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TMI Blog2012 (1) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... ion expenses and not in the nature of selling expenses?" 3. During the course of hearing on 16th November, 2011, following additional question of law was framed:- "Whether free of cost accessories provided to the customers are covered under Section 115WA read with Clause D of Section 115WB(2) of the Income Tax Act, 1961?" 4. The appellant is a car dealer and for the assessment year 2006-07 had filed the return of fringe benefits declaring value of the same at Rs.72,15,677/-. The Assessing Officer held that the car accessories provided free of cost to the customers, on which expenditure of Rs.30,67,696/- was incurred, was in nature of hospitality and covered under Section 115WB(2)(B) and was, therefore, taxable. He, accordingly added an amount of Rs.6,13,539/-, being 20% of the purchase value/ expenditure of Rs.30,67,696/- to the total value of Fringe Benefits as declared by the assessee. The Assessing Officer also observed that providing of free of cost accessories was a promotional scheme to boost car sales. 5. CIT (Appeals) dismissed the first appeal and confirmed the order of the Assessing Officer. He also rejected the contention of the appellant that clause (B) to Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of Chapter XIIH. The said contention may or may not have merit but for the purpose of present case, we do not think, we are required to go into this larger question. The expression 'fringe benefits' has been defined in Section 115 WB. Sub-section (2) incorporates deeming provisions and clauses (B) and (D) of the same read as under:- "115-WB. Fringe benefits.- xxxx (2) 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:- xxxx (B) provision of hospitality of every kind by the employer to any person, whether by way of provision of food or beverages or in any other manner whatsoever and whether or not such provision is made by reason of any express or implied contract or custom or usage of trade but does not include- (i) any expenditure on, or payment for, food or beverages provided by the employer to his employees in office or factory; (ii) any expenditure on or paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g strangers with kindness and without reward; kind to strangers and guests; pertaining to the liberal entertainment of guests." 11. It is clear from the aforesaid dictionary meanings that in common parlance, the word "hospitality" means kind and generous reception of strangers or guests. It postulates a quality and disposition of receiving and treating people in warm, friendly or in a generous way. 12. We do not think that in the present case giving of accessories to customers, who have purchased cars, can be regarded as hospitality provided by the appellant. It is stretching the word 'hospitality' beyond its natural meaning and as it understood in business or common parlance. 13. Clause (D) to Section 115WB(2) stipulates that sales promotion including publicity are deemed to be fringe benefit. The term 'sales promotion' and 'publicity' have to be interpreted. These terms have not been specifically defined for the purpose of this Section and, therefore, we have to read them and understand them as used in common parlance or popular sense and then interpret the words 'sale promotion' and 'publicity' with reference to the provisions and the context in which they have been us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the legislature has excluded from FBT expenditure in form of payments to third persons. The exemption in these clauses, it is apparent, has been granted because this is not a fringe benefit which is enjoyed by the "employee/recipient" but it is an expenditure incurred for the purpose of business and the payment is income earned by the third party. In the hands of the said recipient the expenditure is taxable as income earned. 18. We may reproduce the following observations of Madras High Court in Tuticorin Alkali Chemicals and Fertilizers (supra), wherein it has been held as under:- "The term "sales promotion" is not to be confused with the sales actually effected. While "sales promotion" are measures taken by the assessee to promote generally the sales of the products manufactured by it, or dealt with by it, individual sales made in the normal course of business on commercial terms either directly to the customer, or through its wholesale and other dealers to whom, under the terms of trade discounts and commissions are allowed, cannot be regarded as sales promotion. This court in the case of CIT v. India Pistons Ltd. [2001] 250 ITR 279 has held that sale of a product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to question No. 60 and the answer thereof in the CBDT Circular No. 8 of 2005 dated 28th September, 2005, which reads as under: "60. Whether 'sales promotion' includes sales discount or rebates to wholesalers or customers or bonus points given to credit card customers and, if so, whether FBT is payable thereon? Ans. Sales discount or rebates allowed to wholesale dealers or customers from the listed retail price merely represent lesser realization of the sale price itself. The bonus points given to credit card customers are also in the nature of deferred sale discount. Therefore, discounts or rebates or bonus points allowed to customers or wholesale dealers are in the nature of selling expenses and outside the scope of the provisions of clause (D) of sub -section (2) of section 115WB of the Income-tax Act. Accordingly, such discounts or rebates are not liable to FBT." 21. Learned counsel for the respondent, on the other hand, relied upon on the question No. 66 and the answer given in the same circular. Reference is also made to question Nos. 97 and 98 which again for the sake of convenience are reproduced below:- "66. Whether expenditure on free offers (with products) such as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the features and accessories. Question No.66, which has been answered, relates to tattoos, cards or similar products, which really do not have any connection or nexus with the product which is sold. The car accessories are provided for better enjoyment and utilization of the product, which is purchased. The utility of the product improves and gives more satisfaction to the purchaser, who is paying the price. In answer to question No.60, the CBDT has observed that discounts cannot be treated and regarded as sale promotion. It is a common and normal market practice, to supply upgraded products for a lower price or include extra quantity in the same price and state that the additional quantity, which is being offered, is free. Such cases will be covered by the question and answer No. 60 and not by the question and answer No. 66. 23. In the present case, the Revenue did not invoke clause (O) to sub-section (2) to Section 115WB. It was not the contention of the Revenue that the accessories given free of cost as gifts. This is rightly so as gifts are given or presented without consideration. Consideration, in the present case is inbuilt as per person/customer is paying conside ..... X X X X Extracts X X X X X X X X Extracts X X X X
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