Thursday, June 30, 2011

Whether when only 40% income of a tea company is chargeable to tax, even F



Whether when only 40% income of a tea company is chargeable to tax, even FBT liability arises only on 40% of expenses - NO, rules ITAT

THE issues before the Tribunal are - Whether FBT is payable even in the absence of any taxable income; Whether provision of section 115-O & 115WA are pari-materia and hence FBT is leviable only to the extent of those expenses which are directly relatable to the Income taxable under the Income Tax Act and Whether when only 40% income of a tea company is chargeable to tax, even FBT liability arises on only 40% of expenses. And the verdict goes against the assessee.

Facts of the case

Assessee company is engaged in the business of growing, manufacturing and sale of tea. It filed its return of income declaring 40 % of FBT value on the ground that only 40 % income is chargeable to tax under the Income Tax Act and hence FBT is leviable only to that extent. A.O. negated the claim of the assessee and charged FBT on 100 % of the expenses. The CIT(A) reduced the FBT to 40 %. Appeal was filed before the ITAT where the DR pointed out that FBT had nothing to do with the chargeable Income under Income Tax Act.

After hearing the parties, the Tribunal held that,

++ as per Rule 8 of Income Tax Rules in the case of a tea company, only 40% of the total net income is liable to pay tax under the Income Tax Act at the prescribed rate and the balance 60% is to be considered as agricultural income, which is not liable to be taxed under the Income Tax Act, 1961 as it is within the domain of the State. The thrust of the submission of the A.R. is that FBT is an additional tax on the assessee-company and it is pari materia with the provisions of section 115-O of the Income Tax Act and relying on the decision of the Jurisdictional High Court in the case of Jayshree Tea and Industries Ltd. & Another submitted that the additional tax liability will also be to the extent of 40% of the expenditure incurred by the assessee and as such fringe benefit tax is to be computed by taking into account 40% of the expenditure claimed by the assessee. There is no merit in the contention of the A.R. The decision of the High Court in the case of Jayshree Tea and Industries Ltd. deals in respect of the provision of section 115-O of the Income Tax Act and it provides that when there is a declaration of dividend out of current or accumulated profit by the Company, it shall be charged to additional income-tax at the prescribed rate. Thus the said additional tax under section 115-O is leviable on distribution of the profits by a Company;

++ in the case of fringe benefits tax, it is leviable as per provisions contained in Chapter XII-H of the Income Tax Act. Fringe Benefit Tax, is basically the tax on the expenses incurred by the assessee to provide certain privilege, facility or amenities to its employees. Fringe Benefit Tax is payable even if no tax is payable by an employer. Therefore, FBT is not linked with the income of an employer but it is with reference to the expenditure incurred by the employer on the benefits/ privileges provided to its employees. Hence, there is merit in the contention of the D.R. that there is no similarity between the provision of section 115WA, vis-à-vis section 115-O of the Income Tax Act. In view of the above, the decision of the Apex Court in the case of Doom Dooma India Ltd. is not relevant to the issue;

++ following the earlier order of the Coordinate Bench and in the light of the discussion hereinabove, the order of the CIT(Appeals) is reversed and the action of the Assessing Officer is upheld.

Revenue's appeal allowed.

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