Income Tax Appellate Tribunal - Ahmedabad
Carnation Nutra Analogue Food Ltd.,, ... vs Assessee on 24 April, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH, AHMEDABAD BEFORE SHRI G. D. AGARWAL, VICE PRESIDENT AND SHRI S.S. GODARA JUDICIAL MEMBER ITA No.3248/Ahd/2010 A.Y.2006-07 Carnation Nutra Vs ACIT (OSD), Range-1, Analogue Goods Ltd. Ahmedabad.
(Now Zydus Wellness Ltd.) Ahmedabad.
PAN: AAACC 7740G
(Appellant) (Respondent)
Revenue by : Shri Dinesh Singh, Sr.D.R.
Assessee(s) by : Shri Vijay Ranjan, A.R.
सुनवाई क तार ख/ Date of Hea ring : 16/04/2015
घोषणा क तार ख /Date o f Prono unceme nt: 2 4/04/2015
आदेश /O R D E R
PER: S. S. GODARA, JUDICIAL MEMBER
This assessee's appeal for A.Y.2004-05, arises from order of CIT(A)-VI, Ahmedabad dated 04.10.2010 in case appeal no.CIT(A)-VI/ACIT.Cir.1/350/08-09, confirming addition of Rs.19,20,000/- made in the value of taxable fringe benefits in relation to the sales promotion expenses of Rs.96,00,000/-, in proceedings u/s.115WE(3) of the Income Tax Act in short 'the Act'.
2. The assessee-company had filed its return on 21.11.2006 declaring fringe benefit value of Rs.6,83,355/-. The Assessing ITA No.3248/Ahd/2010 Carnation Nutra Analogue Foods Ltd. (Now Zydus Wellness Ltd.) For A.Y.2006-07 -2- Officer took up scrutiny. He noticed total sales promotion expenses of Rs.1,09,51,555/- including daily working charges sums of Rs.96,00,000/- not included in the value of fringe benefits. The assessee's form-3CD drew support from hon'ble Finance Minister's budget speech introducing this fringe benefit taxation in the parliament, memorandum of explanation in relation to fringe benefit tax, its statement of objects and reasons for introducing fringe benefit tax etc. to plead that the aforesaid expenditure did not come within ambit thereof. It would highlight that there was no employer-employee relation involved with the payees concerned. The board circular no.8 of 2005 was also contested as not binding. The Assessing Officer did not agree. He framed 'regular' assessment on 8.12.2008 relying on the Board's circular and also questions no.14 and 15 therein clarifying that segregation of expenses between those on employees and other payees was not permissible. The Assessing Officer rejected the assessee's explanation and added 20% of the daily working expenses of Rs.96,00,000/- coming to Rs.19.20 lacs as fringe benefits.
3. The assessee preferred an appeal. It would reiterate its stand adopted in assessment. The CIT(A) has affirmed the Assessing Officer's findings. Therefore, the Assessing Officer is aggrieved.
ITA No.3248/Ahd/2010Carnation Nutra Analogue Foods Ltd. (Now Zydus Wellness Ltd.) For A.Y.2006-07 -3-
4. We have heard both sides and gone through the case file. The sole issue between the parties is about taxability of daily working expenses of Rs.96,00,000/- incurred in sales promotion as fringe benefits. The assessee's denies any employer- employee relationship with its payees from the very beginning. We do not find any specific finding in either of the lower authorities' orders specifically rejecting the said plea. In these circumstances, we quote case law of T.V. Today Network Ltd. Vs. DCIT, (2013) 38 taxmann.com 409 (Delhi-Trib) authored by one of us, G.D. Agarwal Vice President; holding as under:
"6. We have carefully considered the arguments of both the sides and perused the material placed before us. Fringe benefits tax was levied for the first time by the Finance Act, 2005 by introducing Chapter XII-H, i.e., sections 115W to 115WL to the Income-tax Act, 1961. Section 115WB(2)(D) under which the Department has covered the payment of channel-placement charges reads as under :
"115WB. (2) The fringe benefitss 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 :
(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 other event organised by any Government agency or trade association or body ;ITA No.3248/Ahd/2010
Carnation Nutra Analogue Foods Ltd. (Now Zydus Wellness Ltd.) For A.Y.2006-07 -4-
(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
(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;"
7. From the above, it is evident that section 115WB(2) is a deeming provision which provides that the fringe benefits shall be deemed to have been provided by the employer to his employee if the employer has incurred the expenses provided in various clauses of the above sub-section. Clause (D) of the above subsection covers sales promotion including publicity. The proviso to the above clause excludes various types of expenditure on advertisement from the purview of clause (D). The assessee has argued that neither there is an employer employee relationship nor the expenditure is in the nature of sales promotion and publicity. In contrast, the learned Commissioner of Income-tax- Departmental representative has stated that if the expenditure as provided in any of the clauses of section 115WB(2) is incurred by the assessee, the fringe benefits tax would be chargeable, whether or not there is an employer- employee relationship. In this regard, we find that the Central Board of Direct Taxes has issued Circular No. 8, dated August 29, 2005 which is published in [2005] 277 ITR (St.) 20. In paragraph 2 of the Circular, objective for introduction of fringe benefits tax is explained which reads as under :
"2. Objective
2. 1 The taxation of perquisites or fringe benefits is justified both on grounds of equity and economic efficiency. When fringe benefits are undertaxed, it violates both horizontal and vertical equity. A taxpayer receiving his entire income in cash bears a higher tax burden in comparison to another taxpayer who receives his income partly in cash and partly in kind, thereby violating horizontal equity. Further, fringe benefits are generally provided to senior executives in the ITA No.3248/Ahd/2010 Carnation Nutra Analogue Foods Ltd. (Now Zydus Wellness Ltd.) For A.Y.2006-07 -5- organisation. Therefore, under- taxation of fringe benefits violates vertical equity. It also discriminates between companies which can provide fringe benefits and those which cannot, thereby adversely affecting market structure. However, the taxation of fringe benefits raises some problems primarily because --
(a) all benefits cannot be individually attributed to employees, particularly in cases where the benefit is collectively enjoyed ;
(b) of the present widespread practice of providing perquisites, wherein many perquisites are disguised as reimbursements or other miscellaneous expenses so as to enable the employees to escape/ reduce their tax liability ; and :
(c) of the difficulty in the valuation of the benefits.
2.2 In India, prior to the assessment year 1998-99, some perquisites/fringe benefits were included in salary in terms of section 17 and accordingly taxed under section 15 of the Income-tax Act in the hands of the employee and a large number of fringe benefits were taxed by the employer- based disallowance method where the quantum of the disallowance was estimated on a presumptive basis. In practice, taxation of fringe benefits by the employer- based disallowance method resulted in large-scale litigation on account of ambiguity in defining the tax base. Therefore, the taxation of fringe benefits by the employer- based disallowance method was withdrawn by the Finance Act, 1997. However, the withdrawal of the provisions relating to taxation of fringe benefits by the employer-based disallowance method resulted in significant erosion of the tax base. The Finance Act, 2005 has introduced a new levy, namely, the fringe benefits tax as a surrogate tax on employers, with the objective of resolving the problems enumerated in para. 2.1 above, expanding the tax base and maintaining equity between employers. "
8. At page 25 paragraph 11, frequently asked questions are given. Question No. 2 thereof and reply is as under :
"2. Whether employer-employee relationship is a prerequisite for the levy of fringe benefits tax ?
Answer: Yes."
9. Thus, in the Circular issued by the Central Board of Direct Taxes explaining the newly introduced provisions of fringe benefits tax, the Central Board of Direct Taxes itself has clarified that employer- employee relationship is a prerequisite for levy of fringe benefits tax. The hon'ble apex court has considered the above Circular in the case of R & B Falcon (A) (P.) Ltd. (supra) and held as under (headnote):
"The interpretation of the Central Board of Direct Taxes in its circulars being in the realm of executive construction, should primarily be held to be binding, save and except where it ITA No.3248/Ahd/2010 Carnation Nutra Analogue Foods Ltd. (Now Zydus Wellness Ltd.) For A.Y.2006-07 -6- violates any provisions of law or is contrary to any judgment rendered by the courts. The reason for giving effect to such executive construction is not only the same as contemporaneous which would come within the purview of the maxim temporania caste pesto, even in a certain situation a representation made by an authority like the Minister presenting the Bill before Parliament may also be found bound thereby. Where a representation is made by the maker of legislation at the time of introduction of the Bill or construction thereupon is put by the executive on its coming into force the same carries great weight."
10. That the hon'ble jurisdictional High Court has also expressed a similar view in the case of T&T Motors Ltd. (supra) and held as under
(headnote):
"A careful reading of clauses (i), (ii), (iv), (v), (vi) and (viii) of section 115WB(2)(D) elucidates that the Legislature has excluded from fringe benefits expenditure in the form of payments to third persons because this is not a fringe benefits which is enjoyed by the 'employee/ recipient' but it is an expenditure incurred for the purpose of business and in the hands of the recipient the expenditure is taxable as income earned."
11. That in the case under appeal before us, admittedly, the expenditure was incurred by the assessee for channel placement which is made to the third persons and there is no employer-employee relationship between the assessee and the recipient. Therefore, the Circular of the Central Board of Direct Taxes as well as the decision of the hon'ble apex court in the case of R & B Falcon (A) (P.) Ltd. (supra) would be squarely applicable. Moreover, the hon'ble jurisdictional High Court in the case of T & T Motors Ltd. (supra) has stated that in respect of payment to third persons, fringe benefits tax is not applicable because no fringe benefits is enjoyed by the employee/recipient. The ratio of the above decision of the hon'ble jurisdictional High Court would also be squarely applicable to the facts of the assessee's case because payment had been made for channel placement. By such payment, no fringe benefits is enjoyed by the employee/recipient. The payment is in the nature of expenditure incurred for the purpose of business by the assessee and in the hands of the recipient, the expenditure is taxable as income. Moreover, the expenditure incurred by the assessee is not in the nature of expenditure for sales promotion. The assessee has incurred the expenditure for broadcasting of its channels on the desired bands.
ITA No.3248/Ahd/2010Carnation Nutra Analogue Foods Ltd. (Now Zydus Wellness Ltd.) For A.Y.2006-07 -7- Therefore, the expenditure is for the broadcasting of its channels and not for sales promotion or publicity."
5. The Revenue does not point out any distinction on facts. We also notice that another co-ordinate bench in case of M/s. Adani Retail Ltd. vs. DCIT in ITA No.3269/Ahd/2009 decided on 25.10.2013 holds that fringe benefit provisions do not apply to sales promotions expenses as the same do not bestow any benefit to the assessee's employees. Therefore, the assessee's grounds challenging addition of Rs.19.20 lac as fringe benefits succeed.
6. The assessee's appeal is allowed.
Order pronounced in the Court on this day, the 24 April, 2014 at Ahmedabad.
Sd/- Sd/-
(G. D. AGARWAL) (S.S. GODARA)
VICE PRESIDENT JUDICIAL MEMBER
Ahmedabad; Dated 24/04/2015
Prabhat Kr. Kesarwani, Sr. P.S.s
आदेश क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संबं धत आयकर आयु त / Concerned CIT
4. आयकर आयु त(अपील) / The CIT(A)-III, Ahmedabad
5. वभागीय त न ध, आयकर अपील य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड फाईल / Guard file.
ITA No.3248/Ahd/2010Carnation Nutra Analogue Foods Ltd. (Now Zydus Wellness Ltd.) For A.Y.2006-07 -8- आदेशानुस ार / BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad