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TMI Blog2012 (12) TMI 530X X X X Extracts X X X X X X X X Extracts X X X X ..... against returned value of fringe benefits of Rs.9,97,91,424. 2. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the action of the assessing officer in treating the expenditure incurred on freebies like badminton rackets, biscuits, etc., amounting to Rs.24,11,16,498 as liable to fringe benefit tax alleging the same to have been incurred for the purpose of 'sales promotion and publicity' under the provisions of section 115WB(2)(D) of the Income Tax Act, 1961 ('the Act'). 3. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the action of the assessing officer in treating the expenditure incurred on samples of company's products given free to the customers amounting to Rs.5,97,20,311 as liable to fringe benefit tax alleging the same to have been incurred for the purpose of 'sales promotion and publicity' under the provisions of section 115WB(2)(D) of the Act. 4. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the action of the assessing officer in treating the expenditure incurred on celebrity endorsement for advertisement amounting to Rs.85,28,219 as liable to fringe ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame to have been incurred for the purpose of 'sales promotion and publicity' under the provisions of section 115WB(2)(D) of the Income Tax Act, 1961 ('the Act'). 3. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming the action of the assessing officer in treating the expenditure incurred on samples of company's products given free to the customers amounting to Rs. 1,19,610 as liable to fringe benefit tax alleging the same to have been incurred for the purpose of "sales promotion and publicity' under the provisions of section 115WB(2)(D)of the Act." 6. All the three appeals relating to the same assessee on same issue were heard together and are being disposed off by this consolidated order for the sake of convenience. 7. The issue raised in the present appeal is in relation to the tax value of fringe benefit computed under the provisions of Chapter XII-H of the Income Tax Act. 8. The facts in the captioned appeals are similar. However, reference is made to the facts in assessment year 2006-07 to adjudicate the issue. 9. The brief facts of the case are that the assessee is engaged in the manufacture and sale of healthcare and food products. Dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable to the facts of the case. The CIT (Appeals) observed that the expenditure if increases the consumer base then it would come within the meaning of sale promotion. Reliance was placed on the ratio laid down by the Chandigarh Bench of the Tribunal in the case of Glaxo Smithkline Consumer Health care [112 TTJ 94 (Chd) wherein while deciding the issue whether the product development expenditure were capital in nature or revenue in nature, it was held that promotion and trade marketing expenses incurred on existing products of the assessee and including cost of presentation items, gifts, etc. given to the customers on the sale of products, was expenditure on advertisement material and were revenue in nature. The product development expenses were also held to be revenue in nature by the Tribunal. The CIT (Appeals) further placed reliance on another decision of the Chandigarh Bench of the Tribunal in Meera & Company [15 ITD 2 27 (Chd ) and also the judgement of Hon'ble Madras High Court in Print System Product [243 ITR 8 (Mad)] wherein it was held that the consumer gifts offered to the customers were to invite their attention to the products, for increasing the sales of the produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid products. It was stressed by the learned A.R. for the assessee that the said freebies were sales discount given by the assessee company and were not sale promotion expenses, which had to be incurred before the sales. In respect of the celebrity endorsement it was pointed out that by way of insertion w.e.f. 1.4.2007, the payment to celebrity was excluded from the purview of sale promotion under section 115WB(D) (7). The learned A.R. for the assessee placed reliance on the decision of Delhi Bench of the Tribunal in the case of Glaxo Smithkline Asia Pvt. Ltd. Vs. DCIT relating to assessment year 2006-07 in ITA No.1 357/Del/2010, order dated 25.11.2011, in this regard. 12. The learned D.R. for the Revenue placed reliance on the observations of the Assessing Officer and the CIT (Appeals) and pointed out that the expenditure incurred by the assessee was sale promotion expenses and consequently included in the value fringe benefits. Further reliance was placed on the observation of the CIT (Appeals) at page 4 in paras 6 to 8 where in the claim of the assessee in respect of product development expenses was that the same was in the nature of revenue expenses. 13. We have heard the riv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ganised by any Government agency or trade association or body; (iv) being the expenditure on the publication in any print or electronic media of any notice required to be published by or under any law or by an order of a court or tribunal; (v) being the expenditure on advertisement by way of signs, art work, painting, banners, awnings, direct mail, electric spectaculars, kiosks, hoardings, bill boards [display of products] or by way of such other medium of advertisement; (vi) being the expenditure by way of payment to any advertising agency for the purposes of clauses (i) to (v) above; shall not be considered as expenditure on 'sales promotion' including publicity; .......................................... 15. The issue arising in the present appeal before us is in relation to the expenditure incurred by the assessee on freebies including like badminton racket, etc., amounting to Rs. 24,11,16,498/- were fringe benefits incurred by the assessee for the purposes sale promotion and publicity. The second issue arising in the present appeal is in relation to the expenditure incurred on samples of company's products given free to the customers amounting to Rs. 5,97, 20,311/ - being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its meaning in the setting in which it occurs. 'Sales promotion' necessarily involves an element of advertisement and publicity. A manufacturer of a product may intend to further the popularity or sales by publishing and advertising or by several other modes, but the cost incurred to sell the product will not come within the purview of the 'sales promotion' ---------------- Where the statute imposes restriction on advertisement, publicity and sales promotion, the expression 'sales promotion' cannot include the selling expenses incurred in the ordinary course of the business. " ii) CIT Vs. Indo Asian Switch gears (P) Ltd. [ 257 ITR 645 (P&H) ] "However, a discount allowed by an assessee to an agent is not an expense in connection with the publicity or advertisement, etc. It is an amount forgone by the assessee in favour of the dealer for effecting the actual sale. It is not like the fashion show conducted by a garment manufacturer, but a commission allowed to a dealer. Trade discount cannot be treated as a wasteful expenditure incurred by an assessee in connection with sales promotion. It is not a gift as given on a festival or a free sample as distributed by a pharmaceutical co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e benefit". Thus, the deeming provisions of sub-section (2) of section 115WB, applies only when the expenditure is in the nature of considered for employment. Thus, while restoring the issue back to the file of Assessing Officer for adjudication afresh, we direct the Assessing Officer to apply the proposition of law as interpreted by us while determining the value of fringe benefit. On the issue of expenditure incurred on conference and meetings, the Assessing Officer shall consider bifurcation submitted to him with respect to the expenditure incurred on the agents and brokers and pass appropriate orders. "Fringe benefit" cannot arise when expenditure is incurred on persons who are not employees. On the issue of club membership fee, the payments made to LIMRA and Actuarial Society of India, are to be excluded as they are not payments to clubs. With these observations, we restore the issue back to the file of Assessing Officer for adjudication afresh."(underline provided by us) 19. Further before the Hon'ble Delhi High Court in T & T Motors Ltd. Vs. ACIT (2012) 341 ITR 332 (Delhi) the issue deliberated upon was the cost of accessories provided fee of cost to the customers who purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y or sales promotion. 16. The object and purpose behind FBT and Section 115WB(2)(D) is different from Section 37(3A). Expenditure incurred as stipulated in clause (i) to (viii) have to be excluded and not to be treated as sales promotion expenditure including publicity. Clause (vii) to Section 115WB(2)(D) expressly stipulates that expenditure on distribution of sample either free of cost or at concessional rate is not sales promotion or publicity for FBT." 20. The Hon'ble High Court further held as under : "17. A careful reading of clause (i), (ii), (iv), (v), (vi) and (viii) of Section 115WB(2)(D) elucidates that the legislature has excluded from FBT expenditure in form of payments to third persons. The exemption in these clauses, it is apparent, has been granted because this is not a fringe benefit which is enjoyed by the "employee/recipient" but it is an expenditure incurred for the purpose of business and the payment is income earned by the third party. In the hands of the said recipient the expenditure is taxable as income earned." 21. The Hon'ble Delhi High Court further relied upon the ratio laid down as under: "18. We may reproduce the following observations of Madras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out his of pocket, but he has bargained and secured a favourable deal. The interpretation suggested by the Revenue is contrary to the interest of the customers or public interest. The interpretation as suggested by the Revenue would mean that the car dealer would have to pay FBT, if he enters into and gives a better deal to the customer who purchases a car with extra fitments and accessories. We do not think that it is the intention of the legislature to impose FBT on the car dealer who offers a better deal with fitments and accessories to a customer who is making payment for purchase of the car in question. (underline provided by us)" 22. In the facts of the present case before us the assessee has offered freebies to its customers up on purchase of company's products i.e. horlicks, boost. The said products are given to the customers at the time when the customers purchase assessee's products and the same is akin to sale discount given by the assessee to its customers and consequently the same was sales expense in the hands of the assessee. By way of offering freebies, the assessee had received lesser margin of profits and such expenditure is not in the nature of sale promotion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T (Appeals) has reproduced the findings of the I.T.A.T. at pages 6 to 8 of the appellate order. The perusal of the said findings of the Tribunal reflect that the promotional and trading marketing expenses including the expenditure of boost, badminton racket, tennis ball, etc. and product development expenses for nutribar chocolate. The Tribunal vide para 9 referred to the promotional and trade marketing expenses and observed that Such expenditure has been incurred on existing products of the assessee and include cost of presentation items, gifts, etc. given to the customers on the sale of the product, expenditure on advertisement material etc. The expenditure can be viewed as if actuality discount in - kind allowed to the customers and expenditure on advertisement of the existing products of the assessee. 26. The product development expenses were referred in para 10 of the order of the Tribunal and the said expenses were held to be revenue in nature. The observation of the CIT (Appeals) that the assessee had made certain arguments that the product development expenses were necessary for increasing profit ability of the assessee and now the assessee was taking contradictory stand t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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