Telephone Link expenses are excluded from Fringe Benefit Tax under sec 115WB (2) (J)

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH ‘C’, NEW DELHI

BEFORE SHRI G.D. AGGRAWAL, HON’BLE VICE PRESIDENT

&

SHRI C.L. SETHI, JUDICIAL MEMBER

ITA No. 775/Del/2011

Assessment Year: 2006-07

ACIT,

Circle 12(1),

New Delhi.

 (Appellant)

Vs

M/s Global Vantedge (P) Ltd.,

77B, IFFCO Road, Sector-18,

Gurgaon, Haryana.

AABCG 8076E

(Respondent)

Appellant by : Sh. Salil Mishra, Sr. DR

Respondent by : Sh. Atul Niriawat, AR

ORDER

PER C.L. SETHI, J.M.

The present appeal is filed by the revenue against the ld. CIT(A)’s order dated 22.11.2010 passed in the matter of an assessment made by the Assessing Officer u/s 115WE(3) of the Income Tax Act, 1961 for the A.Y. 2006-07. The only ground raised by the revenue is directed against CIT(A)’s order in deleting the addition of Rs. 26,56,792/- made by the AO on account of telephone link expenses while determining the total amount of fringe benefit u/s 115WB of the Act.

2. The assessee filed Fringe benefit return on 30.11.2006 declaring value of Fringe benefits at Rs. 46,11,732/-. In the course of assessment proceedings, it was asked by the AO as to why the total expenditure under the head “telephone” (communication expenses) amounting to Rs. 6,73,93,740/- should not be treated as eligible for Fringe benefit tax as against sum of Rs. 46,07,979/- shown by the assessee. The  details of total expenses of Rs. 6,73,93,740/- were furnished by the assessee as under: -

PARTICULARS                                                                          AMOUNT (Rs.)

(1) Telecom expenses

 a) Telecom Link expenses                                                            Rs. 13283960/-

 b) PSTN Charges                                                                          Rs. 45160927/-

                                                                                                      ____________

                                                                                                       5,84,44,887/-

(2) Consumables (Headsets)                                                            14,89,240/-

(3) Postage & Courier                                                                      1,45,513/-

(4) Telephone                                                                                   46,07,740/-

3. Out of the aforesaid amount, the sum of Rs. 46,07,740/- on account of telephone expenses were considered by the assessee for Fringe benefit tax. However, the Assessing Officer was of the opinion that Telecom Link expenses amounting to Rs. 1,32,83,960/- should also be included in the value of Fringe benefit. The AO then treated the amount of Rs. 1,32,83,960/- on account of Telecom Link Expenses as eligible for Fringe benefit. As such, 20% of Rs. 1,32,83,960/- which works out to Rs. 26,56,792/- was added to the Fringe benefit liable to be taxed.

4. On an appeal, the ld. CIT(A) deleted the disallowance by observing that Telephone Link Expenses are excluded under clause (J) of sub-section (2) of section 115WB of the Act, and as such it is not liable to be included into the value of Fringe benefits. The relevant portion of the ld. CIT(A)’s order is as under: -

“I have considered the submissions of the appellant, the findings of the AO and the facts on record. Section 115WB(2)(J) of the Act is reproduced herein below :

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 expense on, or made any payment for, the following purposes, namely: -

(A) ……….

(B) ………

ITA No. 775/D/11 4

(C) ………..

(D) ……….

(E) ……….

(F) ………..

(G) ………..

(H) ………..

(I) ……….

(J) use of telephone (including mobile phone) other than the expenditure on leased telephone lines.......

From the above it is very evident that sec. 115WB(2)(J) of the Act specifically excludes leased telephone lines from the purview of FBT. Leased Line means a permanent telephone connection between two points set up by a telecommunications common carrier. Typically, leased lines are used by businesses to connect geographically distant offices. The Telecom Link expenses incurred by the appellant are expenses incurred on the leased telephone lines. These expenses were incurred by the appellant for the purpose of obtaining Private Lease Lines from various telecom service providers and the said lease lines are a necessity for the business activity of the appellant i.e. IT Enabled Services. Therefore, the expenses incurred by the appellant are specifically excluded from the purview of FBT through section 115WB(2)(J) of the Act.”

5. Hence, the department is in appeal before us.

6. We have heard both the parties and have carefully perused the material on record.

7. Sub-section (2) of sec. 115WB provides that 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 expense on, or made any payment for, the following purposes, namely: -

(A) ……….

(B) ………

(C) ………..

(D) ……….

(E) ……….

(F) ………..

(G) ………..

(H) ………..

(I) ……….

(J) use of telephone (including mobile phone) other than the expenditure on leased telephone lines......

(K) ……….

(L) ……….

(M) ………..

(N) ……….

(O) ……….

(P) ………..

(Q) …………

8. From the above, it is evident that expenses incurred on use of telephone (including mobile phone) shall not include the expenditure on leased telephone lines. In other words, the expenditure on leased telephone lines has been excluded from the purview of Fringe benefits as provided in clause (J) of sub-section (2) of sec. 115WB of the Act. In the present case, the assessee has incurred expenses on Telephone Link which  are in the nature of expenses incurred on the leased telephone lines as so observed and held by the ld. CIT(A) in his order against which the ld. Departmental Representative has not made any comment except merely relying on the AO’s order. In this view of the matter, we, therefore, upheld the order of CIT(A) in deleting the addition of Rs. 26,56,792/- being 20% of total expenses incurred towards Telephone Link Expenses. The order of ld. CIT(A) is thus, upheld.

9. In the result, the appeal filed by the revenue is dismissed.

This decision was pronounced in the open court immediately after the hearing was over on 13.12.2011.

                                   Sd/-                                             Sd/-

                      (G.D. AGGRAWAL)                   (C.L. SETHI)

                      VICE PRESIDENT               JUDICIAL MEMBER

Dated: 13.12.2011

*Kavita

Copy forwarded to: -

1. Appellant

2. Respondent

3. CIT

4. CIT(A)

5. DR, ITAT

TRUE COPY

                                                                                                                    By Order,

DEPUTY REGISTRAR