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Income-Tax Officer, ... v. M/S Cadila Healthcar...

Income Tax Appellate Tribunal

Jul 29, 2011

Judgment

Subsequent
References

CaseIQ

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Structured Summary of the Tribunal Opinion

Factual and Procedural Background

These are two appeals by the Revenue against orders dated 07-08-2009 of the learned CIT (Appeals)-X, Ahmedabad for Assessment Years 2008-2009 and 2009-2010. The Revenue challenged the deletion by the CIT(A) of demands raised by the Assessing Officer (ITO-TDS-1) under section 201(1) and interest under section 201(1A) of the Income-tax Act.

A survey on 08-07-2008 at the premises of Cadila Healthcare Ltd. disclosed payments by the assessee to Sodexo Pass Services (India) Pvt. Ltd. for Sodexo Lunch Coupons: Rs. 1,01,90,400 for FY 2007-2008 and Rs. 25,20,400 for FY 2008-2009. The AO held that tax should have been deducted under section 192 because these coupons were perquisites under section 17(2) of the Income-tax Act. The assessee maintained that such coupons fell within the scope of Fringe Benefit Tax (FBT) under section 115WB and, in particular, that non-transferable paid vouchers usable only at eating joints were excluded from the FBT levy and from being treated as perquisites. The AO disagreed, concluding that coupons could be exchanged in departmental stores and might be misused; consequently demands and interest were raised for the two assessment years.

On appeal the learned CIT(A) deleted the AO's demands (for both years) after considering the statutory amendments (Finance Act, 2005), Rule 3(7)(iii) of the Income-tax Rules as amended, clause 115WB(2)(B)(ii), the absence of material demonstrating misuse, and authority of the Gujarat High Court in Commissioner of Income-Tax (Tds) v. Reliance Industries Ltd. The Revenue appealed to the Tribunal, which heard the parties and dismissed both appeals.

Legal Issues Presented

Whether the learned CIT(A) erred in deleting the orders passed by the Assessing Officer under section 201(1) and in deleting interest charged under section 201(1A) of the Income-tax Act for the assessment years 2008-2009 and 2009-2010.
Whether, on the facts and in the circumstances, the Assessing Officer's order upholding tax deduction under section 192 should have been sustained by the CIT(A) and the Tribunal.

Arguments of the Parties

Appellant (Revenue) / Assessing Officer

The AO (and the Revenue before the Tribunal) contended that payments for Sodexo Lunch Coupons constituted perquisites under section 17(2) of the Income-tax Act, and therefore the employer was obliged to deduct tax at source under section 192.
It was asserted that the coupons were not confined to use at eating joints and could be exchanged against purchases in departmental stores, implying that the conditions for exceptions under section 115WB(2)(B)(ii) / Rule 3(7)(iii) were not met.
The Revenue, through its Departmental Representative, supported the AO's order and argued that the CIT(A) should not have deleted the demands.

Respondent (Assessee / Cadila Healthcare Ltd.)

The assessee argued that Sodexo Lunch Coupons were not perquisites under section 17(2) because, after the introduction of Fringe Benefit Tax (Finance Act, 2005), items within FBT's scope were excluded from the definition of perquisite.
The assessee relied on the statutory exception (section 115WB(2)(B)(ii)) and the amended Rule 3(7)(iii) which excludes paid vouchers that are not transferable and usable only at eating joints from perquisite valuation/FBT liability.
The assessee pointed to CBDT Circular No. 8/2005 (Question 53) as supporting the position that such vouchers could not be taxed as perquisites when they met the stipulated conditions.
For authority, the assessee relied on the decision of the Hon'ble Gujarat High Court in Commissioner of Income-Tax (Tds) v. Reliance Industries Ltd. and also cited the decision of the Hon'ble Supreme Court in CIT v. Larsen and Toubro Ltd. (as additional supporting precedent).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Commissioner of Income-Tax (Tds) v. Reliance Industries Ltd., 308 ITR 82 (Guj)	Held that where meal coupons are distributed under an arrangement limiting use to specified eating joints, not transferable and within prescribed limits, the employer cannot be held liable to deduct tax at source merely because some employees might misuse the coupons; primary liability to offer for tax is that of the employee.	The Tribunal (bench) relied on this High Court decision as directly analogous and persuasive. It accepted that the AO had not produced material of misuse and therefore upheld the CIT(A)'s deletion of demands.
CIT v. Larsen and Toubro Ltd., [2009] 313 ITR 1 (SC)	The opinion records that this Supreme Court decision was cited by the assessee (learned AR) before the Tribunal.	The Tribunal's summary notes the citation by the assessee, but the written reasoning records reliance primarily on the jurisdictional High Court decision and the lack of contrary material from the Revenue. The Tribunal did not describe a distinct, independent application of Larsen & Toubro in its reasoning beyond recording that it was relied upon by the assessee.

Court's Reasoning and Analysis

The Tribunal's analysis proceeded in a sequential manner, grounded in the statutory text, the amended rules introduced with FBT, and the evidentiary record:

Statutory and regulatory framework:
- The Tribunal noted that the Finance Act, 2005 introduced provisions relating to Fringe Benefit Tax (FBT) effective from 01-04-2005 and that the relevant Rule 3(7)(iii) of the Income-tax Rules had been amended accordingly.
- The Tribunal reproduced the present text of Rule 3(7)(iii), including the proviso excluding paid vouchers which are not transferable and usable only at eating joints (subject to monetary limits) from valuation as perquisites.
- It also observed clause 115WB(2)(B)(ii) which excludes FBT on paid food vouchers that are not transferable and usable only at eating joints.
Application to facts:
- The Tribunal found as a fact, on the material before it, that the assessee had distributed Sodexo meal coupons pursuant to an agreement with Sodexo and that such coupons were to be used by employees only at specified eating joints or outlets.
- The AO had not produced evidence demonstrating actual misuse of the vouchers by employees during the relevant period; his conclusion of misuse was held to be conjectural.
Precedential support and evidentiary burden:
- The Tribunal relied on the Gujarat High Court decision in Reliance Industries Ltd., which held that an employer cannot be held liable to deduct tax at source merely because of possible misuse by some employees, and emphasised that TDS is employee-specific in operation and requires employee-wise deduction and credit.
- Given the lack of material from the Revenue to distinguish the present case from Reliance or to show actual misuse, the Tribunal concluded it could not take a different view from the CIT(A).
Conclusion on contentions:
- Because the statutory exception for non-transferable vouchers usable only at eating joints applied and because the AO had not proved misuse, the Tribunal upheld the CIT(A)'s deletion of the demands under sections 201(1) and 201(1A).
- Grounds 2 and 4 were general and not pressed with specific submissions before the Tribunal and therefore required no separate adjudication; ground 3 (a residuary leave to amend ground) raised no new additional ground and was not entertained. All such grounds were dismissed accordingly.

Holding and Implications

Holding: The Tribunal dismissed the Revenue's appeals and upheld the orders of the learned CIT(A). In particular, the Tribunal directed deletion of the demands raised by the Assessing Officer under section 201(1) and the interest under section 201(1A) insofar as they related to the Sodexo meal coupons for the relevant assessment years.

DISPOSITION: The appeals by the Revenue are dismissed and the CIT(A)'s orders deleting the AO's demands are upheld.

Implications:

The direct effect is that the AO's demands (and corresponding interest) concerning the Sodexo meal coupons were to be deleted as directed by the CIT(A) and affirmed by the Tribunal.
The Tribunal based its decision on the statutory scheme (the FBT provisions and amended Rule 3(7)(iii)), the absence of evidence of misuse, and on the authority of the jurisdictional High Court in Reliance. The opinion does not purport to establish a new principle of law beyond the application of these authorities and facts to the case at hand.

This summary is strictly confined to matters contained in the provided opinion and does not add, infer or interpret facts or law beyond what the opinion expressly records.

Show all summary ...

A.N Pahuja, A.M:— These two appeals by the Revenue directed against two separate orders dated 07-08-2009 of the ld. CIT (Appeals)-X, Ahmedabad for the Assessment Years 2008-2009 & 2009-2010, raise the following common grounds:

“[1] The Ld. CIT(A) erred in law as well as facts of the case in deleting the order passed u/s. 201(1) & interest charged u/s. 201(1A) of the I.T Act of Rs. 31,58,922/-& Rs. 6,72,566/- respectively for A.Y 2008-2009 and Rs. 7,81,299/-& Rs. 1,66,346/- respectively for the A.Y 2009-2010 by the AO.

[2] On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer.

[3] The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary.

[4] It is, therefore, prayed that the order of the Ld. CIT(A) may be cancelled and that of the Assessing Officer may be restored to the above effect.”

2. Adverting first to common ground no. 1 in these two appeals, facts, in brief, as per relevant orders are that a survey was undertaken in the premises of Cadila Healthcare Ltd. on 08-07-2008 when it was noticed that the assessee paid Rs. 1,01,90,400/- in FY 2007-2008 and Rs. 25,20,400/- in FY 2008-2009 to Sodexo Pass Services (India) Pvt. Ltd. [‘Sodexo’ in short] for purchase of Sodexo Lunch Coupons for use by their employees. The ITO-TDS-1 [‘AO’ in short] was of the opinion that the tax was required to be deducted by the assessee on these payments, the coupons having been provided to the employees by way of perquisites in terms of provisions of section 17(2) of the Income-tax Act, 1961 [hereinafter referred to as the “Act”]. To a query by the AO, the assessee replied that Sodexo Lunch Coupons given to the employees were not in the nature of perquisites as provided u/s. 17(2) of the Act and fell within the scope of the provisions of section 115WB of the Act, dealing with “Fringe Benefits”. It was explained by the assessee-company that with effect from 01-04-2005, the relevant provisions of Rule 3(7)(iii) of the IT Rules, 1962, relating to valuation of perquisites in the nature of provision of food vouchers to the employees of the company, were deleted with the introduction of the provisions of Fringe Benefits Tax[FBT]. Consequently, all items which were brought within the scope of the levy of FBT were excluded from the definition of ‘perquisite’ u/s. 17(2) of the Act. It was further explained that in terms of stipulations of section 115WB(2)(B), provision of hospitality of every kind by the employer to any person by way of provision of food or beverages or any other manner, was made liable to FBT. However, the following two exceptions were made:

(i) Any expenditure on, or payment for food or beverages provided by the employer to his employees in office or factory;

(ii) An expenditure on, or payment through food vouchers which are not transferable and usable only at eating joints or outlets.

Since the case of the assessee fell under the aforesaid exception (ii), therefore the provisions of FBT were not attracted in respect of provision of coupons to their employees. While referring to Question no. 53 of CBDT Circular No. 8/2005 dated 29-08-2005, the assessee contended that Sodexo Lunch Coupons given to employees by the assessee-company could neither be taxed in the hands of the employees as a perquisite nor in the hands of the assesseecompany for the purpose of FBT. Accordingly, the assessee pleaded that no demand u/s. 201(1) can be raised nor interest u/s. 201(1A) can be levied. However, the AO did not accept these submissions of the assessee while holding that the amount on which FBT had not been paid, was required to be treated as perquisite and formed part of the salary. Moreover, these coupons were not merely usable at eating joints or outlets and could be exchanged against any purchase in departmental stores and thus, the assessee did not fulfill the conditions mentioned in aforesaid exception (ii). Therefore, the assessee was required to deduct tax at source in terms of provisions of section 192 of the Act, the AO concluded. Accordingly, demand of Rs. 31,58,922/- u/s. 201(1) for FY 2007-2008 and Rs. 7,81,299/- for FY 2008-2009 was raised besides levy of interest u/s. 201(1A) of Rs. 6,72,566/- for FY 2007-2008 and Rs. 1,66,346/- for the FY 2008-2009.

3. On appeal, the learned CIT(A) allowed the claim of the assessee for the FY 2007-2008 in the following terms:

“5. I have considered the facts of the case and the submissions of the ld. A.R carefully. It is seen that the A.O has held that the Sodexho lunch coupons fall within the ambit of sec. 17(2) therefore required to be considered as perquisite i.e includible in the amount of salary of the recipients for the relevant period. He further concluded that since value of these coupons was part of salary the appellant was required to deduct tax at source on such amount under the provisions of sec. 192 of the Act

5.1 Therefore, in order to arrive at the taxability of impugned amount as perquisite it is to be seen whether the Sodexho lunch coupons are covered within the meaning of perquisite as envisaged u/s. 17(2) of the Act. In this regard a close examination of the language of sec. 17(2) is required, which lays an inclusive definition of ‘perquisite’. Clause (vi) of sec. 17(2) lays that the value of other Fringe Benefit of Amenity (excluding fringe benefit chargeable to tax) would be included within the meaning of perquisite.

5.2 Further w.e.f 1.4.2005 the provision of Rule 3(7)(iii) relating to valuation of any perquisite in the nature, of provision of food were deleted simultaneously with the insertion of the provisions of sec. 115WB relating to Fringe Benefit Tax. The provisions relating to FBT were inserted in the Act through the Finance Act 2005 and were made effective from A.Y 2006-2007. It may be seen that all the items which were brought within the ambit of FBT were brought out from the scope of perquisite u/s. 17(2) of the Act.

5.3 The exclusion of food vouchers from Rule 3(7)(vii) of IT Rules and insertion thereof for the purposes of FBT clearly shows the intention of the legislation to keep such expenditure of the companies within the ambit of FBT only. However, as per clause 115WB(2)(B)(ii) the FBT is not payable on the expenditure on payment through paid vouchers which are not transferrable and usable only at eating joints or outlets.

4 Therefore, in view of the above the A.O's observations, that since the Sodexho lunch coupons have might been misused by the employees they are not covered within the meaning of section 115WB(2)(B)(ii), are not based on correct appreciation of law. The A.O while deciding the issue against the appellant has not brought on record any instance of misuse of such vouchers by the recipient employees of the appellant company during the relevant period. The conclusion drawn by the A.O is based on conjectures and surmises. It will not be out of place to mention here that Hon'ble Gujarat High Court in the case of Commissioner Of Income-Tax (Tds) v. Reliance Industries Ltd. 308 ITR 82 has held that for possible misuse of such type of coupons, the assessee cannot be held liable as to warrant deduction of tax at source. The relevant extract of the decision are as under:

“Admittedly, in the present case, it is an accepted position between the parties that the respondent-assessee had distributed such meal Coupons pursuant to an agreement with Accor and such coupons were to be used by the employees only ‘at the specified eating joints, including canteen at the Hajira premises of’ the respondent-assessee, such coupons were not transferable and the value of each coupon did not exceed the specified monetary limit. In this context, both the Commissioner (Appeals) and the Tribunal have concurrently found that the assessee had taken all necessary steps to comply with the requirement of the provisions and no default could be ascribed to the assessee merely because some employees misused the facility provided.

Learned senior standing counsel appearing for the appellant had contended in this context that for the first period, namely, April, 2003, to November, 2003, the inquiries had been undertaken on September 25, 2003 and, therefore, even if the findings of the appellate authorities that the assessee had acted bona fide were to be accepted yet for the second period, covering December, 2003, to March, 2004, the assessee became liable as the assessee could not thereafter claim any bona fides.

The said contention proceeds on a misconception as to the relevant provisions stipulated by the rule in question. The assessee at the time of issuance of coupons' cannot envisage as to which of the employees would misuse the Coupons because the liability to deduct tax at source is corelated with the taxability of the amount in the hands of a particular employee and there can be no case of estimation on percentage basis. The primary liability to offer the amount for tax is that of the employee concerned and it is only by a prescribed mode of recovery that the employer is required to deduct tax at source. Needless to state that such deduction has to be specifically employee-wise and the employer cannot be called upon to presume that a particular percentage of employees, out of the total workforce, shall misuse the facility so as to warrant deduction of tax at source. Furthermore, correspondingly such tax deducted at source has to be given credit of to the employee concerned-in the assessment of the employee and unless and until the tax deduction certificate specifies the employee concerned there can be no corresponding credit given to the employee.

In the circumstances it is not possible to accept the stand of the appellant Revenue that the Tribunal has committed any error in law so as to warrant interference giving rise to a substantial question of law, qua the first issue.”

5.5 Therefore, keeping in view the aforesaid legal position, the appellant cannot be held liable for deduction of tax at source on the amounts of free meal coupons distributed by it to its employees under reference. In view of this, the A.O is directed to delete the demand raised by him against the assessee on such amount under the provisions of sec. 201(1) and 201(1A) of the Act.”

3.1 Similar view was taken in the FY 2008-2009.

4. The Revenue is now in appeal before us against the aforesaid findings of the learned CIT(A) in these two years. The learned DR supported the order of the AO while the learned AR on behalf of the assessee relied on the findings of ld. CIT(A) and the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Reliance Industries Ltd. [2008] 175 Taxman 367 (Guj) and the decision of the Hon'ble Supreme Court in the case of CIT v. Larsen and Toubro Ltd. [2009] 313 ITR 1 (SC).

5. We have heard both the parties and gone through the facts of the case as also the decisions relied upon. Indisputably, the assessee distributed ‘sodexo’ meal coupons pursuant to an agreement with ‘Sodexo’ and such coupons were to be used by the employees only at the specified eating joints or outlets. With the introduction of provisions relating to FBT by the Finance Act, 2005 with effect from 01-04-2005, the relevant provisions of Rule 3(7)(iii) of the IT Rules, 1962 relating to valuation of any perquisite in the nature of provision of food provided by the employer were amended. The said rule now reads as under:

“3(7)(iii) The value of free food and non-alcoholic beverages provided by the employer, who is not liable to pay fringe benefit tax under Chapter XII-H of the Act, to an employee shall be the amount of expenditure incurred by such employer. The amount so determined shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity:

Provided that nothing contained in this sub-rule shall apply to free food and non-alcoholic beverages provided by such employer during working hours at office or business premises or through paid vouchers which are not transferable and usable only at eating joints, to the extent the value thereof in either case does not exceed Rs. 50 per meal or to tea or snacks provided during working hours or to free food and non-alcoholic beverages during working hours provided in a remote area or an off-shore installation.”

5.1 Moreover, as per clause (ii) of section 115WB(2)(B) of the Act, even FBT was not payable by the employer on the expenditure incurred through paid food vouchers which were not transferable and usable only at eating joints or outlets. Inter alia, since the AO did not bring any material on record that Sodexo Lunch Coupons were misused by the employees, the learned CIT(A) while relying upon the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Reliance Industries Ltd. [2008] 175 Taxman 367 (Guj), concluded that the assessee was not liable to deduct tax at source on expenditure incurred on Sodexo Lunch Coupons given to the employees of the company. In the cited decision, the assessee company claimed that amount paid to “Accor” food meal coupons provided to the employees was not taxable perquisite within the meaning of rule 3(7)(iii) of the Income-tax Rules and therefore, did not deduct the tax at source on this amount. However, the AO held otherwise. On appeal, the ITAT accepted the plea of the assessee. On further appeal, Hon'ble High Court observed that

“the primary liability to offer the amount for tax is that of the employee concerned and it is only by a prescribed mode of recovery that the employer is required to deduct tax at source. Needless to state that such deduction has to be specifically employee-wise and the employer cannot be called upon to presume that a particular percentage of employees, out of the total workforce, shall misuse the facility so as to warrant deduction of tax at source. Furthermore, correspondingly such tax deducted at source has to be given credit of to the employee concerned in the assessment of the employee and unless and until the tax deduction certificate specifies the employee concerned there can be no corresponding credit given to the employee.

5.2 In the light of view taken in the aforcited decision by the Hon'ble jurisdictional High Court and the Revenue having not placed any material before us so as to enable us to take a different view in the matter, nor cited any contrary decision, we have no alternative but to uphold the findings of the learned CIT(A). Therefore, ground no. 1 in the appeal is dismissed.

6. Ground nos. 2 & 4 in these appeals, are general in nature nor any submissions having been made before us on these grounds, dos not require any separate adjudication while no additional ground having been raised before us in terms of residuary ground no. 3 in these appeals, therefore, all these grounds are dismissed.

7. In the result, these two appeals are dismissed.