The Income Tax Appellate Tribunal (ITAT), Hyderabad Bench while confirming the addition as taxable Fringe Benefits towards employees’ welfare ruled that the agreement between Central Trade Unions and Coal Department cannot override the income-tax Act.
The assessee, Singareni Colleries Company Ltd. filed its fringe benefits in the combined return of income in form no. 2D for Assessment Year 2006-07 admitting taxable value of fringe benefits at Rs. 7,98,31,913/-, which was processed under section 115WE(1) of the Act. Subsequently the case was selected for scrutiny as per the norms laid down by the CBDT. In response to the notice issued under section 115WE(1) of the Act, the Accounts Officer of the assessee company furnished the information as called for.
During the course of assessment proceedings, the AO noticed that the Company had debited a sum of Rs. 19,93,00,750/- towards Power and Fuel. The AO asked the assessee company to furnish break-up of the expenses.
On verification of the details, the AO noticed that the expenditure includes the payments made on account of electricity supplied to the residential quarters provided to its employees.
He, therefore, asked to furnish details of electricity consumed by each residential quarter during the year and further pointed out that why the said expenditure should not be treated as a perquisite in the hands of the employees.
Since the assessee was unable to furnish the consumption of electricity by each residential quarter by stating that it cannot quantify and ascertain as such residential quarter was not provided with separate meters, the AO show-caused the assessee as to why such expenditure cannot be treated as fringe benefits provided in the hands of the assessee company.
The assessee company quantified the expenditure pertaining to staff towards electricity consumption to the extent of Rs. 34,38,45,625/- for the AY 2006-07. Accordingly, the same is brought to tax by the AO under fringe benefit tax in the hands of the assessee to the extent of Rs. 6,87,69,125/-.
The assessee submitted that the amount of electricity provided to the employees is not a Fringe Benefit as this is a contractual obligation to the employees working in coal mines which is as per the National Coal Workers Agreement (NCWA) and this benefit is provided to mitigate the occupational hazard in coal mining. He further submitted that Employee’s welfare under section 115WB(E) does not include any expenditure incurrent or payment made to fulfill any statutory obligation, or mitigate occupational hazards according to the explanation given under sub-clause(e) of Sub-Section 2 of section 115WB of the Income Tax Act, 1961.
The department on the other hand relied on the orders of revenue authorities and submitted that the expenditure incurred by the assessee by way of providing electricity to its employees at free of cost/concessional rate is not for fulfilling statutory obligation since the agreement between the management of the assessee company and the Coal Workers Association is not statutory and only a facility provided by the company to its employees.
The coram of S.S.Godara and L.P.Sahu on going through the agreement entered into between the representatives of Central Trade Unions with Hon’ble Minister of Coal & Mines and Secretary, Govt. of India, Department of Coal & Chairman, Coal India ltd. on 12th January, 2004, found that the CBDT has not recognized the said agreement and, therefore, this agreement cannot override the income-tax Act, which is enacted by the Parliament.
“The above agreement is not statutory and only a facility provided to the employees in a particular sector. In view of the above discussion, we do not find any infirmity in the orders of the CIT(A) in confirming the order of the AO wherein the AO has made an addition in the hands of the assessee towards Fringe benefit tax on account of expenditure pertaining to staff towards electricity consumption and upholding the orders of CIT(A) in all the appeals under consideration, we dismiss the grounds raised by the assessee in all the AYs under consideration,” the ITAT said.
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