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2016 (6) TMI 844 - AT - Income TaxFringe benefits - addition of sales promotion/lodging expenses - Held that - The impugned expenditure of ₹ 84,42,880/- has been incurred for the members against membership fees taken from time to time and the Instructions of CBDT Circular No.8, dated 29.8.2005 shall not apply on the assessee as no benefit has been passed on by the employer to its employees and, therefore, deeming provisions of section 115WB(2) of the Act cannot be invoked mechanically in respect of every item of expenditure unless and until it co-relates to the benefit of employees. We therefore, find no reason to interfere with the order of ld. CIT(A) on this issue in deleting the addition - decided against revenue Addition on account of FBT being 20% of telephone expenses and 50% of Gift expenses - Held that - From going through the observation of ld. CIT(A) and also respectfully following the decision of Co-ordinate bench in the case of Joshi Technologies International Inc. vs. ADIT (Int s Tax) (2013 (5) TMI 713 - ITAT AHMEDABAD ) and also looking to the fact that ld. Assessing Officer has not disputed about the incurring of expenditure on lease line telephone expenditure and towards gifts/prizes, we are inclined to accept the contention that there is no element of benefit to the employees in the expenditure and therefore, no interference is called for in the order of ld. CIT(A) on this issue in deleting the addition - Decided against revenue
Issues Involved:
1. Deletion of addition on account of fringe benefits from sales promotion/lodging expenses. 2. Deletion of addition on account of fringe benefits from telephone expenses. 3. Deletion of addition on account of fringe benefits from gift expenses. Detailed Analysis: Issue 1: Deletion of Addition on Account of Fringe Benefits from Sales Promotion/Lodging Expenses The Revenue's appeal contested the deletion of ?13,88,576/- made on account of fringe benefits from sales promotion/lodging expenses. The Assessing Officer (AO) had scrutinized these expenses and added ?16,88,576/- as fringe benefits, applying 20% of ?84,42,880/-. The AO relied on CBDT Circular No. 8 dated 29.8.2005, which categorized these expenses under sales promotion. The CIT(A) deleted this addition, noting that the expenses were incurred for providing free holiday packages and other benefits to members, funded by membership fees. The CIT(A) emphasized that these expenses were part of the business model and not benefits to employees, thus not subject to fringe benefits tax (FBT). The Tribunal upheld this view, referencing multiple case laws, including Desai Brothers Ltd. and Toyota Kirloskar Motor Pvt. Ltd., which clarified that FBT applies only when benefits are provided to employees. Issue 2: Deletion of Addition on Account of Fringe Benefits from Telephone Expenses The Revenue also contested the deletion of ?1,40,773/- made on account of FBT from telephone expenses. The AO observed that the assessee incurred ?15,95,171/- on telephone expenses but offered only ?8,91,304/- for FBT, excluding ?7,03,867/- spent on leased lines. The CIT(A) deleted the addition, agreeing with the assessee that leased line expenses are not subject to FBT as per Clause (J) of Section 115WB(2). The Tribunal upheld this decision, noting that the AO did not dispute the nature of the expenses, and there was no element of benefit to employees in the expenditure on leased lines. Issue 3: Deletion of Addition on Account of Fringe Benefits from Gift Expenses The Revenue further contested the deletion of ?21,64,321/- made on account of FBT from gift expenses. The AO had added this amount, applying 50% of ?43,28,642/- spent on gifts, relying on CBDT Circular No. 8, which brought gifts to customers within the scope of Section 115WB(2)(O). The CIT(A) deleted this addition, noting that the gifts were performance-based rewards to agents, not employees, and thus not subject to FBT. The CIT(A) referenced Question No. 61 of the same circular, which exempts performance-based incentives from FBT. The Tribunal upheld this view, agreeing that the expenditure was part of the business model and did not benefit employees. Conclusion The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of additions on account of fringe benefits from sales promotion/lodging expenses, telephone expenses, and gift expenses. The Tribunal emphasized that FBT applies only to benefits provided to employees, and the expenses in question were part of the business model, benefiting customers and agents, not employees. The Cross Objection by the assessee was dismissed as not pressed.
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