2013 (10) TMI 79 - HC - Income Tax

FBT - Amounts spent on Hero Bumper Bonanza Foreign Trip and Attractive Gift , a fringe benefit - Incentive are given to the distributors for meeting quantity target. Held that - A perusal of the statutory provisions, answers by the CBDT, to question nos.61 and 66 and due consideration of findings recorded by the Income Tax Appellate Tribunal, leave no manner of doubt that opinion recorded by the Income Tax Appellate Tribunal is legally correct and free from error. The distinction between the two situations, referred to in answers to questions No.61 and 66, may appear to be minimal, depending upon ones perception, but a careful perusal of these answers reveals that where incentives are given to distributors for meeting quantity target, the expenses fall within answer to question No.61, whereas free gifts to distributors and customers without any quantitative target, fall within answer to question No.66 Decided against the Revenue.

Summary

Issues:
1. Correctness of treating expenses under "Selling Expenses" as "Fringe Benefits" for taxation.
2. Interpretation of CBDT circular regarding fringe benefit tax on incentives provided to dealers.
3. Applicability of CBDT circular answers to questions No.61 and No.66 in determining tax liability.

Issue 1:
The main issue in this case was the correctness of treating expenses incurred under the head "Selling Expenses" as "Fringe Benefits" for taxation purposes. The appellant argued that expenses related to a scheme offering free gifts and foreign trips to dealers should be considered as fringe benefits and taxed accordingly. The Assessing Officer added a specific amount to fringe benefits, leading to a penalty under Section 271(1)(d) of the Income Tax Act, 1961. The Commissioner of Income Tax upheld this decision, stating that the expenses were in the nature of sales promotion and publicity covered under the Act.

Issue 2:
The interpretation of the CBDT circular regarding fringe benefit tax on incentives provided to dealers was a crucial aspect of this case. The Commissioner of Income Tax differentiated between incentives given to distributors based on meeting sales targets (question No.61) and incentives given to dealers and consumers based on purchases made, irrespective of sales targets (question No.66). The scheme in question promised free gifts and foreign trips to dealers for specified purchases, not tied to sales targets. The Tribunal disagreed with the Commissioner's interpretation, emphasizing the distinction between the two situations outlined in the CBDT circular.

Issue 3:
The applicability of CBDT circular answers to questions No.61 and No.66 in determining tax liability was a key point of contention. The Tribunal analyzed the scheme and the answers to these questions, concluding that the expenses fell within the scope of question No.61, which pertained to incentives given to dealers for achieving specific sales targets. The Tribunal overturned the Commissioner's decision, stating that the scheme provided incentives for achieving targets and was not merely based on purchases made. The Tribunal's decision was based on a careful examination of the CBDT circular and the specific situations outlined in questions No.61 and No.66.

In summary, the judgment revolved around the interpretation of the CBDT circular, specifically questions No.61 and No.66, to determine the tax treatment of expenses related to a scheme offering incentives to dealers. The Tribunal's decision highlighted the distinction between incentives tied to sales targets and those based on purchases made, ultimately overturning the Commissioner's ruling and emphasizing the legal correctness of their interpretation.