Ita/231/2013 Of Commissioner Of Income Tax-Iii v. M./S Wipro Limited

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 11 DAY OF NOVEMBER 2070. PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD BETWEEN: LT.A. NO.231 OF 2013 1.|COMMISSIONER OF INCOME. TAX-III, C.R.BUILDING. QUEENS ROAD, BANGALORE. 2.|COMMISSIONER OF INCOME. TAX, CENTRAL CIRCLE - 1 (3). BANGALORE. (BY SRI.E.I.L.SANMATHI, ADV., .., APPELLANTS~ AND* M/S WIPRO LIMITEDDODDAKANNELLI, SARJAPUR ROADBANGALORE - 560 025. (BY SRI.R.B.KRISHNA, ADV.) .., RESPONDENT THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,|1961L ARISING OUT OF ORDER DATED 21.12.20L2 PASSED IN ITANO.24/BANG/2010FOR.THE.ASSESSMENTYEAR|2006-07,PRAYING TQ: (1) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW.STATED THEREIN.» (II) SET ASIDE THE APPELLATE ORDER PASSED BY THE.INCOME TAX APPELLATE TRIBUNAL, ‘A’ BENCH, BANGALOER IN-APPEAL PROCEEDINGS ITA NO.24/BANG/2010 DATED 24.12.2012. THIS ITA COMING ON FOR FINAL HEARING, THIS DAY,ALOK ARADHE J.,DELIVERED THE FOLLOWING: | JUDGMENT This appeal under Section 260A of the Income TaxAct, 1961 (nereinafter referred to as the Act for short)nas been preferred by the revenue. The subject matterof the appeal pertains to the Assessment year 2006-07.The appeal was admitted by a bench of this Court videorder dated 08.07.2013 on the following substantialquestions of law:| (1)Whether in the given facts andcircumstances of the case, the tribunal Is correct in law in holaing that the assessee Is.not liable for fringe benefit tax in respect of.reimbursement of medical expenses to the.employeesuptoRs.15,000/- withoutappreciating the fact that such amount Its notsubject to tax in the hands of the employee|inasmuch as the medical expenses in excess|ofRs.15,000/- IS.onlyconsideredaS|perguisites as per proviso (v) to sub section| (2) Section 7 of I.T.Act?| (11)Whnetner in the given facts andcircumstances of the case, the tribunal Is correct in law in deleting the addition made|by the assessing authority by merely placing|reliance on it's own decision in the case of M/sBosch Ltd. In ITA No.1407/b/2010 dated|07.10.2011 without appreciating the fact that|the order of the tribunal has been challenged|before this Hon'ble Court which is pending foradjudication? (111)Whether in the given facts andcircumstances of the case, the tribunal Is correct in law in holding that the provision of|FBT are not applicable in respect of sales|promotion|includingpublicityECXPElISEincurred by the assessee during the course ofbusiness activities without appreciating tnefact that by virtue of deeming provisions of Section 115WB(2), there is no distinction|between expenses incurred towards expenses|anda towards non-employee? (iv) —Wnetner in the given facts and circumstances of the case, the tribunal Is correct in law in holding that provisions of FBTare not applicable in respect of expenses|incurred towards payment of fees, venue.hiringchargesOf)traineesenrolledaS|students in BITS Pillani and scholarship given to the trainees including publicity expenses|incurred by the assessee during the course ofbusiness activities without appreciating thefact that by virtue of deeming provisions of Section 115WB(2), there is no distinction|between expense incurred towards employees|and towards non employee?| (Vv)Whether in the given facts andcircumstances of the case, the tribunal Is correct in law in holding that the provisions of|Chapter XII-H are not applicable, withoutappreciating the fact that by virtue of.deeming provisions of Section 115WB(2),|there is no. distinction between expensesincurred towards employees and towards non.employee? (Vv)Whether in the given facts andcircumstances of the case, the tribunal Is correct in law in holding that the provisions of|Chapter XII-H are not applicable, withoutappreciating the fact that by virtue of.deeming provisions of Section 115WB(2),|there is no. distinction between expensesincurred towards employees and towards non.employee? (vi)Whether in the given facts andcircumstances of the case, the tribunal Is correct in law in deleting the addition made|by the assessing authority by merely placing|reliance on it's own decision in the case of M/sToyota Kirloskar Motors Pvt. Ltd in ITANo.20/Bang/2011 and 88/B/2011, without|appreciating the fact that the said orders navenot been accepted by revenue and appeals|are pending before this Hon'ble court for|adjudication? 2.|Facts leading to filing of this appeal brieflystated are that the assessee is engaged in the business|of computer software as well as other diverse activities. The assessee filed its return of fringe benefits for theAssessment Year 2006-07 on 29.11.2006 and furnishedtotalvalue|ofchargeable|fringe|benefitsOf Rs.52,96,15,186/-. During the assessment proceedings|under Section 115WE(3) of the Act, various details weresought for, which were furnished by the assesseeincluding the divisions and expenses attributable to the permanent establishments of the assessee outside India,which were excluded for computing the fringe benefittax liability. The Assessing Officer by an order dated|30.17.7008 inter alia held that assessee had made'reimbursement of medical expenses to its employees.and has claimed that the same is exempt uptoRs.15,000/- in the hands of the employees, andtherefore, the assessee is not liable to fringe benefit tax.It was further held that exempt portion of the medicalreimbursement i.e., upto Rs.15,000/- is liable to fringe|benefit tax as itis a fringe benefits under sub Clause(E)of Section 115WB(2) of the Act. Accordingly, 20% of the|amount 1.e., RS.5,45,59,077/- was neld as chargeablevalue of fringe benefit. Being aggrieved, the assesseepreferred an appeal. The Commissioner of Income Tax.(Appeals) by an order dated 10.11.2009 dismissed theappeal preferred by the assessee. The assesseethereuponapproachedtheIncome.TaxAppellate|Tribunal (hereinafter referred to as the tribunal for Short) by filing an appeal. The tribunal by an order dated21.12.2012 inter alia held that payments made by theemployeestOtheapproved|hospitalsandthesubsequent reimbursement of such payments to theemployees by the employer do not attract fringe benefit|tax. It was further held that treating the payment|towards fees, venue hiring charges etc for the trainees|enrolled as students of Birla Institute of Technology andScience and treating the scholarships given to thetrainees is covered by decision of the tribunal in the case.of M/s Toyota Kirloskar Motors Pvt. Ltd and the same is.not liable to fringe benefit. It was also held that!expenses incurred by the assessee towards repairs,running and maintenance of motor cars are concerned,since, there is no material on record as to wnat extentthe cars were used for personal or professional use,therefore, the matter was remitted to the Assessing.Officer for reconsideration. It was further held that the|issue with regard to depreciation on motor cars was also. remitted to the Assessing Officer. In the result, the|appeal preferred by the assessee was partly allowed. In.the aforesaid factual background, the revenue Nas|approached this court. remitted to the Assessing Officer. In the result, the|appeal preferred by the assessee was partly allowed. In.the aforesaid factual background, the revenue Nas|approached this court. 3Learned counsel for the revenue submittedthat the tribunal has set aside the disallowance in/respect of reimbursement of medical expenses granted|by the assessee to its employees by ignoring the fact|that the same is excluded as per proviso to viii ofSection 17(2) of the Act read with Rule 3. It is also.submitted that as per Clause 6 expenses relating to|medical treatment incurred by the employer on itsemployees outside India is also excluded. Thus, it isevident that fringe benefit is excluded as per Section.17(2) of the Act. It is also argued that the expression|‘prerequisite’ is defined under Section 17(2) and proviso.(v) clearly specify the definition of prerequisite would.not include any sum paid by an employer in respect ofany expenditure actually incurred by an employee on his. medical treatment or treatment of a member of his.family, if such sum was not in excess of Rs.15,000/-. Itis also argued that only effect of proviso is that'reimbursement amount in excess of Rs.15,000/- would|be taxable as part of salary, whereas, amount ofRs.15,000/- and less would not be taxable in the hands|of employees. Therefore, it is submitted that untaxedamount is taxed as fringe benefits in the hands of the|employer. It is also urged that expenses incurred on.bundling of the products is not in the nature of purchase|and not cost of sales promotion. Therefore, Assessing|Officer has rightly added 20% of the total expenses|incurred by provisions of Section 115WB(2D) of the Act.It is also submitted that as per sub-Section (2) ofSection 115WB the fringe benefit tax is chargeable even.if there is no employer- employee relationship and ifexpenses Nave been incurred for the purposes specifiedin Clause (A) to (Q), which includes Clause (D) ofSection 115WB. 4It is also urged that Assessing Officer hasrightly rejected scholarship expenses incurred by theassessee and in the light of circular No.8/2005, fringe|benefit tax is paid on expenditure incurred for paymentof the purposes of scholarship irrespective of the factwhether recipient is an employee or his relative or any.other person. It is also urged that under Section|115WB(3) of the Act perquisite in respect of which tax ispaid or payable is exempt and since, stipend in thehands of the employee is not taxable, fringe benefit tax|is attracted. In this connection, our attention has been|invited to Section 115WB of the Act. In Support of.aforesaid submissions, reliance has been placed on.Gecisions In"ESKAYEF LTD. VS. CIT’, 245 ITR 116, 'R& B FALCON (A) PVT. LTD. VS. CIT’, 301 ITR 309and decisions of Advance Rulings Authority in cases ofRR& B FALCON (A) PTY LTD., IN RE, 289 ITR 369 and|SINGAPORE TOURSIM BOARD, IN RE, 307 ITR 34. On the other hand, learned counsel for the assessee submitted that fringe benefit tax is a tax of|expenditure and the expenditure itself can be dividedIntothree.categoriesVIZ.,busSINeSSexpenditure,expenditure on employees and other expenses on.employees. It is further submitted that in case there isno employer-employee relationship, the provisions offringe benefit tax will not be attracted. It is also|submitted that proviso (v) to Section 17(2) of the Actexempts.medicalreimbursement.UPTORs.15,000/-.means.that|Inabsence|OF such|Provisoentire reimbursement would be taxable as prerequisite underSection 17(2) and therefore, out of the purview of fringe|benefit tax. It is also submitted that the assessee in the.course of sales of fast moving customer goods bundleNas paid for bundied product indirectly and the same is.not accessible to fringe benefit tax. While inviting our|attention to a letter of enrollment for post graduate|courses, a student has been enrolled who is not an.employee of the assessee. The payment was made to the BIDS Pillani for expenses and BIDS Pillani is not theemployee of the assessee. It is also urged that expensesincurred by the assessee was not towards scholarshipbut in fact expenses incurred at BIDS Pillani, therefore,the provisions of fringe benefit tax do not apply to the|fact situation of the case. In Support of aforesaidsubmissions, reliance has been placed on decisions in.'COMMISSTONER OF INCOME-TAX-VIYs.M/S|GRASIM INDUSTRIES LTD.', ITA NO.2399/2013DATED 02.02.2016, ‘COMMISSIONER OF INCOME-TAX VS. TATA CONSULTANCY SERVICES LTD.',|(2015)cysaITRTI27(BOM),'PRINCITPALCOMMISSIONER OF INCOME TAX-II VS. M/SARISTO PHARMACEUTICALS P. LTD.', IN ITA’NO.1967/2017 DATED 23.01.2020 and 'T & TMOTORS LTD. VS. ASSISTANT COMMISSTONER OFINCOMETAX",IN|ITANO.899/2010DATED|24,01,42O01 5.|We have considered the submissions made.on both sides and Nave perused the record. Proviso (v).to Section 1/7(2) of the Act defines the expression‘perquisite and provides that perquisite would notinclude any sum paid by an employer in respect of any.expenditure actually incurred by an employee on his.medical treatment or treatment of any member of his.family if such sum was not in excess of Rs.15,000/-.The effect of the proviso is that reimbursement of theamount in excess of Rs.15,000/- would be taxable as.part of the salary in the hands of the employee,whereas, amount less than Rs.15,000/- would not be.taxable in the hands of the employee. However, such.reimbursement nevertheless would perquisite as definedUnder tne Act put would remain untaxed in the nands of.the employees and therefore, untaxed amount is taxedas fringed benefits in the hands of the employer. Thus,if the medical reimbursement exceeds’ Rs.15,000/-relating to Unapproved hnospital, then under Section 17(1) of the Act the employees are taxed beyond.Rs.15,000/- and if Rs.15,000/- which is exempt in the.hands of the employees is not liable for fringe benefit|tax but over and above the aforesaid amount is liable for|fringe benefit tax. — 6.|So far as issue pertaining to expensesincurred by the assessee on Dundling of product is.concerned, it is pertinent to note that effectively thebundling is not done free of cost as customer pays for|the bundled project indirectly. The Delhi High court while|considering the aforesaid issue in the case of T & T|Motors Ltd. supra nas neld that expenses incurred in.bundling of products are not exigible to levy of fringebenefit tax. It nas further Deen neld that expenditure forthe purpose of business not connected to employees.cannot be brought to tax under the fringe benefit tax. |Therefore, we hold tnat the expenses incurred by tneassessee on bundling of the product is not exigibie tofringe benefit tax. 7The assessee has also incurred expenses forsponsoring Science Graduates to Post Graduate courses.From perusal of the document placed on record, it isevident that the assessee has enrolled the student In computer applications in the academy of the assesseeviz., Wipro Academy of Software Excellence. The student.is not an employee of the company and the paymentwas made to the Birla Institute of Technology for|expenses, thus, the expenses incurred by the assesseein respect of payment made to Birla Institute ofTechnology for imparting training to the students cannot|be subjected to fringe benefit tax. 8.|In PRINCIPAL COMMISSIONER OF INCOME.TAX VS. ARISTO PHARMACEUTICALS P. LTD., Bombay.High Court has held that in case, there is no employer-employee relationship between the assessee and topersons in respect of whom the expenditure is incurred,the same cannot be subjected to fringe benefit tax. 2�����!������������+����"#���%���������������"� ������������"�!���������#������������������������������!�������������������������� ��������+"#%����������"����������������� ����������� ��� �����������