Whether, for levy of FBT, meaning of word 'construction' in Sec 115WC is re

Whether, for levy of FBT, meaning of word 'construction' in Sec 115WC is restrictive and includes only civil construction within its realm - NO, rules ITAT

THE issue before the Bench is - Whether, for the levy of FBT, the connotation of the word 'construction' in Sec 115WC is restrictive and includes only civil construction works within its realm. And the final ruling goes in favour of the assessee.

Facts of the case

Assessee Company is engaged in the business of manufacturing of specialized equipment of solid and waste and a liquid waste treatment for industries and communities and these equipments were known as Twin Wire Belt Filter Press for Sludge Management - Major portion of the assessee's activities included construction of civil structures - AO while framing the assessment rejected the submission of the assessee for levyng FBT @ 5% and levied 20% rate. CIT(A) affirmed the order of the AO.

On appeal, the Tribunal held that,

++ as per provisions of sec. 115WC(2)(b) in the case of an employer who is engaged in the business of construction, the value of fringe benefit shall be taken @ 5%. The question before us is that whether or not assessee engaged in the business of construction. The word "construction" has not been defined in the Act. Therefore, its ordinary meaning in common parlance has to be taken. The definitions as given in aforementioned two dictionaries have already been reproduced. If those definitions are kept in mind, the word "construct" cannot be restricted only to civil construction. It includes in its ambit pile or put together, build, make, to form by putting together parts; frame; devise; to draw, as a figure, so as to fulfill given conditions, the result of intellectual perception and consideration of things and ideas receive through the senses. It also includes construction of a housing estate/construct a bridge build, erect, put up, set up, raise, elevate, establish, assemble, manufacture, fabricate, make, construct a plan/theory form, formulate, put together, create, devise, design, invent, compose etc;

++ the word "construction" though mainly connected to the building but it includes within its ambit a bridge under construction building, erection, elevation, establishment, assembly, manufacture, fabrication. It also includes an impressive construction structure, building, edifice, assembly, framework. Therefore, its ambit has not been restricted to only to construction of building. It includes impressive construction structure, building, edifice, assembly, framework etc. The nature of plants made by the assessee-included fixation of certain equipments on land for managing waste and it included also certain degree of civil construction. A structure is created through which the waste is managed by those equipments. It also requires land to establish such erections and to put plant thereon. Therefore, it cannot be said that assessee's activity does not involve business of construction.

FBT - In absence of proximate purpose of expenses incurred by assessee com

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). 

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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

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