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2013 (7) TMI 690 - AT - Income TaxFringe Benefit Tax (FBT) - Nature of expenditure - Whether the expenditure was incurred by the assessee for channel placement which is made to third persons and there is no employer-employee relationship between the assessee and the recipient - the Circular of the CBDT as well as the decision of Hon ble Apex Court in the case of R & B Falcon (A) Pty.Ltd. Vs. CIT (2008 (5) TMI 2 - Supreme court ) (supra) would be squarely applicable - Held that - In respect of payment to third persons, FBT is not applicable because no fringe benefit is enjoyed by the employee/recipient - payment is in the nature of expenditure incurred for the purpose of business expenditure incurred by the assessee is not in the nature of expenditure for sales promotion and has incurred the expenditure for broadcasting of its channels on the desired bands - appeal allowed in favour of assessee.
Issues Involved:
1. Chargeability of Fringe Benefit Tax (FBT) on channel placement charges. 2. Employer-employee relationship as a prerequisite for the levy of FBT. 3. Nature of channel placement charges as sales promotion or publicity expenses. Issue-wise Detailed Analysis: 1. Chargeability of Fringe Benefit Tax (FBT) on Channel Placement Charges: The primary issue in these appeals is whether channel placement charges are subject to Fringe Benefit Tax (FBT). The assessee argued that channel placement charges are paid to multi-system operators and local cable operators to carry their channels on the desired band, which is a distribution expense and not related to sales promotion or advertising. According to the assessee, FBT is chargeable only on fringe benefits provided by the employer to the employees, directly or indirectly, under Section 115WB(2) of the Income-tax Act, 1961. The assessee contended that channel placement expenses do not fall under "sales promotion including publicity" as per Clause (d) of Section 115WB(2). 2. Employer-Employee Relationship as a Prerequisite for Levy of FBT: The assessee further argued that there is no employer-employee relationship between the assessee and the recipients of the channel placement charges. According to the CBDT's Circular No.8 of 2005, an employer-employee relationship is a prerequisite for the levy of FBT. The assessee relied on several judicial decisions, including R & B Falcon (A) Pty.Ltd. Vs. CIT and T & T Motors Ltd. Vs. ACIT, to support this contention. 3. Nature of Channel Placement Charges as Sales Promotion or Publicity Expenses: The Revenue, represented by the learned DR, argued that the channel placement charges are in the nature of sales promotion expenses as they help the channel get noticed and generate more revenue through advertisements. The Revenue relied on various High Court decisions to support its argument that these expenses should be considered as sales promotion. Tribunal's Findings and Conclusion: The Tribunal carefully considered the arguments and referred to the relevant provisions of the Income-tax Act and the CBDT's Circular. It noted that Section 115WB(2) is a deeming provision that lists specific expenses deemed to provide fringe benefits. Clause (d) of this section covers sales promotion, including publicity, but excludes certain types of advertisement expenditures. The Tribunal found that the CBDT's Circular No.8 of 2005 clearly states that an employer-employee relationship is a prerequisite for the levy of FBT. This interpretation was upheld by the Supreme Court in R & B Falcon (A) Pty.Ltd. and by the Jurisdictional High Court in T & T Motors Ltd. The Tribunal concluded that the channel placement charges were paid to third parties, and there was no employer-employee relationship involved. Therefore, FBT could not be levied on these expenses. Additionally, the Tribunal determined that the channel placement charges were not in the nature of sales promotion or publicity expenses. These charges were incurred for broadcasting the channels on desired bands, which is a business expense and not related to sales promotion. Decision: The Tribunal allowed the assessee's appeals for all three years, holding that the channel placement charges could not be treated as sales promotion or publicity expenses and, therefore, were not subject to FBT. Conclusion: The appeals of the assessee were allowed, and the decision was pronounced in the open Court on 12th July, 2013.
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