2013 (2) TMI 747 - AT - Income Tax

Whether the expenses claimed are subjected to fringe benefit tax - Expenses like sales promotion, agents retraining, agents sales material and agents training - Held that - Expenses incurred on printing of product brochure, forms, product booklets etc. are ordinary business expenses and cannot be said to be expenses relating to sales promotion - assessee has not filed any details of the expenses covered under sales promotion - opportunity of being heard given to the assessee - Matter Remanded back Held that - Customers of a company are neither the employees nor are deemed to be employees - commission or incentives, which are taxable at the hands of the individual beneficiary, cannot be subjected to FBT - expenses incurred on conference have been specifically included u/s 115WB(2) - no bifurcation/split up of the expenses has been given by the assessee - Matter Remanded back Held that - Agents retraining cannot be said to be ordinary business expenses - covered under clause (C) of sub-section 115WB(2) - Decided in favor of Revenue Held that - Agents sales material can be considered as ordinary business expenses - no details/ bifurcation of expenses has been given - Matter Remanded back Held that - Agents Training consisting of food and beverages etc. are covered under clause (C)&(D) of section 115WB(2) - FBT is applicable - Decided in favor of Revenue

Issues Involved:

1. Whether the expenses incurred by the assessee on sales promotion, agents retraining, agents sales material, and agents training are liable to fringe benefit tax.
2. Whether the expenses incurred by the assessee on incentives and conferences are liable to fringe benefit tax.

Issue-wise Detailed Analysis:

1. Sales Promotion Expenses:

The assessee claimed Rs. 3,79,14,000/- under sales promotion expenses, which the Assessing Officer subjected to fringe benefit tax. The assessee argued that these expenses were for printing product brochures, forms, and product booklets, which should be excluded under provisos (i) and (iv) to clause (D) of section 115WB(2). However, the Tribunal observed that while expenses on printing of product brochures and forms are ordinary business expenses, the assessee failed to provide a bifurcation of these expenses. Therefore, the case was remanded back to the Assessing Officer for a de-novo assessment to verify and exclude ordinary business expenses from fringe benefit tax.

2. Agents Retraining Expenses:

The assessee incurred Rs. 6,000/- on agents retraining, which the Assessing Officer included under fringe benefit tax. The Tribunal upheld this inclusion, stating that agents retraining expenses fall under clause (C) "conference" and clause (D) "Sales Promotion" of section 115WB(2) and are not ordinary business expenses.

3. Agents Sales Material Expenses:

The assessee claimed Rs. 3,06,00,000/- for agents sales material, arguing these expenses should be excluded under provisos (i) and (iv) of clause (D) of section 115WB(2). The Tribunal noted that expenses on printing product presenters and sales literature are ordinary business expenses but required a detailed bifurcation from the assessee. Consequently, this issue was also remanded back to the Assessing Officer for verification and exclusion of ordinary business expenses from fringe benefit tax.

4. Agents Training Expenses:

The assessee incurred Rs. 1,56,80,000/- on agents training, arguing that only the food and beverages component of these expenses should be subjected to fringe benefit tax. The Tribunal, however, held that expenses on stationery, training material, equipment, and venue charges are covered under clauses (C) and (D) of section 115WB(2) and are liable to fringe benefit tax. Thus, the Tribunal upheld the CIT(A)'s findings on this component.

5. Incentives and Conference Expenses:

The revenue appealed against the deletion of Rs. 4,77,86,000/- under incentives and conference expenses by the CIT(A). The Tribunal noted that while performance-based incentives taxable at the hands of individual beneficiaries cannot be subjected to fringe benefit tax, collective incentives and perquisites to agents do attract the provisions of section 115WB(2). The Tribunal remanded the issue back to the Assessing Officer to verify the bifurcation of expenses and subject only the appropriate expenses to fringe benefit tax.

Legal Principles and Interpretation:

The Tribunal emphasized that Section 115WB(2) is a deeming provision that operates independently of Section 115WB(1). The expenses listed under Section 115WB(2) are subjected to fringe benefit tax regardless of any direct benefit to employees. The Tribunal further highlighted that the language of the statute is clear and unambiguous, and any interpretation should avoid rendering parts of the statute redundant or meaningless. The Tribunal also referred to the CBDT Circular No. 8/2005 and upheld its validity and binding nature, as endorsed by the Supreme Court in R&B Falcon (A) Pty Ltd. Vs. CIT.

Conclusion:

The Tribunal partly allowed both appeals, remanding some issues back to the Assessing Officer for further verification and assessment, while upholding the CIT(A)'s findings on other components. The decision underscores the broad scope of fringe benefit tax under Section 115WB(2) and the need for detailed bifurcation of expenses to determine their taxability accurately.

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