GlaxiSmithKline Asia Pvt. Ltd., Gurgaon V. DCIT (LTU), New Delhi

ITA 1357/DEL/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7028 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 21-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 29-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SALIL MISHRA
• Assessee Lawyers: AMIT SACHDEVA S; AJAY VOHRA KUM PINKI KAPOO R
• Section: 244A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `C: NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI C.L. SETHI, JUDICIAL MEMBER I.T. A. NO.1357/DEL/2010 ASSESSMENT YEAR: 2006-07 GLAXOSMITHKLINE ASIA PVT. LTD., DY. COMMISSIONER OF INCOME-TAX, DLF PLAZA TOWERS, VS. L.T.U. NEW DELHI. DLF CITY PHASE-1, GURGAON. PAN: AABCS3237R (APPELLANT) (RESPONDENT ) APPELLANT BY : SHRI AJAY VOHRA, KUM. PINKI KAPOO R & SHRI AMIT SACHDEVA, ADVOCATES. RESPONDENT BY : SHRI SALIL MISHRA, SR. DR. O R D E R PER C.L. SETHI, JUDICIAL MEMBER: THE ASSESSEE IS IN APPEAL AGAINST THE ORDER DATED 2 8.01.2010 PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IN THE MATTER OF AN ASSESSMENT OF VALUE OF FRINGE BENEFITS UNDER SEC.11 5WB(3) OF THE INCOME- TAX ACT, 1961 (THE ACT) FOR THE ASSESSMENT YEAR 200 6-07. 2. VARIOUS GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE DIRECTED AGAINST THE CIT(A)S ORDER IN SUSTAINING THE LEVY OF FRINGE BENEFIT TAX (FBT) OF THE EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS ALLEGE D ADVERTISEMENT AMOUNTING TO RS.75,77,632/- HOLDING THE SAME TO BE THE SALES PROMOTION 2 EXPENSES COVERED UNDER SEC. 115WB(2)((D) OF THE ACT BEING IN THE NATURE OF PAYMENT MADE TO CELEBRITY FOR CELEBRITY ENDORSEMENT . 3. IN THIS CASE, THE RETURN OF FRINGE BENEFIT TAX W AS FILED BY THE ASSESSEE ON 20.11.2006 DECLARING TOTAL VALUE OF FRINGE BENEF ITS AT RS.42,43,106/-. THE RETURN WAS PICKED-UP FOR SCRUTINY ASSESSMENT. IN THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS FOUND BY THE AO THAT THE ASSESSEE HAS NOT CONSIDERED SALES PROMOTION EXPENSES AMOUNTING TO RS .75,77,632/- INCURRED TOWARDS CELEBRITY ENDORSEMENT FOR THE PURPOSE OF PA YMENT OF FRINGE BENEFIT TAX THEREUPON. BEFORE THE AO, IT WAS CLAIMED BY TH E ASSESSEE THAT SALES PROMOTION EXPENSES AMOUNTING TO RS.75,77,632/- WERE NOT INCLUDED IN THE FRINGE BENEFIT AS THE PAYMENT WAS IN THE NATURE OF ADVERTISEMENT. HOWEVER, THIS CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO BY GIVING A REASON THAT THE EXPENSES HAVE BEEN INCURRED TO ENHA NCE SALES AND THEREFORE, THE SAME COULD NOT BE TREATED DIFFERENTLY. THE AO THEREFORE, DETERMINED THE FRINGE BENEFIT OF RS.15,15,526/- BEING 20% OF THE T OTAL EXPENSES OF RS.75,77,632/- INCURRED TOWARDS ALLEGED CELEBRITY E NDORSEMENT FOR SALES PROMOTION. THE AO THEREFORE, ASSESSED THE TOTAL VA LUE OF FRINGE BENEFITS AT RS.57,58,633/- AS AGAINST RS.42,43,107/- SHOWN BY T HE ASSESSEE, AND DETERMINED THE TAX PAYABLE THEREUPON ACCORDINGLY. I N THIS PROCESS, THE AO RAISED A FURTHER DEMAND OF RS.5,94,608/- INCLUDING INTEREST UNDER SEC. 234D AND WITHDRAWAL OF INTEREST UNDER SEC. 244A OF THE A CT. 4. BEING AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEF ORE THE LEARNED CIT(A), WHO UPHELD THE AOS ORDER BY OBSERVING THAT CBDT VIDE CIRCULAR NO.8 OF 2005 DATED 29.08.2005, HAS CLARIFIED THAT A LL EXPENDITURE INCURRED FOR THE PURPOSES OF SALES PROMOTION AND PUBLICITY WOULD FALL WITHIN THE SCOPE OF 3 CLAUSE (D) OF SUB-SEC. (2) OF SEC. 115WB OTHER THAN ANY EXPENDITURE ON ADVERTISEMENT REFERRED TO IN CLAUSES (I) TO (VI) OF THE PROVISO TO THE SAID CLAUSE, AND EXPENDITURE ON `BRAND OR `BRAND AMBASS ADOR OR `CELEBRITY ENDORSEMENT DOES NOT FALL WITHIN THE SCOPE OF CLAU SES (I) TO (VI) OF THE PROVISO TO CLAUSE (D) OF SUB-SEC. (2) OF SEC. 115WB OF THE ACT. THE LEARNED CIT(A) FURTHER OBSERVED THAT THE VIEW TAKEN BY HIM IS FURTHER STRENGTHENED BY THE FACT THAT SUB-CLAUSE (VIII) EXCLUDING THE EX PENSES ON CELEBRITY ENDORSEMENT FROM THE PURVIEW OF SALES PROMOTION AND PUBLICITY WAS INSERTED IN THE STATUTE BY THE FINANCE ACT, 2007 WITH EFFECT FROM 1.4.2008 AND AS SUCH, THE ASSESSEES CONTENTION THAT THE EXPENSES O N CELEBRITY ENDORSEMENT WAS EXCLUDED FROM THE EXPENDITURE INCURRED ON SALES PROMOTION AND PUBLICITY IMPLICIT IN THE EARLIER CLAUSES (I) TO (V I) TO THE PROVISO OF SEC. 115WB(2)(D) IS NOT CORRECT BECAUSE IF IT WAS SO IMP LICIT, THEN THERE WAS NO NECESSITY OF INSERTING SPECIFIC CLAUSE (VIII) BY TH E FINANCE ACT, 2007. THE LEARNED CIT(A) THEREFORE, HELD THAT EXPENDITURE ON CELEBRITY ENDORSEMENT WAS TO BE INCLUDED FOR THE PURPOSE OF COMPUTING FR INGE BENEFIT IN THE ASSESSMENT YEAR UNDER CONSIDERATION, WHICH IS PRIOR TO THE INSERTION OF CLAUSE (VIII) TO PROVISO OF SEC. 115WB(2)(D) OF THE ACT. 5. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFOR E US. 4 6. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFULL Y PERUSED THE ORDERS OF THE AUTHORITIES BELOW. 7. THE LEARNED COUNSEL FOR THE ASSESSEE HAS REITERA TED HIS CONTENTIONS THAT WERE MADE BEFORE THE AUTHORITIES BELOW THAT EXPENDI TURE IN QUESTION WAS MADE TOWARDS ADVERTISEMENT BEING COVERED BY EXCLUSI ON OF SUB-CLAUSES (I) TO (V) OF THE PROVISO TO CLAUSE (D) OF SEC. 115WB(2) O F THE ACT, AND NOT IN THE NATURE OF EXPENSES FOR CELEBRITY ENDORSEMENT. 8. THE LEARNED DR ON THE OTHER HAND, SUBMITTED THAT THE EXPENSES INCURRED BY THE ASSESSEE WERE FOR CELEBRITY ENDORSE MENT AND SINCE THE EXPENSES ON CELEBRITY ENDORSEMENT ARE NOT EXCLUDED FROM THE EXPENSES OF SALES PROMOTION AND PUBLICITY UNDER CLAUSES (I) TO (VI) OF THE PROVISO TO SEC. 115WB(2)(D) OF THE ACT, THE SAME ARE ASSESSABLE TO FRINGE BENEFIT TAX IN THE YEAR UNDER CONSIDERATION. HE FURTHER SUBMITTED THAT SUB-CLAUSE (VIII) TO THE PROVISO OF SEC. 115WB(2)(D) INSERTED BY THE FIN ANCE ACT, 2007 W.E.F. 1.04.2008, IS PERSPECTIVE IN NATURE AND ITS BENEFIT CANNOT BE TAKEN BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. 9. WE HAVE CAREFULLY PERUSED THE PROVISIONS CONTAIN ED IN SEC. 115WB OF THE ACT, AS THEY STOOD IN THE ASSESSMENT YEAR 2006- 07. SUB-SEC.(2) OF SEC. 115WB PROVIDES THAT THE FRINGE BENEFITS SHALL BE DE EMED TO HAVE BEEN PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES, IF THE E MPLOYER HAS INCURRED, IN 5 THE COURSE OF HIS BUSINESS OR PROFESSION, ANY EXPEN SES ON, OR MADE ANY PAYMENT FOR THE VARIOUS PURPOSES AS SPECIFIED IN CL AUSES (A) TO (Q). CLAUSE (D) IS WITH REGARD TO THE EXPENSES INCURRED ON, OR PAYMENT MADE FOR, SALES PROMOTION INCLUDING PUBLICITY, BUT EXCLUDING CERTAI N EXPENDITURE ON ADVERTISEMENT SPECIFIED IN SUB-CLAUSES (I) TO (VII) THERETO. SUB-CLAUSES (I) AND (V) OF PROVISO TO CLAUSE (D) OF SEC.115WB(2) AR E AS UNDER:- (I) BEING THE EXPENDITURE (INCLUDING RENTAL) ON ADVERTI SEMENT OF ANY FORM IN ANY PRINT (INCLUDING JOURNALS, CATALOGU ES OR PRICE LISTS) OR ELECTRONIC MEDIA OR TRANSPORT SYSTE M; (II) XX XX XX XX XX (III) XX XX XX XX XX (IV) XX XX XX XX XX (V) BEING EXPENDITURE ON ADVERTISEMENT BY WAY OF SIGNS, ART WORK, PAINTING, BANNERS, DRAWINGS, DIRECT MAIL, ELE CTRIC SPECTACULARS, KIOSKS, HOARDINGS, BILL BOARDS OR BY WAY OF SUCH OTHER MEDIUM OF ADVERTISEMENT; (VI) XX XX XX XX XX (VII) XX XX XX XX XX SHALL NOT BE CONSIDERED AS EXPENDITURE ON SALES ;PR OMOTION INCLUDING PUBLICITY. 10. ON PERUSAL OF THE AFORESAID SUB-CLAUSES (I) AND (V), IT WOULD BE SEEN THAT SUB-CLAUSE (I) OF PROVISO TO SEC. 115WB(2)(D) SPECIFICALLY EXCLUDES 6 EXPENDITURE ON ADVERTISEMENT OF ANY FORM IN ANY PRI NT OR ELECTRONIC MEDIA OR TRANSPORT SYSTEM FROM THE DEFINITION OF `SALES PROM OTION INCLUDING PUBLICITY, AND SUB-CLAUSE (V) OF PROVISO TO SEC. 115WB(2)(D) S PECIFICALLY EXCLUDES THE EXPENDITURE ON ADVERTISEMENT BY WAY OF SIGNS, ART W ORK, PAINTING, BANNERS, DRAWINGS, DIRECT MAIL, ELECTRIC SPECTACULARS, KIOSK S, HOARDINGS, BILL BOARDS, DISPLAY OF PRODUCTS OR BY WAY OF ANY OTHER MEDIUM O F ADVERTISEMENT FROM THE PURVIEW OF SALES PROMOTION INCLUDING PUBLICITY. IN THE PRESENT CASE, THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH MR. KAP IL DEV FOR THE PURPOSE OF MAKING HIMSELF AVAILABLE TO MODEL FOR THE ADVERT ISING OF CROCIN DURING THE TERM OF THE AGREEMENT THROUGH ALL AVAILABLE MED IA INCLUDING BUT NOT RESTRICTED TO PRINT, TELEVISION INCLUDING CABLE T.V ., RADIO AND SATELLITE TELEVISION WITH PART OF ITS FOOTPRINT PRIMARILY OVE R INDIA WHICH MAY INCIDENTALLY COVER OTHER COUNTRIES. FOR THE SAID P URPOSE OF ADVERTISING CROCIN, A SHOOTING OF FILM WAS REQUIRED TO BE MADE AT SUCH PLACES AND DURING SUCH HOURS AS MAY BE MUTUALLY AGREED BETWEEN MR. KA PIL DEV AND THE ASSESSEE COMPANY. IT WAS FURTHER PROVIDED THAT MR. KAPIL DEV WOULD MADE HIMSELF AVAILABLE FOR FIFTEEN FULL DAYS (INCLUSIVE OF TRAVEL TIME) DURING EACH CONTRACT YEAR OF THE AGREEMENT FOR SHOOTING OF MOVI NG FILMS/STILL PHOTOGRAPHS OR FOR PROMOTIONAL ACTIVITIES ON SUCH D AYS AS MAY BE MUTUALLY AGREED UPON. IN THE AGREEMENT, IT WAS ALSO PROVIDE D THAT THE COMPANY SHALL 7 USE ALL COMMERCIAL FILMS, PRESS ADVERTISEMENTS, PHO TOGRAPHS, OUTDOOR AND POP/SALES MATERIALS, WHICH SHALL INCLUDE BACKING SH EETS, MOBILES, STICKERS, BOOKLETS, PRINTED MATTERS, HOARDINGS, BILLBOARDS, N EON BOARDS AND OTHER PROMOTIONAL MATERIALS/ITEMS DURING THE TERM OF AGRE EMENT. FROM THE SCOPE OF THE AGREEMENT, IT IS THUS CLEAR THAT AN ADVERTIS EMENT FILM WAS MADE, AND THAT WAS TO BE USED AS A MEANS OF ADVERTISEMENT OF ASSESSEES PRODUCT CROCIN. THE COMPANY WAS ALSO HAVING A RIGHT TO USE ALL COMMERCIAL FILMS, PRESS ADVERTISEMENT, PHOTOGRAPHS, OUTDOOR AND POP/S ALES MATERIALS, WHICH SHALL INCLUDE BACKING SHEETS, MOBILES, STICKERS, BO OKLETS, PRINTED MATTERS, HOARDINGS, BILLBOARDS, NEON BOARDS AND OTHER PROMOT IONAL MATERIALS/ITEMS ETC. IT IS, THUS, CLEAR THAT ADVERTISING FILM OR OT HER MATERIAL ARE NOTHING BUT A MEDIUM FOR ADVERTISEMENT AND ANY EXPENDITURE INCURR ED THEREUPON, WOULD BE THE EXPENDITURE INCURRED BY THE ASSESSEE ON ADVE RTISEMENT OF ANY FORM IN ANY PRINT OR ELECTRONIC MEDIA OR TRANSPORT SYSTEM A ND MAKING ADVERTISEMENT BY WAY OF SIGNS, ART WORK, PAINTING, BANNERS, DRAWI NGS, DIRECT MAIL, ELECTRIC SPECTACULARS, KIOSKS, HOARDINGS, BILL BOARDS, DISPL AY OF PRODUCTS ETC. OR BY WAY OF SUCH OTHER MEDIUM OF ADVERTISEMENT. IN THIS CONNECTION, WE MAY REFER TO A BOARD CIRCULAR NO.8 OF 2005 DATED 29.08. 2005 GIVING EXPLANATORY NOTES ON THE PROVISIONS RELATING TO FRINGE BENEFIT TAX REPORTED IN 277 ITR 20 (STATUTE), WHERE VIDE PARA 11, THE CENTRAL BOARD OF DIRECT TAXES CLARIFIED 8 VARIOUS ISSUES AND QUESTIONS, WHICH WERE FREQUENTLY ASKED FOR. UNDER QUESTION NO.65, WHETHER EXPENDITURE ON MAKING AD-FI LM IS LIABLE TO FBT, THE BOARD HAS CLARIFIED THAT AN AD-FILM IS A MEDIUM FOR ADVERTISEMENT AND THEREFORE FALL WITHIN THE SCOPE OF CLAUSE (I) OF PR OVISO TO CLAUSE (D) OF SUB- SEC. (2) OF SEC. 115WB; AND THEREFORE, ANY EXPENDIT URE ON MAKING AN AD-FILM IS NOT LIABLE TO FBT. IT IS NOT IN DISPUTE THAT PR IOR TO ASSESSMENT YEAR 2008- 09, THE EXPENDITURE BY WAY OF PAYMENT TO ANY PERSON OF REPUTE FOR PROMOTING THE SALES OF GOODS OF THE BUSINESS OF THE EMPLOYER WAS NOT EXCLUDED FROM THE PURVIEW OF SALES PROMOTION INCLUD ING PUBLICITY. HOWEVER, IN THE PRESENT CASE, THE PAYMENT HAS BEEN MADE BY THE ASSESSEE FOR INCURRING EXPENDITURE ON ADVERTISEMENT BY MAKING AD -FILM AND OTHER MATERIALS, WHICH ARE NOTHING BUT THE MEDIUM FOR ADV ERTISEMENT. THEREFORE, THE EXPENDITURES INCURRED BY THE ASSESSEE ARE NOT I N THE NATURE OF PAYMENT MADE TO ANY PERSON OF ANY REPUTE FOR PROMOTING THE SALES OF GOODS OR SERVICES OR TOWARDS CELEBRITY ENDORSEMENT BUT THE P AYMENTS WERE MADE TOWARDS EXPENDITURE ON ADVERTISEMENT BEING IN THE N ATURE OF EXPENSES COVERED BY SUB-CLAUSE (I) AND (V) OF CLAUSE (D) OF SEC. 115WB(2) OF THE ACT. WE, THEREFORE, HOLD THAT THE EXPENDITURE INCURRED B Y THE ASSESSEE ON ADVERTISEMENT BY MAKING AD-FILM EMPLOYING MR. KAPIL DEV ETC. WOULD NOT COME UNDER THE PURVIEW OF SALES PROMOTION INCLUDING PUBLICITY AS THEY ARE 9 COVERED BY THE EXCLUSIVE CLAUSES (I) AND (V) OF THE PROVISO TO CLAUSE (D) OF SEC. 115WB(2) OF THE ACT FOR THE PURPOSE OF DETERMI NING THE FRINGE BENEFIT DEEMED TO HAVE BEEN PROVIDED BY THE ASSESSEE. WE, THEREFORE, DELETE THE AMOUNT OF RS.15,15,526/- BEING 20% OF EXPENSES OF R S.75,77,632/- FROM THE VALUE OF FRINGE BENEFIT, AND DELETE THE ADDITION MA DE BY THE ASSESSING OFFICER. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 12. THIS DECISION IS PRONOUNCED IN THE OPEN COURT O N 25 TH NOVEMBER, 2011. SD/- SD/- (G.D. AGRAWAL) (C.L. SETHI) VICE PRESIDENT JUDICIAL MEMBER DATED: 25 TH NOVEMBER , 2011 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT. 2. RESPONDENT. 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR, ITAT.