CIT(A) opined that the said clothes were not protective ones and they are not uniforms and not compulsory uniform under the statute. We find that the employees’ uniforms have traditionally been used as a functional necessity. It is noted from the record that the assessee assumed the financial responsibility for supplying and maintaining the freshly cleaned clothing to the employees for wearing to work each day. Though they are personalized uniforms provided they are not available for employees’ personal use. The uniforms that are put on by the employees when they arrive at work and were taken off at the end of work. The said uniforms, it appears laundered and maintained by the assessee. It is clear that the said clothing (uniforms) are not available for general or personal wear of the employees and when the clothing is not actually used for general or personal wear, in our opinion, are not taxable under fringe benefits.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal by the assessee against the order dated 30.06.2017 passed by the Commissioner of Income Tax (Appeals)-19, Kolkata [‘CIT(A)’] for Assessment Year 2007-08.
2. The only issue to be decided is as to whether the CIT(A) is justified in confirming the addition made by the Assessing Officer u/s 115WB(2)(E) of the Act denying the claim of uniform allowance in the facts and circumstances of the case.
3. Brief facts relating to the issue are that the assessee is a company and is the hotel service sector and conducts its business in the name and style of Mamtaz Hotels Limited. The assessee filed its return of fringe benefit on 30.10.2007 showing value of expenses liable to fringe benefit at Rs.32,75,705/-. The Assessing Officer issued notice u/s 115WB(E)(2) r.w.s 142(1) of the Act along with a requisition. The assessee in response to the said notice filed written submissions dated 30.11.2009 wherein it is noted that the assessee offered a sum of Rs.12,89,407 and Rs.79,864/- for consideation of determination of value of fringe benefit. Accordingly the Assessing Officer determined the value of fringe benefit at Rs.35,33,583/- vide its order dated 29.12.2009 passed u/s 115WB(E)(3) of the Act.
4. Aggrieved by order of Assessing Officer, the assessee preferred an appeal before the CIT(A). We find that the assessee submitted that the assessee provides uniform to the staff to perform a special kind of duty while providing services in the hotel premises. Each day the uniform is provided at the beginning of the shift and taken back at the end of the duty hours. This is the custom prevailing in the hotel industry. In the provision of uniform there is no element welfare involved as no benefit flows to the employees by wearing such uniform and it is worn in the hotel only. Further it was submitted vide letter dated 30.11.2009 that in reply to query no, 74 of CBDT Circular No.8/2005 dated 29.08.2005, it was clarified that any expenditure to meet employer’s statutory obligations under Employment Standing Orders Act would not come under the purview of FBT. The unique nature of the hotel industry the employer is under obligation to incur expenses on staff uniform. In terms of section 7 of the Industrial Employment standing Orders Act it was claimed that FBT was not payable on staff uniform of Rs. 38,94,917/-. It was argued that the Assessing Officer completely ignored the submission and disallowed the claim.
5. The assessee further submitted vide letter dated 09.11.2015, the assessee had considered staff welfare expenses in the return of income at Rs.55,78,770/- u/s 115WB(2)E) of the Act. This includes Rs.38,94,917/- on account of Uniform Allowances. In the return of fringe benefits the said uniform expenses of Rs. 38,94,917/- for hotel staff on duty was inadvertently considered as chargeable expenditure under the broad head “Workmen & Staff Welfare Expenses” u/s 115WB(2)(E) and FBT was paid on the said uniform expenses. During assessment proceedings it was pointed out that by providing uniform to the hotel staff during office hours there was no element of welfare involved as no benefit accrued to the employees by wearing such uniform, particularly because the same could be worn in hotel premises and only during duty hours. Wearing of the uniform is out of compulsion arising from employment and not an option. It was claimed that the expenditure incurred for staff uniform should be excluded from chargeable expenditure under the head “Employees’ Welfare” and the Assessing Officer was also requested to treat the return of fringe benefits as revised to that extent. Further the assessee pointed out the objections of Assessing Officer that the Assessing Officer omitted to consider the claim of the assessee. The Assessing Officer was not justified in disregarding the claim for the following reasons:
1. The expenditure incurred by the employer is liable to FBT under the head “Staff Welfare” only if the same has an element of staff welfare.
2. The appellant runs a luxurious hotel and employees need to sport the uniform as per service condition. The uniform is supplied to staff to perform a specific nature of duty and used while rendering services in the hotel.
3. Everyday the uniform is provided to the employees at the beginning of the duty hours and the same is taken back at the end of the duty hours. The employees have no other option but to wear the uniform.
4. ln the hotel industry the employer, in order to create a better ambience, provides the special uniform for protecting/promoting, legitimate business interest. This is a general convention in the hotel industry as a whole.
5. The employee is indifferent to the provision of uniform in the sense that if the employer insists on it and provides it then only he has to wear it. lf the employee is indifferent to something it cannot be said to have any element of employee welfare.
6. ln CBDT Circular No. 8/2005 dated 29.08.2005 in reply to query no. 74, it was clarified that any expenditure incurred to meet employers’ statutory obligations under the Employment Standing Orders Act, 1948 would not come under purview of FBT. Because of the unique nature of the hotel industry and the prevailing custom the employer is under obligation to incur expenses on staff uniform. Following the essence of the said circular, uniform allowance should not be considered as ‘staff welfare and consequently should not be subject to FBT.
6. The CIT(A) having considered the submissions of the assessee held that the uniform and washing allowances etc. provided are covered under fringe benefit tax and placed reliance in the case of ONGC Workshop of Hon’ble High Court of Gujarat. Further referred to CBDT Circular No.8 of 2005 dated 29.08.2005 as for which any expenditure incurred for meeting out statutory obligation under the Employment Standing Order Act 1948 fall within the scope of exclusion. According to him the dress supplied by the assessee to its employees is not covered under any statutory obligation. The cloths are not protective and confirmed view of Assessing Officer as under:
“The appellant has also furnished the order of the CIT(A)-16, Kolkata dated 06.01.2016 relating to M/s EIH Limited wherein reliance was placed on the Hon’ble Supreme Court’s decision in the case of Goetz(India) Ltd. Vs. CIT [284 ITR 323]. In this regard, it is pointed out that the reliance placed by the appellant and the decision of the Hon’ble Supreme Court are factually different. In the above referred case the A.O has accepted the claim of the appellant, but it was not allowed as no return was filed. In case of Commissioner of Income Tax (TDS) vs. ONGC Workshop at Baroda on 15th January 2015, Hon’ble Gujarat High Court has held that otherwise than for a statutory obligation, uniform and washing allowances etc. provided by the assessee are covered under Fringe Benefit Tax. The Hon’ble Court also referred CBDT Circular No.8 of 2005 dt. 29.08.2005 as per which any expenditure incurred for meeting out statutory obligation under the Employment Standing Order Act, 1948 fall within the scope of exclusion. In the present case, the dress supplied by the Hotel is not covered under any statutory obligation. Therefore, the same is not in the exclusion clause.
Keeping in view of the aforesaid facts, it is ascertained that the clothes were not protective ones. The clothes were not uniforms, it was from the view point of hotel only, the addition made by the A.O is hereby upheld and the ground of appeal is dismissed. Also those were not compulsory uniforms.”
7. On perusal of the reasons recorded by the CIT(A), the clothes and uniforms provided should be protective ones to the employees and the uniforms supplied by the assessee to its employees are not covered under any statutory obligation.
8. Having aggrieved by the order of CIT(A), the assessee before us contending that the assessee framed standing orders in terms of the provisions contained in section 7 of the Industrial Employment (Standing Orders) Act, 1946 which are covered by the definition of ‘Workman’ as given under Industrial Disputes Act 1947. The ld. AR further referred to Page No.6 of Paper Book and submitted that every employee at the start of his duty/shift must be present in uniform which is prescribed by the assessee at his appointed place of duty and would not leave at the end of his duty/shift unless he hands over the charge of work properly to his relieving employee. He submits that the assessee supplies uniforms to the employees in accordance with the point no.6 and at the end of the respective duty, the said employee has to leave the said uniform with the assessee. The said employee does not carry the said uniform with him and it rests with the assessee. The said uniform does not grant any welfare to the employee and argued that the supply of uniform and expenditure incurred thereon does not fall under the fringe benefit tax. The assessee referred to an order of this Tribunal in the case of Mercury Car Rentals Private Limited in ITA No.1373/Kol/2016 for Assessment Year 2007-08 order dated 08.12.2017 placed at Page No.22 of Paper Book. He argued that the uniform supplied to the employees is the policy of the assessee and supply of uniforms are necessary for the purpose of carrying on its business. He argued that the providing uniform to the employees cannot be regarded as benefit or welfare facility and it is a statutory obligation in terms of standing orders framed by the assessee.
9. The ld. DR referred to Page No.6 of impugned order and submits to the CIT(A) considered every aspect in detail and relied on the order of CIT(A).
10. Heard both parties and persued the materials available on record. It is noted that the assessee itself admitted in its fringe benefit return, the value of expenses liable to fringe benefit tax. Before the CIT(A) vide its submissions dated 09.11.2015 stated that the assessee inadvertently considered the value of expenses relating to uniform was considered as chargeable expenditure under the broad head “Workmen & Staff Welfare Expenses”. The wearing of uniform is out of compulsion arising from employment of the assessee and it is not an option and claimed the expenses incurred for staff uniform shall be excluded from chargeable expenditure under the head “Employees Welfare”. The CIT(A) opined that the said clothes were not protective ones and they are not uniforms and not compulsory uniform under the statute. We find that the employees uniforms have traditionally been used as a functional necessity. It is noted from the record that the assessee assumed the financial responsibility for supplying and maintaining the freshly cleaned clothing to the employees for wearing to work each day. Though they are personalized uniforms provided they are not available for employees’ personal use. The uniforms that are put on by the employees when they arrive at work and were taken off at the end of work. The said uniforms, it appears laundered and maintained by the assessee. It is clear that the said clothing (uniforms) are not available for general or personal wear of the employees and when the clothing is not actually used for general or personal wear, in our opinion, are not taxable under fringe benefits.
11. We find that the scope of term “fringe benefits” is defined under sub-section 1 of section 115WB of the Act. It explains any consideration for employment provided by way of any privilege, service, facility or amenity directly or indirectly provided by employer whether by way of reimbursement or otherwise to its employees is chargeable to fringe benefit tax. As discussed above, we find no welfare is attributed to the employees by providing uniforms by the assessee directly or indirectly. We find it is neither a privileges or services or facilities or amenity provided to the employees by the assessee. Further in the present case, the said uniforms are required or essential to be worn as a condition of employment in terms of Point No.6 vide standing orders which are framed in accordance with section 7 of Industrial Employment (Standing orders) Act 1946. Further the standing orders is applicable to permanent employees and probationers covered under the Industrial Disputes Act 1947. So therefore as rightly pointed out by the ld. AR, there was no welfare appended to the employees of the assessee by providing uniforms.
12. Further we note that the CBDT passed Circular No.8/2005 wherein it clarified to a frequently asked question. At question no. 74, it was asked whether MBT is payable on expenditure incurred on providing shoes or uniform or equipments to the employees or for the purposes of reimbursement of washing charges. It was clarified to the question above that any expenditure incurred for meeting the employers statutory obligation under the Employment Standing Orders Act 1946 fall within the scope of the exclusion in the Explanation to Clause E of sub-Section 2 of Section 115 WB of the Act. Therefore it is clear from above answer that the expenditure incurred on providing safety shoes or uniforms or equipments to the employees or incurred for the purposes of reimbursement of washing charges are exempted from FBT to the extent of such expenditure is incurred to meet such statutory obligation. In the present case, we find that there was no discussion by the Assessing Officer in detail in respect of the claim of the assessee under fringe benefit tax. We find as discussed above that the ld. AR placed on record standing orders relating to a unit Amarvilas situated in Agra placed at Pages 1 to 21, we find no such standing order relating to assessee before us. Further to say the ld. AR placed reliance in the case of M/s EIH Limited and Mercury Car Rentals Private Limited in ITA No.1373/Kol/2016 passed by this Tribunal vide orders dated 15.12.2017 and 08.12.2017 respectively, wherein it is noted that the Coordinate Bench of this Tribunal remanded the matter to the file of Assessing Officer to exclude the aforesaid expenditure from the chargeable expenditure for calculation of fringe benefit for levying fringe benefit tax. Therefore in view of the same, we deem it proper to remand the matter to the file of Assessing Officer to examine the standing orders relating to assessee and assessee shall provide every detail in respect of its claim before the Assessing Officer. The Assessing Officer considering the relevant evidence and pass order in accordance with law. Thus, only ground raised by the assessee is allowed for statistical purposes.
13. In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 21.06.2019.