Birla Corporation Limited, Kolkata V. DCIT, C ircle- 6, Kolkata, Kolkata

ITA 1813/KOL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54600 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 24-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 22-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K ROY D R
• Assessee Lawyers: J P KHAITAN
• Keywords: Gift; Question of law

Judgement Text

, B , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : KOLKATA ( ) . . , , , , , , ) [BEFORE SRI S.V. MEHROTRA, A.M. & SRI MAHAVIR SING H, J.M.] ! ! ! ! / I.T.A NO. 1813/KOL./2010 '# $% / ASSESSMENT YEAR : 2006-2007 BIRLA CORPORATION LIMITED, KOLKATA -VS.- DEPUTY COMMISSIONER OF INCOME TAX, (PAN : AABCB 2075 J) CIRCLE-6, KOLKATA ( &' /APPELLANT ) ( ()&' / RESPONDENT ) FOR THE APPELLANT : SHRI J.P. KHAITAN, A.R. FOR THE RESPONDENT : SHRI S.K. ROY, D.R. *' + , - *' + , - *' + , - *' + , - /DATE OF HEARING : 12.09.2011 .$ , - .$ , - .$ , - .$ , - /DATE OF PRONOUNCEMENT : 21.10.2011 / / ORDER PER SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER/ . . , :- THE ASSESSEE HAS FILED THIS APPEAL AGAINST THE ORD ER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-VI, KOLKATA DATED 06.07.2010 FOR THE ASSE SSMENT YEAR 2006-07. THE ONLY GROUND IN THIS APPEAL IS AS UNDER :- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) ERRED IN HOLDING THAT PRESENTS TO STOC KIST OF THE COMPANY IN THE NATURE OF GIFTS INSTEAD OF EXPENSES IN THE NA TURE OF SALES-PROMOTION INCLUDING PUBLICITY EXPENSES. 2. BRIEF FACTS OF THE CASE AS OBTAINING FROM THE S TATEMENTS OF FACTS FILED BEFORE LD.CIT(APPEALS) ARE THAT FRINGE BENEFITS TAX (FBT) RETURN FOR THE ASSESSMENT YEAR 2006-07 WAS FILED ON 23.11.2006 SHOWING TAXABLE VALUE OF FR INGE BENEFITS AT RS.6,52,20,500/- WHICH, INTER ALIA, INCLUDED PRESENTS GIVEN TO COMPANYS ST OCKIEST AGGREGATING TO RS.1,79,88,323/-. WHILE COMPUTING THE VALUE OF FRINGE BENEFITS, THE V ALUE OF PRESENTS AS GIVEN TO STOCKIEST AND DEALERS WERE CONSIDERED AS ADVERTISING/ SALES PROMO TION EXPENSES AND, ACCORDINGLY, 20% OF SUCH EXPENSES WERE TREATED AS TAXABLE FRINGE BENEFI T AS PER SECTION 115WB(2)(D). ASSESSING OFFICER WAS OF THE OPINION THAT THESE PRESENTS WERE IN THE NATURE OF GIFTS AND, THEREFORE, 50% OF SUCH EXPENSES WERE TAXABLE FRINGE BENEFITS AS PER S ECTION 115WD(2)(O). IN THIS REGARD, ASSESSING OFFICER RELIED ON THE ANSWER TO QUERY NO. 97 OF CBDT CIRCULAR NO. 8/2005 DATED 29.08.2005. BEFORE LD. CIT(APPEALS), IT WAS, INTER ALIA, SUBMITTED THAT IN ORDER TO PROMOTE ITS ITA NO.1813/KOL./2010 2 PRODUCTS, THE ASSESSEE FROM TIME TO TIME FORMULATED ITS SCHEMES IN TERMS OF WHICH ITS DISTRIBUTORS/ DEALERS/ STOCKIEST BECOME ENTITLED TO SPECIFIED ARTICLES DEPENDING UPON THEIR VOLUMES/ PAYMENT HISTORY, ETC. THE ASSESSEE ALSO OR GANIZED SALES PROMOTION MEETINGS OF ITS DISTRIBUTORS/ DEALERS/ STOCKIEST AS ALSO MASONS AND AT SUCH MEETINGS, ARTICLES WERE PRESENTED TO THE DISTRIBUTORS/DEALERS/ STOCKIEST AND MASONS. THE ASSESSEES NAME OR LOGO WAS INVARIABLY AFFIXED ON THE ARTICLES AND/OR CONTAINERS/ PACKING THEREOF. THE LD. CIT(APPEALS) DISMISSED THE ASSESSEES APPEAL BY OBSERVING AS UNDER :- 5. I HAVE GONE THROUGH THE SUBMISSIONS OF THE APPE LLANT AND ALSO THE ORDER OF THE AO. THE PRESENTATION ARTICLES GIVEN TO STOCKISTS AND DEALERS WERE TREATED AS ADVERTISING/ SALES PROMOTION EXPENS ES AND, THEREFORE, THE APPELLANT HAS TAKEN ONLY 20% OF SUCH EXPENSES AS TA XABLE FRINGE BENEFIT. AS SEEN FROM DETAILS THE APPELLANT PRESENTED CD/DVD PLAYER, AUDIO MUSIC SYSTEM, TELEVISION SET, WATCHES, GOLD COINS, SUIT LENGTH, MOBILE PHONE, CAMERA ETC. THESE ARTICLES PRESENTED TO THE STOCKISTS OR DEALERS ARE TO BE TREATED AS GIFTS ACCORDING TO CIRCULAR NO. 8 DATED 29.08.2005 OF CBDT FOLLOWING ANSWER TO QUESTION NO. 97 OF THE CIR CULAR. EVEN THOUGH THE ARTICLES CARRY THE NAME OR LOGO OF THE ASSESSEE , IT IS CLEAR FROM THE NATURE OF ARTICLES PRESENTED THAT THEY ARE IN THE N ATURE OF GIFTS ONLY. THE AO HAS RIGHTLY TREATED THE PRESENTS AS GIFTS AND TA XED 50% OF THE VALUE AS FRINGE BENEFIT VALUE. I CONFIRM THE ACTION OF THE A O AND THE GROUND OF APPEAL IS DISMISSED. 3. LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBM ISSIONS MADE BEFORE LD. CIT(APPEALS) AND SUBMITTED THAT SINCE THE ARTICLES WERE GIVEN AC CORDING TO VOLUME OF SALES ACHIEVED BY AGENTS THEREFORE, THESE ARTICLES WERE GIVEN ONLY A S PER BUSINESS CONSIDERATION AND NOT AS GIFT. IN COURSE OF HEARING, LD. COUNSEL SUBMITTED THAT EXPEN DITURE ON PRESENTATION ARTICLES, UNDER TRADE SCHEMES OR FOR PROMOTION OF COMPANYS PRODUCTS, TO DISTRIBUTORS/ RETAILERS CARRYING THE NAME OR LOGO OF ASSESSEE, WAS TREATED AS EXPENDITURE ON ADV ERTISEMENT. HE ALSO SUBMITTED THAT IN ORDER TO PROMOTE ITS PRODUCTS, ASSESSEE FROM TIME TO TIME FORMULATED SCHEMES WHICH ENTITLED DISTRIBUTORS/ DEALERS/ STOCKIEST TO SPECIFIC ARTICL ES DEPENDING UPON VOLUME OF SALES ACHIEVED AS WELL AS PAYMENT HISTORY, ETC. HE, THEREFORE, SUBMIT TED THAT IMPUGNED EXPENDITURE WAS FOR SALES PROMOTION INCLUDING PUBLICITY UNDER SECTION.115WB( 2)(D) AND NOT GIFT UNDER SECTION.115 WB(2)(O). LD. COUNSEL FOR THE ASSESSEE PLEADED THAT THE ORDER OF LD. CIT(APPEALS) BE QUASHED. 4. ON THE OTHER HAND, LD. D.R. FOR THE REVENUE RELI ED ON THE ORDER OF LD. CIT(APPEALS). 5. WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE R IVAL SUBMISSIONS MADE BEFORE US AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. SECTI ON 115WB(2) OF THE ACT SPECIFIES VARIOUS EXPENSES, WHICH ARE CONSIDERED TO BE IN THE NATURE OF FRINGE BENEFITS. CLAUSE (D) OF THE SAID ITA NO.1813/KOL./2010 3 SECTION TREATS EXPENDITURE ON SALES PROMOTION INCLU DING PUBLICITY AS TAXABLE FRINGE BENEFIT AND CLAUSE (O) TREATS EXPENDITURE ON GIFTS PROVIDED BY THE EMPLOYER AS TAXABLE FRINGE BENEFIT. AS PER SECTION 115WC(1)(C), 20% OF THE EXPENSES INCURR ED ON SALES PROMOTION INCLUDING PUBLICITY ARE TO BE TREATED AS TAXABLE FRINGE BENEFIT AND AS PER SECTION 115WC(1)(D) 50% OF EXPENDITURE ON GIFTS ARE TO BE TREATED AS TAXABLE FRINGE BENEFI T. THE ASSESSEE HAS CONSIDERED THE IMPUGNED AMOUNT UNDER SECTION.115WB(D) WHEREAS AO HAS CONSID ERED THE SAME UNDER SECTION. 115WB(O). KEEPING IN VIEW THE BUSINESS EXIGENCY ONL Y 20% OF THE EXPENDITURE INCURRED ON SALES PROMOTION INCLUDING PUBLICITY HAS BEEN TAKEN AS TAXABLE FRINGE BENEFIT WHEREAS IN CASE OF GIFTS WHICH ARE PURELY GIVEN WITHOUT ANY CONSIDERA TION OUT OF ONES OWN VOLITION HAVING VERY LITTLE BUSINESS CONSIDERATION, 50% OF THE EXPE NDITURE ON SUCH GIFTS IS BEING TREATED AS TAXABLE FRINGE BENEFIT. THE LEGISLATIVE INTENT IS A LSO CLEAR FROM THE FACT THAT W.E.F 1-4-08 EXPENDITURE ON DISTRIBUTION OF SAMPLES EITHER FREE OF COST OR AT CONCESSIONAL RATE HAS BEEN EXCLUDED FROM SALES PROMOTION AND PUBLICITY EXPENSE S AND, THEREFORE, NOT TO BE CONSIDERED AS TAXABLE FRINGE BENEFIT. THEREFORE, AN EXPENDITURE, WHICH HAS DIRECT NEXUS WITH THE SALES PROMOTION AND PUBLICITY CANNOT BE CLASSIFIED UNDER CLAUSE(O) AS GIFTS. IN ANY VIEW OF THE MATTER, UNDER SUCH CIRCUMSTANCES, IN CASE OF TWO VI EWS, THE VIEW FAVOURABLE TO ASSESSEE HAS TO BE TAKEN. WE FIND CONSIDERABLE FORCE IN THE SUBMI SSIONS OF THE LD. COUNSEL FOR THE ASSESSEE. THAT SINCE THE ARTICLES DISTRIBUTED HAD DIRECT NEX US WITH THE SALES ACHIEVED THROUGH STOCKIST/DEALER ETC., THEREFORE, EXPENDITURE WAS PU RELY FOR SALES PROMOTION PURPOSES. IT WAS NOT INCURRED FOR GIVING THE GIFTS, WHICH HAVE NORMALLY TO BE GIVEN GIVEN WITHOUT ANY CONSIDERATION OUT OF ONES OWN VOLITION FURTHER, IT IS NOT DISPUT ED THAT PRESENTATION ARTICLES CARRIED THE NAME OR LOGO OF THE ASSESSEE AND, THEREFORE, THE USE WAS FOR THE PURPOSES OF ADVERTISEMENT.. UNDER SUCH CIRCUMSTANCES, THE IMPUGNED EXPENDITURE IS TO BE TREATED AS EXPENDITURE ON SALES PROMOTION INCLUDING PUBLICITY AND COULD NOT BE CLAS SIFIED UNDER CLAUSE(O) TREATING IT AS GIFT. 6. NOW, LET US EXAMINE THE CBDT CIRCULAR NO.8 DTD. AUGUST 2005 ON THIS ISSUE ON WHICH RELIANCE HAS BEEN PLACED BY LOWER REVENUE AUTHORIT IES [ 277 ITR (ST) (49)- Q.NO.97 AND 98 READS AS UNDER:- 97. WHETHER EXPENDITURE ON GIFTS UNDER TRADE SCH EMES OR FOR PROMOTION OF COMPANYS PRODUCTS TO DISTRIBUTORS/RET AILERS IS LIABLE TO FBT? ANSWER : ORDINARILY, A GIFT IS DEFINED AS ANYTHI NG GIVEN OR PRESENTED WITHOUT CONSIDERATION. THEREFORE, EXPENDI TURE ON GIFTS UNDER TRADE SCHEMES OR FOR PROMOTION OF COMPANYS PRODUCT S TO ITA NO.1813/KOL./2010 4 DISTRIBUTORS/RETAILERS, FALLS WITHIN THE SCOPE OF T HE PROVISIONS OF CLAUSE (O) OF SUB-SECTION (2) OF SECTION 115WB AND, ACCORD INGLY, IS LIABLE TO FBT. 98. DOES A GIFT TO CUSTOMER FALL UNDER SALES PROMOTION OR GIFT? ANSWER: IN TERMS OF THE RULES OF INTERPRETATION OF A STATUTE, A SPECIFIC PROVISION IN LAW OVERRIDES A GENERAL PROVISION. THE REFORE, A GIFT TO A CUSTOMER, EVEN THOUGH FOR THE PURPOSES OF SALES PRO MOTION, WOULD FALL WITHIN THE SCOPE OF THE SPECIFIC PROVISION OF CLAUS E(O) OF SUB-SECTION (2) OF SECTION 115WB RELATING TO GIFT. FROM THE ANSWER GIVEN TO QUESTION NO. 97, IT IS CL EAR THAT GIFT IS DEFINED AS ANYTHING GIVEN OR PRESENTED WITHOUT CONSIDERATION. BY CLASSI FYING THE EXPENDITURE ON GIFTS UNDER TRADE SCHEMES OR FOR PROMOTION OF COMPANYS PRODUCTS TO DISTRIBUTORS/RETAILERS UNDER CLAUSE (O) OF SUB-SECTION (2) OF SECTION 115WB, THE C.B.D.T HAS T REATED THE IMPUGNED EXPENDITURE BEING WITHOUT CONSIDERATION. WE ARE NOT IN AGREEMENT WITH THIS INTERPRETATION OF CBDT. THE VERY PREMISE THAT THAT THE IMPUGNED EXPENDITURE IS WITH OUT CONSIDERATION, IN OUR HUMBLE OPINION, IS WRONG BECAUSE THE OBJECT/CONSIDERATION IS SALES PRO MOTION. GIFTS ARE NORMALLY GIVEN WITHOUT ANY CONSIDERATION OUT OF ONES OWN VOLITION BUT IN THE PRESENT CASE VARIOUS ITEMS WERE GIVEN IN TERMS OF TRADE SCHEME DEPENDING UPON SALES TARGETS ACHIEVED BY STOCKIEST/ DEALERS. WE ARE, THEREFORE, OF THE OPINION THAT RELIANCE CANNOT BE P LACED ON CBDT CIRCULAR AS IT IS NOT IN CONFORMITY WITH THE STATUTE. THE CIRCULAR, WHICH IS NOT IN CONFORMITY WITH THE STATUTORY PROVISION, IS NOT BINDING AND, THEREFORE, CANNOT BE RELIED UPON. IT IS PURELY A QUESTION OF LAW AS TO WHAT IS THE INTERPRETATION OF THE TERM SALES P ROMOTION INCLUDING PUBLICITY EXPENSES AND OF GIFTS. IF SOME EXPENDITURE IS IN THE NATURE OF SA LES PROMOTION THEN ON THE BASIS OF CBDT CIRCULAR, IT CANNOT BE TREATED AS GIFT THEREBY LE AVING THE ASSESSEE TO SUFFER HIGH TAX BURDEN. WE ARE NOT IN AGREEMENT WITH THE ANSWER GIVEN TO QU ESTION NOS. 97 & 98 BY CBDT AS NOTED ABOVE. HONBLE SUPREME COURT IN THE CASE OF STATE O F M.P VS. G.S DALL & FLOUR MILLS (1991) 187 ITR 478,499 HELD THAT EXECUTIVE INSTRUCTIONS CAN SUPPLEMENT A STATUTE OR COVER AREAS TO WHICH THE STATUTE DOES NOT EXTEND. BUT THEY CANNOT RUN CONTRARY TO STATUTORY PROVISIONS OR WHISTLE DOWN THEIR EFFECT. FURTHER, IN SHRI SUBHALA XMI MILLS LTD. VS. ADDL.CIT (1989) 177 ITR 193, 197, IT HAS BEEN HELD THAT CIRCULARS CANNOT AF FECT THE TRUE POSITION OF LAW. IT IS WELL SETTLED THAT AS PER THE RULES OF INTERPRETATION OF A STATUT E, A SPECIFIC PROVISION IN LAW OVERRIDES A GENERAL PROVISION. A SPECIFIC PROVISION HAS BEEN MADE IN RE GARD TO SALES PROMOTION AND PUBLICITY EXPENSES THEN IT WILL OVERRIDE THE GENERAL PROVISIO N RELATING TO GIFT. THEREFORE, EXPENDITURE ON SALES PROMOTION INCLUDING PUBLICITY WOULD FALL WIT HIN THE SCOPE OF THE SPECIFIC PROVISION IN ITA NO.1813/KOL./2010 5 CLAUSE (D) AND NOT CLAUSE (O). WE THEREFORE, HOLD T HAT THE EXPENDITURE ON GIFTS COULD NOT BE TREATED AS TRADE SCHEME OR FOR PROMOTION OF COMPANY S PRODUCT AS PER CLAUSE O OF SUB-SECTION 2 OF SECTION 115WB. AS NOTED EARLIER, THE ASSESSEE HA S FILED DETAILS RELATING TO VARIOUS GIFTS GIVEN TO DEALERS/ DISTRIBUTORS, ACCORDING TO SALES TARGET S ACHIEVED BY THEM. WE FIND FROM THE ORDERS OF AUTHORITIES BELOW THAT THIS ISSUE HAS NOT BEEN EXAM INED IN THE LIGHT OF ABOVE DISCUSSION. WE, THEREFORE, CONSIDER IT FIT TO RESTORE THE MATTER TO THE FILE OF ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH AS PER LAW. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21/10/2011. SD/- SD/- [ MAHAVIR SINGH / ] [S.V. MEHROTRA/ ( . . )] JUDICIAL MEMBER/ ACCOUNTANT MEMBER/ DATED : 21/ 10/ 2011 COPY OF THE ORDER FORWARDED TO: 1. M/S. BIRLA CORPORATION LIMITED, 4 TH FLOOR, 9/1, R.N. MUKHERJEE ROAD, KOLKATA-1 2 DCIT, CIRCLE-6, KOLKATA, P-7, CHOWRINGHEE SQUARE, K OLKATA-700 069. 3. CIT(APPEALS)- ,KOLKATA 4. CIT- , KOLKATA 5 . DR, KOLKATA BENCHES, KOLKATA (TRUE COPY) BY ORDER ASSISTANT REGISTRAR, I.T.A.T., KOLKATA LAHA, SR. P.S.