or subtraction or substitution of any word into it. It is submitted by Shri Bhatt, learned Senior Advocate appearing on behalf of the Revenue that subsection (2) of section 115WB is an independent section and is not controlled by subsection (1) and both subsections (1) and (2) operate in different fields. [8.2] It is submitted that any inference that subsection (2) is controlled by subsection (1) and any expenditure which is not a consideration for employment as mentioned under different heads of subsection (2) cannot be considered as Fringe Benefit, shall make most of the p....
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.... the employees for entertainment, hospitality in any manner whether by way of food or benefits or not in beverages or in any other manner excluding food or beverages provided to the employees in the office or factory or nontransferable paid vouchers usable only at eating joints or outlets; use of hotel, boarding and lodging facilities; repair, running (including fuel) and maintenance of aircrafts; telephone, festival celebrations, use of health club and similar facilities, use of any other club facilities, gifts, scholarships, tour and travel including foreign travel of the employees. It is submitted that therefore as such there was no need for the Parliament to enact and mention the expenses separately under clauses (A) to (Q) of section 115WB(2). It is submitted that therefore the reasonable inference that can be drawn is that the type of expenditure though does not relate to employee - employer relationship, yet is deemed to be incurred by the employer on the employee so as to expand and cover the type of expenditure under the FBT. It is submitted that any other interpretation would make section 115WB(2) nugatory and/or redundant. [8.6] It is vehemently submitted by Shri Bhat....
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....nged the vires of the section 115WA and/or section 115WB and/or any other provisions of the FBT. As per the settled law, the statute more particularly taxing statute is required to be read as it is. The words cannot be added or substituted in statute to give it a different meaning, when the words or any of the statute is clear and unambiguous. As observed by the Hon'ble Supreme Court in the case of Calcutta Jute Manufacturing Co. Vs. Commercial Tax Officer reported in AIR 1997 2920, in case of interpreting a taxing statute, one has to look into what is clearly stated. There is no room for searching the intentions, presumptions or equity. The question of interpretation of statute arises only when there is any doubt, ambiguity, inconsistency, incompleteness or lacuna in language or construction of the statute. While considering a particular provision of statute there shall be a literal interpretation. The question with respect to read into the statutory provision or the purposive interpretation may come when the vires of provision is under challenge and/or when the language of the statute is ambiguous and/or when there is any doubt or lacuna or incompleteness in the language or const....
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....y of April, 2006, additional Incometax (in this Act referred to as fringe benefit tax) in respect of the fringe benefits provided or deemed to have been provided by an employer to his employees during the previous year at the rate of thirty per cent. on the value of such fringe benefits. (2) Even if no Incometax is payable by an employer on his total income computed in accordance with the provisions of the Incometax Act, the tax on fringe benefits shall be payable by such employer. Fringe Benefits. Section 115WB. (1) For the purposes of this Chapter, "fringe benefits" means any consideration for employment provided by way of (a) any privilege, service, facility or amenity, directly or indirectly, provided by an employer, whether by way of reimbursement or otherwise, to his employees (including former employee or employees); (b) any free or concessional ticket provided by the employer for private journeys of his employees or their family members; (c) any contribution by the employer to an approved superannuation fund for employees; and (d) any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer free of cost ....
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....including journals, catalogues or price lists) or electronic media or transport system; (ii) being the expenditure on the holding of, or the participation in, any press conference or business convention, fair or exhibition; (iii) being the expenditure on sponsorship of any sports event or any other event organised by any Government agency or trade association or body; (iv) being the expenditure on the publication in any print or electronic media of any notice required to be published by or under any law or by an order of a court or tribunal; (v) being the expenditure on advertisement by way of signs, art work, painting, banners, awnings, direct mail, electric spectaculars, kiosks, hoardings, bill boards, display of products or by way of such other medium of advertisement; (vi) being the expenditure by way of payment to any advertising agency for the purposes of clauses (i) to (v) above; (vii) being the expenditure on distribution of samples either free of cost or at concessional rate; and (viii) being the expenditure by way of payment to any person of repute for promoting the sale of goods or services of the business of the employer, shall not be considered as ....
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.... ensure that the assessee has not understated the value of fringe benefits or has not underpaid the tax in any manner, serve on the assessee a notice requiring him on a date to be specified therein, either to attend his office or to produce, or cause to be produced, any evidence on which the assessee may rely in support of the return: Provided that no notice under this subsection shall be served on the assessee after the expiry of [six months from the end of the financial year] in which the return is furnished. (3) On the day specified in the notice issued under subsection (2), or as soon afterwards as may be, after hearing such evidence. As the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into accdunt all relevant material, which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the value of the fringe benefits paid or payable by the assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such assessment. (4) Where a regular assessment under section 115WD(3) is made, (a) any tax or interest paid by the assessee u....
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....th the method as may be prescribed7 by the Board; (ii) "option" means a right but not an obligation granted to an employee to apply for the specified security or sweat equity shares at a predetermined price; (c) twenty per cent of the expenses referred to in clauses (A) to (L) of subsection (2) of section 115WB; (d) fifty per cent of the expenses referred to in clauses (M) to (P) of subsection (2) of section 115WB; (e) five per cent of the expenses referred to in clause (Q) of subsection (2) of section 115WB. (2) Notwithstanding anything contained in subsection (1),- (a) in the case of an employer engaged in the business of hotel, the value of fringe benefits for the purposes referred to in clause (B) of subsection (2) of section 115WB shall be "five per cent" instead of "twenty per cent" referred to in clause (c) of subsection (1); (aa) in the case of an employer engaged in the business of carriage of passengers or goods by aircraft, the value of fringe benefits for the purposes referred to in clause (B) of subsection (2) of section 115WB shall be "five per cent" instead of "twenty per cent" referred to in clause (c) of subsection (1); (ab) in the case of an empl....
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....on 115WD (1) Without prejudice to the provisions contained in section 139, every employer who during a previous year has paid or made provision for payment of fringe benefits to his employees, shall, on or before the due date, furnish or cause to be furnished a return of fringe benefits to the Assessing Officer in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, in respect of the previous year. Explanation.In this subsection, "due date" means : (a) where the employer is (i) a company ; or (ii)a person (other than a company), whose accounts are required to be audited under this Act or under any other law for the time being in force, the [30th day of September] of the assessment year (b) in the case of any other employer, the 31st day of July of the assessment year. (2) In the case of any employer who, in the opinion of the Assessing Officer, is responsible for paying 'fringe benefit tax under this Act and who has not furnished a return under subsection (1), the Assessing Officer may, after the due date, issue a notice to him and serve the same upon him, requiring him to furnish within thirty da....
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....ensure that the assessee has not understated the value of fringe benefits or has not underpaid the tax in any manner, serve on the assessee a notice requiring him on a date to be specified therein, either to attend his office or to produce, or cause to be produced, any evidence on which the assessee may rely in support of the return: Provided that no notice under this subsection shall be served on the assessee after the expiry of [six months from the end of the financial year] in which the return is furnished. (3) On the day specified in the notice issued under subsection (2), or as soon afterwards as may be, after hearing such evidence. As the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into accdunt all relevant material, which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the value of the fringe benefits paid or payable by the assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such assessment. (4) Where a regular assessment under section 115WD(3) is made, (a) any tax or interest paid by the assessee un....
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....deemed to be cases where fringe benefits chargeable to tax have escaped assessment, namely: (a) where no return of fringe benefits has been furnished by the assessee; (b) where a return of fringe benefits has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the value of fringe benefits in the return; (c) where an assessment has been made, but the fringe benefits chargeable to tax have been underassessed. Section 15WH. Issue of notice where fringe benefits have escaped assessment. (1) Before making the assessment or reassessment under section 115WG, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period as may be specified in the notice, a return of the fringe benefits in respect of which he is assessable under this Chapter during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, and the provisions of this Chapter shall, so far as may be, apply accordingly as if such return were a return require....
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.... him is less than thirty per cent. of the value of fringe benefits paid or payable in that quarter, he shall be liable to pay simple interest at the rate of one per cent. on the amount by which the advance tax paid falls short of, thirty per cent. of the value of fringe benefits for any quarter, for every month or part of the month for which the shortfall continues. Section 115WK. Interest for default in furnishing return of fringe benefits. (1) Where the return of fringe benefits for any assessment year under subsection (1) or subsection (3) of section 115WD or in response to a notice under subsection (2) of that section, is furnished after the due date, or is not furnished, the employer shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the date immediately following the due date, and,- (a) where the return is furnished after the due date, ending on the date of furnishing of the return; or (b) where no return has been furnished, ending on the date of completion of the assessment under section 115WF, on the amount of the tax on the value of fringe benefits as determined under subsecti....
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....g additional tax benefit on the prescribed assessees in the form of FBT, with effect from 01.04.2006. Section 115WA of the Act prescribes that in addition to the income tax chargeable under the Act, there shall be charge for every assessment year commencing on or after 01.04.2006, additional Income Tax (FBT) in respect of Fringe Benefits provided or deemed to have been provided by an employer to his employees during the relevant previous year. Section 115WB of the Act describes Fringe Benefit which are liable to charge of FBT as prescribed in section 115WA of the Act. Subsection (1) of section 115WB prescribes that "for the purposes of this Chapter, "fringe benefit" means any consideration for employment provided by way of .....". The presence of the expression "any consideration for any employment" is significant and section 115WB(1), inasmuch as the benefits by way of clause (a) to (d) listed therein are directed to its employees (including former employee or employees). Section 115WB is an interpretation section. It is in two parts. It provides for a direct meaning under section 115WB(1). It also has an expanded meaning. The expanded meaning of the said provision is contained in....
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....ng the previous year. Indisputably, subsection (3) refers to subsection (1) only. Ex facie, it does not have any application in regard to the matters which have been brought within the purview of the fringe benefit tax by reason of application of the deeming provision. We are concerned here with a question in regard to grant of exemption in respect of 'conveyance' as provided for in clause (F) of subsection (2) and 'tour and travel' which is provided for in clause (Q) of subsection (2) of Section 115WB. 14. CBDT categorically states in answer to question number 7 that subsection (2) provides for an expansive definition. Does it mean that subsection (2) is merely an extension of subsection (1) or it is an independent provision? If subsection (2) is merely an extension of subsection (1), Mr. Ganesh may be right but we must notice that Section 115WA provides for imposition of tax on expenditure incurred by the employer or providing its employees certain benefits. Those benefits which are directly provided are contained in subsection (1). Some other benefits, however, which the employer provides to the employees by incurring any expenditure or making any payment for ....
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....6. Thus, when the expenditure incurred by the employer so as to enable the employee to undertake a journey from his place of residence to the place of work or either reimbursement of the amount of journey or free tickets therefor are provided by him, the same, in our opinion, would come within the purview of the term 'by way of reimbursement or otherwise'. The Advanced Law Lexicon defines "otherwise" as: "By other like means; contrarily; different from that to which it relates; in a different manner; in another way; in any other way; differently in other respects in different respects; in some other like capacity." "Otherwise" is defined by the Standard Dictionary as meaning 'in a different manner, in another way; differently in other respects'; by Webster, 'in a different manner; in other respects'. As a general rule, 'otherwise' when following an enumeration, should receive an ejusdem generis interpretation (per CLEASBY, B. Monck v. Hilton, 46 LJMC 167, The words 'or otherwise', in law, when used as a general phrase following an enumeration of particulars, are commonly interpreted in a restricted sense, as referring to such other matters as a ar....
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.... shall be deemed that "fringe benefit" has been provided by the "employer to the employees". Section 115WB(2) is a deeming provision. As observed hereinabove section 115WB(1) is directly relatable to the benefits given by the employer to his employees, family of the employees or past employees. If the submission on behalf of the petitioners / assessees that Fringe Benefit is leviable only on the benefit provided by the employer to the employees and/or on the expenses incurred by the employer with respect to the benefits relatable to the employees only, in that case subsection (2) of section 115WB would become redundant. If the intention of the legislature was such, in that case the legislature would not have provided subsection (2) of section 115WB and would not have provided the word "deemed". As observed by the Hon'ble Supreme Court in the case of R & B Falcon (A) PTY Ltd. (Supra), subsection (2) of section 115WB is independent and subsections (1) and (2) of section 115WB operate in different fields. As observed by the Hon'ble Supreme Court in the said decision, by reason of legal fiction created the services provided mentioned in subsection (a) to (p) in subsection (2) of sectio....
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....ambiguous. As observed hereinabove, section 115WA is a charging section and sections 115W and 115WB can be said to be explanatory sections. "FBT" or "tax" under Chapter XIIH is defined under section 115WB. As per section 115WB, "FBT" or "Tax" means the tax chargeable under Section 115WA. As per section 115WA, which can be said to be a charging section, in addition to the income tax charged under the Act, there shall be charge for every assessment year commencing on or after the 1st of April 2006, additional income tax (FBT) in respect of the Fringe Benefit provided or deemed to have been provided by an employer to his employees during the previous year. It also further provides that the tax on Fringe Benefit shall be payable by such employer notwithstanding that no income tax is payable by such an employer on his total income computed in accordance with the provisions of the Act. Thus, as per section 115WA, FBT is liable to be paid in respect of the Fringe Benefit provided or deemed to have been provided by an employer to his employees. What can be said to be the "fringe benefits" is defined and/or explained under subsection (1) of section 115WB. Section 115WB, as observed hereinab....
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....ip is not relevant in interpreting fiscal statutes are well known principles. In Bengal Immunity Co. Ltd. vs. State of Bihar and Others, a sevenJudge Bench speaking through majority in paragraph 43 (at pg. 685) of the Judgment while dealing with hardship in the statutes stated as follows : "..........If there is any real hardship of the kind referred to, there is Parliament which is expressly invested with the power of lifting the ban under cl. (2) either wholly or to the extent it thinks fit to do. Why should the Court be called upon to discard the cardinal rule of interpretation for mitigating a hardship, which after all may be entirely fanciful, when the Constitution itself has expressly provided for another authority more competent to evaluate the correct position to do the needful?" [12.1] In Commissioner of Income Tax, Madras v. R.SV. Sr. Arunachalam Chettiar, a three-Judge Bench of the Hon'ble Supreme Court, inter alia, observed inparagraph 13 (at pgs. 122021) of the Judgment, "equity is out of place in tax law; a particular income is either exigible to tax under the taxing statute or it is not." In the Income Tax Officer, Tuticorin v. T.S. Devinatha Nadar etc., this C....
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....larly when the vires of sections 115WA and/or 115WB are not under challenge and as observed hereinabove, the aforesaid statutory provisions are required to be read as they are. [13.0] In view of the above and for the reasons stated above and considering the provisions of Sections 115W, 115WA, 115WB(1) and 115WB(2) as they are, the CBDT has rightly clarified that with respect to the expenses incurred by the assessee / employer for the services / activities referred to in clause (A) to (P) of subsection (2) of Section 115WB, there shall be FBT, is absolutely just and proper and in consonance with the provisions of the Statute more particularly sections 115WA, 115WB and 115WC. The clarifications made by the CBDT in the impugned circular cannot be said to be contrary to the provisions of the Statute more particularly Sections 115W, 115WA, 115WB(1) and 115WB(2). Under the circumstances, the challenge to the impugned circular fails and it is held that the FBT is leviable on the expenses referred to in clauses (A) to (P) of subsection (2) of Section 115WB as they are deemed to be the fringe benefits deemed to have been provided by the employer to his employees. Under the circumstances,....