2014 (7) TMI 587 - AT - Income Tax

Liability to pay FBT u/s 115WB(1) - market support expenditure Internal transport expenses - Expenses incurred for benefit of employee or not Held that - The provisions of fringe benefit are in respect of payment with regard to the expenditure which has incurred for the benefit of its employees - The expenditure incurred should be in consideration of the employment - The main thrust of FBT tax was to tax those benefits which are enjoyed by the employees and could not be attributable in the case of a single employee - the payment has been made to the customers as per agreement - There is nothing on record to suggest that market support expenditure has been incurred for the benefit of employees of the assessee in any manner it has been paid to the customers on account of reimbursement of advertisement and sales promotions expenses as per agreement - it is not justified to attract the provisions of FBT in respect of payments - This is not applicable to the payment to third party which does not result in any benefit to employees of the assessee, so the same should not be chargeable to fringe benefits tax u/s.115WB. Relying upon T & T Motors Ltd. Vs. Asst. CIT 2012 (1) TMI 96 - DELHI HIGH COURT - the legislation has excluded from FBT, the expenditure in the form of payments to third parties and fringe benefit tax is to be levied only in the case of expenditure incurred collectively on employees - the payment has been made to the customers of the assessee as per agreement who do not fall in the definition of employees - the provisions of fringe benefit are not applicable to them - So, the employer or employee relationship is must to levy fringe benefit tax - FBT is not levied in respect of gift items given to the travel agent, customer where there is no employer or employee relationship or assessee and recipient - the employer employee relationship for FBT provisions would be applicable only in respect of those expenses which contain an element of personal benefit to employees and not in respect of expenses incurred on non-employees - the expenses incurred by assessee on market support reimbursed to its customers, it is not attracts the provisions of section 115WB. Internal transport expenses Held that - The assessee has incurred internal transport expenses - The internal transport expenses are on account of shuttle service hired by the assessee for movement of the staff from the office to factory and back - CIT(A) has held that such expenditure is liable to FBT - CBDT vide its circular No.8 of 2005 had clarified that the expenditure on providing free or subsidized transport to the employees for journey of the employees from the residence to office is not liable to FBT, even that event, even the expenditure on travel of the employees from one official place to another official place should not be liable to FBT - this expenses has no personal benefit to the employees and it has incurred during course of assessee s business - the lower authorities were not justified to hold that the expenditure on internal transport expenses was deemed fringe benefit u/s.115WB(2)(F) of the Act Decided in favour of Assessee.

Summary

Issues Involved:
1. Liability of expenses under section 115WB(2) to Fringe Benefit Tax (FBT).
2. Applicability of FBT on market support expenses.
3. Treatment of internal transport expenses under FBT.
4. Admissibility of fresh evidence under Rule 46A(3) of the IT Rules.

Detailed Analysis:

1. Liability of Expenses under Section 115WB(2) to FBT:
The assessee contended that the expenses incurred on items specified in section 115WB(2) are not liable to FBT if they do not result in any benefit to employees. The CIT(A) held that such expenses are liable to FBT irrespective of whether they benefit employees directly. The assessee argued that only expenditures resulting in direct benefits to employees and not considered as salary should be liable to FBT. The CIT(A) did not appreciate that genuine business expenses under "Market Support," "Travelling and Conveyance," "Conference," "Sales Promotion," "Use of hotel, boarding and lodging facilities," and "Use of telephone" did not result in any direct benefit to employees and hence should not be liable to FBT.

2. Applicability of FBT on Market Support Expenses:
The assessee's market support expenses were primarily reimbursements to customers for advertisement and sales promotions, not expenditures on employees. The CIT(A) partially accepted this contention, ruling that expenses on discounts and advertisements are not liable to FBT, while expenditures on brand building, marketing, and sales promotion are. The Tribunal found that the market support expenses did not benefit employees and were paid to customers as reimbursements. Therefore, these expenses should not attract FBT under section 115WB. The Tribunal cited the Delhi High Court's ruling in T & T Motors Ltd. Vs. Asst. CIT, which clarified that FBT applies only to expenses incurred collectively on employees.

3. Treatment of Internal Transport Expenses under FBT:
The CIT(A) and Assessing Officer deemed the internal transport expenses of Rs. 15,61,400/- as fringe benefits under section 115WB(2)(F). The assessee argued that these expenses were for shuttle services between the office and factory, providing no personal benefit to employees. The Tribunal agreed, referencing CBDT Circular No.8 of 2005, which clarified that expenses for transporting employees from residence to office are not liable to FBT. Consequently, the Tribunal directed the Assessing Officer to exclude these expenses from FBT.

4. Admissibility of Fresh Evidence under Rule 46A(3) of the IT Rules:
The revenue appealed against the CIT(A)'s decision to allow expenses of Rs. 5,43,42,777/- under "Discount/Incentive" and "Advertisement" heads, arguing that fresh evidence was admitted without giving the Assessing Officer a reasonable opportunity to examine it. The Tribunal did not delve deeply into this issue, as it had already ruled in favor of the assessee on the broader proposition that the expenses in question were not liable to FBT.

Conclusion:
The Tribunal ruled in favor of the assessee, holding that the market support expenses and internal transport expenses were not liable to FBT. It directed the Assessing Officer to delete the additions made on these grounds. The Tribunal dismissed the revenue's appeal and allowed the assessee's appeals, emphasizing that FBT applies only to expenses incurred for the benefit of employees.