Case Law Details
Innovative Steals Pvt. Ltd. Vs ITO (ITAT Delhi)- The word “construction” though mainly connected to the building but it includes within its ambit a bridge under construction building, erection, elevation, establishment, assembly, manufacture, fabrication. It also includes an impressive construction structure, building, edifice, assembly, framework. Therefore, its ambit has not been restricted to only to construction of building.
It includes impressive construction structure, building, edifice, assembly, framework etc. The nature of plants made by the assessee included fixation of certain equipment on land for managing waste and it include also certain degree of civil construction. A structure is created through which the waste is managed by those equipment. It also requires land to establish such erections and to put plant thereon. Therefore, it cannot be said that assessee’s activity does not involve business of construction. Even at the cost of repetition, it may be mentioned here that the word utilised in the provision is only “construction” and not civil construction. Therefore, the application of sec. 115WC(2)(b) cannot be restricted only to the business relating to civil construction and it will cover the business activity of the assessee carried on in the present case. We, therefore, do not find any substance in the addition which has been upheld by CIT(A) the same is deleted.
ITAT BENCH ‘E’ NEW DELHI
ITA No. 1391/Del/2010
Assessment Year: 2006- 07
I P Bansal, JM and Shamim Yahya, AM
Decided on: 31 May 2011
ORDER
PER I.P. BANSAL, J.M.
This is an appeal filed by the assessee. It is directed against the order passed by ld. CIT(A) dated 25.02.2010 for A.Y. 2006-07. Grounds of appeal read as under: –
1. “That the ld. CIT(A) has erred both on facts and in law upholding the action of the AO in charging value of fringe benefit on tour and travel expenses of Rs. 7,12,100/- @ 20% instead of 5% claimed by the assessee company. The finding that the assessee company was not engaged in the business of construction as envisaged in clause (b) of sec. 115WC of the Act, is wholly misconceived and is in disregard of the submission made and evidence produced by the assessee.
2. That the further finding that the drawings and designs filed only suggest that the main activities of the appellant company was manufacturing of specialised equipment. The ld. CIT(A) has failed to appreciate that the manufacturing of specialised equipment and installation thereof require lot of construction so as to enable the assessee to work out the value of FBT @ 5%.It is, therefore, prayed that the value of FBT on tour and travel expenses be directed to be worked out @ 5%.”
2. Impugned assessment is an order passed u/s115WE(3) of Income Tax Act, 1961(Act). While calculating fringe benefit, it is the case of the assessee that it is engaged in the business of construction hence, fringe benefit should be calculated @ 5% instead of general rate of 20%. The AO did not accept such claim of the assessee and has calculated the fringe benefit on the tours and travel expenses of Rs.7,12,100/- @ 20% instead of 5% and it is in this manner, the value of fringe benefits have been assessed by the AO at Rs. 1,52,522/- in place of such value calculated by the assessee at Rs. 45,707/-. Thus, addition of Rs. 1,06,815/- is made by the AO to the fringe benefit and accordingly a demand of Rs. 47,622/- on account of tax has been raised. The AO rejected the contention of the assessee that its activity involves a lot of civil construction work. The assessee is engaged in the business of manufacturing of specialised equipment of solid and waste and a liquid waste treatment for industries and communities and these equipment’s are known as
(i) Twin Wire Belt Filter Press for Sludge Management
(ii) Upward Flow Anaerobic Sludge Bed Reactors (UASB) for bio gas generation from waste water and other strong wastes.
(iii) Sold state Fermentation Reactors for Treatment of difficult wastes and garbage. Other than these conventional equipment for pollution control and environment are also made. The AO is of the opinion that the activities carried on by the assessee does not include construction as claimed by the assessee, hence, the benefit of 5% value of fringe benefit cannot be given to the assessee.
3. Before CIT(A), it has been the case of the assessee that AO did not appreciate the factual aspect of the assessee’s case. The activities of the assessee of installation of “Twin Wire Belt Filter Press” and “Upward Flow Anaerobic Sludge Bed Reactors (USAB)”, required lot of civil construction, without which installation of treatment plant could not have been possible. The assessee also submitted the drawings to substantiate its argument that process of installation includes lot of construction. Reference was also made to the definitions of word” construction” and “construct” from New Webster’s Dictionary of English Language (Deluxe Encyclopedic Edition) and definition read as below: –
“CONSTRUCTION: – The act or art of constructing; the way in which a thing is constructed; a building; the act or manner of constructing the arrangement and connection of words in a sentence according to establish usages; syntactical connection, Explanation or interpretation, as of a law or a text, or of conduct.
CONSTRUCT: – Pile or put together, build, make, to form by putting together parts; build; frame; devise; to draw, as a figure, so as to fulfil given conditions, the result of intellectual perception and consideration of things and ideas receive through the senses.”
4. The definition from Concise Oxford Thesaurus these words are defined as follow: –
“CONSTRUCTION: A bridge under construction building, erection, elevation, establishment, assembly, manufacture, fabrication. An impressive construction structure, building, edifice, assembly, framework. The construction of a sentence composition, formation, structure. Put a different construction on her words interpretation, reading, meaning, explanation, inference, explication.
CONSTRUCT: Construct a housing estate/ construct abridge build, erect, put up, set up, raise, elevate, establish, assemble, manufacture, fabricate, make. Construct a plan/theory form, formulate, put together, create, devise, design, invent, compose, fashion, mould, model, shape, frame, forge, engineer, fabricate, manufacture.”
5. Referring to these definitions it was contended that assesse should be interpreted to be carrying on business of construction hence, fringe benefit should be valued @ 5% and not at 20% as assessed by the AO. Ld. CIT(A) has rejected such contention of the assessee. He observed that the activity stated by the assessee to be involving civil construction activities are ancillary an incidental in nature towards performing the main and only activity of manufacturing all waste treatment equipment to be supplied to the industries and communities.
Therefore, assessee cannot be said to be engaged in the business of construction being an employer as envisaged u/s 115WC(2)(b) and in this manner ld. CIT(A) has upheld the action of AO. The assessee is aggrieved, hence has raised aforementioned grounds of appeal.
6. Notice of hearing was sent to assessee. However, none was present on behalf of assessee on the fixed date of hearing. Though the date of hearing was duly noted by the ld. Counsel of the assessee, therefore, we proceed to decide the present appeal ex-parte qua the assessee, after hearing ld. DR.
7. Referring to the assessment order and the order of CIT(A), it was submitted by ld. DR that assessee cannot be said to be engaged in the activity of the construction, therefore, assessee cannot claim the benefit of lower rate of fringe benefit. Therefore, she pleaded that ld. CIT(A)has rightly rejected the claim of the assessee and his order should be upheld.
8. We have carefully considered the submission of ld. DR. We have also gone through the order of AO, the order of CIT(A) and the copies of submissions made by the assessee before AO as well as before CIT(A)which are enclosed in the paper book filed by the ld. Counsel of the assessee. The word “construction” has not been defined in the Income Tax Act. Provisions of sec. 115WC(2)(b) read as under: –
“115WC(2)(b) – in the case of an employer engaged in the business of construction, the value of fringe benefits for the purposes referred to in clause (F) of sub-section (2) of section 115WB shall be “five per cent” instead of “twenty percent” referred to in clause (c) of sub-section (1),”
9. As per provisions of sec. 115WC(2)(b) in the case of an employer who is engaged in the business of construction, the value of fringe benefit shall be taken @ 5%. The question before us is that whether or not assessee engaged in the business of construction. The word “construction” has not been defined in the Act. Therefore, its ordinary meaning in common parlance has to be taken. The definitions as given in aforementioned two dictionaries have already been reproduced. If those definitions are kept in mind, the word “construct” cannot be restricted only to civil construction. It include in its ambit pile or put together, build, make, to form by putting together parts; frame; devise; to draw, as a figure, so as to fulfil given conditions, the result of intellectual perception and consideration of things and ideas receive through the senses. It also include construct a housing estate/ construct a bridge build, erect, put up, set up, raise, elevate, establish, assemble, manufacture, fabricate, make, construct a plan/ theory form, formulate, put together, create, devise, design, invent, compose etc. etc.
10. The word “construction” though mainly connected to the building but it includes within its ambit a bridge under construction building, erection, elevation, establishment, assembly, manufacture, fabrication. It also includes an impressive construction structure, building, edifice, assembly, framework. Therefore, its ambit has not been restricted to only to construction of building. It includes impressive construction structure, building, edifice, assembly, framework etc. The nature of plants made by the assessee included fixation of certain equipments on land for managing waste and it include also certain degree of civil construction. A structure is created through which the waste is managed by those equipment. It also requires land to establish such erections and to put plant thereon. Therefore, it cannot be said that assessee’s activity does not involve business of construction. Even at the cost of repetition, it may be mentioned here that the word utilised in the provision is only “construction” and not civil construction. Therefore, the application of sec. 115WC(2)(b) cannot be restricted only to the business relating to civil construction and it will cover the business activity of the assessee carried on in the present case. We, therefore, do not find any substance in the addition which has been upheld by CIT(A) the same is deleted.
11. In the result, the appeal is filed by the assessee is allowed in the manner aforesaid.
Order was pronounced in the Open Court on 31.05.2011.
