The Cadila Healthcare Ltd., Ahmedabad V. The ACIT.(OSD), Range-1, Ahmedabad

ITA 179/AHD/2011

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9642 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 07-04-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 24-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: MUKESH M PATEL
• Keywords: Gift; Business expenditure
• Section: 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI G. D. AGARWAL , VICE PRESIDENT AND SHRI S.S. GODARA JUDICIAL MEMBER ITA NO . 1 7 9 /AHD/20 11 A. Y . 20 0 6 - 0 7 CADILA HEALTHCARE LTD., ZYDUS TOWER, OPP. ISKCON TEMPLE, SATELLITE CR OSS ROADS, AHMEDABAD. PAN: AAACC 6253G VS ACIT (OSD), RANGE - 1, AHMEDABAD . (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SUBHASH BAINS, CIT - D.R. ASSESSEE(S) BY : SHRI MUKESH M. PATEL, A.R. / DATE OF HEARING : 07 / 0 4 /201 5 / DATE OF PRONOUNCEMENT: 17 / 04 /201 5 / O R D E R PER: S. S. GODARA , JUDICIAL MEMBER THIS A SSESSEE S A PPEAL FOR A.Y. 2006 - 0 7 IS DIRECTED AGAINST THE ORDER OF L EARNED CIT (A) - V I , AHDMEDABAD DATED 14.12 .20 10 IN CASE NO.C IT(A) - VI/ACIT.CIR.1/351/08 - 09 IN PROCEEDING U/S.115WE(3) OF THE INCOME TAX ACT HEREINAFTER THE ACT . 2. THE ASSESSEE S PLEADINGS READ AS UNDER: 1. THAT THE LEARNED CIT(A) ERRED IN LAW AND ON FAC TS IN CONFIRMING THE FOLLOWING ADDITIONS MADE IN THE VALUE OF TAXABLE FRINGE BENEFITS S IN RELATION TO THE RESPECTIVE EXPENDITURE: - NATURE OF EXPENDITURE AMOUNT OF EXP. (RS.) RATE OF FRINGE BENEFITS FRINGE BENEFIT VALUE (RS.) ITA NO. 17 9 /AHD /20 11 CADILA HEALTHCARE LTD. FOR A.Y. 20 0 6 - 0 7 - 2 - A. SEMINAR & CONFERENCE EXPENSES INCURRED FOR DOCTORS, STOCKISTS ETC. (IN THE NATURE OF SALES PROMOTION) 10,89,19,812 20% 2,17,83,962 B. S ALES PROMOTION EXPENSES 20,34,43,795 20% 4,06,88,759 C.COST OF FREE SAMPLES GIVEN TO DOCTORS (IN THE NATURE OF SALES P ROMOTION) 7,24,41 ,000 20% 1,44,88,200 D. EXPENDITURE ON GIFTS TO BUSINESS ASSOCIATES (NOT BEING EMPLOYEES) 17,33,767 50% 8,66,884 E. CLUB MEMBERSHIP FEES 72,450 50% 36,225 F. R EIMBURSEMENT OF MEDICAL EXPENSES (UPTORS. 15,000) 3,36,74,477 20% 67,34,895 TOT AL 8,45,98,925 2. THAT THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN REJECTING THE APPELLANT'S CONTENTION THAT SINCE THE EXPENDITURE REFERRED TO IN A TO E ABOVE HAVING BEEN INCURRED BY THE APPELLANT PURELY FOR ITS BUSINESS PURPOSES, THE SAME DID NOT RESULT IN ANY BENEFIT TO ITS EMPLOYEES AND HENCE IT WAS NOT LIABLE TO THE LEVY OF FRINGE BENEFITS TAX (FBT). 3. THAT THE LEARNED CIT(A) FURTHER ERRED IN LAW AND ON FACTS IN REJECTING THE CONTENTION THAT SINCE THE EXPENDITURE REFERRED TO IN F ABOVE BEING IN THE NATURE OF AN EXEMPT PERQUISITE U/S. 17 OF THE I.T. ACT, THE SAME WAS NOT LIABLE TO THE LEVY OF FRINGE BENEFITS TAX (FBT). 4. THAT THE LEARNED CIT(A) FAILED TO APPRECIATE THE MERITS OF THE APPELLANT'S ELABORATE SUBMISSIONS THAT KEEPING IN VIEW THE F INANCE MINISTER'S BUDGET SPEECH AND STATEMENT OF OBJECTS & REASONS FOR INTRODUCTION OF FBT, ANY BUSINESS EXPENDITURE WHICH HAS BEEN INCURRED ONLY WITH RELATION TO NON EMPLOYEES AND DOES NOT RELATE IN ANY MANNER TO THE EMPLOYEES OF AN ASSESSEE IS CLEARLY BE YOND THE SCOPE AND LEVY OF FBT. MOREOVER, ANY PERQUISITE ALREADY GRANTED EXEMPTION UNDER A SPECIFIC PROVISION OF THE I.T. ACT COULD NOT ALSO BE MADE LIABLE TO THE LEVY OF FBT. 2. 1 THE ASSESSEE S COMPANY HAD FILED ITS FRINGE BENEFITS RETURN ON 26.12.2006 DECLARING FRINGE BENEFITS VALUE OF RS.4,13,28,904/ - . THE ITA NO. 17 9 /AHD /20 11 CADILA HEALTHCARE LTD. FOR A.Y. 20 0 6 - 0 7 - 3 - ASSESSING OFFICER TOOK UP SCRUTINY . HE NOTICED THE AFORESAID SIX HEADS OF EXPENDITURE. THE ASSESSEE HAD NOT INCLUDED THE SAME IN ITS ARRAY OF FRINGE BENEFITS . PER ASSESSEE, THERE EXISTED NO EMPLOYE R - EMPLOYEE RELATIONSHIP QUA FIRST FIVE ITEMS. THE LAST ONE, I.E. A SUM OF RS.3,36,74,477/ - REPRESENTING INDIVIDUAL MEDICAL REIMBURSEMENT WAS CLAIMED TO BE EXEMPTED U/S.17(2) OF THE ACT IN THE HANDS OF CONCERNED EMPLOYEES. IT QUOTE D THE H ON BLE FINANCE MIN ISTER SPEECH WHILE TABLING THE FINANCE BILL , 2005 ON 28.02.2005, MEMORANDUM TO THE FINANCE BILL , 2005 CONTAINING EXPLANATORY NOTE S IN SUPPORT. THE ASSESSING OFFICER IN ASSESSMENT YEAR DATED 26.12.2008 TOOK INTO CONSIDERATION THE BOARD CIRCULAR NO.8/05 DATE D 29.08.2005; MORE PARTICULARLY QUESTIONS NO.58 TO 63 AND 69 FOR HOLDING THAT THE ABOVE EXPENSES CONTAINED IN ITEMS A TO F HAD TO BE ADDED AS FRINGE BENEFITS TO BE TAXED ACCORDINGLY . THE ASSESSEE S TOTAL FRINGE BENEFITS STOOD ASSESSED AT RS.12,59,27,829/ - . 3. THE CIT(A) HAS AFFIRMED THE ASSESSING OFFICER S ACTION AS UNDER: 2. 3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESSMENT ORDER AND APPELLANT S SUBMISSION. IT IS NOT IN DISPUTE THAT APPELLANT IS COVERED BY THE PROVISIONS OF FRINGE BENEFITS TAX. IT IS LEVIED IN RESPECT OF FRINGE BENEFITS PROVIDED OR DEEMED TO HAVE BEEN PROVIDED BY AN EMPLOYER TO HIS EMPLOYEES. AS PER SECTION 115WB(2) FRINGE BENEFITS IS DEEMED TO HAVE BEEN PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES, IF EMPLOYER HAS INCURRED ANY EXPENSES OR MADE ANY PAYMENT FOR THE PURPOSES MENTIONED IN CLAUSE - A TO CLAUSE - Q. THE VALUE OF THE FRINGE BENEFITS IS TO BE WORKED OUT BY APPLYING A PERCENTAGE GIVEN IN SECTION 115WC. THESE TWO S ECTIONS DO NOT GIVE ANY DISCRETION OR COMPUTATION METHOLOGY THROUGH WHI CH THE BENEFIT ACCRUED ONLY TO EMPLOYEES ARE TO BE TAKEN. SINCE THIS IS A DEEMING PROVISION AND VALUE OF FRINGE BENEFITS ARE ALSO DEEMED AT A PARTICULAR PERCENTAGE, THERE IS HARDLY ANY DISCRETION EITHER WITH APPELLANT OR WITH THE TAX DEPARTMENT TO REDUCE T HE LEVY OF FRINGE BENEFITS TAX. SINCE, THE PROVISION AND SECTIONS ARE VERY ITA NO. 17 9 /AHD /20 11 CADILA HEALTHCARE LTD. FOR A.Y. 20 0 6 - 0 7 - 4 - CLEAR AND THERE IS NO ROOM FOR ANY CONFUSION, THE LINKING OF THE EXPENSES TO THE BENEFIT OF EMPLOYEE IS NOT NECESSARY. ANY EXPENSES WHICH IS DIRECTLY INCURRED FOR THE PURPOSE OF EMP LOYEE, IS FULLY TAKEN FOR THE PURPOSE OF FRINGE BENEFITS TAX. HOWEVER, OTHER EXPENSES IN THE NATURE OF ENTERTAINMENT, SALE PROMOTION, CONVEYANCE , TRAVELLING, GIFTS ETC. MAY HAVE PARTIAL BENEFIT TO THE EMPLOYEES AND THEREFORE, ONLY A PART IS TREATED AS FRI NGE BENEFITS . SINCE, SECTION CLEARLY DEFINED THE VALUE OF FRINGE BENEFITS , NO FURTHER ADJUSTMENT TO THE ITEMS OF EXPENSES DEBITED IN PROFIT AND LOSS ACCOUNT IS PERMITTED AND ACCORDINGLY ASSESSING OFFICER IS JUSTIFIED IN APPLYING THE RATES GIVEN IN THE ACT TO ARRIVE AT THE VALUE OF FRINGE BENEFITS . THE DECISION IN THE ORDER OF HON'BLE GUJARAT HIGH COURT DOES NOT PUT ANY STAY ON THE ASSESSMENT OR APPEAL PROCEEDING IN THIS MATTER. IT ONLY PRESCRIBES THE MODE OF PAYMENT OF FRINGE BENEFITS TAX TILL APPEAL IS DIS POSED OFF. SINCE THERE IS NO ORDER EITHER OF JURISDICTIONAL HIGH COURT OR OTHER COURT, WHEREIN IT IS HELD THAT FRINGE BENEFITS TAX IS NOT PAYABLE IN RESPECT OF EXPENSES NOT INCURRED FOR THE PURPOSE OF EMPLOYEES BENEFIT, THEREFORE, I DO NOT FIND ANY LEGAL SUPPORT FOR THE APPELLANT S CONTENTION. IN VIEW OF THIS, THE ADDITION TO THE VALUE OF FRINGE BENEFITS MADE BY THE ASSESSING OFFICER IS CONFIRMED. THEREFORE, THE ASSESSEE IN APPEAL . 3. WE HAVE HEARD BOTH SIDES AND PERUSED THE CASE FILE. THE ASSESSEE S UBMITS THAT QUA ITEMS A TO E, THERE DOES NOT EXIST ANY EMPLOYER - EMPLOYEE RELATIONSHIP BETWEEN ITSELF AND ITS PAYE E S SO AS TO ATTRACT THE FRINGE BENEFIT PROVISIONS. THE REVENUE STRONGLY SUPPORTS THE CIT(A) S ORDER. IT CONTEN DS THAT A CASE IS PENDING BEFORE THE H ON BLE J URISDICTIONAL HIGH COURT FILED BY THE GUJARAT CHAMBERS OF COMMERCE. THE ASSESSEE STATES THAT THE H ON BLE HIGH COURT HAD IMPOSED CERTAIN CONDITIONS FOR DEPOSITING AMOUNT IN QUESTION IN AN ESCROW ACCOUNT AND THE SAME HAS ALREADY BEEN COMPLIED WI TH. THE NECESSARY COMPLIANCE IS EVIDENT FROM PAGE 2 OF THE PAPER BOOK IN CLAUSE 5. THE REVENUE FAILS TO COUNTER THE SAME. THEREFORE, ITS TECHNICAL OBJECTION FAILS. ITA NO. 17 9 /AHD /20 11 CADILA HEALTHCARE LTD. FOR A.Y. 20 0 6 - 0 7 - 5 - 3.1 NOW , WE COME TO THE ASSESSEE S LEGAL ARGUMENT ON NON - APPLICABILITY OF FRINGE BENEFITS TAX PROVISION ON SALES PROMOTION EXPENSES IN ABSENCE OF EMPLOYER AND EMPLOYEE RELATIONSHIP. THE RECIPIENT THEREOF ARE NOWHERE STATED TO BE ON ITS ROL L S. IN THESE CIRCUMSTANCES, WE QUOTE CASE LAW OF T . V . TODAY NETWORK LTD. VS. DCIT , (2013) 38 TAXMANN.COM 4 09 (DELHI - TRIB) AUTHORED BY ONE OF US, G.D. AGARWAL VICE PRESIDENT ; HOLDING AS UNDER: 6. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. FRINGE BENEFITS TAX WAS LEVIED FOR THE FIRST TIME BY THE FINAN CE ACT, 2005 BY INTRODUCING CHAPTER XII - H, I.E., SECTIONS 115W TO 115WL TO THE INCOME - TAX ACT, 1961. SECTION 115WB(2)(D) UNDER WHICH THE DEPARTMENT HAS COVERED THE PAYMENT OF CHANNEL - PLACEMENT CHARGES READS AS UNDER : '115WB. (2) THE FRINGE BENEFITS S SHALL BE DEEMED TO HAVE BEEN PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES, IF THE EMPLOYER HAS, IN THE COURSE OF HIS BUSINESS OR PROFESSION (INCLUDING ANY ACTIVITY WHETHER OR NOT SUCH ACTIVITY IS CARRIED ON WITH THE OBJECT OF DERIVING INCOME, PROFITS OR GAINS) INC URRED ANY EXPENSE ON, OR MADE ANY PAYMENT FOR, THE FOLLOWING PURPOSES, NAMELY : (D) SALES PROMOTION INCLUDING PUBLICITY : PROVIDED THAT ANY EXPENDITURE ON ADVERTISEMENT, ( I ) BEING THE EXPENDITURE (INCLUDING RENTAL) ON ADVERTISEMENT OF ANY FORM IN ANY PR INT (INCLUDING JOURNALS, CATALOGUES OR PRICE LISTS) OR ELECTRONIC MEDIA OR TRANSPORT SYSTEM; ( II) BEING THE EXPENDITURE ON THE HOLDING OF, OR THE PARTICIPATION IN, ANY PRESS CONFERENCE OR BUSINESS CONVENTION, FAIR OR EXHIBITION; ( III ) BEING THE EXPENDITU RE ON SPONSORSHIP OF ANY SPORTS EVENT OR ANY OTHER EVENT ORGANISED BY ANY GOVERNMENT AGENCY OR TRADE ASSOCIATION OR BODY ; ( I V) BEING THE EXPENDITURE ON THE PUBLICATION IN ANY PRINT OR ELECTRONIC MEDIA OF ANY NOTICE REQUIRED TO BE PUBLISHED BY OR UNDER AN Y 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; (V I) BEING THE EXPENDITURE BY WAY OF PAYMENT TO ANY ADVERTISING AGENCY FOR THE PURPOSES OF CLAUSES ( I) TO (V) ABOVE; (V II ) BEING THE EXPENDITURE ON DISTRIBUTION OF SAMPLES EITHER FREE OF COST OR AT CONCESSIONAL RATE ; AND (VII I ) BEING THE EXPENDITURE BY WAY OF PAYMENT TO ANY PERSON OF REPUTE FOR PROMOTING THE SALE OF GOODS OR SERVICES OF THE BUSINESS OF THE EMPLOYER, SHALL NOT BE CONSIDERED AS EXPENDITURE ON SALES PROMOTION INC LUDING PUBLICITY ;' ITA NO. 17 9 /AHD /20 11 CADILA HEALTHCARE LTD. FOR A.Y. 20 0 6 - 0 7 - 6 - 7. FROM THE ABOVE, IT IS EVIDEN T THAT SECTION 115WB(2) IS A DEEMING PROVISION WHICH PROVIDES THAT THE FRINGE BENEFITS SHALL BE DEEMED TO HAVE BEEN PROVIDED BY THE EMPLOYER TO HIS EMPLOYEE IF THE EMPLOYER HAS INCURRED THE E XPENSES PROVIDED IN VARIOUS CLAUSES OF THE ABOVE SUB - SECTIO N. CLA USE (D) OF THE ABOVE SUB SECTION COVERS SALES PROMOTION INCLUDING PUBLICITY. THE PROVISO TO THE ABOVE CLAUSE EXCLUDES VARIOUS TYPES OF EXPENDITURE ON ADVERTISEMENT FROM THE PURVIEW OF CLAUSE (D). THE ASSESSEE HAS ARGUED THAT NEITHER THERE IS AN EMPLOYER EM PLOYEE RELATIONSHIP NOR THE EXPENDITURE IS IN THE NATURE OF SALES PROMOTION AND PUBLICITY. IN CONTRAST, THE LEARNED COMMISSIONER OF INCOME - TAX - DEPARTMENTAL REPRESENTATIVE HAS STATED THAT IF THE EXPENDITURE AS PROVIDED IN ANY OF THE CLAUSES OF SECTION 115W B(2) IS INCURRED BY THE ASSESSEE, THE FRINGE BENEFITS TAX WOULD BE CHARGEABLE, WHETHER OR NOT THERE IS AN EMPLOYER - EMPLOYEE RELATIONSHIP. IN THIS REGARD, WE FIND THAT THE CENTRAL BOARD OF DIRECT TAXES HAS ISSUED CIRCULAR NO. 8, DATED AUGUST 29, 2005 WHICH IS PUBLISHED IN [2005] 277 ITR (ST.) 20. IN PARAGRAPH 2 OF THE CIRCULAR, OBJECTIVE FOR INTRODUCTION OF FRINGE BENEFITS TAX IS EXPLAINED WHICH READS AS UNDER : '2. OBJECTIVE 2. 1 THE TAXATION OF PERQUISITES OR FRINGE BENEFIT S IS JUSTIFIED BOTH ON GROUNDS O F EQUITY AND ECONOMIC EFFICIENCY. WHEN FRINGE BENEFIT S ARE UNDERTAXED, IT VIOLATES BOTH HORIZONTAL AND VERTICAL EQUITY. A TAXPAYER RECEIVING HIS ENTIRE INCOME IN CASH BEARS A HIGHER TAX BURDEN IN COMPARISON TO ANOTHER TAXPAYER WHO RECEIVES HIS INCOME PARTL Y IN CASH AND PARTLY IN KIND, THEREBY VIOLATING HORIZONTAL EQUITY. FURTHER, FRINGE BENEFIT S ARE GENERALLY PROVIDED TO SENIOR EXECUTIVES IN THE ORGANISATION. THEREFORE, UNDER - TAXATION OF FRINGE BENEFITS VIOLATES VERTICAL EQUITY. IT ALSO DISCRIMINATES BETWE EN COMPANIES WHICH CAN PROVIDE FRINGE BENEFIT S AND THOSE WHICH CANNOT, THEREBY ADVERSELY AFFECTING MARKET STRUCTURE. HOWEVER, THE TAXATION OF FRINGE BENEFIT S RAISES SOME PROBLEMS PRIMARILY BECAUSE (A) ALL BENEFITS CANNOT BE INDIVIDUALLY ATTRIBUTED TO EM PLOYEES, PARTICULARLY IN CASES WHERE THE BENEFIT IS COLLECTIVELY ENJOYED ; (B) OF THE PRESENT WIDESPREAD PRACTICE OF PROVIDING PERQUISITES, WHEREIN MANY PERQUISITES ARE DISGUISED AS REIMBURSEMENTS OR OTHER MISCELLANEOUS EXPENSES SO AS TO ENABLE THE EMPLOY EES TO ESCAPE/ REDUCE THEIR TAX LIABILITY ; AND : (C) OF THE DIFFICULTY IN THE VALUATION OF THE BENEFITS. 2.2 IN INDIA, PRIOR TO THE ASSESSMENT YEAR 1998 - 99, SOME PERQUISITES/ FRINGE BENEFITS WERE INCLUDED IN SALARY IN TERMS OF SECTION 17 AND ACCORDINGLY T AXED UNDER SECTION 15 OF THE INCOME - TAX ACT IN THE HANDS OF THE EMPLOYEE AND A LARGE NUMBER OF FRINGE BENEFIT S WERE TAXED BY THE EMPLOYER - BASED DISALLOWANCE METHOD WHERE THE QUANTUM OF THE DISALLOWANCE WAS ESTIMATED ON A PRESUMPTIVE BASIS. IN PRACTICE, TA XATION OF FRINGE BENEFIT S BY THE EMPLOYER - BASED DISALLOWANCE METHOD RESULTED IN LARGE - SCALE LITIGATION ON ACCOUNT OF AMBIGUI T Y IN DEFINING THE TAX BASE. THEREFORE, THE TAXATION OF FRINGE BENEFIT S BY THE EMPLOYER - BASED DISALLOWANCE METHOD WAS WITHDRAWN BY THE FINANCE ACT, 1997. HOWEVER, THE WITHDRAWAL OF THE PROVISIONS RELATING TO TAXATION OF FRINGE BENEFIT S BY THE EMPLOYER - BASED DISALLOWANCE METHOD RESULTED IN SIGNIFICANT EROSION OF THE TAX BASE. THE FINANCE ACT, 2005 HAS ITA NO. 17 9 /AHD /20 11 CADILA HEALTHCARE LTD. FOR A.Y. 20 0 6 - 0 7 - 7 - INTRODUCED A NEW LEVY, NAMELY, TH E FRINGE BENEFITS TAX AS A SURROGATE TAX ON EMPLOYERS, WITH THE OBJECTIVE OF RESOLVING THE PROBLEMS ENUMERATED IN PARA. 2.1 ABOVE, EXPANDING THE TAX BASE AND MAINTAINING EQUITY BETWEEN EMPLOYERS. ' 8. AT PAGE 25 PARAGRAPH 11, FREQUENTLY ASKED QUESTIONS AR E GIVEN. QUESTION NO. 2 THEREOF AND REPLY IS AS UNDER : '2. WHETHER EMPLOYER - EMPLOYEE RELATIONSHIP IS A PREREQUISITE FOR THE LEVY OF FRINGE BENEFITS TAX ? ANSWER: YES.' 9. THUS, IN THE CIRCULAR ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES EXPLAINING THE N EWLY INTRODUCED PROVISIONS OF FRINGE BENEFITS TAX, THE CENTRAL BOARD OF DIRECT TAXES ITSELF HAS CLARIFIED THAT EMPLOYER - EMPLOYEE RELATIONSHIP IS A PREREQUISITE FOR LEVY OF FRINGE BENEFITS TAX. THE HO N BLE APEX COURT HAS CONSIDERED THE ABOVE CIRCULAR IN THE CASE OF R & B FALCON (A) (P.) LTD. (SUPRA) AND HELD AS UNDER (HEADNOTE): 'THE INTERPRETATION OF THE CENTRAL BOARD OF DIRECT TAXES IN ITS CIRCULARS BEING IN THE REALM OF EXECUTIVE CONSTRUCTION, SHOULD PRIMARILY BE HELD TO BE BINDING, SAVE AND EXCEPT WHERE IT VIOLATES ANY PROVISIONS OF LAW OR IS CONTRARY TO ANY JUDGMENT RENDERED BY THE COURTS. THE REASON FOR GIVING EFFECT TO SUCH EXECUTIVE CONSTRUCTION IS NOT ONLY THE SAME AS CONTEMPORANEOUS WHICH WOULD COME WITHIN THE PURVIEW OF THE MAXIM TEMPORANIA CASTE P ESTO, EVEN IN A CERTAIN SITUATION A REPRESENTATION MADE BY AN AUTHORITY LIKE THE MINISTER PRESENTING THE BILL BEFORE PARLIAMENT MAY ALSO BE FOUND BOUND THEREBY. WHERE A REPRESENTATION IS MADE BY THE MAKER OF LEGISLATION AT THE TIME OF INTRODUCTION OF THE B ILL OR CONSTRUCTION THEREUPON IS PUT BY THE EXECUTIVE ON ITS COMING INTO FORCE THE SAME CARRIES GREAT WEIGHT.' 10. THAT THE HO N BLE JURISDICTIONAL HIGH COURT HAS ALSO EXPRESSED A SIMILAR VIEW IN THE CASE OF T&T MOTORS LTD. (SUPRA) AND HELD AS UNDER (HEADN OTE): 'A CAREFUL READING OF CLAUSES ( I ), ( II ), ( I V), (V), (V I ) AND (V III ) OF SECTION 115WB(2)(D) ELUCIDATES THAT THE LEGISLATURE HAS EXCLUDED FROM FRINGE BENEFITS EXPENDITURE IN THE FORM OF PAYMENTS TO THIRD PERSONS BECAUSE THIS IS NOT A FRINGE BENEFITS WH ICH IS ENJOYED BY THE 'EMPLOYEE/ RECIPIENT' BUT IT IS AN EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS AND IN THE HANDS OF THE RECIPIENT THE EXPENDITURE IS TAXABLE AS INCOME EARNED.' 11. THAT IN THE CASE UNDER APPEAL BEFORE US, ADMITTEDLY, THE EXPENDIT URE WAS INCURRED BY THE ASSESSEE FOR CHANNEL PLACEMENT WHICH IS MADE TO THE THIRD PERSONS AND THERE IS NO EMPLOYER - EMPLOYEE RELATIONSHIP BETWEEN THE ASSESSEE AND THE RECIPIENT. THEREFORE, THE CIRCULAR OF THE CENTRAL BOARD OF DIRECT TAXES AS WELL AS THE DEC ISION OF THE HO N BLE APEX COURT IN THE CASE OF R & B FALCON (A) (P.) LTD. (SUPRA) WOULD BE SQUARELY APPLICABLE. MOREOVER, THE HO N BLE JURISDICTIONAL HIGH COURT IN THE CASE OF T & T MOTORS LTD. (SUPRA) HAS STATED THAT IN RESPECT OF PAYMENT TO THIRD PERSONS, FRINGE BENEFITS TAX IS NOT APPLICABLE BECAUSE NO FRINGE BENEFITS IS ENJOYED BY THE EMPLOYEE/RECIPIENT. ITA NO. 17 9 /AHD /20 11 CADILA HEALTHCARE LTD. FOR A.Y. 20 0 6 - 0 7 - 8 - THE RATIO OF THE ABOVE DECISION OF THE HO N BLE JURISDICTIONAL HIGH COURT W O ULD ALSO BE SQUARELY APPLICABLE TO THE FACTS OF THE ASSESSEE'S CASE BECAUSE P AYMENT HAD BEEN MADE FOR CHANNEL PLACEMENT. BY SUCH PAYMENT, NO FRINGE BENEFITS IS ENJOYED BY THE EMPLOYEE/RECIPIENT. THE PAYMENT IS IN THE NATURE OF EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS BY THE ASSESSEE AND IN THE HANDS OF THE RECIPIENT, THE EX PENDITURE IS TAXABLE AS INCOME. MOREOVER, THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOT IN THE NATURE OF EXPENDITURE FOR SALES PROMOTION. THE ASSESSEE HAS INCURRED THE EXPENDITURE FOR BROADCASTING OF ITS CHANNELS ON THE DESIRED BANDS. THEREFORE, THE EXPE NDITURE IS FOR THE BROADCASTING OF ITS CHANNELS AND NOT FOR SALES PROMOTION OR PUBLICITY. 4. THE REVENUE DOES NOT POINT OUT ANY DISTINCTION ON FACTS. WE ALSO NOTICE THAT ANOTHER CO - ORDINATE BENCH IN CASE OF M/S. ADANI RETAIL LTD. VS. DCIT IN ITA NO.3269/ AHD/2009 DECIDED ON 25.10.2013 HOLDS THAT FRINGE BENEFIT PROVISIONS DO NOT APPLY TO SALES PROMOTIONS EXPENSES AS THE SAME DO NOT BESTOW ANY BENEFIT TO THE ASSESSEE S EMPLOYEES. THEREFORE, THE ASSESSEE S GROUNDS RELATING TO PAYMENT A - C SUCCEED. 5. NOW WE C OME TO THE ASSESSEE S EXPENSES ON GIFTS TO BUSINESS ASSOCIATES OF RS.8,66,884 AND CLUB MEMBER FEES OF RS.36,225/ - . ON OUR ASKING THE ASSESSEE FAILS TO PROVE THAT ITS EMPLOYEES HAVE NOT AT ALL ENJOYED EITHER OF THE TWO FACILITIES. THUS, W E ASSUME THAT SOME OF ITS EMPLOYEES MUST HAVE AVAILED THESE BENEFITS . THUS , WE ACCEPT THE ASSESSEE S ARGUMENTS ONLY IN PART AND DELETE THE IMPUGNED ADDITION S TO THE EXTENT OF 50% OF THE SUMS INVOLVE . THE ASSESSEE PARTLY SUCCEEDS IN RELATION TO D - E HEADS OF EXPENDITURE . 6. THIS LEAVES US WITH THE LAST ISSUE OF REIMBURSEMENT OF MEDICAL EXPENSES UPTO RS.15,000/ - TO THE ASSESSEE S INDIVIDUAL EMPLOYEES ITA NO. 17 9 /AHD /20 11 CADILA HEALTHCARE LTD. FOR A.Y. 20 0 6 - 0 7 - 9 - INVOLVING ALLEGED F RINGE BENEFITS OF RS.67,34,895/ - . T HE ASSESSEE HA S INCURRED TH ESE AMOUNT S FOR PAYMENT OF MEDICAL REIMBURSEME NT S TO ITS INDIVIDUAL EMPLOYEE S NOT EXCEEDING RS.15,000/ - . SECTION 17(2) 1 ST PROVISO (V) GRANTS EXEMPTION TO SUCH BENEFITS IN THE HANDS OF INDIVIDUAL EMPLOYEES FROM BEING TAXED UPTO THE VERY MONETARY LIMIT. SECTION 115W B (3) ALSO EXCLUDE S OPERATION OF SUB SECTION 1 IN CASE OF SUCH A BENEFIT . WE QUOTE CASE LAW OF BOS CH L IMITED V/S. D Y. CIT, ( 2011 ) 48 SOT 135 AND GODREJ PROPERTIES LTD. VS. ACIT ( 2012 ) 49 SOT 87 AND HOLD THAT THE LOWER AUTHORITIES FINDINGS UNDER CHALLENGE HAVE TO BE REV ERSED . THE REVENUE DOES NOT POINT OUT ANY DISTINCTION ON FACTS. THEREFORE, THE ASSESSEE S ARGUME NTS CHALLENGING INCLUSION OF THE IMPUGNED INDIVIDUAL MEDICAL REIMBURSEMENT S OF RS.3,36,74,477/ - IN F RINGE BENEFITS ALSO SUCCEED. 7. THE ASSESSEE S APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS THE 17 TH DAY OF APRIL, 2015. SD/ - SD/ - ( G. D. AGARWAL ) ( S.S. GODARA ) VICE PRESIDENT JUDICIAL MEMBER AHMEDABAD; DATED 17 / 0 4 / 20 1 5 PRABHAT KR. KESARWANI , SR. P . S . S / COPY OF THE OR DER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) - III, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD ITA NO. 17 9 /AHD /20 11 CADILA HEALTHCARE LTD. FOR A.Y. 20 0 6 - 0 7 - 10 - 6. / GUARD FILE . / BY ORDER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD