2015 (5) TMI 506 - AT - Income Tax

Fringe benefits Tax (FBT) - there does not exist any employer-employee relationship between itself and its payees so as to attract the fringe benefit provisions as per assessee - Held 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 relating to payment to Seminar & Conference expenses, Sales Promotion Expenses and Cost of Free Samples given to Doctors succeed. - Decided in favour of assessee. Expenses on gifts to business associates and club member fees - Held that - On being asked the assessee fails to prove that its employees have not at all enjoyed either of the two facilities. Thus we assume that some of its employees must have availed these benefits. Thus we accept the assessee s arguments only in part and delete the impugned additions to the extent of 50% of the sums involve. - Decided partly in favour of assessee. Reimbursement of medical expenses to the assessee s individual employees - Held that - The assessee has incurred these amounts for payment of medical reimbursements to its individual employees not exceeding Rs. 15, 000/-. Section 17(2) 1st proviso (v) grants exemption to such benefits in the hands of individual employees from being taxed upto the very monetary limit. Section 115WB(3) also excludes operation of sub section 1 in case of such a benefit. We quote case law of Bosch Limited V/s. Dy.CIT 2011 (10) TMI 383 - ITAT BANGALORE Godrej Properties Ltd. Vs. ACIT (2012) 2010 (12) TMI 605 - ITAT Mumbai and hold that the lower authorities findings under challenge have to be reversed. The Revenue does not point out any distinction on facts. Therefore the assessee s arguments challenging inclusion of the impugned individual medical reimbursements in fringe benefits also succeed. - Decided in favour of assessee.

Summary

Issues Involved:

1. Inclusion of various expenditures in the value of taxable Fringe Benefits.
2. Employer-employee relationship requirement for Fringe Benefits Tax (FBT).
3. Exemption of medical reimbursements under Section 17(2) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Inclusion of Various Expenditures in the Value of Taxable Fringe Benefits:

The assessee contested the inclusion of several expenditures in the value of taxable Fringe Benefits, arguing that such expenditures were incurred purely for business purposes and did not result in any benefit to its employees. These expenditures included seminar and conference expenses for doctors and stockists, sales promotion expenses, cost of free samples given to doctors, expenditure on gifts to business associates, club membership fees, and reimbursement of medical expenses.

The Assessing Officer included these expenditures in the taxable Fringe Benefits, leading to an assessed total of Rs. 12,59,27,829/-. The CIT(A) affirmed this action, stating that the provisions of Section 115WB(2) and Section 115WC of the Income Tax Act do not allow for discretion in reducing the levy of FBT, as these sections deem certain expenses to be Fringe Benefits provided by the employer to the employees.

2. Employer-Employee Relationship Requirement for Fringe Benefits Tax (FBT):

The assessee argued that there was no employer-employee relationship concerning the expenditures listed under items A to E (seminar and conference expenses, sales promotion expenses, cost of free samples, gifts to business associates, and club membership fees). The Revenue supported the CIT(A)'s order, asserting that FBT applies irrespective of the existence of an employer-employee relationship.

The Tribunal referred to the case law of T.V. Today Network Ltd. Vs. DCIT, which held that employer-employee relationship is a prerequisite for the levy of FBT. The Tribunal also cited a CBDT Circular clarifying that FBT is applicable only when there is an employer-employee relationship. Consequently, the Tribunal ruled that the provisions of FBT do not apply to sales promotion expenses as they do not bestow any benefit to the assessee's employees. Thus, the assessee's grounds relating to items A-C succeeded.

3. Exemption of Medical Reimbursements under Section 17(2) of the Income Tax Act:

The assessee argued that the reimbursement of medical expenses up to Rs. 15,000 to individual employees should be exempt under Section 17(2) of the Income Tax Act. The Tribunal referred to Section 115WB(3), which excludes such benefits from being taxed as Fringe Benefits. Citing case laws Bosch Limited V/s. Dy.CIT and Godrej Properties Ltd. Vs. ACIT, the Tribunal held that the lower authorities' findings were to be reversed, and the inclusion of medical reimbursements in the Fringe Benefits was not justified. Therefore, the assessee's arguments challenging the inclusion of medical reimbursements succeeded.

Conclusion:

The Tribunal partly allowed the assessee's appeal, ruling in favor of the assessee regarding the non-applicability of FBT on sales promotion expenses and medical reimbursements, while partially accepting the inclusion of expenditures on gifts to business associates and club membership fees.