Citation Codes

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Case Number

ITA Nos. 1224 to 1226.Bang/2013 Assessment years : 2007-08 to 2009-10

Attorney(S)

Appellant by: Shri Farahat Hussain Qureshi, CIT-II(DR)
Respondent by: Shri B.K Manjunath, C.A

Judges

N.V Vasudevan, J.M
Jason P. Boaz, A.M

Acts

SECTION 17 INCOME TAX ACT
section 115WE(3) of the Income-tax Act, 1961 ("the Act").

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Smart Summary

Structured Summary of the Tribunal Order (Revenue Appeals re: Fringe Benefits Tax)

Factual and Procedural Background

These are appeals by the Revenue against three orders dated May 30, 2013 of the Commissioner of Income-tax (Appeals)-III, Bangalore, concerning assessment years 2007-08 to 2009-10. The appeals raise identical grounds.

The assessee is a company engaged in manufacture of computer software and related services (also described elsewhere as a company in fast-moving consumer products for different issues). The assessee filed returns of fringe benefits for the assessment years in question. The Assessing Officer (AO) determined chargeable value of fringe benefits under section 115WE(3) of the Income-tax Act, 1961 and made additions on account of:

Reimbursement of medical expenses to employees — AO held the exempt portion up to Rs. 15,000 was liable to fringe benefits tax (FBT) under sub-clause (e) of section 115WB(2).
Sales promotion / bundled free products — AO treated bundled-product outlays as liable to FBT invoking section 115WB(2)(D) and section 115WC(1)(c), assessing 20% of the outlay as taxable fringe benefits.
Payments in relation to trainees (fees, venue charges, scholarships) associated with BITS training — AO treated these as scholarships/benefits chargeable to FBT under section 115WB(2)(P) and taxed 50% as per clause (d) of section 115WC(1).

On appeal, the Commissioner of Income-tax (Appeals) (CIT(A)) deleted the additions in each matter by following the Tribunal's earlier decision in the assessee's own case for assessment year 2006-07 (I.T.A. No. 24(BNG)/2010). The Revenue appealed to this Tribunal on specific grounds (numbered and summarized below).

Legal Issues Presented

Whether reimbursement of medical expenses to employees up to Rs. 15,000 (exempt in the hands of the employee) is liable to fringe benefits tax under section 115WB(2), despite that exemption in the employee's hands.
Whether sales promotion expenses, including expenditure on bundled or free products provided to customers, are liable to fringe benefits tax under the deeming provisions of section 115WB(2) and related provisions when a company bundles products as part of commercial sales.
Whether expenses incurred towards training (course fees, venue hiring charges) and scholarships/stipends provided to trainees (associated with BITS) are liable to fringe benefits tax under section 115WB(2)(P) and related provisions, notwithstanding exemptions under section 10(16) in the hands of trainees.

Arguments of the Parties

Revenue / Departmental Representative (Appellant)

Contended that the CIT(A) erred in holding that the assessee is not liable for FBT for: (a) medical reimbursement up to Rs. 15,000; (b) sales promotion/bundled-product expenses; and (c) fees/venue charges and scholarships for trainees.
For the medical reimbursement issue, argued that the exempt amount in the hands of the employee is nonetheless subject to FBT because the proviso to section 17(2) only treats excess over Rs. 15,000 as perquisite in the employee's hands; hence the Revenue should tax the exempt portion under FBT.
Pointed out that the Tribunal's order in the assessee's own case (I.T.A. No. 24(BNG)/2010) was not accepted by the Department and further appeal was filed before the High Court of Karnataka (pending adjudication), implying the Revenue sought to keep the matter alive.
Before the Tribunal in this appeal the Departmental representative reiterated these points and supported the AO's original assessments and the grounds of appeal.

Assessee (Respondent)

Medical reimbursements: Contended that reimbursements up to Rs. 15,000 are perquisites exempt in the hands of employees and therefore should not attract FBT. Argued such payments are consideration for employment falling within section 115WB(1) but are not taxable in the hands of employees, and FBT cannot be levied merely because such perquisites are not taxed up to Rs. 15,000 in the employees' hands.
Bundled products / sales promotion: Argued the bundling arrangement is in the nature of a collateral contract and should be treated as purchase cost rather than benefit to employees; no benefit accrues to employees because customers, not employees, are the beneficiaries.
Training and scholarships (BITS): Contended payments (stipends, course fees, etc.) are related to education/training and are exempt under section 10(16). The trainees are not employees of the assessee; therefore any benefit is not a collective enjoyment by employees and should not attract FBT.
On appeal, relied on Tribunal decisions (including the assessee's own prior Tribunal decision in I.T.A. No. 24(BNG)/2010) and Tribunal decisions such as Toyota Kirloskar Motor Pvt. Ltd. and others to support deletion of the AO's additions.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
I.T.A. No. 24(BNG)/2010 (assessee's own case for AY 2006-07)	The Tribunal held that (a) reimbursements for approved hospital payments and their reimbursements by employer do not attract FBT when treated as exempt perquisites in hands of employees; (b) bundled product/costs and training-related payments did not amount to collective benefits to employees and thus not leviable to FBT.	The Tribunal in the present appeals followed this earlier decision of the Tribunal in the assessee's own case and upheld the CIT(A)'s deletions of the AO's additions in respect of medical reimbursements, bundled product outlay, and training/scholarship expenditures.
Bosch Ltd. (B Bench of the Tribunal) — cited in I.T.A. No. 24(BNG)/2010	Held that payments made by employees to approved hospitals and subsequent reimbursement by employer do not attract FBT; if a perquisite is exempt in the hands of the employee it cannot be subjected to FBT.	The Tribunal in the assessee's own case relied on this reasoning; the present Tribunal followed the same principle to reject the Revenue's contention on medical reimbursements.
Toyota Kirloskar Motor Pvt. Ltd., I.T.A. Nos. 20(B)/2011 and 88(B)/2011 (dated May 11, 2011)	Held that any expenditure which is not incurred directly or indirectly for the benefit of employees is not liable to FBT.	The Tribunal relied on Toyota Kirloskar to conclude that bundled-product expenditures and training-related expenditures were not benefits to employees (customers or trainees were beneficiaries), and therefore such expenditures did not attract FBT.
Vijaya Bank v. Jt. CIT LTU, I.T.A. No. 1066(B)/2010 (dated October 26, 2011) — cited within Toyota Kirloskar reasoning	Used to support the proposition that FBT is not leviable in the absence of collective enjoyment of benefits by employees.	The Tribunal noted that Toyota Kirloskar considered Vijaya Bank and applied the collective-enjoyment principle; following Toyota Kirloskar, the Tribunal held that where trainees are not employees, there is no FBT liability.

Court's Reasoning and Analysis

The Tribunal heard the Departmental representative and considered the record and prior Tribunal decisions. The Tribunal's analysis proceeded issue-by-issue, primarily by reference to its earlier decision in the assessee's own case (I.T.A. No. 24(BNG)/2010) and other coordinate Bench decisions (Bosch Ltd., Toyota Kirloskar, Vijaya Bank).

On the medical reimbursement issue (Grounds 2 and 3):

The AO held that reimbursement up to Rs. 15,000 (exempt in employee's hands) was nevertheless liable to FBT under sub-clause (e) of section 115WB(2). The assessee contended the amount was a perquisite exempt in the employee's hands and so not liable to FBT.
The CIT(A) deleted the AO's additions by following the Tribunal's earlier decision in I.T.A. No. 24(BNG)/2010, which in turn followed Bosch Ltd., holding that when an item is treated as a perquisite but is exempt in the employee's hands it cannot be subjected to FBT.
The Revenue argued that the Tribunal's order was appealed to the High Court and therefore should not be followed; the Tribunal rejected that submission, holding that a pending departmental appeal against a Tribunal order does not prevent the Tribunal from following its earlier coordinate-bench decision in the present matter.

On the sales promotion / bundled products issue (Ground No. 4):

The assessee argued that bundled free products are part of commercial purchase cost (collateral contract) and benefit customers, not employees; hence not liable to FBT.
The AO invoked section 115WB(2)(D) and section 115WC(1)(c) to tax 20% of outlay as FBT; CIT(A) deleted the addition following I.T.A. No. 24(BNG)/2010.
The Tribunal examined Toyota Kirloskar's holding that expenditures not incurred for the direct or indirect benefit of employees are not liable to FBT. Finding that employees were not beneficiaries (customers were), the Tribunal respectfully followed the coordinate Bench and allowed the assessee's appeal on this issue.

On the training / scholarship issue (Ground No. 5):

The assessee sponsored post-graduate studies and incurred course fees, venue charges and stipends in association with BITS; stipends were treated as in the nature of salary but exempt under section 10(16) to meet cost of education for students.
The AO treated certain payments as scholarships/benefits chargeable to FBT at 50% under section 115WB(2)(P) and section 115WC(1)(d); CIT(A) deleted additions following the Tribunal's earlier decision.
The Tribunal noted that Toyota Kirloskar, after considering Vijaya Bank, held FBT is not leviable absent collective enjoyment by employees. Because the trainees are not employees and do not confer a benefit on the assessee's employees, the Tribunal followed that reasoning and sustained the deletions.

Overall analytical approach:

The Tribunal repeatedly applied the principle that FBT cannot be imposed where the alleged benefit is either (a) an item treated as an exempt perquisite in the employee's hands, or (b) an expenditure/benefit that is not provided to or collectively enjoyed by the employer's employees.
The Tribunal gave weight to its prior coordinate-bench decisions (including the assessee's own prior Tribunal ruling) and to the decisions of other coordinate Benches (Bosch Ltd., Toyota Kirloskar, Vijaya Bank) and followed them respectfully. The fact that the Department had appealed some of those Tribunal decisions to the High Court did not, in the Tribunal's view, prevent it from following the existing coordinate-bench authority in these appeals.

Holding and Implications

Holding: The Tribunal held that the grounds raised by the Revenue are without merit and accordingly all the appeals by the Revenue are dismissed.

Implications:

Immediate effect: The deletions made by the Commissioner of Income-tax (Appeals) are upheld, and the Assessing Officer's additions in respect of medical reimbursements (up to Rs. 15,000), bundled-product sales promotion outlays, and training/scholarship-related expenditures are deleted for the assessment years 2007-08 to 2009-10 as specified.
Doctrine and precedent: The Tribunal applied and followed its earlier holdings (I.T.A. No. 24(BNG)/2010) and coordinate-bench decisions (including Bosch Ltd., Toyota Kirloskar, and Vijaya Bank) to determine that FBT is not attracted where benefits are exempt perquisites in employees' hands or where expenditures do not confer benefit on employees. The opinion does not state that it establishes a new principle of law beyond following those coordinate-bench authorities.

This summary is based exclusively on the content of the provided Tribunal order and does not add information beyond that text.

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The Deputy Commissioner Of Income Tax, Circle 12(5), Bangalore. v. M/S. Wipro Limited, Doddakannelli, Sarjapur Road, Bangalore 560 035. .

ORDER

N.V. Vasudevan, Judicial Member - These are appeals by the Revenue against three different orders, all dated May 30, 2013 of the Commissioner of Income-tax (Appeals)-III, Bangalore relating to the assessment years 2007-08 to 2009-10. The grounds of appeal raised by the Revenue in all these appeals are also identical.

2. Grounds 2 and 3 raised by the Revenue read as follows :

"2. On the facts and in the circumstances of the case the Commissioner of Income-tax (Appeals) has erred in holding that the assessee is not liable for fringe benefits tax in respect of reimbursement of medical expenses to the employees up to Rs. 15,000 without appreciating the fact that such amount is not subject to tax in the hands of the employee inasmuch as the medical expenses in excess of Rs. 15,000 is only considered as perquisites as per proviso (v) to sub-section (2) of section 17 of the Income-tax Act.

3. On the facts and in the circumstances of the case the Commissioner of Income-tax (Appeals) has erred in law in deleting the addition made by the Assessing Officer by merely placing reliance on the decision of the hon'ble Income-tax Appellate Tribunal in the assessee's own case for the assessment year 2006-07 without appreciating the fact that the order of the Income-tax Appellate Tribunal was not accepted by the Department and filed further appeal before the hon'ble High Court of Karnataka, which is pending for adjudication."

3. The assessee is a company engaged in the manufacture of computer software and providing related services. The return of fringe benefits for the assessment years 2007-08 to 2009-10 was filed by the assessee. The Assessing Officer passed an order of assessment determining the chargeable value of fringe benefits under section 115WE(3) of the Income-tax Act, 1961 ("the Act"). The assessee filed details including the divisions and expenses attributable to the permanent establishment of the assessee outside India, which have been excluded for computing the fringe benefits tax liability. After considering the same, the Assessing Officer observed that the assessee has made reimbursement of medical expenses to its employees and it has claimed that up to Rs. 15,000 is exempt in the hands of the employee and they are not liable to fringe benefits tax (FBT). It was submitted to the Assessing Officer that these expenses are incurred by the company, pursuant to the contract of employment and it is a part of compensation to its employees and falls within the purview of "consideration for employment" used in section 115WB(1) but is not taxable, as it is a perquisite taxable in the hands of the employee and fringe benefits tax is not attracted merely on the ground that the medical benefit is not taxed in the hands of the employee up to Rs. 15,000. The contention of the assessee was not accepted by the Assessing Officer and he held that the exempt portion of the medical reimbursement, i.e., up to Rs. 15,000 is liable to fringe benefits tax as it is a fringe benefits under sub-clause (e) of section 115WB(2) of the Act. He accordingly, brought to tax the following amounts :

Assessment year	Amount (Rs.)
2007-08	7,74,27,268 (20 %of 38,71,36,341)
2008-09	2,25,38,931 (20 % of 11,26,94,658)
2009-10	16,43,25,077 (20 % of 82,16,25,385)

4. On appeal by the assessee, the Commissioner of Income-tax (Appeals), following the decision of the Tribunal in the assessee's own case for the assessment year 2006-07 in I.T.A. No. 24(BNG.)/2010, order dated December 21, 2012 held that the additions made by the Assessing Officer to the value of taxable perquisite had to be deleted.

5. Aggrieved by the order of the learned Commissioner of Income-tax (Appeals), the Revenue has raised ground Nos. 2 and 3 before the Tribunal.

6. We have heard the submissions of the learned Departmental representative, who submitted that the aforesaid order of the Tribunal has not been accepted by the Department and therefore to keep the matter alive, the aforesaid grounds have been raised by the Revenue.

7. We have considered the submissions of the learned Departmental representative. We find that this Tribunal in the assessee's own case for the assessment year 2006-07 in I.T.A. No. 24(BNG)/2010 had dealt with this issue as follows :

"8. Having heard both parties and having considered the rival contentions, we find that the 'B' Bench of this Tribunal in the case of Bosch Ltd., cited supra, has considered the issue at length and has held that the payments made by the employees to the approved hospitals and the subsequent reimbursement of such payments to the employees by the employer do not attract fringe benefits tax. It was held that when an item which is to be treated as perquisite in the hands of the employees, is exempt in the hands of the individual employee the same cannot be subjected to fringe benefits tax. As one of us, i.e., the Accountant Member is a signatory to the said order, respectfully following the decision of the co-ordinate Bench, these grounds of appeals are allowed."

8. In view of the aforesaid decision of the Tribunal on the same issue, we are of the view that there is no merit in grounds Nos. 2 and 3 raised by the Revenue. The fact that the Revenue has preferred an appeal against the order of the Tribunal will not be a bar at this stage to follow the decision of the Tribunal.

9. Ground No. 4 raised by the Revenue reads as follows :

"4. On the facts and in the circumstances of the case the learned Commissioner of Income-tax (Appeals) has erred in holding that the provisions of fringe benefits tax are not applicable in respect of sales promotion expenses including publicity expenses incurred by the assessee during the course of business activities without appreciating the fact that by virtue of deeming provisions of section 115WB(2), there is no distinction between expenses incurred towards employees and towards non-employees."

10. The assessee-company is engaged in the business of fast-moving consumer products, with a scheme in which some products are bundled as free along with other product sold by the company to its customers. According to the assessee, the arrangement is in the nature of a collateral contract and as such the expenditure incurred is in the nature of a purchase cost and not cost of sales promotion. However, the Assessing Officer by invoking the provisions of section 115WB(2)(D) and 115WC(1)(c) of the Act rejected the assessee's contention and held that the expenditure incurred on bundled products is liable to fringe benefits tax. He accordingly added the following amounts being 20 per cent. of the total outlay as fringe benefits tax.

Assessment year	Amount (Rs.)
2007-08	2,17,10,148 (20% of 10,85,50,740)
2008-09	2,84,22,415 (20% of 14,21,12,079)
2009-10	4,18,85,731 (20% of 20,94,28,654)

11. On appeal by the assessee, the Commissioner of Income-tax (Appeals) following the decision of the Income-tax Appellate Tribunal in the assessee's own case for the assessment year 2006-07 in I.T.A. No. 24(BNG)/2010, deleted the addition made by the assessee.

12. The learned Departmental representative reiterated the stand of the Revenue as contained in the ground of appeal.

13. This Tribunal in the assessee's own case in I.T.A. No. 24(BNG)/2010 dealt with an identical issue and held as follows :

"11. Learned counsel for the assessee while reiterating the submissions made before the authorities below, submitted that there is no benefit derived by the employees of the assessee-company from bundling of one product with another and therefore, fringe benefits tax is not attracted. In support of his contention, he placed reliance upon the decision of the Income-tax Appellate Tribunal in the case of Toyota Kirloskar Motor Pvt. Ltd., in I.T.A. Nos. 20(B)/2011 and 88(B)/2011 for the assessment year 2008-09 dated May 11, 2011.

12. On the other hand, the learned Departmental representative supported the orders of the authorities below.

13. Having heard both parties and having considered the rival contentions, we find that the Tribunal in the case of Toyota Kirloskar Motor Pvt. Ltd., has held that any expenditure which is not incurred directly or indirectly for the benefit of employees is not liable for fringe benefits tax. In the case before us also, the employees of the assessee-company are not the beneficiaries. The customers are the beneficiaries. Therefore, respectfully following the decision of the coordinate Bench of the Tribunal to which one of us i.e., the Judicial Member is a signatory, these grounds of appeals are allowed."

14. In view of the aforesaid decision of the Tribunal on the same issue, we are of the view that there is no merit in the ground raised by the Revenue and dismiss the same.

15. Ground No. 5 raised by the Revenue reads as follows :

"5. On the facts and in the circumstances of the case the learned Commissioner of Income-tax (Appeals) has erred in holding that the provision of fringe benefits tax are not applicable in respect of expenses incurred towards payment of fees, venue hiring charges on trainees enrolled as students in BITS and scholarship given to the trainees incurred by the assessee during the course of business activities without appreciating the fact that by virtue of deeming provisions of section 115WB(2), there is no distinction between expenses incurred towards employees and towards non-employees."

16. The facts of this issue are that the assessee-company sponsors science graduates to pursue post graduate courses (with a stipend) which is exempt under section 10(16) as it is granted to meet the cost of education. However, the assessee also incurred an expenditure of Rs. 4,10,81,201 towards course fee, charges towards conducting exams, etc., on the course at BITS. The assessee's contention was that the said amount is not in the nature of scholarship falling within the ambit of fringe benefits tax. However, the Assessing Officer, invoking the provisions of section 115WB(2)(P) held that the expenditure of Rs. 4,10,81,201 incurred is in the nature of scholarships chargeable to fringe benefits tax at 50 per cent. as prescribed in clause (d) of section 115WC(1). He accordingly added the following amounts as taxable fringe benefits :

Assessment year	Amount (Rs.)
2007-08	2,05,40,600 (50 % of 4,10,81,201)
2008-09	6,08,72,200 (50 % of 12,17,44,401)
2009-10	8,15,76,830 (50% of 16,31,53,660)

17. On appeal by the assessee, the Commissioner of Income-tax (Appeals) following the decision of the Income-tax Appellate Tribunal in the assessee's own case for the assessment year 2006-07 in I.T.A. No. 24(BNG)/2010, deleted the addition made by the assessee.

18. The learned Departmental representative reiterated the stand of the Revenue as contained in the ground of appeal.

19. We have heard the submissions of the learned Departmental representative and we find that similar issue had been dealt with by this Tribunal in the assessee's own case for the assessment year 2006-07 in I.T.A. No. 24(BNG)/2010, wherein it was held as follows :

"14. As regards grounds Nos. 7 and 8 relating to treating the payments towards fees, venue hiring charges etc., for trainees enrolled as students in Birla Institute of Technology and Science (BITS) and treating the scholarships given to the trainees as fringe benefits and bringing the same to tax, learned counsel for the assessee submitted that this issue is also covered in favour of the assessee by the decision of the Tribunal in the case of Toyota Kirloskar Motor Pvt. Ltd. (cited supra).

15. The learned Departmental representative however, supported the orders of the authorities below.

16. Having heard both parties and having considered the rival contentions, we find that the assessee, in association with BITS, has incurred certain expenditure on training programme of fresh graduates to prepare them to work with the application programmes and for this purpose has incurred an expenditure of Rs. 4,41,96,480 towards payment of stipend to the trainees which is in the nature of salary, course fees, venue hiring charges etc. It is the contention of the assessee that the amount paid towards training is taxable in the hands of the trainees as perquisites under section 17(2) which is exempt under section 10(16) as the same is paid to meet the cost of education of student and hence, it is not to be included as fringe benefits under section 115WB(2). We find that the Tribunal in the case of Toyota Kirloskar Motor Pvt. Ltd., after considering the decision of the Tribunal in the case of Vijaya Bank v. Jt. CIT LTU in I.T.A. No. 1066(B)/2010 dated October 26, 2011 has held that fringe benefits tax is not leviable in the absence of collective enjoyment of benefits by its employees. In the case before us, the trainees are not the employees of the assessee-company and therefore, there is no benefit to the employees. Therefore, respectfully following the decision of the coordinate Bench, these grounds are allowed."

20. Respectfully following the aforesaid decision of the Tribunal, we uphold the order of the Commissioner of Income-tax (Appeals) and dismiss ground No. 5 raised by the assessee.

21. In the result, all the appeals by the Revenue are dismissed.

RAHUL

The Deputy Commissio... v. M/S. Wipro Limited, ...