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Case Law Details

Case Name : Assistant Commissioner of Income-tax Vs Tata Consultancy Services Ltd. (ITAT Mumbai)
Appeal Number : IT Appeal NO. 3457 (MUM.) OF 2011
Date of Judgement/Order : 22/09/2012
Related Assessment Year : 2007-08


Assistant Commissioner of Income-tax


Tata Consultancy Services Ltd.

IT Appeal NO. 3457 (MUM.) OF 2011

SEPTEMBER  26, 2012


N.K. Billaiya, Accountant Member

With this appeal the Revenue has challenged the correctness of the order of Ld. CIT(A)-LTU, Mumbai dt. 24.2.2011 pertaining to assessment year 2007-08.

2. The substantive ground of appeal of the Revenue is that on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the deduction from Fringe benefits towards Tata brand equity contribution.

3. The facts of the case are that for the year under consideration, the return of fringe benefit was filed on 29.10.2007 declaring total value of fringe benefits at Rs. 50,51,16,878/-. The case was selected for scrutiny assessment and statutory notices were accordingly issued and served upon the assessee.

4. The assessee company is engaged in the business of manufacturers of computer hardware, software, consultancy and I.T. enabled services. During the course of FBT proceedings, the Assessing Officer observed that the assessee has claimed expenses of Rs. 27,57,12,999/- being paid to M/s. Tata Sons towards Tata Brand equity contribution which the assessee has included under the account head “sales promotion”. During the proceedings, the assessee claimed that these expenses so debited to sales promotion head are not liable for FBT and therefore the same may be excluded from FBT. The claim of the assessee did not find any favour from the AO who relied upon the ratio laid down by the Hon’ble Supreme Court in the case of Goetz India Ltd. v. CIT [2006] 284 ITR 323  holding that the AO has no powers to allow a claim without assessee having filed a revised return. The AO further observed that a similar plea was taken during the FBT proceedings for A.Y. 2006-07 wherein also the assessee did not get any relief. As the assessee has itself included the expenses on brand equity contribution under the head sales promotion expenses, the AO went on to include the said expenses for the calculation of the total value of FBT and accordingly completed the FBT assessment.

5. The assessee agitated the matter before the Ld. CIT(A) and reiterated its submission that the payment made to Tata Sons being a subscription to Tata Brand Equity contribution is outside the purview of fringe benefit tax. After considering the detailed submissions made by the assessee, the Ld. CIT(A) was convinced that the subscription fees paid to Tata Sons Ltd. cannot be treated under the head sales promotion including publicity. The Ld. CIT(A) further observed that such contribution does not result into any personal benefit for the employees, either personally or collectively so as to attract the levy of FBT. The appeal was accordingly allowed.

6. The Revenue is before us against the findings of Ld. CIT(A). Ld. Departmental Representative supported the FBT order and submitted that the assessee itself has shown these expenses under the head ‘business promotion’ and publicity not only in the original return but also in the revised return filed on 10.2.2009, therefore there is no error in the finding of AO and pleaded that the same should be confirmed.

7. The Ld. Counsel for the assessee argued that the payment made to Tata Sons Ltd. is towards subscription fees not covered under sales promotion and publicity. Further the contribution as subscription is linked to profitability. No subscription is payable if the subscriber’s business becomes unprofitable. The Ld. Counsel drew our attention to the fact that M/s. Tata Sons has raised invoice by charging Service Tax under the head Intellectual Property services. Relying upon the decision of the ITAT Bangalore in ITA No. 1178 (Bang) 2009, dated 19-5-2010 in the case of Dy. CIT v. Mescom, the Ld. Counsel submitted that the subscription does not result into any direct or indirect benefit to the employees. Therefore, such contribution is outside the purview of the provisions of FBT.

8. We have heard the rival submissions and carefully perused the orders of lower authorities. It is not disputed that payment of M/s. Tata Sons Ltd. by the assessee is a subscription as per the agreement between the assessee and M/s. Tata Sons dt. 19.4.2004. As per the Tata Brand Equity and Business Promotion Agreement between Tata Sons Ltd., and the assessee, the assessee is under contractual obligations to make payment towards the subscription fees. In consideration of this subscription fees, Tata Sons Ltd., is, inter alia, responsible for organizing corporate identity and brand promotional activities and campaigns engage professional consultants, make available a pool of sharable resources of the Tata Group to the company and provide assistance in accessing the network of domestic and international business contacts and also permitted the company to use the business name.

9. While deciding Revenue’s appeal in ITA No. 6747/M/2011, this Bench had the occasion to consider the Circular issued by CBDT being Circular No. 8/2005 dt. 29.8.2005 wherein this Bench has held that employer/employee relationship is a pre-requisite for the levy of FBT. Rationale for introduction of FBT is that it is difficult to isolate the “personal element” if the benefits are collectively enjoyed by the people which means that the provisions of FBT will be applicable only in respect of those expenses which contain or atleast are likely to contain an element of personal benefit to employees. We do not find any such thing present on the facts of the present case. The subscription amount has been paid as per contractual agreement between the assessee and M/s. Tata Sons Ltd. The invoice raised by M/s. Tata Sons Ltd. is for the services provided for it. As no employer/employee relationship exists between the assessee and M/s. Tata Sons Ltd., we agree with the findings of the Ld. CIT(A) that subscription payment deserves to be kept outside the purview of FBT. Accordingly order of the Ld. CIT(A) is upheld and the Revenue’s appeal is dismissed.

10. In the Result, the appeal filed by the Revenue is dismissed.

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