TMI Blog2012 (1) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... tribunal. - Decided in favor of assessee. - Income Tax Appeal No. 899 of 2010 - - - Dated:- 24-1-2012 - MR. JUSTICE SANJIV KHANNA, MR. JUSTICE R.V. EASWAR, JJ. For Appellant: Mr. Pradeep K. Bakshi and Mr. Rajat Navet, Advocates. For Respondent: Mr. Kamal Sawhney, Sr. Standing Counsel. SANJIV KHANNA, J. The present appeal under Section 260A of the Income Tax Act, 1961 (Act, for short) involves the question whether the appellant T T Motors Pvt. Ltd. is liable to pay Fringe Benefit Tax (FBT, for short) on car accessories provided to the customers, i.e. the car buyers. Revenue submits that FBT has to be paid under Section 115WB(2)(D) as the car accessories were provided by the appellant to the car purchasers free of costs. 2. Vide order dated 26th July, 2010, following substantial question of law was framed:- Whether in the facts and circumstances of the case, the Tribunal was correct in law in holding that Free of Cost (FOC) accessories provided to customers at the time of sale of a car were in the nature of sales promotion expenses and not in the nature of selling expenses? 3. During the course of hearing on 16th November, 2011, following additiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgeable under Section 115WA. Section 115WA reads as under:- 115-WA. Charge of fringe benefit tax. (1) In addition to the income tax charged under this Act, there shall be charged for every assessment year commencing on or after the 1st day of April, 2006, additional income tax (in this Act referred to as fringe benefit tax) in respect of the fringe benefits provided or deemed to have been provided by an employer to his employees during the previous year at the rate of thirty per cent on the value of such fringe benefits. (2) Notwithstanding that no income tax is payable by an employer on his total income computed in accordance with the provisions of this Act, the tax on fringe benefits shall be payable by such employer. 8. The aforesaid section is a charging section and states that tax would be chargeable on fringe benefits provided or deemed to have been provided by employers to his employees. One of the contentions raised by the appellant is that customers are not employees and are not deemed to be employees under any of the provisions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gency for the purposes of clauses (i) to (v) above; (vii) being the expenditure on distribution of samples either free of cost or at concessional rate; and (viii) being the expenditure by way of payment to any person of repute for promoting the sale of goods or services of the business of the employer, shall not be considered as expenditure on sales promotion including publicity; 9. Clause (B) to sub-section 115WB(2) states that hospitality by an employer to any person whether by way of food or beverages or in any other manner would be deemed fringed benefit except when it is excluded in terms of clauses (i) to (iii). 10. Providing free car accessories cannot be treated as hospitality provided by the appellant to any person. The term hospitality as defined in Webster s New Twentieth Century means the act, practice, or quality of receiving and entertaining strangers or guests in a friendly and generous way. In New Webster Encyclopedic Dictionary of the English language the word hospitality has been defined as receiving and entertaining strangers with kindness and without reward; kind to strangers and guests; pertaining to the liberal entertainment of guests. 11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that such drugs were available in the market and they should prescribe them in appropriate cases. This would tantamount to publicity and sales promotion. The Supreme Court did not approve the view taken in CIT vs. Ampro Food Products, (1995) 215 ITR 904 (AP), wherein distinction was drawn between bare minimum expenses to carry on the trade [which was followed in CIT vs. J J Dechane Laboratories (P) Ltd., (1996) 222 ITR 11 (AP)] and expenditure under the head advertisement and publicity or sales promotion. 16. The object and purpose behind FBT and Section 115WB(2)(D) is different from Section 37(3A). Expenditure incurred as stipulated in clause (i) to (viii) have to be excluded and not to be treated as sales promotion expenditure including publicity. Clause (vii) to Section 115WB(2)(D) expressly stipulates that expenditure on distribution of sample either free of cost or at concessional rate is not sales promotion or publicity for FBT. 17. A careful reading of clause (i), (ii), (iv), (v), (vi) and (viii) of Section 115WB(2)(D) elucidates that the legislature has excluded from FBT expenditure in form of payments to third persons. The exemption in these clauses, it is apparent, ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration, some accessories are provided and fixed in the car as per mutual agreement or on the request made by the customer. Until and unless a customer purchases a car, no accessories are provided or furnished. The customer was not given a largesse but was offered and has managed to get a better deal for the consideration paid. The customer has paid out his of pocket, but he has bargained and secured a favourable deal. The interpretation suggested by the Revenue is contrary to the interest of the customers or public interest. The interpretation as suggested by the Revenue would mean that the car dealer would have to pay FBT, if he enters into and gives a better deal to the customer who purchases a car with extra fitments and accessories. We do not think that it is the intention of the legislature to impose FBT on the car dealer who offers a better deal with fitments and accessories to a customer who is making payment for purchase of the car in question. 20. In this connection, the learned counsel for the appellant had drawn our attention 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. Whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecific provision of clause (O) of subsection (2) of section 115WB relating to gift . 22. The contention of the appellant is that the answer to question No.66 given in the CBDT circular is very wide and, goes beyond the scope of the enactment. A purchaser or customer pays for the product including the freebie. In most of the cases to state that the freebie is not being paid for, is a myth and factually incorrect. Interpretation suggested by the appellant/Revenue is debatable. We confine ourselves to the factual matrix of the present case. We do not think that the answer to question No.66 can be applied to the present case. In the present case, it will be more appropriate to apply the answer to question No.60. Cars have a number of gadgets, fittings and accessories. Car does not consist of mere body and engine. Accessories, fittings and gadgets are normally treated as part and parcel of the vehicle itself. Cars with same or similar body and engine have different models depending upon the features and accessories. The cost price depends upon the features and accessories. Question No.66, which has been answered, relates to tattoos, cards or similar products, which really do not ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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