TMI Blog2012 (12) TMI 530X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the separate orders of the Commissioner of Income - tax (Appeals), chandigarh dated 10.7.2009, 30.9.2010 and 30.11.2009 relating to assessment years 2006-07, 2007-0 8 and 2008- 09 against the order passed u/s 115WE(3) of the Income Tax Act, 1961 ( in short the Act ). 2. All the three appeals relating to the same assessee on same issue were heard together and are being disposed off by this consolidated order for the sake of convenience. 3. The assessee in ITA No. 931/Chd/2011 has raised the following grounds of appeal: 1. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the action of assessing officer in assessing the taxable value of fringe benefits at Rs. 16,16,64,428 against returned value of fringe benefits of Rs.9,97,91,424. 2. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the action of the assessing officer in treating the expenditure incurred on freebies like badminton rackets, biscuits, etc., amounting to Rs.24,11,16,498 as liable to fringe benefit tax alleging the same to have been incurred for the purpose of 'sales promotion and publicity' under the provisions of section 115WB(2)(D) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e levy of interest under section 234D and in withdrawing interest granted under section 244 A of the Act. 5. The assessee in ITA No.83/Chd/2012 has raised the following grounds of appeal: 1. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the action of assessing officer in assessing the taxable value of fringe benefits at Rs. 13,84,27,204 against returned value of fringe benefits of Rs. 7,89,72,761. 2. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the action of the assessing officer in treating the expenditure incurred on freebies like badminton rackets, biscuits, etc., amounting to Rs. 29,71,52,606 as liable to fringe benefit tax alleging the same to have been incurred for the purpose of 'sales promotion and publicity' under the provisions of section 115WB(2)(D) of the Income Tax Act, 1961 ('the Act'). 3. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the action of the assessing officer in treating the expenditure incurred on samples of company's products given free to the customers amounting to Rs. 1,19,610 as liable to fringe benefit tax alleging the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on freebies was deemed fringe benefits under the provisions of section 115WB(2) (D) of the Act. Similarly, the cost of samples of company s products given to the customers upon purchase of company s own products amounting to Rs.5.97 crores was held to be expenses on sales promotion and publicity and, therefore, liable to FBT. The Assessing Officer further held the expenditure on celebrity endorsement amounting Rs.85,28,129/- as not falling within the exception and to be treated as deemed fringe benefits under the provisions of section 115WB(2) (D) of the Act. The Assessing Officer computed the value of fringe benefits at Rs.16,16,64,428/-. 10. The CIT (Appeals) relying on the Circular No.8 of 2005, FAQ No .66 held the same to be applicable to the facts of the case. The CIT (Appeals) observed that the expenditure if increases the consumer base then it would come within the meaning of sale promotion. Reliance was placed on the ratio laid down by the Chandigarh Bench of the Tribunal in the case of Glaxo Smithkline Consumer Health care [112 TTJ 94 (Chd) wherein while deciding the issue whether the product development expenditure were capital in nature or revenue in nature, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 332 (Del)] and on the decision of Mumbai Bench of the Tribunal in the case of DCIT Vs. Kotak Mahindra Old Mutual Life Insurance Ltd. [134 ITD 288 (Mum)]. The learned A.R. for the assessee further pointed out that the discount by way of freebies was given for purchasing products of the company, which was sales discount and in the absence of any purchase, no concession or discount was given by the assessee. Such expenditure could not be held to be sale promotion as the sale promotion expenses had to be expended irrespective of the customers purchasing the goods. In respect of the other freebies given, the plea of the learned A.R. for the assessee was that the same were non e-company products and none of the employees were given the said products. It was stressed by the learned A.R. for the assessee that the said freebies were sales discount given by the assessee company and were not sale promotion expenses, which had to be incurred before the sales. In respect of the celebrity endorsement it was pointed out that by way of insertion w.e.f. 1.4.2007, the payment to celebrity was excluded from the purview of sale promotion under section 115WB(D) (7). The learned A.R. for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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: Xxxxxxxx (D) sales promotion including publicity: Provided that any expenditure on advertisement, (i) being the expenditure (including rental) on advertisement of any form in any print (including journals, catalogues or price lists) or electronic media or transport system; (ii) being the expenditure on the holding of, or te participation in, any press conference or business convention, fair or exhibition; (iii) being the expenditure on sponsorship of any sports event or any other event organised by any Government agency or trade association or body; (iv) being the expenditure on the publication in any print or electronic media of any notice required to be published by or under any law or by an order of a court or tribunal; (v) being the expenditure on advertisement by way of signs, art work, painting, banners, awnings, direct mail, electric spectaculars, kiosks, hoardings, bill boards [display of products] or by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing (to promote a product), 4. (slang) to clear (something) by devious or cunning means, 5. To move forward a grade in school." 17. The Courts had interpreted the meaning of expression sale promotion as used in section 37(3B) of the Act under which certain disallowances were to be made on account of expenditure on sale promotion. While interpreting the expression sale promotion the Courts have also distinquished between the expression sale promotion and selling expenses. We make reference to various judgments on the issue here under: i) CIT Vs. The Statesman Ltd. [198 ITR 582 (Cal)] The expression 'sales promotion' used in section 37(3B), though one of wide amplitude is not defined. It has, therefore, to be understood in its meaning in the setting in which it occurs. 'Sales promotion' necessarily involves an element of advertisement and publicity. A manufacturer of a product may intend to further the popularity or sales by publishing and advertising or by several other modes, but the cost incurred to sell the product will not come within the purview of the 'sales promotion' ---------------- Where the statute imposes restriction on advertisement, publicity and sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as fringe benefits within the meaning of section 115WB of the Act. We find support from the ratio laid down by the Mumbai Bench of the Tribunal in DCIT Vs. Kotak Mahindra Old Mutual Life Insurance Ltd. (2012) 134 ITD 388 (Mumbai) wherein it has been held as under: 10. Sub-section (2) of section 115WB is a deeming provision where certain expenditures incurred by the employee, fringe benefit are deemed to have been provided by the employer to his employee. In our opinion, sub-section (1) of section 115WB which defines "fringe benefit" under Chapter-XII-H, control sub-section (2) and any expenditure incurred by an employer in the course of his business or profession, which is not a consideration for employment, cannot be considered as "fringe benefit". Thus, the deeming provisions of sub-section (2) of section 115WB, applies only when the expenditure is in the nature of considered for employment. Thus, while restoring the issue back to the file of Assessing Officer for adjudication afresh, we direct the Assessing Officer to apply the proposition of law as interpreted by us while determining the value of fringe benefit. On the issue of expenditure incurred on conference and meet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000] 6 SCC 451, approved the view taken in Smith Kline French India Ltd. case (supra) and held that in the case of prescription drugs, the target of any sale promotion would only be the doctors and distribution of samples of drugs to doctors was to make them aware 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 v. 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 v. 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 pub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cars, they have paid money or sale consideration for purchase of cars. As a sales package, the appellant has provided and given some accessories for which no independent or additional charge has been levied. The customer, however, in actual fact has paid for the said accessories as the cost of the accessories is inbuilt in the sale consideration paid by the customer. Only when a customer pays the sale consideration, 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 intent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r was for the purposes of sale promotion and publicity and accordingly liable to FBT. We find that the said Circular being contrary to the express language of the Statute is not binding. Mere reliance on the said Circular by the Assessing Officer to disentitle the assessee of its claim is unwarranted, in view of the express provisions of section 115WB(2 (D) of the Act. 25. Further the CIT (Appeals) while upholding the order of the Assessing Officer had relied upon the decision of the Chandigarh Bench of the Tribunal in the case of the assessee itself reported in 112 TTJ 94 (Chd) (supra) the issue before the Tribunal was two folds i.e. A) allowability of the expenditure on promotional and trading marketing expenses and; B) product development expenses. The CIT (Appeals) has reproduced the findings of the I.T.A.T. at pages 6 to 8 of the appellate order. The perusal of the said findings of the Tribunal reflect that the promotional and trading marketing expenses including the expenditure of boost, badminton racket, tennis ball, etc. and product development expenses for nutribar chocolate. The Tribunal vide para 9 referred to the promotional and trade marketing expenses and observed t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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