Income Tax Appellate Tribunal - Delhi
Whirlpool Of India Ltd., Gurgaon vs Assessee on 31 January, 2011
1 ITA No.2006/D/11, 4652, 4653/D/12
Asstt.Year: 2007-08, 2008-09, 2009-10
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `H' NEW DELHI
BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT
AND
SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER
I.T.A.No.2006/Del/2011
Assessment Year : 2007-08
I.T.A.No.4652/Del/2012
Assessment Year : 2008-09
I.T.A.No.4653/Del/2012
Assessment Year : 2009-10
Whirlpool of India Ltd., vs Dy.Commissioner of Income Tax,
Whirlpool House, Plot No.40, Large Taxpayers Unit, NBCC
Sector-44, Gurgaon-122002 Plaza, Saket, New Delhi.
(PAN: AAACW1336L)
(Appellant) (Respondent)
Appellant by: Shri Tapas Ram Mishra
Respondent by : Shri R.S. Meena, C.I.T. DR
ORDER
PER CHANDRAMOHAN GARG, J.M.
These appeals have been preferred by the assessee against the order of Commissioner of Income Tax(A)-LTU, New Delhi dated 31.01.2011 in Appeal No. 22/09-10 for AY 2007-08; dated 2.7.2012 in Appeal No. 9/10-11 for AY 2008-09 and dated 3.7.2012 in Appeal No. 19/11-12 for AY 2009-10 respectively.
2 ITA No.2006/D/11, 4652, 4653/D/12Asstt.Year: 2007-08, 2008-09, 2009-10
2. The grounds raised by the assessee in ITA No. 2006/Del/2011 for AY 2007-08 read as under:-
"1. That on the facts and In the circumstances of the case, the impugned order of the CIT(A) is vague, based on incorrect appreciation of facts, bad in law, and void ab initio.
2. That on the facts and in the circumstances of the case, the CIT (A) erred on facts and in law in confirming the Fringe Benefit Tax (FBT) assessment order on the ground that the appellant had not made a claim by revising the return and hence the assessing Officer had rightly rejected the appellant's claim.
3. That on the facts and in the circumstances of the case the CIT (A) erred on facts and in law in not adjudicating upon the fact the net expenditure of Rs 860.56 Lacs (Rs. 1592.63 Lacs- RS.732.07 Lacs) incurred on purchase of gift items could not be regarded as a Fringe benefit by any stretch of imagination.
4. That on the facts and in the circumstances of the case, the CIT (A) erred on facts and in law in not appreciating that the judgment of the Hon'ble Supreme Court in the case of Goetze India Limited was rendered in the context Assessment Year 1995-96, and that the decision of the Supreme Court was no longer applicable in AY 2007-08 in view of change in section 143(3) of the Act.
5. That the CIT (A) erred on facts and in law in not accepting the appellant's contention that notwithstanding the decision in Goetze India Limited case, the CIT (A) had the powers to adjudicate upon the appellant's claim on merits.
6. That on the facts and in the circumstances of the case, the CIT (A) erred on facts and in law in .not 3 ITA No.2006/D/11, 4652, 4653/D/12 Asstt.Year: 2007-08, 2008-09, 2009-10 appreciating that the appellant could not be made to suffer FBT on an expenditure that was clearly not fringe benefit provided to any employee."
3. Briefly stated the facts giving rise to these appeals are that the appellant is engaged in the business of manufacture and sale of consumer durable goods such as refrigerators, washing machines, air conditioner, microwave oven etc. For the previous year ending on 31.3.2007, the assessee filed the return of Fringe Benefit Tax (FBT) on 30.10.2007. The total value of FBT declared in the return was Rs.7,96,65,600. As per statement and version of the assessee, the appellant company launches different schemes wherein the customer is offered, on purchase of a specific item manufactured by the appellant, an appliance such as steam iron, blender, watch, bed sheet and such other similar items as a free gift. Such schemes were offered through a scratch card where the customer is given a card on random basis on purchase of an item and any gift item specified in the scratch card is handed over to the customer by the dealer. These gift items are not manufactured by the appellant, the same are purchased from the market.
4. During F.Y.2006-07, the assessee purchased gifts of Rs.1592.63 lac for the above purpose. As dealers also got benefit out of the scheme, it was decided by the assessee to recover a part of cost of gifts from the dealers. In 4 ITA No.2006/D/11, 4652, 4653/D/12 Asstt.Year: 2007-08, 2008-09, 2009-10 order to reduce the expenses on such gifts, the gift items were sold to the dealers at reduced cost. By doing this, the dealers shared the cost of gift items and if any of these items remained unclaimed at the expiry of the scheme period, the dealer was free to sell these items in the open market. The sum of Rs.732.07 lacs was thus recovered from the dealers by way of such sale of gift items. This had reduced the expenditure on purchase of gift items and accordingly credited to Sales Promotion Expenses.
5. On the apprehension expressed by its auditors that being a part of sales promotion expenses, this could probably attract Fringe Benefit Tax (FBT). Such expenditure related to sales promotion was included in the total value of Fringe Benefit as declared by the assessee. Later, during the assessment proceedings, the assessee had received legal opinion to the effect that such expenditure of sales promotion should not be a part of the value of fringe benefit.
6. Considering the fact that such expenditure on gifts was for the sole purpose of promoting sales and did not result in providing, directly or indirectly, any benefit to any employee, the assessee had submitted before the Assessing Officer that such expenditure on purchase of gift items under sales promotion could not be included in the value of fringe benefit, and prayed before the Assessing Officer for reduction in the value of taxable 5 ITA No.2006/D/11, 4652, 4653/D/12 Asstt.Year: 2007-08, 2008-09, 2009-10 value of Fringe Benefit and consequential benefit of tax thereon. The assessee prayed before the Assessing Officer for appropriate relief by treating the sum of Rs.860.56 lacs as not being liable to FBT under Chapter XII-H of the Act. The Assessing Officer denied the relief. The assessee preferred an appeal before the Commissioner of Income Tax(A) which was also dismissed by holding that in view of decision of Hon'ble Supreme Court in the case of Goetze India Ltd. vs Commissioner of Income Tax 284 ITR 323(SC), the Assessing Officer cannot entertain a claim of deduction otherwise than a revised return. Now, the assessee is again before this Tribunal with the grounds as mentioned hereinabove.
7. We have heard rival arguments of both the parties and carefully perused the record placed before us. Ld. counsel of the assessee submitted that on the facts and in the circumstances of the case, the ld. CIT(A) has erred in confirming the Fringe Benefit Tax (FBT) assessment order on the ground that the appellant had not made a claim by revising the return and hence the assessing Officer had rightly rejected the assessee's claim. Ld. counsel of the assessee further submitted that the authorities below erred on facts and in law in not adjudicating upon the fact that the net expenditure of Rs. 850.56 lacs incurred on purchase of gift items given to the customers on purchase of specified items manufactured by the assessee, then the same gift 6 ITA No.2006/D/11, 4652, 4653/D/12 Asstt.Year: 2007-08, 2008-09, 2009-10 by way of scratch card provided to the customers of the assessee could not be regarded as a fringe benefit by any stretch of imagination. Ld. counsel of the assessee further pointed out that the Commissioner of Income Tax(A) was not justified in not appreciating this notable fact that the judgment of the Hon'ble Supreme Court in the case of Goetze India Limited vs C.I.T. (2006) 284 ITR 323 (SC) was rendered in the context of Assessment Year 1995-96, and that the decision of the Supreme Court was no longer applicable in AY 2007-08 in view of change in section 143(3) of the Act.
8. Ld. counsel of the assessee vehemently contended that since the Commissioner of Income Tax(A) enjoys coterminous powers with the Assessing Officer, then Commissioner of Income Tax(A) grossly erred on facts and in law in not accepting the appellant's contention that notwithstanding the decision in Goetze India Limited case, the CIT (A) had the powers to adjudicate upon the appellant's claim on merits which does not, in any way, impinge upon the powers of the appellate authorities including Commissioner of Income Tax(A) and ITAT.
9. Replying to the above, ld. DR submitted that when the assessee company itself filed return of fringe benefit tax on 30.10.2007 declaring total value of fringe benefit of Rs.7,95,65,600, then any further claim of the assessee can only be entertained by filing a revised return. The DR further 7 ITA No.2006/D/11, 4652, 4653/D/12 Asstt.Year: 2007-08, 2008-09, 2009-10 contended that in the absence of revised return, claim of the assessee cannot be entertained by the Assessing Officer in the light of decision of Hon'ble Supreme Court in the case of Goetze India Ltd. vs C.I.T. (supra). The DR fairly accepted that this decision of Hon'ble Apex Court does not impinge upon the powers of this Tribunal provided u/s 254 of the Act.
10. On careful consideration of above rival submissions and contention of both the parties, we are of the opinion that as per decision of Hon'ble Supreme Court in the case of Goetze India Ltd. vs C.I.T. (supra), when deduction is claimed after filing of return, then the Assessing Officer is not empowered to entertain that claim made otherwise than by way of revised return required to be filed u/s 139(5) of the Act. Further, we observe that operative last para of above decision of Hon'ble Supreme Court reads as under:-
"The decision in question is that the power of the Tribunal under section 254 of the Income Tax Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the assessing officer to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income Tax Appellate Tribunal under section 254 of the Income Tax Act, 1961. There shall be no order as to costs."8 ITA No.2006/D/11, 4652, 4653/D/12 Asstt.Year: 2007-08, 2008-09, 2009-10
11. In view of above observations and directions of Hon'ble Supreme Court, we clearly observe that although after filing of return, the Assessing Officer is not empowered to entertain the claim of the assessee for deduction otherwise than by filing a revised return, at the same time we also observe that the Hon'ble Apex Court had made it clear that the observations on the issue are limited to the powers of the assessing authority and do not impinge on the powers of this Tribunal provided u/s 254 of the Act. The same view has been reiterated many times in various subsequent decisions of Hon'ble Supreme Court, Hon'ble High Courts and Coordinate Benches of this Tribunal and respectfully following the same, we hold that the Assessing Officer is not empowered to entertain claim for deduction of the assessee, after filing of return otherwise than by filing a revised return but the powers of this Tribunal as an appellate authority u/s 254 of the Act do not impinge upon this decision.
12. Ld. counsel of the assessee submitted that the assessee company launches different schemes wherein the customer is offered, on purchase of specific item manufactured by the assessee, an appliance or article such as steam iron, blender, watch, bed sheet and other such similar items as free gift through a scratch card where the customer is given a scratch card on 9 ITA No.2006/D/11, 4652, 4653/D/12 Asstt.Year: 2007-08, 2008-09, 2009-10 random basis on purchase of an item and any gift item specified in the scratch card is handed over to the customer by the dealer on behalf of the assessee. Ld. counsel placed his reliance on the recent judgment of Hon'ble Jurisdictional High Court of Delhi in the case of T&T Motors Ltd. vs ACIT (2012) 247 CTR (Delhi) 384 wherein their lordships categorically interpreted the object and purpose behind FBT provision. The relevant operative part of this decision is being respectfully reproduced as under:-
"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 publicity for FBT.
17. A careful reading of clause (i), (ii), (iv), (v), (vi) and
(viii) of Section 115WB(2)(D) elucidates that the legislature has excluded from FBT expenditure in form of payments to third persons. The exemption in these clauses, it is apparent, has been granted because this is not a fringe benefit which is enjoyed by the "employee/recipient" but it is an expenditure incurred for the purpose of business and the payment is income earned by the third party. In the hands of the said recipient the expenditure is taxable as income earned.
18. We may reproduce the following observations of Madras High Court in Tuticorin Alkali Chemicals and Fertilizers (supra), wherein it has been held as under:-10 ITA No.2006/D/11, 4652, 4653/D/12 Asstt.Year: 2007-08, 2008-09, 2009-10
The term "sales promotion" is not to be confused with the sales actually effected. While "sales promotion" are measures taken by the assessee to promote generally the sales of the products manufactured by it, or dealt with by it, individual sales made in the normal course of business on commercial terms either directly to the customer, or through its wholesale and other dealers to whom, under the terms of trade discounts and commissions are allowed, cannot be regarded as sales promotion. This court in the case of CIT v. India Pistons Ltd. MANU/TN/043412001 : (2001) 250 ITR 279 has held that sale of a product at a discount did not amount to a sales promotion expense. It was observed in that judgment that:
The sales promotion normally refers to an activity which is intended to promote the sale of all the products by way of advertisement or special campaigns. Offering a discount on the price in effect is only an instant of the sale of the company's product at a lower price and cannot be regarded as expenditure on sales promotion.
19. On the basis of factual matrix on record and as found by the Assessing Officer, we are of the view that the expenditure incurred on accessories which were supplied to customers who have purchased cars cannot be treated as sale promotion including publicity expenses under clause (D). In the present case, the said expenditure cannot be categorized as expense incurred for promotion of sales with a view to gain publicity and popularize the product. The customers in the present case have purchased the 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 11 ITA No.2006/D/11, 4652, 4653/D/12 Asstt.Year: 2007-08, 2008-09, 2009-10 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 intention of the legislature to impose FBT on the car dealer who offers a better deal with fitments and accessories to a customer who is making payment for purchase of the car in question.
20. In this connection, the learned counsel for the appellant had drawn our attention to question No. 60 and the answer thereof in the CBDT Circular NO.8 of 2005 dated 28th September, 2005, which reads as under:
60. Whether 'sales promotion' includes sales discount or rebates to wholesalers or customers or bonus points given to credit card customers and, if so, whether FBT is payable thereon?
Ans. Sales discount or rebates allowed to wholesale dealers or customers from the listed retail price merely represent lesser realization of the sale price itself. The bonus points given to credit card customers are also in the nature of deferred sale discount. Therefore, discounts or rebates or bonus points allowed to customers or wholesale dealers are in the nature of selling expenses and outside the scope of the provisions of clause (D) of sub -section (2) of section 115WB of the Income-tax Act. Accordingly, such discounts or rebates are not liable to FBT.
21. Learned counsel of the respondent, on the other hand, relied upon on the question No. 66 and the answer given in the same circular. Reference is also made to question Nos. 12 ITA No.2006/D/11, 4652, 4653/D/12 Asstt.Year: 2007-08, 2008-09, 2009-10 97 and 98 which again for the sake of convenience are reproduced below:-
66. Whether expenditure on free offers (with products) such as freebies like tattoos, cricket cards or similar products, to trade or consumers (excluding employees) is liable to FBT? Further, whether expenditure incurred on the artwork or for payment of royalty charges in respect of such freebies is liable to FBT?
Ans. Any expenditure (including expenditure on artwork and royalty charges) on free offers (with products) such as freebies like tattoos, cricket cards or similar products, to trade or consumers (excluding employees) is for the purposes of sales promotion and, publicity and accordingly, liable to FBT.
97. Whether expenditure on gifts under trade schemes or for promotion of company's products to distributors/retailers is liable to FBT?
Ans. Ordinarily, a gift is defined as anything given or presented without consideration. Therefore, expenditure on gifts under trade schemes or for promotion of company's products to distributors/retailers, falls within the scope of the provisions of clause (0) of sub -section (2) of section 115WB and, accordingly, is liable to FBT.
98. Does a gift to customer fall under 'sales promotion' or 'gift'?
Ans. In terms of the rules of interpretation of a statute, a specific provision in law overrides a general provision. Therefore, a gift to a customer, even though for the purposes of sales promotion, would fall within the scope of the specific provision of clause (0) of sub-section (2) of section 115WB relating to 'gift'.
22. The contention of the appellant is that the answer to question No. 66 given in the CBDT circular is very wide 13 ITA No.2006/D/11, 4652, 4653/D/12 Asstt.Year: 2007-08, 2008-09, 2009-10 and, goes beyond the scope of the enactment. A purchaser or customer pays for the product including the freebie. In most of the cases to state that the freebie is not being paid for, is a myth and factually incorrect. Interpretation suggested by the appellant/Revenue is debatable. We confine ourselves to the factual matrix of the present case. We do not think that the answer to question No. 66 can be applied to the present case. In the present case, it will be more appropriate to apply the answer to question No. 60. Cars have a number of gadgets, fittings and accessories. Car does not consist of mere body and engine.
Accessories, fittings and gadgets are normally treated as part and parcel of the vehicle itself. Cars with same or similar body and engine have different models depending upon the features and accessories. The cost price depends upon the features and accessories. Question No. 66, which has been answered, relates to tattoos, cards or similar products, which really do not have any connection or nexus with the product which is sold. The car accessories are provided for better enjoyment and utilization of the product, which is purchased. The utility of the product improves and gives more satisfaction to the purchaser, who is paying the price. In answer to question No. 60, the CBDT has observed that discounts cannot be treated and regarded as sale promotion. It is a common and normal market practice, to supply upgraded products for a lower price or include extra quantity in the same price and state that the additional quantity, which is being offered, is free. Such cases will be covered by the question and answer No. 60 and not by the question and answer No. 66.
23. In the present case, the Revenue did not invoke clause (0) to sub-section (2) to Section 115WB. It was not the contention of the Revenue that the accessories given free of cost as gifts. This is rightly so as gifts are given or presented without consideration. Consideration, in the present case is inbuilt as per person/customer is paying consideration for purchase of the car. For gift under clause (0), the same should be paid without consideration. There is no finding to this effect by the Assessing Officer or 14 ITA No.2006/D/11, 4652, 4653/D/12 Asstt.Year: 2007-08, 2008-09, 2009-10 by the tribunal. The accessories given or installed in the car by the appellant were akin to providing discount or rebate, instead of said amount being paid in cash or being reduced from the sale price, accessories were provided, but no specific payment was made for the accessories installed. These cannot be classified as gifts for which no consideration has been paid by the customers.
24. In view of the aforesaid reasoning and discussion the two questions of law mentioned above are answered in negative and in favour of the appellant and against the respondent-Revenue. In the facts of the present case, there will be no order as to costs."
13. In view of above decision of Hon'ble Delhi High Court, the assessee of the present case offered different schemes through a scratch card and purchaser/customer of a specific item manufactured by the assessee is offered various items as gift. In the present case also, the revenue did not invoke clause O to sub-section (2) to section 115WB of the Act. The assessee's claim has been rejected by the Assessing Officer on legal issue by holding that the Assessing Officer was not empowered to entertain the claim of the assessee otherwise than by filing a revised return. During the hearing before us, the DR fairly accepted that it was not the contention of the revenue that the items were given to the customers free of cost as gifts. The gifts are given or presented without consideration but in the present case, consideration was in-built as customer was paying consideration for purchase of a specific item manufactured by the assessee and the gift items 15 ITA No.2006/D/11, 4652, 4653/D/12 Asstt.Year: 2007-08, 2008-09, 2009-10 given to the purchasers/customers by the dealer on behalf of the assessee were akin to providing discount or rebate, instead of said amount being paid in cash or being reduced from the sale price, gift items were provided to the customers/purchaser, but no specific payment was made by them for these gift items. Accordingly, these cannot be classified as gifts for which no consideration has been paid by the customers. Therefore, respectfully following the decision of Hon'ble Jurisdictional High Court of Delhi in the case of T&T Motors Ltd. vs ACIT (supra), we hold that as per CBDT Circular No. 8 of 2005 dated 28.9.2005, question no. 60 clarifies that discount or rebates are not liable to FBT and present case of the assessee falls within four corners of above decision of Hon'ble Delhi High Court in the case of T&T Motors vs ACIT (supra) and CBDT Circular No. 8 of 2005. Therefore, we find it just and proper that the claim for deduction of the assessee is allowable. At the cost of repetition, we further hold that the Assessing Officer is not empowered to entertain the claim for deduction of the assessee, after filing of return otherwise than by filing a revised return but the powers of this Tribunal as an appellate authority u/s 254 of the Act do not impinge upon by the decision of Hon'ble Supreme Court in the case of Goetze India Ltd. vs C.I.T. (supra).
16 ITA No.2006/D/11, 4652, 4653/D/12Asstt.Year: 2007-08, 2008-09, 2009-10
14. Thus, we further hold that the Assessing Officer rightly rejected the claim of the assessee which was filed by way of an application after filing of return because the Assessing Officer was not empowered to entertain the claim of the assessee otherwise than by filing a revised return. At the same time, as per powers of this Tribunal provided u/s 254 of the Act, we find it just and proper that the claim for deduction of the assessee after filing of return cannot be denied merely on technical grounds in the absence of revised return. Therefore, we find it appropriate that the claim of deduction requires examination and verification at the end of Assessing Officer. Accordingly, we set aside the issue to the file of Assessing Officer with the direction that the Assessing Officer shall examine and verify the claim of the assessee for deduction and shall determine the value of fringe benefit afresh by affording due opportunity of hearing for the assessee. With these directions, entire controversy and all issues are restored to the file of Assessing Officer for fresh adjudication without being prejudiced with the observations made in the earlier assessment order as well as in the impugned order.
15. Thus, all grounds of the assessee are deemed to be allowed as indicated above for statistical purposes.
17 ITA No.2006/D/11, 4652, 4653/D/12Asstt.Year: 2007-08, 2008-09, 2009-10 Grounds raised by assessee in ITA 4652/D/12 for AY 2008-09 and 4653/D/12 for AY 2009-10
16. From bare reading of grounds raised by the assessee in these appeals, we clearly observe that the main controversy pertaining to taxable value of fringe benefit is similar to the assessee's case in ITA No. 2006/Del/2011 which has been adjudicated and allowed for statistical purposes by earlier part of this order. Since similar controversy has been decided by allowing grounds of the assessee in AY 2007-08, therefore, we order that the observations and findings in ITA No. 2006/Del/2011 shall apply mutis mutandis to ITA No. 4652 & 4653/D/2012 for AY 2008-09 and 2009-10 respectively.
17. In the result, all appeals of the assessee are deemed to be allowed in the manner as indicated above for statistical purposes.
Order pronounced in the open court on 17.4.2014.
Sd/- Sd/- (G.D. AGRAWAL) (CHANDRA MOHAN GARG) VICE PRESIDENT JUDICIAL MEMBER DT. 17th APRIL 2014 'GS' 18 ITA No.2006/D/11, 4652, 4653/D/12 Asstt.Year: 2007-08, 2008-09, 2009-10 Copy forwarded to:- 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR By order Asstt. Registrar