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Commissioner of Income-tax (LTU) v/s Tata Consultancy Services Ltd.

    IT Appeal No. 1132 of 2013
    Decided On, 24 March 2015
    At, High Court of Judicature at Bombay
    For the Appellant: Suresh Kumar, Advocate. For the Respondent: Firoze B. Andharujina, Senior Counsel, Maneck F. Andhyarujina, Sameer G. Dalal, Advocates.

Judgment Text
S.C. Dharmadhikari, J.

1. This appeal was argued on the earlier occasion and was placed today for orders.

2. The Revenue challenges the order dated September 26, 2012, of the Income-tax Appellate Tribunal, Mumbai Bench. The said order was passed on the assessee's appeal and the relevant assessment year is 2007-08.

3. Mr. Suresh Kumar would submit that the question of law which the Revenue has formulated at page 5 of the paper book is a substantial question of law. He would submit that the Tribunal has failed to notice that the payment made by the assessee of Rs. 27,57,12,999 as Tata brand equity contribution can be considered as a fringe benefit. The assessee-company had itself considered this contribution as sales promotion expenses. If the company to which the payment was made organises the promotional activities and assists the group companies such as the assessee in locating buyers, etc., then that is squarely falling within the purview of the provisions enabling recovery of fringe benefit tax. The Tribunal has only relied upon an order passed by it earlier and further upon a circular issued by the Central Board of Direct Taxes being Circular No. 8 of 2005, dated August 29, 2005 [See [2005] 277 ITR (St.) 20]. The foundation or the basis on which the Tribunal rested its conclusion is erroneous and there is no requirement as is read in the said provisions. In any event, the employer-employee relationship can be culled out if the facts and circumstances placed before the Tribunal had been noted in proper perspective. Therefore, he submits that the appeal be entertained and admitted.

4. On the other hand, Mr. Andhyarujina, the learned senior counsel appearing on behalf of the assessee, submits that the Tata brand equity and business promotion agreement dated April 19, 2004, has been perused by the Tribunal. A reading thereof would indicate as to how the payments towards subscription fees had been made and by the group companies or various members who are part and signatories to the agreement. In the circumstances, the circular has been rightly relied upon and equally the material in the possession of the Revenue itself would indicate that the fringe benefit tax came to be introduced to tax the employer on the value of the benefits provided or deemed to have been provided to the employees. The circular only reiterates this position. It is the understanding of the Tribunal based on a reading of the provisions. In such circumstances, that cannot be termed as erroneous or vitiated by any error of law apparent on the face of the record enabling this court to entertain the appeal. Therefore, it should be dismissed.

5. What the Revenue highlights before us is a fact that the assessee-company is engaged in the business of rendering technical consultancy services marketing of software and hardware products and also export of software. The assessee-company filed its return of income on October 29, 2007. In the return, the assessee-company claimed expenses and of payment made to M/s. Tata Sons towards the Tata brand equity contribution which the assessee-company had included under the head "sales promotion". The assessee-company submitted that the Tata Brand equity contribution was not sales promotion and, hence, should be excluded while computing the value of fringe benefits. The Assessing Officer included these expenses for the value of fringe benefit tax as the claim of the assessee could not be entertained without filing of the revised return. His order dated December 8, 2009, came to be challenged by the assessee-company before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) allowed this appeal on February 24, 2011. The Tribunal found, upon a reading of the order of the Commissioner of Income-tax (Appeals), that the fringe benefit tax was brought in for the purposes of taxing certain benefits which are derived and during the course of employment. The Tribunal has found that the Act was amended and Chapter XII-H came to be inserted by the Finance Act, 2005, with effect from April 1, 2006. In section 115W the definitions of the term "employer" and the term "fringe benefit tax" means the tax chargeable under section 115WA has been inserted. By section 115WA, the charge of fringe benefit tax has been set out and for every assessment year commencing on or after the first day of April, 2006. Additional income-tax referred to as the fringe benefit tax in respect of fringe benefits provided or deemed to have been provided by the employer to his employee during the previous year at the rate of thirty per cent. on the value of such fringe benefits has to be charged. By sub-section (2) of section 115WE it is clarified that notwithstanding no income-tax is payable by an employer on his total income computed in accordance with the provisions of this Act the tax on fringe benefits shall be payable by such employer. By section 115WB, the term "fringe benefits" has been defined to mean any consideration for employment provided by way of privileges, service facility or amenity, any free or concessional tickets, any contribution by the employer to an approved superannuation fund for employees and/or such benefits extended and set out in clauses (a) to (d) of sub-section (1) of that section. By sub-section (2) of that section the fringe benefits shall be deemed to have been provided by the employer to his employees, if the employer has, in the course of his business or profession (including any activity whether or not such activity is carried on with the object of deriving income profits or gains) incurred any expenses on or made any payment for the purposes and which have been set out in clauses (A) to (Q) of sub-section (2) of section 115WB. Thus, for the purpose of further clarity, by sub-section (3), it has been stated that for the purposes of sub-section (1), the privilege, service facility or amenity does not include perquisites in respect of which tax is paid or payable by the employee or any benefit of amenity in the nature of free or subsidised transport or any such allowance provided by the employer to his employee for journeys by the employees from their residence to the place of work or such place of work to the place of residence. The value of fringe benefits and all other provisions need not be referred to.

6. We are of the opinion, after reading of these provisions that the Legislature always had in mind a relationship of employer-employee and by virtue of which, these benefits are admissible to the employees. They could be under several heads and a nomenclature attached to it would not be decisive provided the nature thereof is falling within the above quoted provisions. In the present case, the Tribunal made reference extensively to the provision and to the understanding of the same by the Revenue itself. While it is true that it is the duty of a court of law to interpret and construe a provision and in construction thereof, the court shall not be guided by any opinion or view of the Executive or the Revenue, however, when the argument before us is that there is no basis for the conclusion that these benefits and which are taxable arise out of a employer-employee relationship that we were shown the requisite material and produced before the Tribunal. Firstly, the Tribunal had before it the agreement and which had been executed. That is styled as Tata brand equity and business promotion agreement dated April 19, 2004. That is between Tata Sons Ltd. and the assessee before us. That indicates as to how a new competitive environment created by liberalisation and globalisation of trade and industry has brought about a radical transformation of the business scene and it has become imperative for individual Tata companies wherever and to the extent possible to pool their resources and make a co-operative effort to promote a united common TATA branch which, collectively, would match the brand equity of well known international brand names. There is a reference made to the goodwill and brand awareness attached to the TATA name/mark and which the proprietor proposes to further systematically develop, promote and enhance in order to provide the collective strength of Tatas to the businesses of individual Tata companies and add the value to their businesses as well as legally protect the TATA brand. That is why this agreement proposes the scheme and its signatory thereto, viz., the assessee would have to abide by a code of conduct which is required to be followed in all its dealings. As long as there is an association with the TATA name and that association is desired to be continued then the enhancement and preservation of that brand by the signatory is contemplated. That is why the term "subscriber" appears therein and the assessee before us subscribes to this scheme and use and associate itself with the TATA name, marks and marketing in respect of the subscriber's products and services or other use and comply with the code. That is how a subscription to the scheme and on the terms and conditions set out has been agreed upon. We do not find that a complete reading of such an agreement and with the recitals, the sub-recitals and relevant clauses would enable anybody to conclude that the fringe benefit tax would be leviable and chargeable on the amount paid as subscription under this agreement.

7. It is in that context and in the backdrop of such an agreement that the Tribunal referred to the Revenue's circular. The circular which has been carrying forward the object and purpose of introducing and levying such tax denotes that the taxation of perquisites or fringe benefits provided by an employer to his employees, in addition to the perks or wages paid is subject to varying treatment in different countries. These benefits are either taxed in the hands of the employees themselves or the value of such benefits is subject to a fringe benefit tax in the hands of the employer. The rationale for 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 benefits and attributing 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. Moreover, in cases where the employer directly reimburses the employee for expenses incurred, it becomes difficult to effectively capture the true extent of the perquisite provided because of the problem of cash flow in the hands of the employer. That is how the tax was conceived of, introduced and then, what we find is that the Central Board of Direct Taxes Circular No. 8 of 2005, copy of which has been placed on records, indicates that the objective of taxing perquisites or fringe benefits is justified both on grounds of equity and economic efficiency. The benefits and which are not individually attributed to employees, particularly in cases where the benefit is collectively enjoyed and the widespread practice of providing perquisites wherein many perquisites are disguised as reimbursements or other miscellaneous expenses so as to enable the employees to escape/reduce their tax liability and the difficulty in the valuation of the benefits are the essential reasons which enabled the Legislature to step in.

8. We need not make a detailed reference to this circular. Suffice it to note the Budget Speech of the Minister of Finance while presenting the Budget for the year 2005-06, the Explanatory Notes and the circulars have been rightly understood by the Tribunal to m

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ean that the basis of tax is the benefits or perquisites which emanate out of an employer-employee relationship. That is a pre-requisite and for levy of fringe benefit tax. The Tribunal, in paragraph 8 and paragraph 9 has concluded that in the present facts and circumstances, no such case as would enable charging fringe benefit tax emerges. The subscription amount has been paid as per the contractual agreement between the assessee and M/s. Tata Sons Ltd. The invoices raised by M/s. Tata Sons Ltd. are for the services provided and there is no employer-employee relationship between the parties. 9. We do not find that such a conclusion is perverse. Mr. Andhyarujina is, therefore, right in relying on the materials which have been handed in to us and which find place equally in the Tribunal's order. Those have been referred to and in the relevant factual backdrop so also on a perusal of the agreement in its entirety, that the Tribunal concluded that there is no merit in the Revenue's appeal. 10. We are of the opinion that the Tribunal's order based on the above material is neither perverse nor vitiated by any error of law apparent on the face of the record. This appeal does not raise any substantial question of law. It is dismissed. No order as to costs.