2012 (12) TMI 530 - AT - Income Tax

FBT - Computation of fringe benefits - AO argued that assessee has not treated freebies expenditure and cost of samples of companies own products given free to customer on purchase of its products and expenditure on celebrity endorsement as fringe benefits 115WB(2)(D) Held that - Following the decision in case of T & T Motors Ltd. (2012 (1) TMI 96 - DELHI HIGH COURT) that the expenditure incurred by the assessee on freebies is not a fringe benefits covered u/s 115WB(2) (D). Similarly the expenditure incurred by way of giving samples of company s products free to the customers along with sale of products of the assessee company was in the nature of sale expense and cannot be included as fringe benefits u/s 115WB(2)(D). In favour of assessee

Issues Involved:
1. Assessment of taxable value of fringe benefits.
2. Treatment of expenditure on freebies for sales promotion and publicity under section 115WB(2)(D) of the Income Tax Act, 1961.
3. Treatment of expenditure on samples of company's products given free to customers under section 115WB(2)(D).
4. Treatment of expenditure on celebrity endorsement for advertisement under section 115WB(2)(D).
5. Levy of interest under section 234D and withdrawal of interest under section 244A.

Detailed Analysis:

1. Assessment of Taxable Value of Fringe Benefits:
The primary issue revolves around the correct computation of the taxable value of fringe benefits under Chapter XII-H of the Income Tax Act, 1961. The assessee challenged the increase in taxable value of fringe benefits assessed by the Assessing Officer and confirmed by the Commissioner of Income Tax (Appeals).

2. Expenditure on Freebies for Sales Promotion and Publicity:
The Assessing Officer treated expenditure on freebies such as badminton rackets, biscuits, etc., as liable to fringe benefit tax (FBT) under section 115WB(2)(D). The CIT (Appeals) upheld this view, relying on Circular No.8/2005 and various judicial precedents. The Tribunal, however, held that such freebies, given upon the purchase of the company's products, are akin to sales discounts and not sales promotion expenses. Hence, they are not liable to FBT.

3. Expenditure on Samples of Company's Products:
The expenditure on samples of the company's products given free to customers was also treated as liable to FBT by the Assessing Officer and upheld by the CIT (Appeals). The Tribunal disagreed, stating that such expenditure is in the nature of sales expense and not sales promotion, thus not falling under section 115WB(2)(D).

4. Expenditure on Celebrity Endorsement for Advertisement:
The Assessing Officer and CIT (Appeals) included expenditure on celebrity endorsements under the purview of sales promotion and publicity, making it liable to FBT. The Tribunal referenced the decision in Glaxo Smithkline Asia Pvt. Ltd. Vs. DCIT, concluding that such expenditure does not fall under the scope of section 115WB(2)(D) and is not liable to FBT.

5. Levy of Interest under Section 234D and Withdrawal of Interest under Section 244A:
The assessee contested the levy of interest under section 234D and the withdrawal of interest under section 244A. The Tribunal dismissed this issue as it was consequential to the primary issues discussed.

Conclusion:
The Tribunal concluded that the expenditures on freebies, samples of the company's products, and celebrity endorsements are not liable to fringe benefit tax under section 115WB(2)(D). The appeals by the assessee were allowed, and the orders of the Assessing Officer and CIT (Appeals) were overturned. The issue of interest under section 234D and 244A was dismissed as consequential.

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