FBT - In absence of proximate purpose of expenses incurred by assessee company for agencies cannot be treated as fringe benefit
BANGALORE, AUG 09, 2010: THE issue is - When there is no proximate purpose of the expenses paid by the assessee company for its agencies other than the employees then whether the same can be considered as fringe benefit under the deeming provision of section 115WB(2) of Act. And the answer is NO.
Facts of the case
Assessee, an Electricity Supply Company, filed the return of income on 27.11.2006 declaring NIL income and book profit of Rs.27,86,58,020/- u/s 115JB. The A.O. assessed the income at Rs.32,33,81,280/- after making certain disallowances and additions. The assessee also filed the return of fringe benefit u/s 115WE declaring total value of fringe benefits at Rs.11,55,82,989/-. A notice u/s 115WE(2) was issued to the assessee on 6.8.2008 calling for the details of the fringe benefits. The assessee vide letter dated 15.12.2008 furnished the details, according to which, the vehicle hire expenses were of Rs.1,02,05,805/- and the assessee stated that the vehicles were hired by the company to be used by the officers exclusively for the official purpose and not used for any tours and travel. The AO was however not satisfied with the assessee's explanation and held that this is a facility provided by the assessee company to its employees/officers for conveyance purpose and therefore, it is covered by section 115WB(F) in respect of fringe benefit and added 20% of the vehicle hiring charges i.e. Rs.20,41,161/- to the total value of the fringe benefits.
CIT(A) observed on the basis of the Circular No.8/2005 dated 29.8.2005 issued by the CBDT, that the word "purposes" used in sub-section 2 refers to the proximate purpose and not the distant purpose and that the proximate purpose of expenses is for conveyance of employees within the meaning of clause (F) of section 115WB(2) and the proximate purpose of expenses mentioned in clause (iii) of paragraph 5 is for conveyance of employees within the meaning of clause (F) of section 115WB(2). He thereafter held that the A.O. was right in including vehicle hire charges as the total value of fringe benefits to the extent of Rs.33,15,367/- representing conveyance paid indirectly to employees and directed the AO to restrict the addition to 20% of the same which works out to Rs.6,63,073/-. As regards to the remaining addition, he deleted the same, as these are the expenses incurred for agencies other than employees.
Being aggrieved the Revenue filed appeal before the tribunal which held that:
++ 115WB(3) provides that for the purposes of sub-section (1), the privilege, service, facility or amenity does not include perquisites in respect of which tax is paid or payable by the employee [or any benefit or amenity in the nature of free or subsidized transport or any such allowance provided by the employer to his employees for journeys by the employees from their residence to the place of work or such place of work to the place of residence.
++ It can be seen that what is intended to be taxed is a benefit attributable to employees collectively but the transport services for workers and staff are to be outside the tax net. In the case before us, items 1, 2 and 3 considered by the CIT(A) are for the purposes of carrying on the business activities of the assessee company by the agencies of the assessee company and it is only item 4, which is spent on the employees for attending the meetings, inspections and other official functions. From the reading of the provisions of section 115WB(2), it is clear that the benefits given to an employee directly or indirectly only would be taxable under Chapter XII-H. As rightly pointed out by the CIT(A), the other expenditure is incurred for agencies other than the employees, who are outside the scope of the provisions of section 115WB(2). Therefore, we do not see any reason to interfere with the order of the CIT(A).
Dear Friends : The emails are schedule to be posted in the blog and will sent to the group on carious dates and time fixed. Instead of sending it on one day it is spread on various dates.
regards. R R Makwana