MUMBAI, FEB 18, 2013: THE issues before the Bench are - Whether for Fringe Benefit calculations, any free or concessional coupons provided by the employer for private journeys of his employees or their family members can be equated with the tickets given to general public, although such coupons neither confer confirmed traveling rights nor provide similar privileges provided to general public; Whether such tickets cannot be valued on the lines of "Frequent Flyer Programme" method followed by the assessee, although the same has been accepted as a correct valuation method in the previous AYs; Whether fringe benefit tax can be levied, even when there is no employee-employer relationship; Whether expenditure incurred on festival celebrations in favour of travel agents/various Govt. departments are subject to FBT and Whether FBT can be levied on promotional gift items given to customers and travel agents. And the ruling partly goes in favour of the assessee.

Facts of the case

A. Fringe Benefit Tax on concessional/free tickets to employees

Assessee, M/s Jet Airways (India) Pvt Ltd was found while scrutinizing the return of FBT u/s. 115WE[3] that it had issued free tickets to its employees for private journeys. The AO further observed that , a special audit was carried out and in the report the auditors have given a categorical finding that the company has issued 2,48,334 free/concessional tickets to its employees. The AO also observed that the auditors have taken the average value of each free/concessional tickets at Rs.5510, whereas the assessee has taken the value at "Nil". The AO sought explanation from the assessee, to which it was submitted that a ticket issued to the employee is always subject to load i.e the employee would be allowed to board the aircraft only if there is any vacant seat available. The assessee also strongly objected to the number of tickets taken by the auditors at 2,48,334 whereas the actual No. of tickets issued were at 74,637. The assessee submitted three methods for valuation but were rejected by the AO. However, the AO rejected the submissions and was of the opinion that Section 115WC(1A) clearly applied to the case and computed the value of fringe benefit as Rs 136,83,20, 340 adopting the Nos of tickets and value of each concessional/free tickets as worked out by the special auditors. On appeal, the CIT(A) rejected the contentions of the assessee.

Aggrieved, the assessee filed this appeal before the Tribunal.

The counsel for the assessee argued that the assessee never issued any ticket to the employee, therefore, the provisions of Section 115WB(1B) were not applicable. Further he argued that even if the slips/coupons issued by the assessee company came within the purview of the tickets, it was different from the tickets sold to the general public. The counsel submitted that the coupons provided to the employees did not grant a vested right or confirmed booking like normal tickets, and they could travel only if there was a seat available or the load permitted. He referred to several differences and rights which a normal passenger using tickets had, but were not provided under the coupons. Finally, the counsel argued that if at all some value has to be allocated towards the cost of the fringe benefit provided by the employer, then the method consistently adopted by the company for making provision in case of the tickets to be issued under the Frequent Flyer Programme (FFP) should be adopted. He also highlighted the fact that Tribunal, Mumbai for A.Y.1999-00 to A.Y.2005-06 has accepted the method followed and has allowed the claim of the assessee in respect of the provision made on account of FFP.

B. Fringe Benefit Tax on Business Promotion Expenses

The assessee has incurred festival expenses which has been considered as fringe benefits by the AO. On appeal, the CIT(A) upheld the order of the AO, and aggrieved the assessee filed this appeal.

The Counsel for the assessee submitted that though business promotion expenses were related to festival celebrations but these expenses have been incurred on travel agents/various Govt. departments and therefore outside the ambit of FBT as there was no employer/employee relationship between the company and the recipient of these benefits.

C. Fringe Benefit Tax on gift items

The assessee had incurred expenses on trade display. The AO relied upon the findings of the special auditor who has observed that out of display expenses, Rs.1,11,44,214 is in the nature of gifts, on which FBT was imposed. On appeal, the CIT(A) was convinced that out of the total expenditure of Rs.2,31,33,698 under the head “Trade Display”, the assessee has incurred a sum of Rs.1,11,44,214 on gift items.

The counsel for the assessee argued that gift items were given to customers as promotional gifts and remaining gifts to travel agent/customers. The counsel reiterated that FBT was not leviable since there was no employer/employee relationship between buyer and the payee.

D. Fringe Benefit Tax on Per Diem Expenditure

The assessee had incurred per diem expenditure on which the AO levied FBT. The appeal was rejected by the CIT(A).

The Counsel for the assessee submitted that per diem expenditure incurred by the assessee was not collectively enjoyed by the employees but were incurred for the individual benefit. Therefore, it was outside the purview of fringe benefit tax.

Having heard the parties, the Tribunal held that,

A. ++ as it is not in dispute that the assessee has provided free/concessional tickets to its employees during the year under consideration, it is liable for fringe benefit tax. The only dispute remains now is what should be the value assigned to such fringe benefit. Though Sec. 115WC(2)(a) contains the provisions for computing the cost of such benefit but in our considerate view that method cannot be applied on the facts of the present case for the simple reason that the cost at which the benefits are provided to the employee cannot be equated with the cost provided by the employer to the general public. To this extent, we agree with the submissions of the Counsel that the nearest available, logical and acceptable method is to value the benefit as per the cost assigned for provisions for FFP in the books of account. More so, because such provision has been accepted by the department in assessee’s own case from assessment year 1999-2000 till assessment year 2005-06 and as this method is scientific and has attained finality in the due course of time since A.Y. 1999-2000, keeping in mind that the members of the FFP scheme are from general public. We, therefore, in the interest of justice and fair play, restore this issue back to the files of the AO. The AO is directed to value the fringe benefit of free/concessional tickets as per the valuation of FFP as provided by the assessee in its books of account at Rs.446.06 as the same has also been accepted by the department while making provisions for ‘Frequent Flyer Programme ‘for earning JP Mileage, and if there are costs for foreign travels the same should be eliminated from the same, thereafter, the AO is also directed to reduce the cost recovered from the employees;

++ as per the AO, the No. of ticket as computed by the special auditors comes to 2,48,334 whereas it is the contention of the assessee that the same special auditors have rectified the numbers at 76,633. As pointed out by the Counsel, we have gone through the supplementary special audit report. We find force in the submission of the assessee. We, therefore, direct the AO to verify from the special auditor’s report about the actual figure of the tickets issued. Needless to mention, the AO must compute the value of fringe benefit by adopting the correct number of tickets issued to the cost computed in the case of FFP. The assessee is directed to furnish the details of the amount recovered from the employees towards the cost/concession/free tickets;

B. ++ the CBDT in its explanatory note on the provisions relating to fringe benefit tax has answered to 107 questions frequently asked. Question No. 2 is relevant for the issue in hand

Ans: Yes.

++ a perusal of the details clearly show that there is no employer/employee relationship between the payer [assessee] and the recipient. Therefore, we have no hesitation in holding that no FBT is leviable on these expenses;

C. ++ as we have held in ground No. 7 hereinabove that the employer/employee relationship is a pre-requisite for the levy of FBT and after considering the details of trade display expenses, in our humble opinion the gift items have been given to the travel agent/customers with whom the assessee does not enjoy employer/employee relationship. Accordingly, the levy of FBT on this count is deleted;

D. ++ we find that in subsequent assessment year i.e. 2008-09 for which also assessee is in appeal vide ITA No. 5309/M/12. the assessee itself has offered the per diem expenses for FBT under the category ‘Tour and Travel’. Since the assessee itself has offered per diem expenses for FBT in A.Y. 2008-9, we do not find any reason why the same should not be offered for the year under consideration.

(See 2013-TIOL-144-ITAT-MUM)