M/s Kingfisher Training & Aviatiion Services Ltd.,, Bangalore v. ACIT, Bangalore

ITA 1206/BANG/2009 | 2006-2007
Pronouncement Date: 30-07-2010 | Result: Dismissed

Appeal Details

RSA Number 120621114 RSA 2009
Bench Bangalore
Appeal Number ITA 1206/BANG/2009
Duration Of Justice 7 month(s) 13 day(s)
Appellant M/s Kingfisher Training & Aviatiion Services Ltd.,, Bangalore
Respondent ACIT, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 30-07-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 30-07-2010
Date Of Final Hearing 22-06-2010
Next Hearing Date 22-06-2010
Assessment Year 2006-2007
Appeal Filed On 17-12-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K. JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY ACCOUNTANT MEMBER ITA NO. 1206/BANG/2009 ASSESSMENT YEAR : 2006-07 M/S. KINGFISHER TRAINING & AVIATION SERVICES LTD. (FORMERLY KNOWN AS KINGFISHER AIRLINES LIMITED) NO.35/2 CUNNINGHAM ROAD BANGALORE- 560 052. : APPELLANT VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE 11(5) BANGALORE. : RESPONDENT APPELLANT BY : SHRI S. VISHNUMURTHY C.A. RESPONDENT BY : SMT. SWATI S. PATIL CIT-II(DR) O R D E R PER A. MOHAN ALANKAMONY ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE COMPANY IS DIRECTED AGA INST THE ORDER OF THE CIT(A) I BANGALORE IN ITA NO: 189/AC11(5 )/A.I./08-09 DATED: 22.9.2009 FOR THE ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE COMPANY (THE ASSESSEE IN SHORT) H AD RAISED SEVEN GROUNDS IN AN EXTENSIVE AND ILLUSTRATIVE MANN ER. GROUND NOS: 1 AND 7 BEING GENERAL AND NO SPECIFIC ISSUES I NVOLVED THEY ITA NO.1206/BANG/09 PAGE 2 OF 17 HAVE BECOME NON-CONSEQUENTIAL. IN THE REMAINING GR OUNDS THE SUBSTANCES AND CRUXES OF THE ISSUES RAISED ARE REFO RMULATED IN A CONCISE MANNER AS UNDER: THE CIT (A) HAD ERRED : (I) IN HOLDING THAT THE AO WAS JUSTIFIED IN CONDUCTING AN ENQUIRY INTO THE CERTIFICATE ISSUED BY THE TAX AUDI TOR AND REJECTING THE SAME; (II) IN CONFIRMING THE LEVY OF FRINGE BENEFIT TAX [FBT] IN RESPECT OF FREE AND CONCESSIONAL TICKETS PROVIDED T O ITS STAFF; (III) IN CONFIRMING THE LEVY OF FBT OF RS.5.05 CRORES PAI D TO ITS PILOTS AS PER DIEM ALLOWANCES; (IV) IN CONFIRMING FBT OF RS.9.99 CRORES PAID TO HOTELS TO PROVIDE LAYOVER TO ITS CREW MEMBERS; & (V) IN CONFIRMING THE TAX ON THE IMPUGNED AMOUNTS WHICH WERE LEVIED BASED ON THE PERSONS TO WHOM OR IMMEDIA TE AND PROXIMATE PURPOSE FOR WHICH THE PAYMENTS WERE MADE. PRAYER: TO SET ASIDE THE IMPUGNED ORDER OF THE APPELLAT E AUTHORITY WITH A DIRECTION TO THE AO TO RE-COMPUTE THE VALUE OF FRINGE BENEFITS FOR THE AY 06-07 AT RS.5 15 39 591/- BEING THE VALUE OF FRINGE BENEFITS ADMITTED BY THE ASSESSEE. 3. BRIEFLY STATED THE ASSESSEE WAS ENGAGED IN THE OPERATION OF AIR TRANSPORT SERVICES. DURING THE ASSESSMENT YEAR UNDE R DISPUTE THE ASSESSEE HAD FURNISHED ITS RETURN OF FRINGE BENEFIT ADMITTING THE VALUE OF FRINGE BENEFITS AT RS.5.15 CRORES. AFTER EXAMINATI ON OF THE DETAILS FURNISHED AND ALSO VERIFICATION OF BOOKS OF ACCOUNT PRODUCED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO HAD VALUED THE FRING E BENEFITS ON THE VARIOUS HEADS THE DETAILS OF WHICH ARE SUMMARIZED AS UNDER: ITA NO.1206/BANG/09 PAGE 3 OF 17 I. FBT ON FREE ON CONCESSIONAL TICKETS: (1) THE ASSESSEE IN NOTE IX TO FBT COMPUTATION IT WAS STATED THAT COMPANY ALLOWS STAFF ON LEAVE TO UTILIZE THE FACILI TY TO FLY USING THE COMMERCIALLY UN-EXPLOITABLE EMPTY GOING SEATS. THE COMPANY HAVING INCURRED NO COST FOR THE SAME IT IS NOT CONSIDERED FOR FBT. (2) ACCORDING TO THE AO AS THE ASSESSEES STAND WAS NO T IN CONFORMITY WITH THE ANSWER TO Q.45 OF FBT CIRCULAR NO.8/2005 THE ASSESSEE WAS SHOW-CAUSED TO FURNISH THE VALUE OF FB ON THE FREE TICKETS PROVIDED AND AFTER DUE CONSIDERATION OF THE ASSESSE ES EXPLANATION AS SET- OUT IN THE IMPUGNED ASSESSMENT ORDER THE AO TOOK A VIEW THAT THE METHODOLOGY FOR ARRIVING AT THE VALUE OF FBT WAS PR ESCRIBED IN S.115WC (1)(A) OF THE ACT. THE CONTENTION THAT THESE TICKE TS WERE GIVEN SUBJECT TO LOAD DOES NOT MAKE THE VALUE INDETERMINABLE ESPEC IALLY WHEN THE ACT ITSELF HAD SPELT OUT THE COMPUTATION PROCEDURE AND THAT THE STANDARD FARE WOULD BE THE RIGHT FARE TO USE FOR ARRIVING AT THE VALUE OF SUCH FRINGE BENEFIT. REJECTING THE ASSESSEES STAND BY TAKING CUE FROM ANSWER TO Q 5 THE AO COUNTERED THE ASSESSEES EXPLANATION BY QUOT ING THE SPECIFIC ANSWER TO Q 45 AND MORE IMPORTANTLY THE METHOD OF C OMPUTATION MENTIONED IN S.115WC (1)(A) OVER-RIDE THE GENERAL C LARIFICATION AND ACCORDINGLY WORKED OUT THE FRINGE BENEFIT VALUE AT RS.1 10 73 197/- ON THE BASIS OF DETAILED BREAK UP OF THE FREE TICKETS FURNISHED BY THE ASSESSEE. THUS RS.1 10 73 197/- WAS BROUGHT ON TH E TAX NET. ITA NO.1206/BANG/09 PAGE 4 OF 17 II. FBT ON PER-DIEM ALLOWANCE TO PILOTS ON TRAIN ING & HOTEL STAY OF CREW MEMBERS IN BETWEEN THE FLIGHTS (FREE TRAVELING EXPENSES ): (1) OUT OF RS.2547.75 LAKHS UNDER THE HEAD TRAVEL ING EXPENSES THE ASSESSEE HAD CONSIDERED ONLY RS.817.66 LAKHS FOR TH E PURPOSE OF FBT AND THE BALANCE WAS LEFT UN-TOUCHED. ON BEING QUERIED THE ASSESSEE HAD REPLIED THUS (I) REIMBURSEMENTS TO CONSULTANTS WERE NOT LIABLE TO FB T; (II) RS.5.05 CRORES WERE PAID TO THE PILOTS WHO WERE ON TRAINING ABROAD WHICH WAS NOT CONSIDERED FOR THE PURPOSE OF LEVY OF FBT AS THESE EXPENSES WERE FOR THE PURPOSE OF PILOTS WE RE UNDERGOING TRAINING. THE IMMEDIATE AND PROXIMATE PURPOSE OF T HE PAYMENT WAS FOR TRAINING AND THERE WAS NO ELEMENT OF FB INV OLVED IN INCURRING SUCH EXPENDITURE; - THE ASSESSEE HAD ONLY GRANTED PER DIEM ALLOWANCE TO ITS PILOTS WHICH WAS INTENDED TO TAKE CARE OF THEIR BOARDING LODGING ETC. IT WAS ONLY AN ALLOWANCE GRANTED TO ITS EMPLOYEES A ND THEREFORE IT CANNOT BE SAID THAT THEY WERE INCURRE D FOR TRAVELING OR FOR THE PURPOSE OF HOTELS; - AS THE SALARY PAID TO A PILOT WAS FOR THE PURPOSE O F RUNNING AND MAINTENANCE OF THE AIRCRAFT THE TRAINING EXPEN SES INCURRED FOR THE PILOTS WERE ALSO IN THE NATURE OF RUNNING AND MAINTENANCE OF THE AIRCRAFTS. DRAWING SUPPORT FRO M ANSWER TO Q.NO.87 OF CIRCULAR 8/2005; (III) RS.9.99 CRORES WAS INCURRED FOR THE PAYMENT TO HOTE LS TO PROVIDE LAYOVER TO CREW. THE PROXIMATE AND IMMEDIATE PURP OSES OF INCURRING THESE EXPENSES WERE THE RUNNING AND MAINT ENANCE OF AIRCRAFTS AND THUS NOT LIABLE TO TAX. THE EXPEN DITURE WAS INCURRED IN PROVIDING ACCOMMODATION TO THE CREW TO BE USED BY THEM DURING THEIR LAY OVER. THE LAYOVERS WERE SHORT DURATION BREAKS IN BETWEEN THE DUTY HOURS IN ACCORDANCE WITH THE SAFETY MANUAL. THESE ACCOMMODATIONS WERE PROVIDED DURING D UTY HOURS AND AS SUCH THESE EXPENSES DID NOT INVOLVE THE PRO VISIONS OF ANY FB AND CONSEQUENTLY WERE NOT LIABLE TO ANY FBT. (2) BRUSHING ASIDE THE ASSESSEES CONTENTIONS THE AO TOOK A VIEW THAT THE TOTAL AMOUNT OF RS.15 05 43 715/- WAS LIABLE TO FBT AND THE VALUE OF FB WAS RS.3.01 CRORES BEING 20% OF THE AMOUNT ON THE F OLLOWING REASONS: ITA NO.1206/BANG/09 PAGE 5 OF 17 (I) THE ARGUMENT OF THE ASSESSEE THAT THESE EXPENSES WE RE INCURRED FOR RUNNING AND MAINTENANCE OF AIRCRAFTS AND HENCE IN VIEW OF THE ASSESSEE BEING OPERATING AIRCRAFTS THESE EXPENSES NOT LIABLE TO FBT CANNOT BE ACCEPTABLE FOR THE REASON THAT THE IN TENTION OF LEGISLATURE TO INCLUDE THE HOTEL BOARDING AND LODG ING EXPENSES OF AIRCRAFT OPERATIONS UNDER THIS HEAD WAS CLEAR THAT FROM THE AY 2007-08 THE AIRLINE INDUSTRY HAD BEEN GIVEN THE SP ECIAL BENEFIT OF 5% VALUE AS FRINGE BENEFIT DUE TO THE HUGE EXPENSES INCURRED BY THE INDUSTRY ON THIS ACCOUNT; (II) WITH REGARD TO PER-DIEM ALLOWANCE THE TAXABILITY H AS BEEN CLARIFIED IN ANSWER 79 OF THE SAID CIRCULAR THAT ON SOME OCCASIONS EMPLOYERS PREFER TO GIVE A PER D IEM ALLOWANCE FOR MEETING THE EXPENDITURE ON LODGING AN D BOARDING RATHER THAN MAKING PAYMENTS ON ACTUAL BASIS. THE P ER DIEM ALLOWANCE IS EXEMPT FROM TAX UNDER SECTION 10(14). WOULD THIS BE SUBJECT TO FBT? 79. SINCE THE PER DIEM ALLOWANCE IS PAID FOR THE P URPOSES OF USE OF HOTEL BOARDING AND LODGING FACILITIES IT WOULD FALL WITHIN THE SCOPE OF CLAUSE (G) OF SUB-SECTION (2) OF SECTION 1 15WB. HOWEVER THE EMPLOYEES WILL NOT BE LIABLE TO PAY IN COME-TAX ON ANY SURPLUS ACCRUING TO HIM FROM SUCH ALLOWANCE. THUS THE AO CONCLUDED THAT THE TOTAL AMOUNT OF RS .15 05 43 715/- WAS LIABLE TO FBT AND THE VALUE OF FRINGE BENEFIT WAS R S.3 01 08 743/- BEING 20% OF THE TOTAL AMOUNT AND ACCORDINGLY BROUGHT RS.3.01 CRORES UNDER THE TAX NET. 4. AGITATED THE ASSESSEE TOOK UP THE ISSUE WITH THE C IT (A) FOR RELIEF. I. WITH REGARD TO THE CERTIFICATE OF THE TAX AUDITOR THE ASSESSEE CONTENDED BY TAKING SANCTUARY IN HONBLE FINANCE M INISTERS SPEECH ON THE FLOOR OF THE AUGUST HOUSE WHILE REPLYING TO THE DEBATE ON FRINGE BENEFITS BILL THAT THE AO HAD NO LOCUS STANDI TO G O BEHIND THE CERTIFICATE OF A CA IN RESPECT OF ITEMS WHICH SHOULD BE INCLUDED I N S.115WB (2) OF THE ACT. ITA NO.1206/BANG/09 PAGE 6 OF 17 AFTER CONSIDERING THE ASSESSEES PLEA AND ALSO TAKI NG CUE FROM THE RULING OF THE HONBLE APEX COURT IN THE CASE OF SUN IL SIDDHARTHA BHAT ( SIC ) SUNIL SIDDHARTHBHAI V. CIT (156 ITR 509) THE CIT ( A) OBSERVED THAT - 5.1.THE DEEMING PROVISIONS ALWAYS NEED TO BE INTERPRETED STRICTLY WHICH HAS BEEN DONE BY THE AO IN THIS CASE WHILE COMPUTING FRINGE BENEFITS FROM PER DIEM ALLOW ANCE PAID TO TRAINEE PILOTS AND HOTEL EXPENSES INCURRED FOR L AYOVER PILOTS AND CREW WHICH IS AS PER CIRCULAR NO.8 OF 2005 5.2. THE AO HAS GONE BEHIND THE BOOKS TO DISCOVER NON- TREATMENT OF SOME ITEMS AS FRINGE BENEFITS AND HAVE TAXED THEM. THEREFORE I SEE NO VIOLATION OF ANY PROVISI ON OF LAW OR CONDUCTING INQUIRY INTO CERTIFICATE ISSUED (BY) THE C.A. SO AS TO ANNUL THE ORDER. THE AO HAS CALLED FOR DETAILS AND ALSO BOOKS AND AFTER EXAMINING THEM IN THE LIGHT OF PROVISIONS OF SECTION 115WB OF THE ACT HAS BROUGHT INTO TAX NET THREE ITE MS. I SEE NO INFIRMITY IN THE ORDER OF AO IN SUCH IDENTIFICAT ION. II. IN RESPECT OF FBT ON FREE TICKETS THE LD. CIT (A) HAD AFTER EXAMINING THE RIVAL SUBMISSIONS RECORDED THAT - 6.3. I SEE REASONS IN THE ARGUMENTS OF AO. IF THE APPELLANT FEELS THAT ANSWER TO Q 45 IS UNCONSTITUTIONAL IT IS ENTIT LED TO RAISE THE SAME AT APPROPRIATE FORUM OF JUDICIARY. THE CIRCUL AR IS BINDING ON THE AO. THE SPECIFIC HAS MORE BINDING FORCE THA N THE GENERAL. THUS THE AO IS JUSTIFIED IN VA LUING THE ADMITTED FRINGE BENEFIT GIVEN IN THE SHAPE OF FREE TICKETS TO THE EMPLOYEES EVEN IF THE COST THEREOF HAS BEEN SHOWN AS ZERO BY THE EMPLOYER. I T MAY BE NOTICED THAT ONLY THE QUANTIFICATION HAS BEEN APPEA LED AGAINST. III. WITH REGARD TO THE ADDITION OF RS.5.05 CROR ES PAID TO PILOTS AS PER DIEM ALLOWANCES AFTER WEIGHING THE LENGTHY CONTENTION O F THE LD. A. R THE CIT(A) WAS FORTHRIGHT IN HIS FINDING THAT - 7.1. THE AO ON THE OTHER HAND RELIED UPON ANSWER TO QUERY NO.79 TO TREAT THE PER DIEM EXPENSES AS FRINGE BENEFIT. THE SE PER DIEM EXPENSES WERE GIVEN TO PILOTS IN ADDITION TO THEIR SALARY AN D THEREFORE IT IS ITA NO.1206/BANG/09 PAGE 7 OF 17 NECESSARILY A FRINGE BENEFIT WHOSE QUANTIFICATION H AS BEEN MADE BY THE AO AS PER BOOKS. THE ALTERATIVE ARGUMENT THAT SUCH EX PENSES FORMS PART OF TRAINING EXPENSES OR RUNNING AND MAINTENANCE OF AIR CRAFT EXPENSES WHICH HAS A DIRECT NEXUS WITH APPELLANTS BUSINESS AND H ENCE CANNOT BE INCLUDED IN FBT HAS NO MERIT AT ALL. SECTION 115WB (1)(A) O F I.T. ACT PROVIDES A DEFINITION OF FRINGE BENEFIT WHICH IS VERY VAST AND INCLUDES ANY PRIVILEGE SERVICE FACILITY OR AMENITY DIRECTLY OR INDIRECTLY PROVIDED BY AN EMPLOYER TO ITS EMPLOYEE. HERE PER DIEM ALLOWANCE IS AN ALLOWA NCE TO TRAINEE PILOTS DIRECTLY PROVIDING CASH TO THEM FOR THEIR BENEFIT A ND THEREFORE HAS TO BE INCLUDED IN THE FRINGE BENEFIT AND CANNOT BE INCLUD ED UNDER THE HEAD AIRCRAFT MAINTENANCE OR RUNNING EXPENSES OR TRAI NING EXPENSES. I SEE THEREFORE NO REASON TO INTERFERE WITH THE ADDITION MADE BY THE AO. IV. WITH REGARD TO THE ADDITION OF RS.9.99 CROR ES BEING PAYMENT TO HOTELS AS LAYOVER CHARGES FOR THE CREW AND PILOTS IT WAS CONTENDED BY THE ASSESSEE THAT THE EXPENDITURE INCURRED IN PROVIDING HOTEL ACCOMMO DATION TO THE CREW MEMBERS IS FOR THE LAYOVER OF THE CREW. LAYOVERS ARE SHORT DURATION BREAKS GIVEN DURING THE DUTY HOURS IN ACCO RDANCE WITH THE SAFETY MANUAL. THESE EXPENSES WERE GENUINE BUSINESS EXPEN SES AND AS RIGHTLY POINTED OUT BY THE FINANCE MINISTER THEY SHOULD NO T BE BROUGHT WITHIN THE PURVIEW OF THE FRINGE BENEFIT AND SUBJECTED TO TAX. HOWEVER THE LD. CIT (A) WAS OF THE VIEW THAT 8.2. THE ARGUMENT MAY SEEMS (TO BE) GENUINE BUT WHATEVER MAY BE THE L AYOVER PAYMENTS TO HOTELS FOR THE PILOTS AND CREW IS CERTAINLY AN AMEN ITY TO THEM AND THEREFORE HAS TO BE COVERED UNDER FBT. 5. IN A NUT-SHELL THE RELIEF SOUGHT FOR BY THE ASS ESSEE WAS TURNED DOWN BY THE LD. CIT (A) IN TOTO. ITA NO.1206/BANG/09 PAGE 8 OF 17 6. DISILLUSIONED WITH THE FINDINGS OF THE CIT (A) THE ASSESSEE HAS COME UP WITH THE PRESENT APPEAL. THE SUBMISSIO NS MADE BY THE LD. A R DURING THE COURSE OF HEARING ARE SUMMARIZED AS UN DER: (I) THE FINANCE MINISTER HAD DECLARED THAT IF THE TAX AUDITOR CERTIFIES THAT IF A PARTICULAR ITEM FALLS WITHIN A GIVEN HEAD MENTIONED IN S.115 WB (2) THEN IT WILL FALL WITHIN THAT HEAD AN D WILL ATTRACT FBT OTHERWISE IT WILL NOT ATTRACT FBT THAT THE A O HAS NO DISCRETION IN THE MATTER AND HE HAS TO ACCEPT WHAT THE TAX AUDITOR CERTIFIES UNLESS IT TURNS OUT TO BE A PATENTLY FALS E CERTIFICATE; (II) THE APPELLATE AUTHORITY HAD ERRED IN HOLDING THAT T HE ASSESSEE WAS LIABLE TO FBT IN RESPECT OF FREE TICKETS TO THE EMP LOYEES EVEN IF THE COST THEREOF WAS ZERO TO THE EMPLOYER; - HE HAD ERRED IN PLACING RELIANCE ON ANSWER TO QUERY NO.45 OF FBT CIRCULAR NO.8/2005 DT.29.8.05 IN LEVYING FBT IN RESPECT OF FREE AND CONCESSIONAL TICKETS; - HE HAD ERRED IN NOT PLACING RELIANCE ON ANSWER TO Q UERY NO.5 OF THE SAID CIRCULAR IN DETERMINING THE VALUE OF FB IN RESPECT OF FREE OR CONCESSIONAL TICKETS; - HE HAD FAILED TO CONSIDER THE FACT THAT THE EMPLOYE ES OF THE ASSESSEE CAN TAKE A PARTICULAR SEAT ONLY IF THE GEN ERAL PUBLIC WAS NOT TAKING THAT SEAT WHILE DETERMINING THE VALU E OF FB IN RESPECT OF FREE OR CONCESSIONAL TICKETS; - HE HAD ERRED IN CONFIRMING THE VIEW TAKEN BY THE AO THAT THE VALUE OF FREE OR CONCESSIONAL AIR TICKETS WERE DETE RMINABLE EVEN IF TICKETS WERE PROVIDED ON SUBJECT TO LOAD BA SIS; (III) THE CIT(A) HAD ERRED IN NOT TREATING THE PER DIEM A LLOWANCES PAID TO THE PILOTS DURING THE COURSE OF THEIR TRAINING A S EXPENSES INCURRED FOR THE PURPOSE OF TRAINING OF THE EMPLOYE ES AND THEREFORE THEY WERE IN THE NATURE OF TRAINING EXP ENSES NOT BEING LIABLE TO FBT; - HE HAD ERRED IN NOT CONSIDERING THE ALTERNATE CONTE NTION OF THE ASSESSEE THAT PER DIEM ALLOWANCES PAID TO THE PILOT S ARE IN THE NATURE OF RUNNING AND MAINTENANCE COST OF THE AIRCR AFT NOT BEING LIABLE TO FBT IN THE HANDS OF THE ASSESSEE; - HE HAD FURTHER ERRED IN NOT APPLYING TO THE FACTS A ND CIRCUMSTANCES OF THE CASE THE ANSWER TO QUERY NO.8 7 IN THE SAID CIRCULAR WHEREIN THE BOARD HAD HELD THAT SALAR Y AND ITA NO.1206/BANG/09 PAGE 9 OF 17 OTHER ALLOWANCES PAID TO THE PILOTS WERE EXPENSES I N THE NATURE OF RUNNING AND MAINTENANCE EXPENSES OF THE AIRCRAFT ; - ACCORDING TO THE FM THE LAW RELATING TO FBT WAS NO T INTENDED TO BRING TO TAX EXPENSES WHICH WERE GENUINE BUSINES S EXPENSES THE CIT(A) OUGHT TO HAVE HELD THAT SINCE THE EXPENSES WERE IN THE NATURE OF GENUINE BUSINESS EXP ENSES THEY WERE NOT LIABLE TO FBT; - THE AMOUNTS WERE PAID AS PER DIEM ALLOWANCES TO THE PILOTS HE HAD ERRED IN HOLDING THAT THESE EXPENSES WERE IN TH E NATURE OF HOTEL EXPENSES COVERED BY S.115WB(G)(2); - THE AMOUNTS WERE PAID TO PILOTS DIRECTLY AS PER DIE M ALLOWANCES. THEY WERE NOT PAID TO ANY HOTELS. YET THE REVENUE HAD BROUGHT THEM TO TAX TREATING THEM AS P AYMENTS MADE TO HOTELS AND THUS THEY HAVE ERRED IN LEVYI NG FBT ON SUCH PAYMENTS; (IV) THE PAYMENTS TO HOTELS FOR THE PURPOSE OF LAYOVER O F THE CREW MEMBERS WERE GENUINE BUSINESS EXPENSES. AS PER FM THE LAW RELATING TO FBT WAS NOT INTENDED TO BRING TO TAX AN Y EXPENSES WHICH WERE GENUINE BUSINESS EXPENSES AND THUS CON FIRMING THE LEVY OF TAX ON SUCH PAYMENTS WERE WITHOUT ANY BASIS ; - THE CIRCULAR CLARIFIES IN ANSWER TO QUERY NO.87 THA T THE RENT PAID FOR GARAGES PARKING SLOTS AIRPORT TARMAC HA NGERS SALARY TO PILOTS ETC. WERE INEXTRICABLY CONNECTED W ITH THE RUNNING OF THE AIRCRAFT AND THEREFORE THEY WERE I N THE NATURE OF AIRCRAFT MAINTENANCE/RUNNING EXPENSES AND THUS CIT(A) HAD ERRED IN HOLDING THAT THE PAYMENTS AS HOTEL EXP ENSES INSTEAD OF HOLDING THEM AS AIRCRAFT MAINTENANCE/RUN NING EXPENSES; - LAYOVER EXPENSES WERE INCURRED AS EMPLOYEE WELFARE EXPENSES IN ACCORDANCE WITH CIVIL AVIATION REQUIREMENTS AND THEREFORE THEY WERE COVERED BY EXPLANATION TO S.115W(E) AND N OT LIABLE TO TAX; (V) FOR THE PURPOSE OF LEVY OF FBT ON THE ITEMS MENTION ED IN CLAUSES A TO P OF S.115WB(2) THE CLASSIFICATION OF THE EXPEN SES WAS REQUIRED TO BE DONE BASED ON THE ULTIMATE PURPOSE F OR WHICH THE EXPENSES WERE INCURRED RATHER THAN THE IMMEDIATE AN D PROXIMATE PURPOSE OR THE PERSON TO WHOM THE PAYMENTS WERE MAD E. THE CIT(A) HAD ERRED IN CONFIRMING THE TAX ON THE IMPUG NED AMOUNTS WHICH WERE LEVIED BASED ON THE PERSONS TO WHOM OR I MMEDIATE AND PROXIMATE PURPOSE FOR WHICH THE PAYMENTS WERE M ADE; ITA NO.1206/BANG/09 PAGE 10 OF 17 (VI) RELIES THE CASE LAW OF SUNIL SIDDARTH BHAI V. CIT 156 ITR 509 (SC) 6.1. BUTTRESS HIS ARGUMENTS; THE LD. A R FU RNISHED COPIES OF THE FOLLOWING DOCUMENTS DURING THE COURSE OF HEARIN G: (A) HONBLE FINANCE MINISTERS SPEECH WHILE INTRODUCING THE BUDGET FOR THE YEAR 2005-06 AND PASSING OF THE FINANCE BILL ON 2.5.2005; (B) CIVIL AVIATION REQUIREMENTS CONFIRMING THAT TRAININ G OF THE PILOTS WAS MANDATORY; (C) CIRCULAR NO.8/2005. 6.2. ON THE OTHER HAND THE LD. D R WAS FORCEFUL IN HER URGE THAT THE FINDINGS OF THE AO WERE IN CONFORMITY OF THE PROVIS IONS OF THE ACT AND ALSO THE BOARDS CIRCULAR NO.8 OF 2005 WHICH HAVE BEEN C ONFIRMED BY THE LD. CIT (A) IN A JUDICIOUS MANNER. IT WAS THEREFORE PLEADED THAT THE STAND OF THE AUTHORITIES BELOW REQUIRES NO INTERFERENCE AT T HIS STAGE WHICH MAY BE SUSTAINED IN TOTO. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS ATTENTIVELY PERUSED THE RELEVANT CASE RECORDS AND A LSO THE DOCUMENTARY EVIDENCES ADVANCED DURING THE COURSE OF HEARING. I. REJECTION OF CERTIFICATE OF THE TAX AUDITOR: (1) THOUGH THE LD. A R HAD ARGUED VEHEMENTLY THAT THE HONBLE FINANCE MINISTER HAD ON THE FLOOR OF THE AUGUST HOU SE DECLARED THAT WHEN THE TAX AUDITOR CERTIFIES THAT IF A PARTICULAR ITEM WILL NOT FALLS WITHIN THE GIVEN HEAD MENTIONED IN SECTION 115WB(2) THEN IT W ILL FALL WITHIN THAT HEAD AND ATTRACT FRINGE BENEFIT TAX; OTHERWISE IT WILL NOT FALL WITHIN THAT HEAD ITA NO.1206/BANG/09 PAGE 11 OF 17 AND IT WILL NOT ATTRACT FRINGE BENEFIT TAX. HOWEVER THE LD. A R HAD CONVENIENTLY OVERLOOKED THE VITAL ASSERTION OF THE HONBLE F.M. THAT THAT THE INCOME-TAX OFFICER HAS NO DISCRETION IN THE MAT TER AND THAT HE HAS TO ACCEPT WHAT THE TAX AUDITOR CERTIFIES UNLESS IT TURNS OUT TO BE A PATENTLY FALSE CERTIFICATE. THE MOOT QUESTION IS THAT WHAT IS THE YARDSTICK TO GAUGE AS TO WHETHER THE CERTIFICATE OF THE TAX AUDITOR IS IN AC CORDANCE WITH THE FACTS ON RECORD OR OTHERWISE? HAD NOT OUR HONBLE F.M. PUT A RIDER UNLESS IT TURNS OUT TO BE A PATENTLY FALSE CERTIFICATE WE WOULD HAVE AGREED WITH THE CONTENTION OF THE LD. AR WITHOUT ANY HESITATION. A S RIGHTLY HIGHLIGHTED BY THE LD. CIT (A) THAT 5.2. THE AO HAS GONE BEHIND THE BOOKS TO DISCOVER NON-TREATMENT OF SOME ITEMS AS FRINGE BENEFITS AND HAVE TAXED THEM. WE ARE OF THE FIRM VIEW THAT THE AO WAS WITHIN HER REALM TO CAUSE AN INQUIRY INTO THE CONTENTS OF THE CERTIFICATE OF THE TAX AUDITOR . IT IS ORDERED ACCORDINGLY. THIS VIEW IS RATHER IN CONFORMITY WITH TH E RULING OF THE HIGHEST JUDICIARY OF THE LAND IN THE CASE OF SUNIL SIDDHAR THBHAI V. CIT AHMEDABAD & KARTIKEYA V. SARABHAI V. CIT AHMEDABAD REPORTED I N 156 ITR 509 WHEREIN THE HONBLE JUDICIARY HAD OBSERVED THAT IT WILL BE OPEN TO THE INCOME-TAX AUTHORITIES TO GO BEHIND THE TRANSACTION AND EXAMINE WHETHER TH E TRANSACTION OF CREATING THE PARTNERSHIP IS A GENUINE OR A SHAM TRA NSACTION AND EVEN WHERE THE PARTNERSHIP IS GENUINE THE TRANSACT ION OF TRANSFERRING THE PERSONAL ASSET TO THE PARTNERSHIP FIRM REPRESENTS A REAL ATTEMPT TO CONTRIBUTE TO THE SHARE CAPITAL OF THE PARTNERSHIP FIRM FOR THE PURPOSE OF CARRYING ON THE PARTNERSHIP BUSI NESS OR IS NOTHING BUT A DEVICE OR RUSE TO CONVERT THE PERSONAL ASSET INTO MONEY ITA NO.1206/BANG/09 PAGE 12 OF 17 SUBSTANTIALLY FOR THE BENEFIT OF THE ASSESSEE WHILE EVADING TAX ON A CAPITAL GAIN. THE INCOME-TAX OFFICER WILL BE ENTIT LED TO CONSIDER ALL THE RELEVANT INDICIA IN THIS REGARD ALL THESE AND OTHER PERTINENT CONSIDERATIONS MAY BE TAKEN INTO REGARD WHEN THE INCOME-TAX OFFICER ENTERS UPON A SC RUTINY OF THE TRANSACTION FOR IN THE TASK OF DETERMINING WHETHE R A TRANSACTION IS A SHAM OR ILLUSORY TRANSACTION OR A DEVICE OR RUSE H E IS ENTITLED TO PENETRATE THE VEIL COVERING IT AND ASCERTAIN THE TR UTH. II. FBT IN RESPECT OF FREE TICKETS: (1) THE MAIN GROUSE OF THE ASSESSEE WAS THAT THE LD . CIT (A) HAD OVERLOOKED THE ANSWER TO QUERY NO.5 OF FBT CIRC ULAR NO.8 IN DETERMINING THE VALUE OF FB IN RESPECT OF FREE OR C ONCESSIONAL TICKETS WHEREAS THE AO HAD TERMED THE ANSWER TO Q 5 IS A GE NERAL ANSWER AND THE SPECIFIC ANSWER TO Q 45 MORE IMPORTANTLY THE METHO D OF COMPUTATION MENTIONED IN S.115WC (1)(A) OF THE ACT OVERRIDE THE GENERAL CLARIFICATION. THE LD. CIT(A) CONCURRED WITH THE FINDING OF THE AO. HE HAD FURTHER OBSERVED THAT IF THE APPELLANT FEELS THAT ANSWER TO QUESTION 45 IS UNCONSTITUTIONAL IT IS ENTITLED TO RAISE THE SAME AT APPROPRIATE FORUM OF JUDICIARY. (2) WE HAVE CONSCIENTIOUSLY CONSIDERED THE RIVAL SUBMISSIONS PERUSED THE FINDING OF THE LD. CIT (A). TO CLEAR THE AIR LET US HAVE A GLIMPSE OF QUESTION NO.45 AND THE ANSWER: 45. HOW WILL THE VALUE OF A FREE AIR TICKET PROVI DED BY AN EMPLOYER ENGAGED IN THE BUSINESS OF CARRIAGE OF PASSENGERS O R GOODS BY AIRCRAFT BE TAKEN E.G. NORMAL FARE OR CONCESSIONAL FARE E.G . APEX FARE OR SENIOR CITIZENS CONCESSIONAL FARE OR THE ACTUAL COST OF T HE TICKET TO THE EMPLOYER? ITA NO.1206/BANG/09 PAGE 13 OF 17 ANS: IN TERMS OF THE PROVISIONS OF CLAUSE (A) OF S UB-SECTION (1) OF SECTION 115 WC THE VALUE OF A FREE OR CONCESSIONAL TICKET AS THE COST AT WHICH THE TICKET IS PROVIDED BY THE EMPLOYER TO THE GENERAL PUBLIC AS REDUCED BY THE AMOUNT IF ANY PAID BY OR RECOVERE D FROM HIS EMPLOYEES. THE COST AT WHICH THE TICKET IS PROVIDE D BY THE EMPLOYER TO THE GENERAL PUBLIC SHALL BE THE PRICE OF THE TICKET WHICH AN ORDINARY PASSENGER IS EXPECTED TO PAY ON THE DATE OF PURCHAS E OF THE TICKET FOR THE DATE TIME AND THE CLASS OF TRAVEL. SIMILARLY IN A CASE WHERE AN OPEN TICKET IS ISSUED A NUMBER OF DAYS IN ADVANCE BUT THE RESERVATION IS GENERALLY CONFIRMED A FEW HOURS BEFORE DEPARTURE THE VALUE OF THE FREE OR CONCESSIONAL TICKET SHALL BE THE COST OF TH E TICKET WHICH AN ORDINARY PASSENGER SEEKING RESERVATION A FEW HOURS BEFORE DEPARTURE IS LIABLE TO PAY AS REDUCED BY THE AMOUNT IF ANY PAID BY OR RECOVERED FROM THE EMPLOYEES. AS POINTED OUT BY THE AO IN HER IMPUGNED ORDER THE METHOD OF COMPUTATION PRESCRIBED IN S. 115 WC (1)(A) RATHE R OVERRIDES THE GENERAL CLARIFICATION MENTIONED IN Q.5. CONSIDERING THE OVER ALL FAC TS WE ARE OF THE FIRM VIEW THAT THE AO WAS JUSTIFIED IN BRINGING TO TAX NET (FBT) THE FRINGE BENEFIT VALUE OF RS.1 10 73 197/- - THE TOTAL VALUE OF FREE TICKETS ISSUED BY THE ASSESSEE. III. PER DIEM ALLOWANCES PAID TO PILOTS & HOTEL S TAY OF CREW MEMBERS IN BETWEEN THE FLIGHTS: (1) THE THEME OF THE ASSESSEE THAT THE AMOUNTS WERE PAID AS PER DIEM ALLOWANCES TO THE PILOTS AND THE AUTHORITI ES BELOW GROSSLY ERRED IN TERMING THE EXPENSES WERE IN THE NATURE OF HOTEL EX PENSES COVERED U/S 115WB(G)(2) OF THE ACT. (2) AS A MATTER OF FACT THE ASSESSEE HAD DEBITED RS.2547.75 LAKHS AS TRAVELING EXPENSES IN ITS P & L ACCOUNT O UT OF WHICH RS.817.66 LAKHS WAS CONSIDERED FOR THE PURPOSE OF FBT. ON BE ING QUERIED BY THE AO THE ASSESSEE CAME UP WITH A LENGTHY EXPLANATION JU STIFYING ITS CLAIM. ITA NO.1206/BANG/09 PAGE 14 OF 17 AFTER DUE CONSIDERATION OF T HE ASSESSEES CONTENTIONS THE AO WAS OF THE VIEW THAT 5.3. THE MAIN ARGUMENT OF THE ASSESSEE COMPANY IS THAT THESE EXPENSES ARE INCURRED FOR RUNNING AND MAINTENANCE OF AIRCRAFT AND HENCE IN VIEW OF THE COMPANY BEING ENGAGED IN T HE BUSINESS OF OPERATING AIRCRAFTS THESE EXPENSES ARE NOT LIABLE TO FBT. THE ARGUMENT IS NOT ACCEPTABLE. THE INTENT OF LEGISLATURE TO INCLU DE THE HOTEL BOARDING AND LODGING EXPENSES OF AIRCRAFT OPERATORS UNDER THIS H EAD IS CLEAR WHEN WE NOTICE THAT FROM THE AY 2007-08 THE AIRLINE INDUST RY HAS BEEN GIVEN THE SPECIAL BENEFIT OF 5% VALUE OF FRINGE BENEFIT DUE TO THE HUGE EXPENSE INCURRED BY THE INDUSTRY ON THIS COUNT. (3) WITH REGARD TO PER DIEM ALLO WANCE TO DRIVE HOME HER POINT THE AO TOOK CUE FROM THE ANSWER TO QUESTION NO.79 O F CIRCULAR NO.8 WHEREIN IT HAS BEEN CLARIFIED THAT 79. SINCE THE PER DIEM ALLOWANCE IS PAID FOR THE PURPOSES OF USE OF HOTEL BOARDING AND LODGING FACILITIES IT WOULD FALL WITHIN THE SCOPE OF CLAUSE (G) OF SUB-SE CTION (2) OF SECTION 115WB. HOWEVER THE EMPLOYEES WILL NOT BE LIABLE T O PAY INCOME-TAX ON ANY SURPLUS ACCRUING TO HIM FROM SUCH ALLOWANCE. WITH REGARD TO PER DIEM EXPENSES AS FB THE LD. CIT WAS OF THE VIEW THAT S.115WB(1)(A) OF THE ACT PROVIDES A D EFINITION OF FRINGE BENEFIT WHICH IS VERY VAST AND INCLUDES ANY PRIVILEGE SERV ICE FACILITY OR AMENITY DIRECTLY OR INDIRECTLY PROVIDED BY AN EMPLOYER TO I TS EMPLOYEE. HENCE PER DIEM ALLOWANCE WAS AN ALLOWANCE TO TRAINEE PILOTS D IRECTLY PROVIDING CASH TO THEM FOR THEIR BENEFIT AND THEREFORE HAS TO BE IN CLUDED IN THE FB AND ITA NO.1206/BANG/09 PAGE 15 OF 17 CANNOT BE INCLUDED UNDER THE HEAD AIRCRAFT MAINTEN ANCE OR RUNNING EXPENSES OR TRAINING EXPENSES. (4) IN RESPECT OF LAYOVER PAYMEN TS TO HOTELS FOR THE PILOTS AND CREW MEMBERS THE LD. CIT (A) CONSIDERED IT AS AN A MENITY TO THEM AND THEREFORE HAS TO BE COVERED UNDER FBT. REFUTING THE REVENUES CLAIM THE AS SESSEE VEHEMENTLY CONTENDED THAT AS PER ANSWER TO QUESTION NO.87 OF C IRCULAR NO.8 THE SALARY AND OTHER ALLOWANCE PAID TO THE PILOTS WERE THE EXPENSES IN THE NATURE OF RUNNING AND MAINTENANCE EXPENSES OF THE A IRCRAFT. WITH REGARD TO PAYMENTS TO HOTELS FOR THE PURPOSE OF LAYOVER OF TH E CREW MEMBERS THEY WERE GENUINE BUSINESS EXPENSES WHICH SHOULD NOT BE BROUGHT UNDER FBT. (5) WE HAVE VERY CAREFULLY CO NSIDERED THE ARGUMENT OF THE LD. A R AND ALSO THE REASONING OF THE AUTHORITIES B ELOW ON THE TWIN ISSUES. ON A GLANCE OF ANSWER TO QUERY NO.79 OF CIRCULAR N O.8 WE FIND THAT IT HAS BEEN EXPLICITLY CLARIFIED THAT PER DIEM ALLOWANCE IS PAID FOR THE PURPOSES OF USE OF HOTEL BOARDING AND LODGING FACILITIES IT W OULD FALL WITHIN THE SCOPE OF CLAUSE (G) OF SUB-SECTION (2) OF S.115WB. WITH REGARD TO ANSWER TO QUESTION NO.87 (ON WHICH THE ASSESSEE HAS PLACED A STRONG RELIANCE) IT HAS BEEN CLARIFIED THAT THE SALARY PAID TO A DRIVER OF MOTOR CAR OR A PILOT OF AN AIRCRAFT IS FOR THE PURPOSES OF RUNNING AND MAIN TENANCE OF MOTOR CAR OR AIRCRAFT AS THE CASE MAY BE AND ACCORDINGLY SUCH PAYMENT OF SALARY WOULD HAVE TO BE CLASSIFIED EITHER IN CLAUSE (H) OR CLAUS E (I) AS THE CASE MAY BE OF SUB-SECTION (2) OF S.115WB. THEREFORE IT WOULD BE LIABLE TO FBT . ITA NO.1206/BANG/09 PAGE 16 OF 17 WHAT THE CLAUSES OF (H) AND (I) OF S UB-SECTION (2) OF S.115WB OF THE ACT ARE SUBSCRIBED FOR? S.115WB (2 ): (H)REPAIR RUNNING (INCLUDING FUEL) MAINTENANCE OF MOTOR CARS AND THE AMOUNT OF DEPRECIATION THEREON; (I) REPAIR RUNNING (INCLUDING FUEL) AND MAINTENANC E OF AIRCRAFTS AND THE AMOUNT OF DEPRECIATION THEREON; (6) THE ASSESSEE ITSELF TAKING SANCTUARY UNDER QUERY NO.87 OF CIRCULAR NO.8 AND PLEADED THAT THE SALARY AND OTHER ALLOWANCES PAID TO THE PILOTS WERE EXPENSES IN THE NATURE OF RUNNING AND M AINTENANCE EXPENSES OF THE AIRCRAFT. HOWEVER S.115WB (2)(H) AND (I) O F THE ACT MAKES IT EXPLICITLY CLEAR THAT REPAIR RUNNING AND MAINTENANCE OF AIRCRAFTS.. WOULD BE LIABLE TO FBT . 8. IN A NUT-SHELL (I) PER DIEM ALLOWANCES PAID TO PILOTS AND (II) PAYMENTS MADE TO HOTELS WOULD BE LIABLE TO FBT. IT IS ORDE RED ACCORDINGLY. 9. IN THE RESULT THE ASSESSEES APPEAL IS DISMISSED . PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF JULY 2010. SD/- SD/- ( GEORGE GEORGE K. ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE DATED THE 30 TH JULY 2010. DS/- ITA NO.1206/BANG/09 PAGE 17 OF 17 COPY TO: 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT BANGALORE.