TMI Blog2016 (6) TMI 844X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 2019/Ahd/2013, C.O. 17/Ahd/2014 - - - Dated:- 21-6-2016 - Shri Rajpal Yadav, JM And Shri Manish Borad, AM For the Appellant : Shri Prasoon Kabra, Sr. DR For the Respondent : Shri Vartik Chowksi, AR ORDER Per Manish Borad, Accountant Member Appeal by the Revenue and the Cross Objection by the Assessee are directed against the order of ld. CIT(A)-XIV, Ahmedabad dated 27/05/2013, in appeal CIT(A) XIV/DCITCir. 8/207/2012-13 passed against order u/s 115WE(3) r.w.s. 115WG of the IT Act, 1961 (in short the 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 facili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noring 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 at ₹ 86,48,475/-. During these proceedings ld. AR submitted that these expenses have been incurred towards cost of travel package which included boarding, lodging and resort expenses and this cost was met out of the periodical fees received from the members for issuing cards and there was no element of any free service to members or any benefit to the employee. However, ld. Assessing Officer was not convinced with this reply and by applying instructions mentioned in CBDT Circular No.8 dated 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses and gift expenses. So far as first issue is concerned, Assessing Officer has observed that appellant has incurred resort expenses which is in nature of sales promotion expenses covered under Clause (D) of Section 115WB(2). Even as per answer 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 business and against fees collected from its members, appellant provides various facilities to the members over the period for which their membership exists which broadly include accidental death coverage, special discount rates for shops/establishments with whom appellant company has made offer, Unique Healthcare Programme and free stay packages, etc. As such it is part of package provided as per card issued to members. It is observed from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as contained in sub-section (1) of section 115WB, and therefore, it is sought to be canvassed by the Revenue that any payment made by an assessee for the purposes contained in Clauses (A) to (Q) of subsection (2) of section 115WB shall result in 'fringe benefits' deemed to have been provided by the employer to his employees, hi other words, as per the Revenue the expenses listed in Section 115WB(2) need not be incurred on employees so as to qualify for charging of FBT. In our considered opinion, sub-section (1) of section 115WB itself qualifies that the meaning of the expression 'fringe benefits' 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 'fringe benefits' can be deemed to have been provided by the employer to his employee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hold that the 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 ITR 463/ 94 Taxman 271 has held that circulars can bind the ITO but will not bind the appellate authority or the Tribunal or the Court or even the assessee. High Court in the case of East India Hotels Ltd. 230 ITR 630 held that - Similarly, under section 119 of the Act a power has been reserved in favour of the Central Board of Direct Taxes (in short the Board ) to issue instructions to subordinate income tax authorities for proper administration of the Act and who are required 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, as discussed hereinabove, resort expenditure is for free holiday packages provided to members of appellant company against membership fees collected from them which is no way connected to providing any benefits to employees. Hence FBT cannot be levied on these resort expenses. Reliance is also placed on decision of Hon'ble Bangalore I.T.A.T. in case of Toyota Kirloskar Motor_..Pvt. Limited (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 of fringe benefit for resort expenses treated as sales promotion/lodging expenses. So far as second issue is concerned, Assessing Officer has observed that appellant has claimed telephone expenses of ₹ 15,95,171 in Profit Loss Account against which it has paid FBT on expenses of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales 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 and cash incentives adjustable against future supplies) are in the nature of performance-based commission. Such performance-based commission is in the nature of ordinary 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the FBT provisions have wrongly been ITA No.906/Ahd/2010 Joshi Technologies International Inc. vs. ADIT (Intnl.Taxn) Asst.Year - 2006-07 9. From going through the decision of the co-ordinate bench as well as detailed observation 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 expenditure unless and until it co-relates to the benefit of employees. We therefore, find no reason to interfere with the order of ld. CIT(A) on this issue. We uphold the same. This ground of Revenue is dismissed. 10. Ground no.2 of Revenue s appeal reads as under :- 2) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts to delete the addition of ₹ 1,40,773/- made on account of FBT being 20% of telephone expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment made for leased line. 14. From going through the observation of ld. CIT(A) and also respectfully following the decision of Co-ordinate bench discussed above in para 8 above in the case of Joshi Technologies International Inc. vs. ADIT (Int s Tax) (supra) and also looking to the fact that ld. Assessing Officer has not disputed about the incurring of expenditure of ₹ 7,03,867/- on lease line telephone expenditure, we are inclined to accept the contention that there is no element of benefit to the employees in the expenditure of ₹ 7,03,867 and therefore, no interference is called for in the order of ld. CIT(A) on this issue. This 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 FBT. 16. While framing assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and presents as gift and relied upon clarification in Answer No. 98 of Circular 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 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 contests prevailing during the period. These gifts are not provided to customers as observed by Assessing Officer hence answer to Question No. 98 of the Circular No. 8 relied upon by the Assessing Officer do not apply in this case. On the contrary, Question No. 61 of the said Circular clearly state ..... X X X X Extracts X X X X X X X X Extracts X X X X
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