M.P. FASHIONS P. LTD, MUMBAI v. ITO 8(2)(3), MUMBAI

ITA 202/MUM/2011 | 2007-2008
Pronouncement Date: 09-04-2014 | Result: Allowed

Appeal Details

RSA Number 20219914 RSA 2011
Assessee PAN AADCM2730F
Bench Mumbai
Appeal Number ITA 202/MUM/2011
Duration Of Justice 3 year(s) 2 month(s) 30 day(s)
Appellant M.P. FASHIONS P. LTD, MUMBAI
Respondent ITO 8(2)(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-04-2014
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 09-04-2014
Date Of Final Hearing 04-03-2014
Next Hearing Date 04-03-2014
Assessment Year 2007-2008
Appeal Filed On 10-01-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI . . BEFORE SHRI P.M. JAGTAP ACCOUNTANT MEMBER AND SHRI VIVEK VARMA JUDICIAL MEMBER . : 202 / / 20 1 1 A.Y. 200 7 - 0 8 ITA N O. : 202 / MUM/20 1 1 (ASSESSMENT YEAR: 200 7 - 0 8 ) M P FASHIONS PRIVATE LIMITED 189 PADMANIS MHADA ROW HOUSES S V P NAGAR ANDHERI (WEST) MUMBAI - 400 0 53 .: PAN: A A D CM 2730 F VS INCOME T AX OFFICER - WARD - 8 (2)( 3 ) MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MA NDAR VAIDYA RESPONDENT BY : SHRI MAURYA PRATAP /DATE OF HEARING : 0 4 - 0 3 - 201 4 / DATE OF PRON OUNCEMENT : 09 - 0 4 - 201 4 O R D E R : PER VIVEK VARMA JM: THE APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) 17 MUMBAI DATED 0 3 .0 9 .201 0 WHEREIN THE SOLITARY ISSUE IS WITH REGARD TO ADDITION ON ACCOUNT OF RS. 3 22 115 / - U/S 115WB I.E. FBT PROVISIONS . 2. THE FACTS ARE THAT THE ASSESSEE IS MANUFACTURER AND EXPORTER OF GARMENTS AND ALSO UNDERTAKES JOB WORK. THE ASSESSEE EXPORTS ITS PRODUCTS TO DUBAI AND ADJOINING AREAS AND IT DOES NOT HAVE ANY DOMESTIC TU RNOVER. THE ASSESSEE IS MAINTAINING A FOREIGN REPRESENTATIVE OFFICE AT DUBAI UAE FROM WHERE IT GETS THE FOLLOWING ASSISTANCE : A) OBTAIN FEEDBACK OF CURRENT FASHIONS AND TRENDS PREVAILING IN THE MARKET. B) CONTACT AND MEET BUYERS AND OBTAIN ORDERS. C) G ET SAMPLES APPROVED FROM THE BUYERS. M P FASHIONS PRIVATE LIMITE D ITA NO. 202/MUM/2011 2 D) GET PRE - PRODUCTION APPROVALS FROM THE BUYERS. E) CLEARANCE OF GOODS. F) DELIVER THE DOCUMENTS TO PARTIES AND REALIZE PAYMENTS. 3. THE CIT(A) IN THE APPEAL PROCEEDINGS OBSERVED MEMORANDUM EXPLAIN THE PROVISIONS OF THE FINANCE BILL 2005 IT WAS STATED [(2005) 273 ITR (ST) 196] THE RATIONALE OF LEVYING A FRINGE BENEFIT TAX ON THE EMPLOYER LIES IN THE INHERENT DIFFICULTY IN ISOLATING THE PERSONAL ELEMENT WHERE THERE IS COLLECTIVE ENJOYMENT OF SUCH BENEFIT AND ATT RIBUTING THE SAME DIRECTLY TO THE EMPLOYEE. THIS IS SO ESPECIALLY WHERE THE EXPENDITURE INCURRED BY THE EMPLOYER IS OSTENSIBLY FOR PURPOSES OF THE BUSINESS BUT INCLUDES IN PARTIAL MEASURE A BENEFIT OF PERSONAL NATURE. SECTION 1I5WB(1) DEFINES FRINGE BE NEFIT AS CONSIDERATION FOR EMPLOYMENT PROVIDED BY WAY OF ANY PRIVILEGE SERVICE - FACILITY OR AMENITY PROVIDED BY AN EMPLOYER TO HIS EMPLOYEES. FURTHER SECTION 115WB(2) GIVES A LIST OF EXPENSES UNDER DIFFERENT HEADS WHICH SHALL BE DEEMED TO BE FRINGE BENEFITS PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES. IT WAS THEREFORE EVIDENT FROM THE WORDING OF THE SECTION THAT THE ABOVE TAX WAS PAYABLE ONLY IN RESPECT OF THE 18 ITEMS OF EXPENSES WHICH ARE INCURRED TO GIVE BENEFIT TO THE EMPLOYEES AND THEIR FAMILY MEMBERS. ONLY THE SPECIFIED PERCENTAGE OF EXPENDITURE INCURRED BY OR FOR THE BENEFIT OF THE EMPLOYEES CAN BE CONSIDERED AS FRINGE BENEFIT. IT WAS ARGUED THAT FROM THE ANSWER GIVEN IN THE CBDT CIRCULAR 8/2005 IT WAS EVIDENT THAT THE CONCEPT THAT SA LES EXPENSES ARE NOT SALES PROMOTION EXPENSES WAS ACCEPTED. THE DUBAI REPRESENTATIVE OFFICE MAINTAINED A RECORD OF ALL EXPENSES INCURRED AND SEPARATE BOOKS OF ACCOUNT WERE MAINTAINED FOR THE APPELLANTS OPERATIONS IN INDIA. THE LEVY OF FRINGE BENEFIT TA X ON EXPENDITURE INCURRED BY THE FOREIGN REPRESENTATIVE OFFICE AT DUBAI WAS HENCE NOT WARRANTED. 3 . 5 THE SUBMISSION HAS BEEN CONSIDERED BUT THE SAME CANNOT BE ACCEPTED. IN THE CIRCULAR NO. 8/2005 DT.29.08.2005 IT HAS BEEN NOTED THAT FRINGE BENEFITS DEEMED TO HAVE BEEN PROVIDED INCLUDES SALES PROMOTION INCLUDING PUBLICITY BUT EXCLUDING EXPENDITURE ON ADVERTISEMENT. AS THE TERM SALES PROMOTION HAS NOT BEEN DEFINED IT SHOULD BE GIVEN ITS NATURAL MEANING WHICH IS OF WIDE IMPORT. IN THE CIRCUMSTANCES THE ACT ION OF THE A.O. IN INCLUDING EXPENDITURE ON FOREIGN REPRESENTATIVE OFFICE TO LEVY FBT IS SUSTAINED . 4 . AGGRIEVED THE ASSESSEE IS BEFORE THE ITAT. 5. BEFORE US THE AR SUBMITTED THAT THE RATIONALE OF FB IS TO BRING TO TAX THE BENEFIT WHICH IS CLAIMED BY THE EMPLOYERS IN THE COURSE OF THEIR EMPLOYMENT AND IS RESTRICTED TO DOMESTIC EMPLOYMENT. SINCE THE ISSUE PERTAINS TO FB ON THE EMPLOYEES STATIONED AT DUBAI THE SCOPE OF THIS CANNOT BE EXTENDED TO DUBAI. THE AR POINTED OUT THAT QUESTION NO. 20 OF CIRCULAR NO. 8 OF 2005 DATED 29.08.2005 (195 CTR 85 - CO P Y ENCLOSED) WHICH READS M P FASHIONS PRIVATE LIMITE D ITA NO. 202/MUM/2011 3 20. I S FBT PAYABLE BY AN INDIAN COMPANY HAVING EMPLOYEES BASED BOTH IN AND OUTSIDE INDIA ON ITS TOTAL (GLOBAL) EXPENDITURE INCURRED BY IT FOR THE PURPOSES REFERRED TO IN CLAUSES (A ) TO (P) OF SUB - SECTION (2) OF SECTION 1I5WB? ANS. FBT IS PAYABLE ON THE VALUE OF FRINGE BENEFITS P ROVIDED OR DEEMED TO HAVE BEEN PROVIDED TO EMP L OYEES BASED IN INDIA AND DETERMINED ON A PRESUMPTIVE BASIS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 1I5WC OF THE INCOME - TAX ACT. THE VALUE OF SUCH FRINGE BENEFITS IS DETERMINED INTER ALIA AS A PROP ORTION OF THE TOTAL AMOUNT OF EXPENSES INCURRED FOR SOME IDENTIFIED PURPOSES. IN THE CASE OF AN INDIAN COMPANY HAVING EMPLOYEES BASED BOTH IN INDIA AND IN A FOREIG N COUNTRY FBT I S P A YABL E ON THE PROPORTION (50 PER CENT 20 PER CENT OR 5 PER CENT AS THE CASE MAY BE) OF THE TOTAL AMOUNT OF EXPENSES INCURRED FOR THE PURPOSES REFERRED TO IN CLAUSES (A) TO (P) OF SUB - SECTION (2) OF SECTION 11 5WB AND ATTRIBUT ABLE TO T HE OPERATIONS IN I NDIA. IF THE COMPANY MAINTAINS SEPARATE BOOKS OF ACCOUNTS FOR ITS INDIAN AND FOREIGN OPERATIONS FBT WOULD BE PAYABLE ON THE AMOUNT OF EXPENSES REFLECTED IN THE BOOKS OF ACCOUNTS RELATING TO THE INDIAN OPERATIONS. IF HOWEVER NO SEPARATE AC COUNTS ARE MAINTAINED THE AMOUNT OF EXPENSES ATTRIBUTABLE TO INDIAN OPERATIONS WOULD BE THE PROPORTIONATE AMOUNT OF THE GLOBAL EXPENDITURE. FURTHER SUCH PROPORTIONATE AMOUNT S H ALL BE E DETERMINED BY APPLYING TO THE GLOBAL EXPENDITURE THE PROPORTION WHICH THE NUMBER OF EMPLOYEES BASED IN INDIA BEARS TO THE TOTAL WORLDWIDE EMPLOYEES OF THE COMPANY . 6. THE AR ALSO RELIED ON THE DECISION OF THE C OORDINATE BENCH AT BANGALORE IN THE CASE OF TOYOTA KIRLOSKAR MOTOR PVT LTD VS ADD CIT REPORTED IN 2012 - TIOL - 313 - I TAT - BANG WHERE THE BENCH WERE SEIZED WITH THE DEEMING FICTION EMBODIED IN SUBSECTION (2) HELD THUS THE DEEMING FICTION U/S 115WB(2) IS LIMITED TO THOSE EXPENDITURES WHICH RESULT IN COLLECTIVE ENJOYMENT OF BENEFITS BY THE EMPLOYEES AND WHERE PERSONAL ATTRIBUTION OF BENEFIT POSES DIFFICULTY. IT IS ONLY UNDER THESE CIRCUMSTANCES THAT THE DEEMING FICTION UNDER SECTION 115W B( 2) COMES INTO PLAY. IN A CASE WHERE THE BENEFIT IS FULLY ATTRIBUTABLE TO EMPLOYEES OR WHERE THE EXPENDITURE DOES NOT RESULT IN ANY B ENEFIT AT ALL TO EMPLOYEES THE DEEMING FICTION UNDER SECTION 115WB(2) IS NOT ATTRACTED AND CONSEQUENTLY NO FBT CAN BE LEVIED ON THE EMPLOYER. IN THE PRESENT CASE THE SALES PROMOTION EXPENSES EXPENSES ON CONVEYANCE TOUR AND TRAVEL AND GIFTS ARE INCURRE D IN THE COURSE OF BUSINESS AND ARE NOT PAID TO EMPLOYEES. THE SAID EXPENDITURE HAS ARISEN AS A RESULT OF PAYMENTS MADE TO THIRD PARTIES SUCH AS DEALERS VENDORS SERVICE PROVIDERS ETC. AND IS NOT INCURRED DIRECTLY OR INDIRECTLY FOR THE BENEFIT OF THE EMP LOYEES. IN VIEW OF THE ABOVE THESE EXPENDITURE ARE NOT LIABLE FOR FBT. 7. THE SAME RATIO WAS ACCEPTED IN ANOTHER CASE BY THE COORDINATE BENCH AT BANGALORE IN THE CASE OF ACIT VS INFOSYS TECHNOLOGIES LTD. ITA NO. 96/BANG/2011. M P FASHIONS PRIVATE LIMITE D ITA NO. 202/MUM/2011 4 8 . THE AR THEREFORE S UBMITTED THAT THE PROVISION OF FRINGE BENEFITS THEREFORE DOES NOT ATTRACT ON THE EMPLOYEES STATIONED OUTSIDE INDIA. 9 . THE DR PLACED RELIANCE ON THE ORDERS OF THE REVENUE AUTHORITIES AND SUBMITTED THAT THE LEGISLATIVE PROVISIONS ARE CLEAR AND THE OBSERV ATIONS OF THE REVENUE AUTHORITIES ARE CORRECT. 10 . WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED THE CITATIONS AND THE CBDT CIRCULAR. THE ISSUE BEFORE US IS WHETHER PROVISION OF FRINGE BENEFITS GET ATTRACTED TO THE BENEFITS ON EMPLOYEES STATIONED OUTSIDE INDIA. ON THE IMPUGNED ISSUE CIRCULAR NO. 8 OF 2005 DATED 29.08.2005 HAS GIVEN VERY CATEGORICAL ANSWERS WHICH ARE IN RESPONSE TO QUESTIONS NO. 20 & 21 WHICH ARE REPRODUCED HEREUNDER: 20. I S FBT PAYABLE BY AN INDIAN COMPANY HAVING EMPLOYEES BASED BOTH IN AND OUTSIDE INDIA ON ITS TOTAL (GLOBAL) EXPENDITURE INCURRED BY IT FOR THE PURPOSES REFERRED TO IN CLAUSES (A) TO (P) OF SUB - SECTION (2) OF SECTION 1I5WB? ANS. FBT IS PAYABLE ON THE VALUE OF FRINGE BENEFITS P ROVIDED OR DEEMED TO HAVE BEEN PROVIDED TO EM P L OYEES BASED IN INDIA AND DETERMINED ON A PRESUMPTIVE BASIS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 1I5WC OF THE INCOME - TAX ACT. THE VALUE OF SUCH FRINGE BENEFITS IS DETERMINED INTER ALIA AS A PROP ORTION OF THE TOTAL AMOUNT OF EXPENSES INCURRED FOR SOME IDENTIFIED PURPOSES. IN THE CASE OF AN INDIAN COMPANY HAVING EMPLOYEES BASED BOTH IN INDIA AND IN A FOREIGN COUNTRY FBT I S P A YABL E ON THE PROPORTION (50 PER CENT 20 PER CENT OR 5 PER CENT AS THE CASE MAY BE) OF THE TOTAL AMOUNT OF EXPENSES INCURRE D FOR THE PURPOSES REFERRED TO IN CLAUSES (A) TO (P) OF SUB - SECTION (2) OF SECTION II5WB AND ATTRIBUT ABLE TO T HE OPERATIONS IN I NDIA. IF THE COMPANY MAINTAINS SEPARATE BOOKS OF ACCOUNTS FOR ITS INDIAN AND FOREIGN OPERATIONS FBT WOULD BE PAYABLE ON THE AMO UNT OF EXPENSES REFLECTED IN THE BOOKS OF ACCOUNTS RELATING TO THE INDIAN OPERATIONS. IF HOWEVER NO SEPARATE ACCOUNTS ARE MAINTAINED THE AMOUNT OF EXPENSES ATTRIBUTABLE TO INDIAN OPERATIONS WOULD BE THE PROPORTIONATE AMOUNT OF THE GLOBAL EXPENDITURE. FUR THER SUCH PROPORTIONATE AMOUNT S H ALL BE E DETERMINED BY APPLYING TO THE GLOBAL EXPENDITURE THE PROPORTION WHICH THE NUMBER OF EMPLOYEES BASED IN INDIA BEARS TO THE TOTAL WORLDWIDE EMPLOYEES OF THE COMPANY . 21. WHETHER AN INDIAN COMPANY CARRYING ON BUSINE SS OUTSIDE INDIA WOULD BE LIABLE TO FBT EVEN THOUGH NONE OF ITS EMPLOYEES IN SUCH BUSINESS MAY BE LIABLE TO PAY INCOME - TAX IN INDIA? ANS. AN INDIAN COMPANY WOULD BE LIABLE TO THE FBT IN INDIA IF IT HAS EMPLOYEES BASED IN INDIA. THEREFORE IF AN INDIAN COMP ANY CARRIES ON BUSINESS OUTSIDE INDIA BUT DOES NOT HAVE M P FASHIONS PRIVATE LIMITE D ITA NO. 202/MUM/2011 5 ANY EMPLOYEES BASED IN INDIA SUCH COMPANY WOULD BE NOT LIABLE TO THE FBT IN INDIA. 11 . IN THESE CIRCUMSTANCES WHEN THE BOARD ITSELF HAS CLARIFIED THE ISSUE AND THE COORDINATE BENCH AT BANGALORE IN THE CASE OF TOYOTA KIRLOSKAR MOTOR PVT LTD ( SUPRA ) HAVE FURTHER CLARIFIED THE DEEMING PROVISION OF SECTION 115WB(2). BESIDES THE ABOVE NOWHERE IN EITHER ORDER OF THE REVENUE AUTHORITIES IT COULD BE ASCERTAINED THAT THE ASSESSEE HAS CROSSED THE PARAMETER S OUTLINED EITHER IN THE PROVISIONS OF SECTION 115WB(1) OR 115WB(2) OR THE CIRCULAR. THE DR ALSO COULD NOT CONVINCE UA AS TO WHICH BENEFIT TO THE EMPLOYEE STATIONED AT DUBAI WOULD ATTRACT FBT. A BALD STATEMENT CONCEIVED OUT FROM THE DETAILS PROVIDED BY TH E ASSESSEE CANNOT ATTRACT DISALLOWANCE. TO JUSTIFY THE ADDITION ON FB THE REVENUE AUTHORITIES SHOULD HAVE RELIED ON SOME EVIDENCE TO JUSTIFY THAT A PARTICULAR EMPLOYEE RECEIVED A CERTAIN BENEFIT. IN THE INSTANT CASE THE FBT HAS BEEN IMPOSED ON THE ASSESS EE FOR THE PAYMENTS MADE TO EMPLOYEES IN DUBAI ON ACCOUNT OF SALES PROMOTION. THE REVENUE AUTHORITIES HAVE NOT SPECIFIED ANYTHING TO PROVE THAT THE EXPENSE WAS EITHER NOT FOR THE SALES PROMOTION OR WERE ACTUALLY UTILIZED BY THE EMPLOYEES. IN THESE CIRCUMST ANCES RELYING ON THE CIRCULAR AND THE DECISIONS OF TOYOTA KIRLOSKAR MOTOR PVT. LTD. (SUPRA) AND INFOSYS TECHNOLOGIES LTD. (SUPRA) W E ARE OF THE OPINION THAT FRINGE BENEFIT PROVISIONS ARE OUTSIDE THE SCOPE FOR THE EMPLOYEES STATIONED OUTSIDE INDIA. 1 2 . W E THEREFORE REVERSE THE FINDINGS OF THE REVENUE AUTHORITIES ON THE IMPUGNED ISSUE AND DIRECT THE AO TO DELETE THE DISALLOWANCE. 1 3 . IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH APRIL 201 4 . SD/ - SD/ - ( . . ) ( ) ( P.M. JAGTAP ) (VIVEK VARMA) ACCOU NTANT MEMBER JUDICIAL MEMBER MUMBAI DATE: 9 TH APRIL 2014 M P FASHIONS PRIVATE LIMITE D ITA NO. 202/MUM/2011 6 / COPY TO: - 1) / THE APP E L LA NT. 2) / THE RESPONDENT. 3) THE C IT ( A ) - 17 MUMBAI . 4) C IT - 8 MUMBAI / THE C IT - 8 MU M BAI. 5) / THE D.R. B BENCH MUMBAI. 6) COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / [ / DY. / ASSTT. REGISTRAR I.T.A.T. MUMBAI * . . * CHAVAN SR. PS M P FASHIONS PRIVATE LIMITE D ITA NO. 202/MUM/2011 7 . SR.N EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 05 .0 3 .201 4 HAND WRITTEN MANUSCRIPT . . SR.PS 2 DRAFT PLACED BEFORE AUTHOR 0 5 .0 3 .201 4 . . SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND ME M BER JM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS . . SR.PS 6 KEPT FOR PRONOUNCEMENT ON . . SR.PS 7 FILE SENT TO THE BENCH CLERK . . SR.PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER