Contact us   Feedback   Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (6) TMI 844 - ITAT AHMEDABAD

2016 (6) TMI 844 - ITAT AHMEDABAD - TMI - Fringe benefits - addition of sales promotion/lodging expenses - Held that:- The impugned expenditure of ₹ 84,42,880/- has been incurred for the members against membership fees taken from time to time and the Instructions of CBDT Circular No.8, dated 29.8.2005 shall not apply on the assessee as no benefit has been passed on by the employer to its employees and, therefore, deeming provisions of section 115WB(2) of the Act cannot be invoked mechanica .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tional Inc. vs. ADIT (Intís Tax) (2013 (5) TMI 713 - ITAT AHMEDABAD ) and also looking to the fact that ld. Assessing Officer has not disputed about the incurring of expenditure on lease line telephone expenditure and towards gifts/prizes, we are inclined to accept the contention that there is no element of benefit to the employees in the expenditure and therefore, no interference is called for in the order of ld. CIT(A) on this issue in deleting the addition - Decided against revenue - ITA No .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he Act) for Asst. Year 2006-07 on 29/11/2012 by DCIT, Circle-8, Ahmedabad. 2. Briefly stated facts as culled out from the records are that the assessee is a private limited company engaged in the business of issuing cards to various members/customers which entitles them to certain benefits and facilities on the basis of various rights mentioned to the members in those cards. Return of fringe benefit was filed by assessee on 31/12/2006 declaring value of fringe benefit of ₹ 15,53,808/-. Ass .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

55,47,478/- after making additions in value of Fring Benefit at ₹ 39,93,670/- on account of following :- Expenses in schedule 10 of P & L a/c Total expenses (Rs.) Offered by the assessee (Rs.) Difference (Rs.) Percentage Value of fringe benefits (Rs.) Sales promotions/ lodging expenses 86,48,475 2,05,595 84,42,880 20 16,88,576 Telephone 15,95,171 8,91,304 7,03,867 20 1,40,773 Girft 43,50,495 21,853 43,28,642 50 21,64,321 Total 39,93,670 3. Aggrieved, assessee went in appeal before ld. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ad has erred in law and on facts in deleting the addition of ₹ 13,88,576/- made on account of Fringe Benefit being 20% of ₹ 84,42,200/- of sales promotion/lodging expenses ignoring the fact that the same was incurred to obtain sales of Memberships which is Assessee's main business to which provision of Section 115WB(2) of the Act were applicable. ... 5. During the course of assessment proceedings ld. Assessing Officer scrutinized the sales promotion, lodging and resort expenses a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

29.8.2005 made addition of ₹ 16,88,576/- as value of Fringe Benefit. Ld. AR further referred and relied on following decisions :- 1. ITA No.3269/Ahd/2010 for Asst. Year 2006-07 in the case of Adani Retail Ltd. vs. DCIT. 2. ITA No.3508/Ahd/2010 for Asst. Year 2006-07 in the case of Arvind Fashions Ltd. vs. DCIT and other. 3. ITA No.906/Ahd/2010 for Asst. Year 2006-07 in the case of Joshi Technologies International Inc. vs. ADIT (Int l Taxation) 4. ITA No.2656/Mum/2013 for Asst. Year 2008-0 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

expenses. From going through the record, we observe that assessee is mainly engaged in the business of issuing membership cards to various members/customers which entitle them to certain benefits and facilities on the basis on the basis of various rights mentioned to the members in those cards which are available to the members. Against issuance of these cards, assessee collects the fees from the members/customers on a periodical basis and in return provides the services including free holiday .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

urred for the travelling package cost of its members from whom advance fees was already recovered and there was no element of any facility or benefit directly or indirectly provided to its employees. We further observe that ld. CIT(A) has deleted the impugned addition of value of fringe benefit of ₹ 16,88,576/- calculated @ 20% on the resort expenses at ₹ 84,42,880/- by observing as under :- 3.3 Decision: I have carefully perused the assessment order, submissions given by the appella .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

to Question No. 67 of CBDT Circular No. 8 dated 29th August, 2005, these expenditure is in nature of lodging and boarding of clients and customers which is either covered under Clause (D) or Clause (G) of Section 115WB(2). On careful consideration of the entire facts, it is an undisputed fact that appellant is engaged in the business of issuing facility cards to various members and membership fees vary from one year to seven years and vary according to terms of membership. In the course of its b .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

appellant's customers on the basis of membership card issued to 'J them and expenditure incurred on these stays which are directly linked with membership fee collected is claimed under the head "resort expenses". These facilities are provided to customers against membership fees collected by appellant which by no means is akin to sales promotion or lodging and boarding facilities provided to customers as envisaged in CBDT circular relied upon by Assessing Officer. This is the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

deeming provisions contained in Section 115WB(2) cannot be invoked mechanically and in respect of every item of expenditure, it is necessary first to correlate the benefit of employees arising out of their employment before the expenditure can be categorized to be resulting into fringe benefit and if the expenditure incurred by the Assessee Company is for the purpose of its business and not incurred for the benefit of employees, fringe benefits tax (FBT) cannot be levied on these expenditure. T .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

foresaid expression means that the 'fringe benefits' covered in section 115WB(1) are those which are in consideration for employment. Now, section 115WB(2) contains 'fringe benefits' which are deemed to have been provided by the employer to the employees. Section 115 WB(2) does not contain the expression ".... means any consideration for employment ..." as contained in sub-section (1) of section 115WB, and therefore, it is sought to be canvassed by the Revenue that any .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

; contained therein is "For the purposes of this Chapter" and, therefore, it implies that the overriding condition of the incurrence of expenditure in consideration for employment is even relevant for the purposes of assessing or ascertaining fringe benefits, which are deemed to have been provided by the employer to its employees in terms of sub-section (2) of section 115WB of the Act also. Therefore, even in the circumstances provided in sub-section (2) of section 115WB of the Act  .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d by the language of the statute. The Hon'ble I.T.A.T. at para 9 has held as under: "9. The interpretation sought to be advanced by the Revenue is not borne out of the statutory provisions. Ostensibly, the clarification issued by the CBDT vide Question No. 14 in Circular No. 8 of 2005 (supra) seeks to enlarge the scope of levy of FBT, which is not supported by the language of the statute. The Hon'ble Supreme Court in the case of Kerala Financial Corpn. v. CIT [1994] 210 ITR 129/75 T .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ot be attributed to any individual employee. Such benefits escape taxation as perquisite in the hands of the individual employees as they are not attributable to any individual employee. Therefore, such benefits were sought to be taxed in the hands of the concerned employer. Though the speech of the Hon'ble Finance Minister may not be a decisive test, so however, it is indeed a relevant and contemporaneous exposition of the legislative intent and can be relied upon, as propounded by the Hon& .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e expenses prescribed therein are liable to be considered as fringe benefits only to the extent the same are incurred in consideration for employment. To the same effect is also the view of our co-ordinate Bench in the case of Dy. CIT v. Kotak Mahindra Old Mutual Life Insurance Ltd. [2012] 134 ITD 388 /[2011] 16 taxmann.com 395 (Mum). Without getting info controversy as to whether CBDT Circulars are binding or not, the Hon'ble Apex Court in the case of CIT v. Hero Cycles (P) Ltd. [1997] 228 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

to observe and follow such instructions. None the less, it may be made clear that such instructions which may even pertain to the interpretation of a statutory provision under the Act cannot bind the taxpayers requiring to seek any remedy against the said instructions/clarifications either statutory or constitutional. But to my utter surprise the respondent/Deputy Commissioner has come on oath before this court to fake a stand that the instructions issued by the Commissioners will bind the taxpa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ncome tax authorities while discharging their quasi-judicial functions having a bearing on the rights and obligations of the tax payers under the provisions of the Act may take such views on the interpretation of a particular statutory provision as may be permissible which will be always subject to the statutory remedies under the Act. But the view so taken in the particular case cannot partake of the colour of a law of general application so as to bind a whole class of taxpayers and providing t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ute or cover areas to which the statute does not extend but they cannot run contrary to statutory provisions or whittle down their effect. Further, Hon'ble I.T.A.T. at para 11.8 has held that "we are of the opinion that the Circular No.5 of 2008 cannot be relied upon to the disadvantage of the appellant in support of the conclusion that the expenditure in the present case is liable for FBI." In view of discussion made hereinabove. Fringe Benefits Tax cannot be levied on expenditure .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d (supra) wherein the I.T.A.T, has held that legitimate business expenditure in nature of sales promotion, conveyance, tour and travels and gifts which did not result in any benefit to employees was not liable for FBT. The appellant has its business model peculiar in itself which is required to be understood to decide issue under consideration. Respectfully following the decision of Hon'ble I.T.A.T. and provisions of the Law, Assessing Officer was not justified in making addition for value o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ent Proceedings and in Appellate Proceedings has submitted that as per Clause (J) of Section 115WB(2) telephone expenses other than expenditure on leased telephone line is liable for FBT and expenditure of ₹ 7,03,867/- pertains to expenditure on leased line hence no FBT has been paid. These facts are not disputed by Assessing Officer and as per provision of Clause (J) referred supra. Assessing Officer was not justified in levying FBT on telephone expenditure being payment made for leased l .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ecessary supporting evidences, it is observed that during the course of its business of providing various membership fee cards to its customers, it has appointed agents across the country and these agents are compensated in the form of commission and through rewards which are directly linked with the performance of those agents. The agents, chains of agents, who have achieved the prescribed targets given by the Company, are provided with gifts according to terms and conditions of the various con .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on of the said Circular is reproduced hereunder: "61. Whether expenditure on incentives given to distributors for meeting quantity targets (including free goods for achieving certain sales target like, 100 free televisions for achieving a target sale of 10,000 televisions and cash incentives adjustable against future supplies) is liable to FBT? Ans : Incentive given to distributors for meeting sales targets (including free goods given as incentive to distributors for achieving certain sales .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

, therefore, not liable to FBT." Even on the basis of Circular No. 8 of 2005 relied upon by the Assessing Officer, appellant is not liable to FBT on expenditure of gifts provided to its agents as it is target oriented which is not at all sales promotion as per answer to Question No. 61 of said Circular reproduced herein above. Even in preceding para at 3.3.1,1 have carefully considered the provisions of FBT, Circular issued by CBDT as well as decisions of Hon'ble ITAT's and observed .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

pronounced on 1st May, 2013 has held as under :- 6.7. Even in the case of Calcutta Medical Research Institute reported at (2000) 75 ITD 484 (Cal.) it was opined that when a person is engaged to manage a business, then he may be a servant or an agent according to the nature of a service. In a situation, where the liability for deduction of tax was fulfilled u/s.192 of IT Act, then it is established that there was relationship of master and servant. Considering the terms and conditions in that ca .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

speech while introducing of provisions of FBT has stated that when the benefits are fully attributable to the employee, then tax in the hands of the employer. The rationale behind the introduction of FBT provisions thus is to tax a benefit which is enjoyed collectively by the employees. Hitherto that was taxed in the hands of the employees and the employer was claiming deduction. 6.8. So the FBT is eligible only in a case where expenditure is incurred by the employer ostensibly for the purpose .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on made by ld. CIT(A) and going through the facts, we are of the considered view that the impugned expenditure of ₹ 84,42,880/- has been incurred for the members against membership fees taken from time to time and the Instructions of CBDT Circular No.8, dated 29.8.2005 shall not apply on the assessee as no benefit has been passed on by the employer to its employees and, therefore, deeming provisions of section 115WB(2) of the Act cannot be invoked mechanically in respect of every item of e .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Assessess's claim that the telephone expense of ₹ 7,03,867/- pertained to leased lines. . . : 11. While framing assessment order u/s 115WE(3) r.w.s. 115WG of the Act, ld. Assessing Officer observed that assessee has incurred telephone expenditure of ₹ 15,95,171/- out of which assessee has already offered ₹ 8,91,304/- towards expenditure subject to FBT and the remaining amount of ₹ 7,03,867/- was not offered for the very reason that this expenditure of ₹ 7,03,867 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

action of ld. CIT(A) deleting the addition of ₹ 1,40,173/- on the value of FBT calculated by ld. Assessing Officer on the telephone expenditure of ₹ 7,03,867/-. We observe that the amount of ₹ 7,03,867/- has been incurred towards telephone lease lines and they were specifically not attributable to the employees. We further observe that ld. CIT(A) while deleting the impugned addition of ₹ 1,40,173/- has observed as under :- So far as second issue is concerned, Assessing O .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

han expenditure on leased telephone line is liable for FBT and expenditure of ₹ 7,03,867/- pertains to expenditure on leased line hence no FBT has been paid. These facts are not disputed by Assessing Officer and as per provision of Clause (J) referred supra. Assessing Officer was not justified in levying FBT on telephone expenditure being payment made for leased line. 14. From going through the observation of ld. CIT(A) and also respectfully following the decision of Co-ordinate bench disc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s ground is dismissed. 15. Ground No.3 of Revenue s appeal - 3) The Ld. Commissioner of Income-Tax (Appea!s)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of ₹ 21,64,321/- made on account of F.B.T being 50% of Gift expenses of ₹ 43,28,642/- wrongly relying upon the Q&A98 of Board's Circular No.-8 of 2005 dated 29/08/2005 without verifying the fact as to whether these gifts were included in the recipients income or not, to be eligible for exemption from .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

this fact that assessee has incurred expenditure of ₹ 43,28,642/- towards prizes, presents,etc. ₹ 21,853/- was offered for determining the value of FBT on account of gifts and remaining amount of ₹ 43,28,642/- were expenditure on gifts and prizes to its customers which has even been accepted by ld. Assessing Officer also but the impugned addition of ₹ 21,64,321/- was made by him by applying the Instructions of CBDT Circule No.8 dated 29.8.2005 thereby bringing the gifts .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

circumstances, ld. CIT(A) has rightly deleted the impugned addition by relying on the decision of the co-ordinate bench that gifts were provided to the members during the course of its business for getting increase in number of members and as such there was no benefit to the employees. 17. On the other hand, ld. DR supported the order of Assessing Officer. 18. We have heard the rival contentions and perused the material on record. Through this ground Revenue is aggrieved with the action of ld. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

cular No. 8 dated 29th August, 2005 and observed that gift to a customer even if for the purpose of sales promotion would fall within the scope of provisions of Section 115WB(2)(O). On careful consideration of explanation provided by the appellant both at the time of Assessment Proceedings and Appellate Proceedings along with necessary supporting evidences, it is observed that during the course of its business of providing various membership fee cards to its customers, it has appointed agents ac .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

upon by the Assessing Officer do not apply in this case. On the contrary, Question No. 61 of the said Circular clearly states that any scheme which offers rewards to agents, dealers, etc., based on the actual performance is not sales promotion and, therefore, falls outside the purview of Section 115WB(2)(D). The relevant portion of the said Circular is reproduced hereunder: "61. Whether expenditure on incentives given to distributors for meeting quantity targets (including free goods for a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

selling cost. Therefore, expenditure incurred for the purpose of providing incentives given to distributors for meeting sales targets (including free goods for achieving certain sales target and cash incentives adjustable against future supplies) do not fall within the scope of clause (D) of sub-section (2) of section 115WB and, therefore, not liable to FBT." Even on the basis of Circular No. 8 of 2005 relied upon by the Assessing Officer, appellant is not liable to FBT on expenditure of gi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version