2013 (5) TMI 372 - AT - Income Tax

Expenses on account of sales promotion - whether be charged under FBT? - Held that - When there is no direct or indirect benefit accrued to the employees of the assessee, the provisions of FBT cannot be invoked. See H.V. Transmissions Limited vs. ACIT, I 2013 (5) TMI 371 - ITAT MUMBAI & DCIT vs. M/s. Tata Asset Management Ltd 2012 (6) TMI 137 - ITAT MUMBAI wherein held that the charge to FBT is dependent on enjoyment of benefit collectively by the employees as clarified by CBDT s circular No.8 dated 29.08.2005 which is totally missing in the present case of brand equity payment and hence cannot be subjected to FBT - In favour of assessee.

Summary

Issues:
Taxability of sales promotion expenses under FBT provisions.

Analysis:
The appeal was filed by the Revenue against the order of CIT (A) regarding the taxability of sales promotion expenses under the provisions of Fringe Benefit Tax (FBT) for the assessment year 2008-2009. The Revenue contended that the expenses of Rs. 50.97 crore on account of sales promotion should be included in the value of FBT as per section 115WB (2) of the Income Tax Act. The assessee argued that such expenses, not related to employees, are outside the scope of FBT provisions. The Tribunal referred to previous decisions, including H.V. Transmissions Limited vs. ACIT and DCIT vs. Tata Asset Management Ltd, to establish that FBT is applicable only when the expenditure benefits employees directly or indirectly.

The Tribunal examined the decisions cited by both parties and emphasized that FBT is leviable only on payments that result in benefits to the employees. In the case of brand promotion expenses, where no direct or indirect benefit accrued to the employees, the provisions of FBT cannot be invoked. The Tribunal highlighted that the value of expenses not benefiting employees cannot be added to the FBT value. Referring to Circular No.8 dated 29.8.2005, the Tribunal clarified that an employer-employee relationship is a fundamental condition for FBT levy. The Tribunal found that in the case of sales promotion expenses, no benefit accrued to the employees, leading to the dismissal of the Revenue's grounds.

Moreover, the Tribunal analyzed another decision in the case of M/s. Tata Asset Management Ltd, reiterating that FBT is dependent on the collective enjoyment of benefits by employees. Since the brand equity payment made did not provide any benefit to the employees, FBT could not be imposed. The Tribunal concluded that FBT is not applicable unless benefits accrue collectively to the employees. Based on the judicial pronouncements and the absence of employee benefits in the sales promotion expenses, the Tribunal upheld the decision of CIT (A) and dismissed the Revenue's appeal. The judgment was pronounced on November 23, 2012, dismissing the Revenue's appeal.