2012 (6) TMI 484 - AT - Income Tax

Fringe benefit - exclusion of expenditure incurred on Sales promotion, Conveyance, tour and travel, and Gifts while computation of vale of fringe benefits on ground of no employer - employee relationship - Revenue instead relying on deeming fiction given u/s 155WB - Held that - Aforesaid expenditure has no element of employee benefit and is a legitimate business expenditure incurred in the course of carrying on its business. The impugned expenditure was paid to third parties and not to employees. Hence, legitimate business expenditure, which does not result in any benefit to employees, is not liable for FBT. Further, CBDT Circular NO.8 of 2005 which specifies that expenditure even if not resulting in any benefit to employees is liable for FBT, cannot be relied upon to the disadvantage of the assessee since it is settled principle that circulars are not binding on the assessee, appellate authorities and the Courts. The proviso to section 119(1) states that no orders, instructions or directions shall be issued by the CBDT so as to require any income tax authority to make a particular assessment or dispose of a particular case in a particular manner so as to interfere with the discretion of the CIT(A) in the exercise of his appellate functions. Expenditure incurred on souvenir distributed to employees on the occasion of decennial celebration - assessee contended them to be in the nature of Employee Welfare and not Gifts - Held that - Distribution of Souvenirs was made in consideration of and to recognize the efforts and contribution of employees. Thus, said expenditure cannot be regarded as Gifts. and has been correctly treated as employee welfare expenditure

Summary

Issues Involved:

1. Jurisdiction of the Additional Commissioner of Income Tax (Addl. CIT) to pass the order under section 115WE(3).
2. Applicability of Fringe Benefit Tax (FBT) on sales promotion expenses, conveyance, tour and travel expenses, and gifts.
3. Classification of expenditure on souvenirs to employees as 'Gifts' or 'Employee Welfare'.

Detailed Analysis:

1. Jurisdiction of the Additional Commissioner of Income Tax (Addl. CIT):

The assessee challenged the jurisdiction of the Addl. CIT to pass the order under section 115WE(3), arguing that the CBDT Notification No.1615(E) authorized only the Joint Commissioner of Income Tax (JCIT) to perform such functions. The CIT(A) held that the powers and functions of the Joint Commissioner and Additional Commissioner are the same, dismissing the jurisdictional challenge. The Tribunal noted that the ground was not pressed during the hearing and dismissed it accordingly.

2. Applicability of Fringe Benefit Tax (FBT):

The assessee contended that expenses on sales promotion, conveyance, tour and travel, and gifts should not be subjected to FBT as they were not incurred for the benefit of employees. The Tribunal examined the legislative intent behind FBT, emphasizing that FBT is intended to tax collective benefits enjoyed by employees which cannot be attributed to individual employees. The Tribunal referred to various judicial precedents and the Finance Minister's speech to conclude that legitimate business expenses that do not result in any benefit to employees are outside the scope of FBT. The Tribunal held that the deeming fiction under section 115WB(2) is limited to expenditures resulting in collective enjoyment of benefits by employees and where personal attribution poses difficulty. Consequently, the Tribunal ruled that the impugned expenses were not liable for FBT.

3. Classification of Expenditure on Souvenirs to Employees:

The Revenue challenged the CIT(A)'s decision that expenses on souvenirs distributed to employees on the occasion of the decennial celebration should be treated as 'Employee Welfare' and not 'Gifts'. The Tribunal upheld the CIT(A)'s decision, noting that the distribution of souvenirs was intended to motivate employees and recognize their contributions, thus falling under 'Employee Welfare'. The Tribunal emphasized that the term 'Employee Welfare' is broad and includes various forms of recognition and motivation efforts by the employer. The Tribunal dismissed the Revenue's appeal, affirming that the expenditure was correctly classified by the assessee.

Conclusion:

The Tribunal allowed the assessee's appeal partly by excluding the impugned expenses from the scope of FBT and dismissed the Revenue's appeal, affirming the classification of souvenirs as 'Employee Welfare'. The Tribunal's decision was based on a thorough interpretation of legislative intent, judicial precedents, and the specific facts of the case.