Karnataka High Court
The Commissioner Of Income Tax vs M/S Toyota Kirloskar on 8 September, 2020
Bench: Alok Aradhe, H T Narendra Prasad
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 8TH DAY OF SEPTEMBER 2020
PRESENT
THE HON'BLE MR. JUSTICE ALOK ARADHE
AND
THE HON'BLE MR. JUSTICE H.T.NARENDRA PRASAD
I.T.A. NO.491 OF 2013
BETWEEN:
1. THE COMMISSIONER OF INCOME-TAX
LTU, JSS TOWERS
BSK III STAGE, BANGALORE.
2. THE ASST. COMMISSIONER OF INCOME-TAX
LTU, JSS TOWERS
BSK III STAGE, BANGALORE.
... APPELLANTS
(BY SRI. K.V. ARAVIND, ADV.,)
AND:
M/S. TOYOTA KIRLOSKAR
MOTOR PVT. LTD.,
PLAT NO.1, BIDADI INDUSTRIAL AREA
RAMANAGARA DISTRICT-562109.
... RESPONDENT
(BY SRI. CHYTHANYA K.K. ADV.)
---
THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,
1961 ARISING OUT OF ORDER DATED 31.05.2013 PASSED IN ITA
NO.1269/BANG/2012 FOR THE ASSESSMENT YEAR 2009-10,
PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO:
(I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW
STATED THEREIN.
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(I) ALLOW THE APPEAL AND SET ASIDE THE ORDER
PASSED BY THE ITAT, BANGALORE IN ITA NO.1269/BANG/2012
DATED 31-05-2013 CONFIRMING THE ORDER OF THE APPELLATE
COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE
DEPUTY COMMISSIONER OF INCOME TAX, LTU, BANGALORE.
THIS ITA COMING ON FOR HEARING, THIS DAY,
ALOK ARADHE J., DELIVERED THE FOLLOWING:
JUDGMENT
This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2009-10. The appeal was admitted by a bench of this Court vide order dated 09.10.2015 on the following substantial question of law:
(i) Whether on the facts and in the circumstances and in law the Tribunal was correct in holding that fringe benefits brought to tax on account of Sales Promotion Expenses, and conference charges does not attract provisions of Section 115WB of the Act, as the same were incurred to a third person and recovered perverse finding?3
(ii) Whether the Tribunal committed an error in not appreciating the fact that certain expenses incurred by the assessee were directly attributable to the benefit of the and recorded a perverse finding?
2. Facts leading to filing of this appeal briefly stated are that the assessee is engaged in the business of manufacture and trading of automobiles, passenger cars and multi utility vehicles. The assessee filed its return of fringe benefits for assessment year 2009-10 on 29.09.2009 declaring total value of taxable fringe benefits to the tune of Rs.4,46,50,533/-. The Assessing officer by an order dated 29.09.2011 inter alia held that expenses incurred by the assessee are chargeable to fringe benefit tax, even if the expenses are not incurred for the purposes of the employees. It was further held that the employees have not derived any benefit from the expenses incurred for the purposes of sales, promotion does not in any way exempt the expenses from being treated as deemed fringe benefits. The 4 Assessing officer therefore, determined the taxable value of fringe benefits at Rs.8,72,69,690/-. The assessee challenged the aforesaid order in appeal. The Commissioner of Income Tax (Appeals) by an order dated 21.06.2012 allowed the assessee's appeal in respect of dealers training expenses and sales promotion expenses. The aforesaid order was subject matter of challenge at the instance of the revenue before the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal' for short). The Tribunal by an order dated 31.05.2013 inter alia held that expenditure incurred on sales promotion which have more nexus to employer-employee relationship is not liable for fringe benefit tax and upheld the order passed by the Commissioner of Income Tax (Appeals). In the aforesaid factual background, this appeal has been filed.
3. Learned counsel for the revenue has invited the attention of this court to circular dated 29.08.2005 and has submitted that employer-employee relationship is 5 not a prerequisite for levy of fringe benefit tax. It is further submitted that the Assessing officer rightly determined the taxable value of fringe benefits and the Commissioner of Income Tax (Appeals) grossly erred in interfering with the order passed by the Assessing officer and the Tribunal erred in upholding the order passed by the Commissioner of Income Tax (Appeals). On the other hand, learned counsel for the respondent supported the order passed by the Income Tax Appellate Tribunal and has invited the attention of this court to Section 115WB of the Act.
4. We have considered the submissions made by learned counsel for the parties and have perused the record. Before proceeding further, it is apposite to take note of Section 115WB, which reads as under:
Section 115WB of Income Tax Act "Fringe benefits"
Section 115WB. (1) For the purposes of this Chapter, "fringe benefits" means any consideration for employment provided by 6 way of-
(a) any privilege, service, facility or amenity, directly or indirectly, provided by an employer, whether by way of reimbursement or otherwise, to his employees (including former employee or employees);
(b) any free or concessional ticket provided by the employer for private journeys of his employees or their family members;
(c) any contribution by the employer to an approved superannuation fund for employees; and
(d) any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer free of cost or at concessional rate to his employees (including former employee or employees).
Explanation.-For the purposes of this clause,-
(i) "specified security" means the securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and, where employees' 7 stock option has been granted under any plan or scheme therefor, includes the securities offered under such plan or scheme;
(ii) "sweat equity shares" means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.
(2) The fringe benefits shall be deemed to have been provided by the employer to his employees, if the employer has, in the course of his business or profession (including any activity whether or not such activity is carried on with the object of deriving income, profits or gains) incurred any expense on, or made any payment for, the following purposes, namely:-
(A) entertainment;
(B) provision of hospitality of every
kind by the employer to any
person, whether by way of
provision of food or beverages or in any other manner whatsoever 8 and whether or not such provision is made by reason of any express or implied contract or custom or usage of trade but does not include-
(i) any expenditure on, or payment for, food or beverages provided by the employer to his employees in office or factory;
(ii) any expenditure on or payment through paid vouchers which are not transferable and usable only at eating joints or outlets;
(iii) any expenditure on or payment through non-transferable pre-paid electronic meal card usable only at eating joints or outlets and which fulfils such other conditions as may be prescribed6;
(C) conference (other than fee for participation by the employees in any conference).9
Explanation.-For the purposes of this clause, any expenditure on conveyance, tour and travel (including foreign travel), on hotel, or boarding and lodging in connection with any conference shall be deemed to be expenditure incurred for the purposes of conference;
(D) sales promotion including publicity:
Provided that any expenditure on advertisement,-
(i) being the expenditure (including rental) on advertisement of any form in any print (including journals, catalogues or price lists) or electronic media or transport system;
(ii) being the expenditure on the holding of, or the participation in, any press conference or business convention, fair or exhibition;
(iii) being the expenditure on sponsorship of any sports event or any 10 other event organised by any Government agency or trade association or body;
(iv) being the expenditure on the publication in any print or electronic media of any notice required to be published by or under any law or by an order of a court or tribunal;
(v) being the expenditure on advertisement by way of signs, art work, painting, banners, awnings, direct mail, electric spectaculars, kiosks, hoardings, bill boards, display of products or by way of such other medium of advertisement;
(vi) being the expenditure by way of payment to any advertising agency for the purposes of clauses (i) to (v) above;
(vii) being the expenditure on distribution of samples either free of cost or at concessional rate; and 11
(viii) being the expenditure by way of payment to any person of repute for promoting the sale of goods or services of the business of the employer, shall not be considered as expenditure on sales promotion including publicity;
5. Admittedly, the expenditure of Rs.83,66,959/- was incurred by the assessee for the purpose of holding dealers conference. Therefore, the aforesaid expenditure would not have arrived at for determining assessee's liability towards fringe benefit tax under Section 115WB(2)(c). Similarly, the expenses incurred by the assessee towards sales promotion cannot be taxed in view of provision contained in Section 115WB(2)(d) of the Act. The Commissioner of Income Tax (Appeals) therefore, rightly allowed the assessee's appeal in respect of dealers trading expenses and sales promotion expenses. It is pertinent to note that the Tribunal in para 3.5.2 itself has recorded a 12 finding that expenditure incurred by the assessee on sales promotion had no nexus on employer-employee relationship and for expenses incurred in holding dealers meet, the question of employer-employee relationship does not arise. Therefore, the order passed by the Commissioner of Income Tax (Appeals) was rightly upheld.
In view of preceding analysis, the substantial questions of law framed by this court are answered against the revenue and in favour of the assessee.
In the result, the appeal fails and is hereby dismissed.
Sd/-
JUDGE Sd/-
JUDGE ss