Punjab-Haryana High Court
The Commissioner Of Income Tax-Ii vs M/S Hero Cycles Ltd on 9 September, 2013
Author: Rajive Bhalla
Bench: Rajive Bhalla
Income Tax Appeal No.180 of 2013 -1-
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
Income Tax Appeal No.180 of 2013
Date of Order: 09.09.2013
The Commissioner of Income Tax-II, Ludhiana
...Appellant
Versus
M/s Hero Cycles Ltd., GT Road,
Hero Nagar, Ludhiana.
..Respondent
CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA
HON'BLE MR. JUSTICE DR. BHARAT BHUSHAN
PARSOON
Present: Ms. Savita Saxena, Advocate
for the appellant
RAJIVE BHALLA, J.
The revenue is before us impugning the correctness of an order dated 30.01.2013, passed by the Income Tax Appellate Tribunal, Chandigarh, primarily on a plea that expenses incurred under the head "Selling Expenses" are to be treated as "Fringe Benefits" and computed and taxed as such.
Counsel for the appellant submits that as a scheme, called "Hero Bumper Bonanza Foreign Trip and Attractive Gift" provided that free gifts/foreign trips would be given to dealers for specified amount of purchases from the assessee, the expense so incurred is liable to fringe benefit tax. The Central Board of Direct Taxes (hereinafter referred to as 'the CBDT"), has clarified in answer to question No.61 that such a benefit shall invite fringe benefit tax. The ITAT has wrongly held to the contrary by relying upon answer of the CBDT to question No.66 and, therefore, the following questions of law arises for consideration:- Kumar Naresh N 2013.09.30 15:53 I attest to the accuracy and integrity of this document High Court Chandigarh Income Tax Appeal No.180 of 2013 -2-
"Whether, on the facts and circumstances of the case, the Hon'ble ITAT is right in law in holding that the case of the assessee is covered by question No.66 of circular No.8/2005 dated 29.08.2005 of the CBDT thereby deleting the addition of Rs.63,84,090/-?"
We have heard counsel for the appellant and perused the impugned order.
The assessee filed a return disclosing certain Fringe Benefits but at the same time claimed allowance of Rs.3,19,20,449/- incurred as ordinary selling expenses on "Hero Bumper Bonanza Foreign Trip and Attractive Gift" scheme. The Assessing Officer held that as expenses incurred, on the scheme, were incurred to increase sale, it is covered by answer of the CBDT to question No.61 and, therefore, is in the nature of sale promotion and publicity covered under Section 115WB(2)(D) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). Rs.63,84,090/- was accordingly added to fringe benefits. Penalty under Section 271(1)(d) of the Act was initiated separately for furnishing inaccurate particulars.
Aggrieved by this order, the assessee filed an appeal. The Commissioner of Income Tax examined answers of the CBDT to question nos.61 and 66 and while dismissing the appeal, held as follows:-
"From the aforesaid facts it emerges that there is one essential difference between the incentives referred to in Question No.61 & Question No.66. While the incentives referred to in Question No.61 are given to distributors after they meet the sales target the Kumar Naresh N 2013.09.30 15:53 I attest to the accuracy and integrity of this document High Court Chandigarh Income Tax Appeal No.180 of 2013 -3- incentives referred to in Question No.66 are given to dealers and consumers bases on the purchases made by them irrespective of their achieving the sales target."
Points No.2&3 of the scheme clearly show that both the parts of the scheme promise free gifts/foreign trips to the dealers on their making specified amount of purchases irrespective of the quantity of sale achieved by them. The scheme also provides that it is not convertible in cash implying thereby that the dealers will get only free gifts or free foreign trips. From this analysis it is very clear that the scheme is to promote sales of the appellant. As it is not based on the performance of the dealers in achieving certain sales target it cannot by any stretch of imagination be termed as performance based commission as contemplated under Q.No.61 of the aforesaid circular. Thus the expenditure of Rs.3,19,20,449/- is squarely covered by the provisions of Question no.66 of CBDT Circular No.8 of 2005 and does not fall within the scope of Question No.61.
Keeping in view the aforesaid factual position, the AO was fully justified in holding that the said expenditure is in the nature of sales promotion and publicity covered u/s 115WB(2)(D) of the I.T. Act. These grounds of appeal are accordingly dismissed." The assessee filed an appeal before the Income Tax Kumar Naresh N 2013.09.30 15:53 I attest to the accuracy and integrity of this document High Court Chandigarh Income Tax Appeal No.180 of 2013 -4- Appellate Tribunal. After perusal of the scheme and answers to question nos.61 and 66, the Income Tax Appellate Tribunal allowed the appeal by holding as follows:-
"Careful reading of both the above questions and answers show that question no.61 relates to the situation where incentive are given to the distributors for meeting quantity target. This can be in the form of free gifts like television or cash incentives or even foreign trip. On the other hand, situation covered by question no.66 relates to free gifts to distributors as well as the consumers without any quantitative target. In our opinion, these are two different situations and apply separately. For example in case of question no.61, the situation can be that of free mixy would be given if the dealer achieve the target of let us say 100 nos. If the dealer achieves target of more than 250 number then he would be entitled to a free television and if such dealer achieves the target to more than 1000 number then he would be entitled to free foreign trip. The situation would be covered by answer to question no.61 and would be known as incentive to the dealer. The situation in question no.66 can be of various types. For example if the consumer buys one trouser and he may be entitled to one free shirt or the dealer would get a free silver coin being offered on every 10 units of the products sold. Therefore, situation in question no.66 is quite different because Kumar Naresh N 2013.09.30 15:53 I attest to the accuracy and integrity of this document High Court Chandigarh Income Tax Appeal No.180 of 2013 -5- that does not refer to a particular target and is available for trade sale or to customers. The Assessing Officer and the CIT(A) has both opined that merely by lifting of a particular quantity of the product sold by the assessee, it cannot be said that dealer has achieved a particular target but while holding so they have not considered basic effect that as far as the assessee-company is concerned, once a particular quantity is lifted from it, it becomes sales for the assessee-company and from point of view of the company particular sales target stands achieved by that dealer. There may be a situation where the dealer achieved a sale target of say 580 cycles obviously for the prize of foreign trip he would left another 20 cycles and can get higher prize. This will not effect the position of the company because from the company's point of view sale target of 600 cycles has been achieved by that dealer. Therefore, in our view in the case before us, the assessee has simply framed a scheme which was meant to provide certain incentives to the dealer for achieving particular target and is clearly covered by the situation covered by answer to question no.61 in the circular no.8/2005 issued by the CBDT. Therefore, we set aside the order of the Ld. CIT(A) and direct the Assessing Officer not to include the amounts spent on "Hero Bumper Bonanza Foreign Trip and Attractive Gift" in the fringe Kumar Naresh N 2013.09.30 15:53 I attest to the accuracy and integrity of this document High Court Chandigarh Income Tax Appeal No.180 of 2013 -6- benefit."
A perusal of the statutory provisions, answers by the CBDT, to question nos.61 and 66 and due consideration of findings recorded by the Income Tax Appellate Tribunal, leave no manner of doubt that opinion recorded by the Income Tax Appellate Tribunal is legally correct and free from error. The distinction between the two situations, referred to in answers to questions No.61 and 66, may appear to be minimal, depending upon ones perception, but a careful perusal of these answers reveals that where incentives are given to distributors for meeting quantity target, the expenses fall within answer to question No.61, whereas free gifts to distributors and customers without any quantitative target, fall within answer to question No.66. The learned Tribunal has examined answers to question nos.61 and 66 and only thereafter recorded its conclusion, which is neither perverse, arbitrary nor illegal and, therefore, does not warrant interference on the question of law framed by the revenue.
In view of what has been stated hereinabove, the appeal is dismissed.
(RAJIVE BHALLA)
JUDGE
September 09, 2013 (DR. BHARAT BHUSHAN PARSOON)
nt JUDGE
Kumar Naresh N
2013.09.30 15:53
I attest to the accuracy and
integrity of this document
High Court Chandigarh