Income Tax Appellate Tribunal - Ahmedabad
Unique Mercantile India Pvt.Ltd.,, ... vs Department Of Income Tax on 21 June, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD '' C " BENCH - AHMEDABAD
Before Shri Rajpal Yadav, JM, & Shri Manish Borad, AM.
ITA No.2019/Ahd/2013
With C.O. 17/Ahd/2014
Asst. Year: 2006-07
DCIT, Circle-8, Ahmedabad. Vs. Unique Mercantile India
P. Ltd., F-7, Vishal
Complex, Nr. Dinesh Hall,
Ashram Road,
Ahmedabad.
Appellant Respondent
PAN AAACU 1981B
Appellant by Shri Prasoon Kabra, Sr.DR
Respondent by Shri Vartik Chowksi, AR
Date of hearing: 10/6/2016
Date of pronouncement: 21/6/2016
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/DCIT- Cir.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.
ITA No. 2019/Ahd/13 & CO.17/Ahd/2014 2Asst. Year 2006-07
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 Rs.15,53,808/-. Assessment u/s 115WE(3) was completed on 29.12.2008 accepting the returned fringe benefit value of Rs.15,53,808/-. Thereafter a notice u/s 115WH of the Act was issued on 26.03.2012 after duly recording the reasons for the same. In reply thereto the assessee filed letter dated 10.4.12 stating that return filed originally on 31.12.2006 may be treated as FBT return. Necessary information was called for which was supplied by assessee. The case was discussed and value of FBT was assessed at Rs.55,47,478/- after making additions in value of Fring Benefit at Rs.39,93,670/- on account of following :-
Expenses in Total Offered by Difference Percentage Value of schedule 10 expenses the (Rs.) fringe of P & L a/c (Rs.) assessee benefits (Rs.) (Rs.) Sales 86,48,475 2,05,595 84,42,880 20 16,88,576 promotions/ lodging expenses 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. CIT(A) wherein the impugned addition of Rs.39,93,670/- was deleted, however, the ITA No. 2019/Ahd/13 & CO.17/Ahd/2014 3 Asst. Year 2006-07 ground of assessee against the order passed u/s 115WE(3) r.w.s.
115WG of the Act challenging the reopening being illegal, void in substance, was dismissed by ld. CIT(A). Against this order of ld. CIT(A) Revenue and assessee have filed the appeal and the Cross Objection.
4. First we take up Revenue's appeal. Ground No.1 of the appeal reads as under :-
1) The Ld. Commissioner of Income-Tax (Appeals)-XlV, Ahmedabad has erred in law and on facts in deleting the addition of Rs.13,88,576/- made on account of Fringe Benefit being 20% of Rs.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 at Rs.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 Rs.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.ITA No. 2019/Ahd/13 & CO.17/Ahd/2014 4
Asst. Year 2006-07
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 2008-09 in the case of Kotak Mahindra Bank Ltd. vs. DCIT.
6. On the other hand, ld. DR supported the order of Assessing Officer.
7. We have heard the rival contentions and perused the material on record and gone through the decisions referred and relief on by the ld. AR. Through this ground, Revenue is aggrieved with the action of ld. CIT(A) deleting the addition of fringe benefit at Rs.16,88,576/- made by Assessing Officer by way of applying 20% of 84,42,000/- incurred on sales promotion/lodging 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 packages, prizes, accidental death coverage, festival bonanza coupons etc. and cost of these services provided to its members is met out of the fees collected from the ITA No. 2019/Ahd/13 & CO.17/Ahd/2014 5 Asst. Year 2006-07 members. During the year assessee incurred resort expenses at Rs.86,48,475/- out of which expenditure Rs.2,05,595/- was offered by assessee for being subject to fringe benefits tax to be calculated on 20% of Rs.2,05,595/- as value of fringe benefit and the remaining amount of Rs.84,42,880/- was specifically incurred 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 Rs.16,88,576/- calculated @ 20% on the resort expenses at Rs.84,42,880/- by observing as under :-
3.3 Decision:
I have carefully perused the assessment order, submissions given by the appellant and CBDT Circular No. 8 dated 29th August, 2005 relied upon by the Assessing Officer. The Assessing Officer has made addition for value of fringe benefits for Rs. 39,93,670/-comprising of resort expenses treated as sales promotion, telephone expenses 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 records that facilities of free stay are provided to appellant's customers on the basis of membership card issued to 'J them and expenditure incurred on ITA No. 2019/Ahd/13 & CO.17/Ahd/2014 6 Asst. Year 2006-07 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 direct cost which Assessee Company has to bear and facility is directly provided to its customers and not to any employees and is part of package cost provided to customers in consideration of membership fees collected from them. On careful consideration of provisions of Section 115WB read with Finance Minister's speech at the time of introducing Finance Bill and notes on clauses, it is clear that Section 115WB(1) defines the scope of Fringe Benefit Tax provided by employers to employees and 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. These provisions are elaborately discussed by Hon'ble Pune I.T.A.T. in case of Desai Brolhers Ltd 32 Taxmann.com 278 (2013) wherein the Hon'ble I.T.A.T, at para 8 has held as under:
"8. To appreciate the legal position, we may again refer to the meaning of the expression "Fringe benefits", as contained in section 115WB(1) of the Act. As noted earlier, Sub-section (1) of section 115WB contains the expression "means any consideration for employment". The presence of the aforesaid 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 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 ITA No. 2019/Ahd/13 & CO.17/Ahd/2014 7 Asst. Year 2006-07 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 employees, only in cases where the prescribed expenditure is incurred in consideration for employment....."
In the aforesaid decision, the Hon'ble Pune I.T.A.T. has considered circular No. 8 of 2005 heavily relied upon by the Assessing Officer and has observed that this circular issued by CBDT cannot override the provisions of the Act and Circular 6 to enlarge the scope of levy of FBT which is not supported 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 Taxman 573 (SC) has clearly opined that the Circulars issued by CBDT cannot override the provisions of the Act. In any case, it is quite well-settled that an executive instruction/circular cannot create any additional liability on the assessee. Secondly, it is also to be appreciated that the stand of the Revenue is also not in consonance with the legislative intent. The import and intent of introducing Chapter XII-H was to tax such benefits which are collectively enjoyed by the employees and cannot 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'ble Supreme Court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597 /7Taxman 131. Considered in that light too, we find that the interpretation sought to be made out by the Revenue with regard to the meaning of the expression 'fringe benefits' for the purposes of section 115WB(2) of the Act is quite misplaced. Considering the aforesaid, we therefore do not subscribe to the interpretation sought to be placed by the Revenue on section 115 WB(2) of the Act and instead, 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).
ITA No. 2019/Ahd/13 & CO.17/Ahd/2014 8Asst. Year 2006-07 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 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 taxpayers, unless they get rid of it by availing of remedies as suggested by him in his statement quoted above. His statement to the said effect needs to be denounced as not only legal notions. I can only trust that henceforth the income tax authorities should deter from enjoying five star comforts and dinners by accepting the hospitality of corporate people by giving an illusory and ill-conceived impression that they are the final law making and clarifying authorities. It may be clarified that the income 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 them a cause of action for coming before this court seeking interference under the writ jurisdictions..." . .
The Hon'ble Bangalore I.T.A.T. in case of Toyota Kirloskar Motor Pvt. Limited 24 Taxman 148 after considering Circular No. 8 of 2005 and legal precedent on binding nature of circular at para 11.7 has observed that the Hon'ble Apex Court in the case of State of Madhya Pradesh v. G.S. Dall & Flour Mills [1991 ] 187ITR 478 held that executive instructions can supplement a statute 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."ITA No. 2019/Ahd/13 & CO.17/Ahd/2014 9
Asst. Year 2006-07 In view of discussion made hereinabove. Fringe Benefits Tax cannot be levied on expenditure incurred other than expenditure from which employees has derived benefits. In the appellant's 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 Rs.15,95,171 in Profit & Loss Account against which it has paid FBT on expenses of Rs. 8,91,304 hence balance telephone expenses of Rs, 7,03,867/- is considered for levy of FBT and addition of Rs. 1,40,773/-has been made. On the other hand, appellant both during the course of Assessment 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 Rs. 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.
So far as third issue is concerned, Assessing Officer has considered expenditure and prizes 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 ITA No. 2019/Ahd/13 & CO.17/Ahd/2014 10 Asst. Year 2006-07 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 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 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 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 considered the provisions of FBT, Circular issued by CBDT as well as decisions of Hon'ble ITAT's and observed that FBT is not leviable on expenditure incurred for the purpose of business which does not give any benefit to employees. Appellant has provided the gifts to its agents on achieving the various sales targets and such gifts are not provided to employees hence even on this ground also appellant is not liable to FBT.
8. We further observe that the co-ordinate bench Ahmedabad in the case of Joshi Technologies International Inc. vs. ADIT (Int's Tax) in ITA No.906(Ahd) of 2010 for Asst. Year 2006-07 pronounced on 1st May, 2013 has held as under :-
ITA No. 2019/Ahd/13 & CO.17/Ahd/2014 11Asst. Year 2006-07 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 case, it was held that there was no relationship of master and servant. Lastly, our attention has also been drawn on Toyota Kirloskar Motor (P.) Ltd. (2012) 24 taxmann.com 149 (Bang.) for the legal proposition that the provisions of section 115-WB(2) are required to be invoked if there is an employer-employee relationship. Rather, Circular No.8 of 2005 also prescribes that the provisions of section 115WB can be invoked only if there is an employer-employee relationship. The Finance Minister in the 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 of business but includes partially a benefit of a personal nature passed on to the employee. But, a legitimate business expenditure not within the ambits of employer & employee relationship is outside the scope of FBT. In view of these observations, we hereby hold that 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 Rs.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 ITA No. 2019/Ahd/13 & CO.17/Ahd/2014 12 Asst. Year 2006-07 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 Rs.1,40,773/- made on account of FBT being 20% of telephone expenses without verification of correctness of Assessess's claim that the telephone expense of Rs.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 Rs.15,95,171/- out of which assessee has already offered Rs.8,91,304/- towards expenditure subject to FBT and the remaining amount of Rs.7,03,867/- was not offered for the very reason that this expenditure of Rs.7,03,867/- was incurred towards telephone lease lines. Ld. AR submitted that there is no dispute to this effect that Rs.7,03,867/- has been incurred specifically towards lease line which do not attract levy of FBT and, therefore, ld. CIT(A) has rightly deleted the impugned addition of Rs.1,40,173/-.
12. On the other hand, ld. DR supported the order of Assessing Officer.
ITA No. 2019/Ahd/13 & CO.17/Ahd/2014 13Asst. Year 2006-07
13. We have heard the rival contentions and perused the material on record. Through this ground Revenue is aggrieved with the action of ld. CIT(A) deleting the addition of Rs.1,40,173/- on the value of FBT calculated by ld. Assessing Officer on the telephone expenditure of Rs.7,03,867/-. We observe that the amount of Rs.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 Rs.1,40,173/- has observed as under :-
So far as second issue is concerned, Assessing Officer has observed that appellant has claimed telephone expenses of Rs.15,95,171/- in Profit & Loss Account against which it has paid FBT on expenses of Rs. 8,91,304 hence balance telephone expenses of Rs, 7,03,867/- is considered for levy of FBT and addition of Rs. 1,40,773/-has been made. On the other hand, appellant both during the course of Assessment 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 Rs. 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 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 Rs.7,03,867/- on lease line telephone expenditure, we are inclined to accept the contention that there is no element of ITA No. 2019/Ahd/13 & CO.17/Ahd/2014 14 Asst. Year 2006-07 benefit to the employees in the expenditure of Rs.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 Rs.21,64,321/- made on account of F.B.T being 50% of Gift expenses of Rs.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 order u/s 115WE(3) r.w.s. 115WG of the Act, ld. Assessing Officer observed that assessee has incurred expenditure on Gifts of Rs.43,50,495/- out of which assessee has already offered Rs.21,853/- towards expenditure eligible for FBT and the remaining amount of Rs.43,28,642/-/- was not offered for the very reason that this expenditure of Rs.43,28,642/- was incurred towards Gifts. to all its members. Ld. AR submitted that there is no dispute to this fact that assessee has incurred expenditure of Rs.43,28,642/- towards prizes, presents,etc. Rs. 21,853/- was offered for determining the value of FBT on account of gifts and remaining amount of Rs. 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 Rs.21,64,321/- was made by him by applying the Instructions of CBDT Circule No.8 dated 29.8.2005 thereby bringing the gifts to the customers for sales promotion purposes within the scope of section 115WB(2)(O) of the Act. Ld. AR further submitted that looking to the nature of business, assessee is ITA No. 2019/Ahd/13 & CO.17/Ahd/2014 15 Asst. Year 2006-07 engaged into, the cost towards providing facilities like package tour, gift etc. are all incurred out of the membership received from them periodically which thereby push up the market of the company amongst other persons which gives more business to the company. Ld. AR further submitted that on the basis of these facts and 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. CIT(A) in deleting the addition of Rs. 21,64,321/- made out of gift expenditure. We observe that looking to the nature of business of the assessee gifts amount of Rs. 43,28,642/- has been incurred during the course of business and gifts/prizes have been given to its members. We further observe that ld. CIT(A) has observed -
So far as third issue is concerned, Assessing Officer has considered expenditure and prizes 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 ITA No. 2019/Ahd/13 & CO.17/Ahd/2014 16 Asst. Year 2006-07 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 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 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 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 ITA No. 2019/Ahd/13 & CO.17/Ahd/2014 17 Asst. Year 2006-07 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 that FBT is not leviable on expenditure incurred for the purpose of business which does not give any benefit to employees. Appellant has provided the gifts to its agents on achieving the various sales targets and such gifts are not provided to employees hence even on this ground also appellant is not liable to FBT.
19. 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 Rs.43,26,642/- towards gifts/prizes in view of the business of assessee, we are inclined to accept the contention that there is no element of benefit to the employees in the expenditure of Rs.43,26,642/- and therefore, no interference is called for in the order of ld. CIT(A) on this issue. This ground is also dismissed.
20. Ground No.4 is of general nature, which does not require any adjudication.
21. In the result, Revenue's appeal is dismissed.
ITA No. 2019/Ahd/13 & CO.17/Ahd/2014 18Asst. Year 2006-07
22. Since we have dismissed the appeal of Revenue and the ld. AR has not pressed the grounds of Cross Objection, we dismiss the Cross Objection as not pressed.
23. In the result, appeal of Revenue and the Cross Objection of the Assessee both are dismissed.
Order pronounced in the open Court on 21st June, 2016 Sd/- sd/-
(Rajpal Yadav) (Manish Borad)
Judicial Member Accountant Member
Dated 21/6/2016
Mahata/-
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Asst. Registrar, ITAT, Ahmedabad
ITA No. 2019/Ahd/13 & CO.17/Ahd/2014 19
Asst. Year 2006-07
1. Date of dictation: 17/06/2016
2. Date on which the typed draft is placed before the Dictating Member: 17/06/2016 other Member:
3. Date on which approved draft comes to the Sr. P. S./P.S.:
4. Date on which the fair order is placed before the Dictating Member for pronouncement: __________
5. Date on which the fair order comes back to the Sr. P.S./P.S.:
6. Date on which the file goes to the Bench Clerk:21/6/16
7. Date on which the file goes to the Head Clerk:
8. The date on which the file goes to the Assistant Registrar for signature on the order:
9. Date of Despatch of the Order: