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Cadila Healthcare Ltd. Versus ACIT

2015 (5) TMI 506 - ITAT AHMEDABAD

Fringe benefits Tax (FBT) - there does not exist any employer-employee relationship between itself and its payees so as to attract the fringe benefit provisions as per assessee - Held that:- Fringe benefit provisions do not apply to sales promotions expenses as the same do not bestow any benefit to the assessee’s employees. Therefore, the assessee’s grounds relating to payment to Seminar & Conference expenses,Sales Promotion Expenses and Cost of Free Samples given to Doctors succeed. - Decided i .....

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medical expenses to the assessee’s individual employees - Held that:- The assessee has incurred these amounts for payment of medical reimbursements to its individual employees not exceeding ₹ 15,000/-. Section 17(2) 1st proviso (v) grants exemption to such benefits in the hands of individual employees from being taxed upto the very monetary limit. Section 115WB(3) also excludes operation of sub section 1 in case of such a benefit. We quote case law of Bosch Limited V/s. Dy.CIT, [2011 (10) .....

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For the Appellant : Shri Subhash Bains, CITD.R. For the Respondent : Shri Mukesh M. Patel, A.R. ORDER Per: S. S. Godara, JUDICIAL MEMBER This assessee s appeal for A.Y.2006 -07 is directed against the order of learned CIT(A)-VI, Ahdmedabad dated 14.12.2010 in case no.CIT(A)-VI/ACIT.Cir.1/351/08-09 in proceeding u/s.115WE(3) of the Income Tax Act hereinafter the Act . 2. The assessee s pleadings read as under: 1. That the learned CIT(A) erred in law and on facts in confirming the following addit .....

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n Gifts to Business Associates (not being employees) 17,33,767 50% 8,66,884 E Club Membership Fees 72,450 50% 36,225 F Reimbursement of Medical Expenses (uptoRs. 15,000) 3,36,74,477 20% 67,34,895 Total 8,45,98,925 2. That the learned CIT(A) erred in law and on facts in rejecting the appellant's contention that since the expenditure referred to in A to E above having been incurred by the appellant purely for its business purposes, the same did not result in any benefit to its employees and he .....

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ech and Statement of Objects & Reasons for introduction of FBT, any business expenditure which has been incurred only with relation to non employees and does not relate in any manner to the employees of an assessee is clearly beyond the scope and levy of FBT. Moreover, any perquisite already granted exemption under a specific provision of the I.T. Act could not also be made liable to the levy of FBT. 2.1 The assessee s company had filed its Fringe benefits return on 26.12.2006 declaring frin .....

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e Minister speech while tabling the Finance Bill, 2005 on 28.02.2005, memorandum to the Finance Bill, 2005 containing explanatory notes in support. The Assessing Officer in assessment year dated 26.12.2008 took into consideration the Board Circular No.8/05 dated 29.08.2005; more particularly questions no.58 to 63 and 69 for holding that the above expenses contained in items A to F had to be added as fringe benefits to be taxed accordingly. The assessee s total fringe benefits stood assessed at & .....

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oyer has incurred any expenses or made any payment for the purposes mentioned in clause-A to clause-Q. The value of the Fringe benefits is to be worked out by applying a percentage given in Section 115WC. These two sections do not give any discretion or computation methology through which the benefit accrued only to employees are to be taken. Since this is a deeming provision and value of Fringe benefits are also deemed at a particular percentage, there is hardly any discretion either with appel .....

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employees and therefore, only a part is treated as Fringe benefits. Since, section clearly defined the value of Fringe benefits, no further adjustment to the items of expenses debited in profit and loss account is permitted and accordingly Assessing Officer is justified in applying the rates given in the act to arrive at the value of Fringe benefits. The decision in the order of Hon'ble Gujarat High Court does not put any stay on the assessment or appeal proceeding in this matter. It only p .....

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ppeal. 3. We have heard both sides and perused the case file. The assessee submits that qua items A to E, there does not exist any employer-employee relationship between itself and its payees so as to attract the fringe benefit provisions. The Revenue strongly supports the CIT(A) s order. It contends that a case is pending before the hon ble jurisdictional High Court filed by the Gujarat Chambers of Commerce. The assessee states that the hon ble High Court had imposed certain conditions for depo .....

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se circumstances, we quote case law of T.V. Today Network Ltd. Vs. DCIT, (2013) 38 taxmann.com 409 (Delhi-Trib) authored by one of us, G.D. Agarwal Vice President; holding as under: 6. We have carefully considered the arguments of both the sides and perused the material placed before us. Fringe benefits tax was levied for the first time by the Finance Act, 2005 by introducing Chapter XII-H, i.e., sections 115W to 115WL to the Income-tax Act, 1961. Section 115WB(2)(D) under which the Department h .....

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hat 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 the 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 ; ( .....

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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;" 7. From the above, it is evident that section 115WB(2) is a deeming provision which provides that the fringe benefits shall be deemed .....

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In contrast, the learned Commissioner of Incometax- Departmental representative has stated that if the expenditure as provided in any of the clauses of section 115WB(2) is incurred by the assessee, the fringe benefits tax would be chargeable, whether or not there is an employer- employee relationship. In this regard, we find that the Central Board of Direct Taxes has issued Circular No. 8, dated August 29, 2005 which is published in [2005] 277 ITR (St.) 20. In paragraph 2 of the Circular, object .....

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ty. Further, fringe benefits are generally provided to senior executives in the organisation. Therefore, under- taxation of fringe benefits violates vertical equity. It also discriminates between companies which can provide fringe benefits and those which cannot, thereby adversely affecting market structure. However, the taxation of fringe benefits raises some problems primarily because - (a) all benefits cannot be individually attributed to employees, particularly in cases where the benefit is .....

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t in the hands of the employee and a large number of fringe benefits were taxed by the employer- based disallowance method where the quantum of the disallowance was estimated on a presumptive basis. In practice, taxation of fringe benefits by the employer- based disallowance method resulted in large-scale litigation on account of ambiguity in defining the tax base. Therefore, the taxation of fringe benefits by the employer- based disallowance method was withdrawn by the Finance Act, 1997. Howeve .....

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ion No. 2 thereof and reply is as under : "2. Whether employer-employee relationship is a prerequisite for the levy of fringe benefits tax ? Answer: Yes." 9. Thus, in the Circular issued by the Central Board of Direct Taxes explaining the newly introduced provisions of fringe benefits tax, the Central Board of Direct Taxes itself has clarified that employer-employee relationship is a prerequisite for levy of fringe benefits tax. The hon ble apex court has considered the above Circular .....

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he maxim temporania caste pesto, even in a certain situation a representation made by an authority like the Minister presenting the Bill before Parliament may also be found bound thereby. Where a representation is made by the maker of legislation at the time of introduction of the Bill or construction thereupon is put by the executive on its coming into force the same carries great weight." 10. That the hon ble jurisdictional High Court has also expressed a similar view in the case of T& .....

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" 11. That in the case under appeal before us, admittedly, the expenditure was incurred by the assessee for channel placement which is made to the third persons and there is no employer-employee relationship between the assessee and the recipient. Therefore, the Circular of the Central Board of Direct Taxes as well as the decision of the hon ble apex court in the case of R & B Falcon (A) (P.) Ltd. (supra) would be squarely applicable. Moreover, the hon ble jurisdictional High Court in t .....

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re of expenditure incurred for the purpose of business by the assessee and in the hands of the recipient, the expenditure is taxable as income. Moreover, the expenditure incurred by the assessee is not in the nature of expenditure for sales promotion. The assessee has incurred the expenditure for broadcasting of its channels on the desired bands. Therefore, the expenditure is for the broadcasting of its channels and not for sales promotion or publicity. 4. The Revenue does not point out any dist .....

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