GODREJ PROPERTIES LTD, MUMBAI v. ADDL CIT RG 10(2), MUMBAI

ITA 840/MUM/2010 | 2006-2007
Pronouncement Date: 03-12-2010 | Result: Allowed

Appeal Details

RSA Number 84019914 RSA 2010
Assessee PAN AAACG3995M
Bench Mumbai
Appeal Number ITA 840/MUM/2010
Duration Of Justice 10 month(s)
Appellant GODREJ PROPERTIES LTD, MUMBAI
Respondent ADDL CIT RG 10(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 03-12-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted G
Tribunal Order Date 03-12-2010
Assessment Year 2006-2007
Appeal Filed On 03-02-2010
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO JUDICIAL MEMBER. I.T.A. NO.840/MUM/2010. ASSESSMENT YEAR : 2006-07. GODREJ PROPERTIES LTD. ADDL. COMMISSIONER OF INCOME- TAX C/O KALYANIWALLA & MISTRY VS. RANGE-10(2) MUMBAI. ARMY & NEVY BUILDING 148 M.G. ROAD MUMBAI 400 001. P.A. NO. AAACG3995M. APPELLANT. RESPONDENT. APPELLANT BY : SMT. SONALEE GODBOLE. RESPONDENT BY : SHRI D. SONGATE. O R D E R PER J. SUDHAKAR REDDY A.M. : THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED A GAINST THE ORDER OF THE CIT(APPEALS)-21 MUMBAI DATED 27-11-2009 FOR THE A SSESSMENT YEAR 2006-07 WHEREIN THE CIT(APPEALS) HAS CONFIRMED THE ORDER PA SSED BY THE AO U/S 115WE(3) OF THE ACT AND ASSESSED THE VALUE OF FRING E BENEFIT BY MAKING AN ADDITION ON ACCOUNT OF MEDICAL REIMBURSEMENT. THE SOLE GROUND OF APPEAL READS AS FOLLOWS : 2 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) E RRED IN HOLDING THAT SALARY PAID TO THE EMPLOYEES IN THE FORM OF MEDICAL REIMBURSEMENTS AGGREGATING TO RS.9 89 046/- WAS LIABLE TO THE LEVY OF FRINGE BENEFIT TAX. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE THE APPELLANT SUBMITS THAT THE SAID AMOUNT BE EXCLUDED AS CLAIME D BY THE APPELLANT. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMP ANY FILED ITS RETURN OF FRINGE BENEFIT ON 24 TH NOV. 2006 DECLARING THE VALUE OF FRINGE BENEFIT A T RS.14 48 890/-. THE AO HAS VIDE ORDER U/S 115WE(3) OF THE ACT DATED 24 TH DEC. 2008 ASSESSED THE VALUE OF FRINGE BENEFIT BY HOLDING THAT THE SAL ARY PAID TO THE EMPLOYEE IN THE FORM OF MEDICAL REIMBURSEMENT AGGREGATING TO RS.9 8 9 046/- WAS LIABLE TO THE LEVY OF FRINGE BENEFIT TAX AS THE SAID EXPENDITURE TAKE S THE NATURE OF PERQUISITE IN THE HANDS OF THE EMPLOYEE. THE FIRST APPELLATE AUTHORIT Y HELD THAT IN THIS CASE THE AMOUNT OF MEDICAL EXPENDITURE REIMBURSED TO THE EMP LOYEES WERE NOT PART OF SALARY PACKAGE BUT WERE IN ADDITION THERETO. HE H ELD THAT THERE IS A DIFFERENCE BETWEEN THE SAME FORMING PART OF TOTAL REMUNERATIO N AND EXPENDITURE REIMBURSED TO THE EMPLOYEES. THE AMOUNT UNDER CONSIDERATION WE RE NOT PART OF TOTAL REMUNERATION TO THE EMPLOYEES AND AS IT WAS IN THE NATURE OF REIMBURSEMENT IT WAS PERQUISITE WHICH IS LIABLE TO FRINGE BENEFIT TAX 3. MRS. SONALEE GODBOLE LEARNED COUNSEL FOR THE AS SESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AO AS WELL AS THE CIT(A PPEALS). SHE REFERRED TO SECTION 15 OF THE INCOME-TAX ACT WHICH DEFINES SAL ARY AND SECTION 17(2) WHICH DEFINES PERQUISITE WITH SPECIFIC REFERENCE TO SUB -CLAUSE (V) OF THE PROVISO. SHE SUBMITTED THAT THE ABOVE REIMBURSEMENT IS A PERQUIS ITE AS PER SUB-SECTION 17(2) PROVISO (V) AND SUBMITTED THAT THE VALUE ON THE PER QUISITE IN THE CASE OF EMPLOYEE IS ZERO. SHE DREW ATTENTION OF THE BENCH TO SUB-SEC TION (3) OF SECTION 115WB AND SUBMITTED THAT PERQUISITES IN RESPECT OF TAX WHICH IS PAID OR PAYABLE BY THE EMPLOYEE CANNOT BE INCLUDED IN THE TERM PERQUISIT E. SHE REFERRED TO THE MEDICAL BENEFIT SCHEME OF THE ASSESSEE COMPANY AND POINTED OUT THAT FOR AVAILING THE 3 BENEFIT UNDER THE INCOME-TAX ACT EMPLOYEES CAN SUB MIT MEDICAL BILLS. SHE SUBMITTED THAT A FLAT AMOUNT BY WAY OF MEDICAL ADVA NCE IS BEING PAID THROUGH SALARY OF EVERY MONTH. SHE REFERRED TO THE BUDGET S PEECH BY THE MINISTER OF FINANCE DELIVERED ON 28 TH FEB. 2005 REPORTED IN 273 ITR STATUTE 25 SPECIFI CALLY TO PARA 160. SHE ALSO REFERRED TO THE MEMORANDUM EXPLA INING THE PROVISIONS IN FINANCE BILL 2005 AND SUBMITTED THAT IT IS VERY CL EAR THAT WHERE PERQUISITES WERE DIRECTLY ATTRIBUTED TO THE EMPLOYEES THE SAME WOUL D CONTINUE TO BE TAXED IN THEIR HANDS IN ACCORDANCE WITH THE EXISTING PROVISIONS OF SECTION 17(2) OF THE INCOME-TAX ACT. SHE PRAYED FOR RELIEF. 4. THE LEARNED DR. MR. D. SONGATE ON THE OTHER HAN D OPPOSED THE CONTENTIONS OF THE ASSESSEE AND SUBMITTED THAT IN THIS CASE ME DICAL EXPENSES WERE REIMBURSED TO THE EMPLOYEES ONLY ON THE PRODUCTION OF MEDICAL BILLS AND ONLY IN CASES WHERE MEDICAL BILLS WERE NOT PRODUCED BY THE EMPLOYEES T HE AMOUNT WAS INCLUDED IN THE TOTAL REMUNERATION OF THE EMPLOYEES AND WAS SUBJECT TO DEDUCTION OF TAX AT SOURCE. THUS AS PER THE LEARNED DR IN CASE WHERE MEDICAL E XPENDITURE IS REIMBURSED IT IS A PERQUISITE IN THE HANDS OF THE EMPLOYEES AND THE REFORE LIABLE TO FRINGE BENEFIT TAX. 5. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERAT ION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND A PERUSAL OF THE PAPE RS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW WE HOLD AS FOLLOWS : 6. THE UNDISPUTED FACT IN THIS CASE IS THAT THE ASS ESEE WITH EFFECT FROM 1 ST APRIL 2002 IS PAYING A FLAT AMOUNT BY WAY OF A MEDICAL ADVANCE THROUGH THE SALARY EVERY MONTH. THE AMOUNT PAID FOR THE VICE PRESIDENT S /GENERAL MANAGERS/DY.GENERAL MANAGERS ETC. IS RS.1250/- PER MONTH. WHEREVER THE EMPLOYEES SUBMITTED MEDICAL BILLS FOR DOMICILIARY T REATMENT OR FOR GENERAL CHECK- 4 UP EVERY THREE MONTHS BENEFIT OF (V) PROVISO TO S ECTION 17(2) COULD BE AVAILED. NOW WE EXAMINE THE EXEMPTION IN THE PROVISO TOY C LAUSE (V) OF SECTION 17(2) OF THE ACT. SECTION 17(1)(IV) STATES THAT SALARY INC LUDES PERQUISITES. SECTION 17(2) PROVISO (V) READS AS FOLLOWS : (V) ANY SUM PAID BY THE EMPLOYER IN RESPECT OF AN Y EXPENDITURE ACTUALLY INCURRED BY THE EMPLOYEE ON HIS MEDICAL TREATMENT O R TREATMENT OF ANY MEMBER OF HIS FAMILY [OTHER THAN THE TREATMENT REFE RRED TO IN CLAUSES (I) AND (II); SO HOWEVER THAT SUCH SUM DOES NOT EXCEED [F IFTEEN] THOUSAND RUPEES IN THE PREVIOUS YEAR; THIS SUB-CLAUSE TREATS THE EXPENDITURE ACTUALLY INC URRED BY THE EMPLOYEE ON MEDICAL TREATMENT FOR HIMSELF OR HIS FAMILY AND WH ICH IS PAID BY THE EMPLOYEE IN EXCESS OF RS.15 000/- WOULD BE A PERQUISITE WHICH WOULD BE TAXABLE AS SALARY. IT IS CLEAR THAT REIMBURSEMENT OF MEDICAL EXPENDITURE AS IN THE CASE REFERRED ABOVE IS NOT CHARGEABLE TO TAX AS A PERQUISITE IF THE AMOUN T DOES NOT EXCEED RS.15 000/- P.C. 7. SECTION 115WB(3) READS AS FOLLOWS : FOR THE PURPOSES OF SUB-SECTION (1) THE PRIVILEG E SERVICE FACILITY OR AMENITY DOES NOT INCLUDE PERQUISITES IN RESPECT OF WHICH TAX IS PAID OR PAYABLE BY THE EMPLOYEE [OR ANY BENEFIT OR AMENITY IN THE NATURE OF FREE O R SUBSIDIZED TRANSPORT OR ANY SUCH ALLOWANCE PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES FOR JOURNEYS BY THE EMPLOYEES FROM THEIR RESIDENCE TO THE PLACE OF WORK OR SUCH PLACE OF WORK TO THE PLACE OF RESID ENCE] (EMPHASIS OURS). IN THE MEMORANDUM EXPLAINING THE PROVISO TO THE FIN ANCE BILL IT IS STATED AS FOLLOWS : THEREFORE IT IS PROPOSED TO ADOPT A TWO PRONGED A PPROACH FOR THE TAXATION OF FRINGE BENEFITS UNDER THE INCOME-TAX ACT. PERQUI SITES WHICH CAN BE DIRECTLY ATTRIBUTED TO THE EMPLOYEES WILL CONTINUE TO BE TAXED IN THEIR HANDS IN ACCORDANCE WITH THE EXISTING PROVISIONS OF SECTI ON 17(2) OF THE INCOME TAX ACT AND SUBJECT TO THE METHOD OF VALUATION OUTLINED IN RULE 3 OF THE INCOME- TAX RULES. (EMPHASIS OURS) 5 IN THE BUDGET SPEECH AT PARA 160 REPORTED IN 273 IT R (ST.) 25 AT PAGE 56 IT IS OBSERVED AS FOLLOWS : I HAVE LOOKED INTO THE PRESENT SYSTEM OF TAXING PE RQUISITES AND I HAVE FOUND THAT MANY PERQUISITES ARE DISGUISED AS FRINGE BENEF ITS AND ESCAPE TAX. NEITHER THE EMPLOYER NOR THE EMPLOYEE PAYS ANY TAX ON THESE BENEFITS WHICH ARE CERTAINLY OF CONSIDERABLE MATERIAL VALUE. AT PR ESENT WHERE THE BENEFITS ARE FULLY ATTRIBUTABLE TO THE EMPLOYEE THEY ARE TAX ED IN THE HANDS OF THE EMPLOYEE; THAT POSITION WILL CONTINUE. IN ADDITION I NOW PROPOSE THAT WHERE THE BENEFITS ARE USUALLY ENJOYED COLLECTIVELY BY TH E EMPLOYEES AND CANNOT BE ATTRIBUTED TO INDIVIDUAL EMPLOYEES THEY SHALL BE T AXED IN THE HANDS OF THE EMPLOYER. (EMPHASIS OURS) 8. FROM THE ABOVE IT IS CLEAR THAT WHERE PERQUISIT ES/BENEFITS WHICH ARE FULLY ATTRIBUTABLE TO THE EMPLOYEE AND ARE TAXED IN THEIR HANDS WOULD BE CONTINUED TO BE TAXED UNDER THE EXISTING PROVISIONS OF SECTION 17(2 ) OF THE ACT. ONLY IN CASE WHERE THE BENEFITS ARE USUALLY ENJOYED COLLECTIVELY BY TH E EMPLOYEES AND CANNOT BE ATTRIBUTED TO AN INDIVIDUAL EMPLOYEE THEY SHALL BE TAXED IN THE HANDS OF THE EMPLOYER. 9. IN SUB-SECTION (3) OF SECTION 115WB IT IS MADE C LEAR THAT SECTION 115WB(1)(A) DOES NOT INCLUDE SUCH PERQUISITE IN R ESPECT OF WHICH TAX IS PAID OR PAYABLE BY THE EMPLOYEES. 10. IN THE CASE ON HAND TAX IS PAYABLE ON MEDICAL ADVANCE AND IN CERTAIN CASES TAX HAS BEEN PAID. ONLY WHERE BILLS HAVE BEEN PRODU CED BY THE EMPLOYEE TO THE EMPLOYER IT WAS A CASE OF REIMBURSEMENT AND TO THE EXTENT OF THE BENEFIT GIVEN IN 17(2) PROVISO (V) THE EMPLOYEE NEED NOT PAY TAX. TH IS IS NOT A CASE WHERE THE ATTRIBUTION OF PERSONAL BENEFITS DIRECTLY TO AN EMP LOYEE POSES OF PROBLEM OR A CASE WHERE IT IS NOT FEASIBLE TO TAX THE BENEFIT IN QUES TION IN THE HANDS OF THE EMPLOYEE. IT IS ONLY A CASE WHERE A BENEFIT ABOVE A CERTAIN S PECIFIED AMOUNT ONLY IS LIABLE TO BE TAXED IN THE HANDS OF THE EMPLOYEE. SUCH CASE IN OUR HUMBLE OPINION DOES NOT 6 CONSTITUTE FRINGE BENEFIT AS DEFINED IN SECTION 115 WB OF THE ACT. THUS WE AGREE WITH THE SUBMISSIONS OF MRS. SONALEE GODBOLE AND ALLOW THIS APPEAL OF TH E ASSESSEE. 11. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD DEC. 2010. SD/- SD/- (VIJAY PAL RAO) (J. SUDHAKAR REDDY) JUDICIAL MEMBER. ACCO UNTANT MEMBER MUMBAI DATED: 3 RD DEC. 2010. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR G-BENCH (TRUE COPY) BY OR DER ASSTT.REGISTRAR ITAT MUMBAI. WAKODE