Joshi Technologies International ... vs Assessee

आयकर अपील सं./I.T.A. No.209/Ahd/2012 ( नधा रण वष / Assessment Year : 2008-09) Joshi Technologies बनाम/ The Asst.DIT International Inc. Vs. (International 402, Heritage,off Ashram Road Taxation) Ahmedabad-380 015 4 t h Floor Nature View Building Ashram Road Ahmedabad थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AAACJ 9592 P (अपीलाथ# /Appellant) .. ($%यथ# / Respondent)

अपीलाथ# ओर से /Appellant by : Shri Sanjay R.Shah, AR $%यथ# क' ओर से/Respondent by : Shri M.K.Singh, Sr.DR

ु वाई क' तार*ख / सन Date of Hearing 25/03/2015 घोषणा क' तार*ख /Date of Pronounce ment 10/04/2015

आदे श / O R D E R

PER SHRI KUL BHARAT, JUDICIAL MEMBER :

This appeal by the Assessee is directed against the order of the Ld.Commissioner of Income Tax(Appeals)-Gandhinagar ('CIT(A)' in short) dated 30/12/2011 pertaining to Assessment Year (AY) 2008-09. The Assessee has raised the following grounds of appeal:-

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Your appellant being dissatisfied with the order passed dated December 30, 2011 u/s.250 of the Income Tax Act, 1961 by the Commissioner of Income-tax (Appeals)-Gandhinagar, Ahmedabad presents this appeal against the same on the following grounds which are without prejudice to each other:

1. The order passed by the CIT(A) is erroneous & requires to be modified. It is submitted that it be so held now.

2. The CIT(A) has erred in confirming and justifying the action of the AO & holding that appellant was liable to payment of Fringe Benefit Tax under provisions of chapter XII-H of the Act even after observing that in fact & law the appellant does not have any employee.

3. The CIT(A) has erred in confirming that there exists a master servant relationship between the appellant & its consultants ignoring the fact that the appellant does not pay any benefits of an employee to the consultants.

4. The CIT(A) has erred in ignoring the clarification issued by the Central Board of Direct taxes vide Circular No.8 of 2005 dated August 29, 2005.

5. The CIT(A) has erred in holding that the liability of Fringe Benefit Tax arises merely because the expenses incurred by the appellant are of the nature as contemplated by section 115WB of the Act even though there are no employees.

6. The CIT(A) ought to have deleted addition in respect of expenditure such as travelling & conveyance, telephone & mobile expenses, guest house expenses, insurance expenses, entertainment expenses and club membership fees which are business expenditure and cannot be said to be fringe benefit to employees.

7. The CIT(A) ought to have deleted addition in respect of expenses where benefits of expenses are not enjoyed collectively by employees of the company or where no benefits are being enjoyed by any employee in view of speech of Finance Minister & Memorandum explaining provisions for Finance Bill, 2005.

Your appellant prays for leave to add, to alter and/or to amend all or any of the grounds before the final hearing of appeal.

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2. The only effective ground in this appeal is against in upholding the action of the AO by the ld.CIT(A) that the appellant was liable to payment of fringe benefit tax under provisions of Chapter XII-H of the Act.

3. At the outset, the ld.counsel for the assessee submitted that the issue has already been decided by the Coordinate Bench (ITAT 'C' Bench Ahmedabad) in assessee's own case for AY 2006-07 in ITA No.906/Ahd/2010 vide order dated 01/05/2013. He further submitted that the Coordinate Bench (ITAT 'C' Bench Ahmedabad) in another ITA No.2065/Ahd/08 for AY 07-08, order dated 31/05/2013, has followed the decision of the Coordinate Bench passed in ITA No.906/Ahd/2010(supra). He submitted that the facts are identical, therefore, the same view may be adopted.

3.1. On the contrary, ld.Sr.DR has supported the orders of the authorities below. However, he has not controverted the submission of the ld.counsel for the assessee that in the AYs 2006-07 & 2007-08 the similar issue was before the Coordinate Bench which has been decided in favour of assessee vide orders dated 01/05/2013 & 31/05/2013 respectively.

4. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below.

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We find that the ld.CIT(A) has followed his predecessor's orders passed in AY 2006-07 and 2007-08. The ld.CIT(A) has observed as under:

"3. The appellant had raised similar issue in the preceding years i.e. 2006-07 and 2007-08. My predecessor had disposed the appeal for AY 2007-08 with the following detailed finding:

"5. A similar appeal of the appellant for assessment year 2006- 07 stands disposed off by the undersigned's order dated 31/12/2009. As per that, it has been held that looking at the arrangement, the so called consultants and the assessee had, these relationships were in the nature of master-servant relationship only and therefore there existed a case for Fringe Benefit Tax. The operative portion of that order is as follows:

"2.3. The matter has been considered and I am unable to agree with the Authorised Representative. It is an established proposition that for evaluating whether there is a relationship of employer-employee, i.e. master- servant, one needs to travel beyond the nomenclature and to need to analyse as to what kind of service arrangement exists between the two parties. The Assessing Officer in the assessment order has been able to highlight that the relation between the company and the so called consultants is in the spirit of master-servant relation only and not a contract of service. Not only these consultants get money on monthly basis, they also work full time for the company, their work is subject to the overall control of the company (may be controlled from the U.S.A.), they have also nominated one person as the controlling head or the project director. During the course of hearing, the Authorised Representative was very emphatic that the arrangements existed even before the Fringe Benefit Tax provisions came into existence and ITA No.209/Ahd/2012 Joshi Technoligies International Inc. vs. Asst.DIT-

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therefore this is a typical organizational structure of the company which needs to be appreciated and not a sham arrangement. The point of the Authorised Representative has been given due weightage, but on the other hand, one has to see the spirit behind the enactment of this sect/on also. Idea was to bring to tax such personal expenses and perks afforded by the employer as listed in section 115W to its employees, which are otherwise difficult to monitor at individual level. Therefore, whether one is an employee in the legal sense of the term or an employee as per the spirit of the relationship, the expenses which this taxation wants to cover would still be there. In the instant case, we have expenses like club payments, employees' welfare expenses or entertainment expenses, among the various expenses covered by the Assessing Officer which clearly point to a situation where the so called consultants have been using the assessee- company's facilities like any legally termed employee. It needs to be appreciated that in the entire scheme of that pertained to fringe benefit tax the emphasis is on the employer and the expenses incurred by it. If we take the position that for our purpose we have to consider the de- facto employee and necessarily de-jure employee, then the various objections raised by the appellant, including the applicability of circular No.8 of 2005 dated August 29, 2005, falls through."

5. During the present year also, there has been no change with respect to the nature of expenses incurred by the so called non- employees. As the assessment order would show, besides conveyance and tour expenses, there are expenses concerning employee's welfare, entertainment, club membership etc. Therefore, for all practical purposes there existed an employer- employee - a master-servant relationship and therefore relying on the decision for assessment year 2006-07, for this assessment year also, it is held that the assessee is liable for Fringe Benefit ITA No.209/Ahd/2012 Joshi Technoligies International Inc. vs. Asst.DIT-

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Tax. The computation of the fringe benefit and the taxation thereon is, therefore, upheld."

4. In the year under consideration also, there has been no change with respect to the nature of expenses incurred by the so called non- employees. It is seen from the assessment order, besides conveyance and tour expenses, there are other expenses like employee's welfare, entertainment, club membership etc. which shows there existed an employer-employee relationship and therefore I do not find any reason to deviate from the order of my predecessor for previous years and I hold that the appellant is liable for Fringe Benefit Tax. The action of the AO is therefore upheld and the contention of the appellant is rejected."

4.1. We find that the Coordinate Bench in ITA No.906/Ahd/2010 for AY 2006-07, order dated 01/05/2013, has decided the issue by observing as under:-

"6.8. So the FBT is eligible only in a case where expenditure is incurred by the employer ostensibly for the purpose of business but includes partially a benefit of a personal nature passed on to the employee. But, a legitimate business expenditure not within the ambits of employer & employee relationship is outside the scope of FBT. In view of these observations, we hereby hold that the FBT provisions have wrongly been invoked in the present case. WE hereby reverse the legal findings of the authorities below and direct the AO to give relief accordingly. Grounds are allowed."

4.2. The Coordinate Bench in another ITA No.2065/Ahd/2010 in AY 2007-08, order dated 31/05/2013, has followed the decision of the Coordinate Bench passed in ITA No.906/Ahd/2010, by observing as under:-

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"2. Facts of the case, as emerged from the assessment order passed under Section 115WE(3) of the I.T.Act dated 29.12.2009 for A.Y.2007-

2008, the order under appeal, are identical with the facts of the assessee's case for A.Y.2006-2007. Rather, the learned CIT(A) vide para 5 has acknowledged this fact that a similar appeal of the assessee for A.Y.2006-2007 was decided vide a order dated 31.12.2009, and the issue was decided against the assessee. Now before us, a copy of the order of the ITAT, Ahmedabad, Bench 'C' is placed on record, wherein for A.Y.2006-2007, while deciding the assessee's appeal i.e. Joshi Technologies International Inc., in ITA No.906/Ahd/2010 order dated 1.5.2013, it was concluded as under:

"6.8. So the FBT is eligible only in a case where expenditure is incurred by the employer ostensibly for the purpose of business but includes partially a benefit of a personal nature passed on to the employee. But, a legitimate business expenditure not within the ambits of employer & employee relationship is outside the scope of FBT. In view of these observations, we hereby hold that the FBT provisions have wrongly been invoked in the present case. We hereby reverse the legal findings of the authorities below and direct the AO to give relief accordingly. Grounds are allowed."

Since a view has already been taken by a respected co-ordinate Bench, therefore, we have no reason to deviate from the said view, being pronounced on identical facts, hence respectfully following the same for this year as well, we hereby reverse the findings of the authorities below, and allow these grounds of the assessee."

4.3. In this year, since the Revenue has not pointed out any change into the facts and circumstances of the case, therefore we see no reason to take a different view than taken by the Coordinate Bench in assessee's ITA No.209/Ahd/2012 Joshi Technoligies International Inc. vs. Asst.DIT-

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own cases in ITA No.906/Ahd/2010(supra) and in ITA No.2065/Ahd/2010(supra). Accordingly, the AO is hereby directed to delete the Fringe Benefit Tax assessed u/s.115WE(3) of the Act.

5. In the result, the appeal of the assessee is allowed.

Order pronounced in the Court on Friday, the 10th day of April, 2015 at Ahmedabad.

Sd/- Sd/- (एन.एस.सैनी) (कुल भारत) लेखा सद य या यक सद य ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 10/ 04 /2015

ट*.सी.नायर, व. न.स./T.C. NAIR, Sr. PS

आदे श क" # त%ल&प अ'े&षत/Copy of the Order forwarded to :

1. अपीलाथ# / The Appellant

2. $%यथ# / The Respondent.

3. संबं4धत आयकर आयु6त / Concerned CIT

4. आयकर आय6 ु त(अपील) / The CIT(A)-

5. 7वभागीय $ त न4ध, आयकर अपील*य अ4धकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड; फाईल / Guard file.

आदे शानुसार/ BY ORDER,

स%या7पत $ त //True Copy//

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad