The DCIT, Circle-8, Ahmedabad V. M/s. Unique Mercantile India Pvt.Ltd., Ahmedabad

ITA 2019/AHD/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1295 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 10-06-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 29-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VARTIK CHOWKSI
• Keywords: Gift; Business expenditure
• Section: 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD BEFORE SHRI RAJPAL YADAV, JM, & SHRI MANISH BORA D, AM. ITA NO.2019/AHD/2013 WITH C.O. 17/AHD/2014 ASST. YEAR: 2006-07 DCIT, CIRCLE-8, AHMEDABAD. VS. UNIQUE MERCANTILE INDIA P. LTD., F-7, VISHAL COMPLEX, NR. DINESH HALL, ASHRAM ROAD, AHMEDABAD. APPELLANT RESPONDENT PAN AAACU 1981B APPELLANT BY SHRI PRASOON KABRA, SR.DR RESPONDENT BY SHRI VARTIK CHOWKSI, AR DATE OF HEARING: 10/6/2016 DATE OF PRONOUNCEMENT: 21/6/2016 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY T HE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF LD. CIT( A)-XIV, AHMEDABAD DATED 27/05/2013, IN APPEAL CIT(A) XIV/DC IT- CIR.8/207/2012-13 PASSED AGAINST ORDER U/S 115WE(3) R.W.S. 115WG OF THE IT ACT, 1961 (IN SHORT THE ACT) FOR ASST. YE AR 2006-07 ON 29/11/2012 BY DCIT, CIRCLE-8, AHMEDABAD. ITA NO. 2019/AHD/13 & CO.17/AHD/2014 ASST. YEAR 2006-07 2 2. BRIEFLY STATED FACTS AS CULLED OUT FROM THE RECO RDS ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN TH E BUSINESS OF ISSUING CARDS TO VARIOUS MEMBERS/CUSTOMERS WHICH EN TITLES THEM TO CERTAIN BENEFITS AND FACILITIES ON THE BASIS OF VAR IOUS RIGHTS MENTIONED TO THE MEMBERS IN THOSE CARDS. RETURN OF FRINGE BEN EFIT WAS FILED BY ASSESSEE ON 31/12/2006 DECLARING VALUE OF FRINGE BE NEFIT OF RS.15,53,808/-. ASSESSMENT U/S 115WE(3) WAS COMPLET ED ON 29.12.2008 ACCEPTING THE RETURNED FRINGE BENEFIT VA LUE OF RS.15,53,808/-. THEREAFTER A NOTICE U/S 115WH OF TH E ACT WAS ISSUED ON 26.03.2012 AFTER DULY RECORDING THE REASONS FOR THE SAME. IN REPLY THERETO THE ASSESSEE FILED LETTER DATED 10.4.12 STA TING THAT RETURN FILED ORIGINALLY ON 31.12.2006 MAY BE TREATED AS FBT RETU RN. NECESSARY INFORMATION WAS CALLED FOR WHICH WAS SUPPLIED BY AS SESSEE. THE CASE WAS DISCUSSED AND VALUE OF FBT WAS ASSESSED AT RS.5 5,47,478/- AFTER MAKING ADDITIONS IN VALUE OF FRING BENEFIT AT RS.39,93,670/- ON ACCOUNT OF FOLLOWING :- EXPENSES IN SCHEDULE 10 OF P & L A/C TOTAL EXPENSES (RS.) OFFERED BY THE ASSESSEE (RS.) DIFFERENCE (RS.) PERCENTAGE VALUE OF FRINGE BENEFITS (RS.) SALES PROMOTIONS/ LODGING EXPENSES 86,48,475 2,05,595 84,42,880 20 16,88,576 TELEPHONE 15,95,171 8,91,304 7,03,867 20 1,40,773 GIRFT 43,50,495 21,853 43,28,642 50 21,64,321 TOTAL 39,93,670 3. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE LD. CI T(A) WHEREIN THE IMPUGNED ADDITION OF RS.39,93,670/- WAS DELETED , HOWEVER, THE ITA NO. 2019/AHD/13 & CO.17/AHD/2014 ASST. YEAR 2006-07 3 GROUND OF ASSESSEE AGAINST THE ORDER PASSED U/S 115 WE(3) R.W.S. 115WG OF THE ACT CHALLENGING THE REOPENING BEING IL LEGAL, VOID IN SUBSTANCE, WAS DISMISSED BY LD. CIT(A). AGAINST THI S ORDER OF LD. CIT(A) REVENUE AND ASSESSEE HAVE FILED THE APPEAL A ND THE CROSS OBJECTION. 4. FIRST WE TAKE UP REVENUES APPEAL. GROUND NO.1 O F THE APPEAL READS AS UNDER :- 1) THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XLV , AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.13,88,576/- MADE ON ACCOUNT OF FRINGE BENEFIT BEING 20% OF RS.84,42, 200/- OF SALES PROMOTION/LODGING EXPENSES IGNORING THE FACT THAT T HE SAME WAS INCURRED TO OBTAIN SALES OF MEMBERSHIPS WHICH IS ASSESSEE'S MAIN BUSINESS TO WHICH PROVISION OF SECTION 115WB(2) OF THE ACT WERE APPLICABLE. ... 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS LD. ASSESSING OFFICER SCRUTINIZED THE SALES PROMOTION, LODGING AN D RESORT EXPENSES AT RS.86,48,475/-. DURING THESE PROCEEDINGS LD. AR SUBMITTED THAT THESE EXPENSES HAVE BEEN INCURRED TOWARDS COST OF T RAVEL PACKAGE WHICH INCLUDED BOARDING, LODGING AND RESORT EXPENSE S AND THIS COST WAS MET OUT OF THE PERIODICAL FEES RECEIVED FROM TH E MEMBERS FOR ISSUING CARDS AND THERE WAS NO ELEMENT OF ANY FREE SERVICE TO MEMBERS OR ANY BENEFIT TO THE EMPLOYEE. HOWEVER, LD . ASSESSING OFFICER WAS NOT CONVINCED WITH THIS REPLY AND BY AP PLYING INSTRUCTIONS MENTIONED IN CBDT CIRCULAR NO.8 DATED 29.8.2005 MAD E ADDITION OF RS.16,88,576/- AS VALUE OF FRINGE BENEFIT. LD. AR F URTHER REFERRED AND RELIED ON FOLLOWING DECISIONS :- 1. ITA NO.3269/AHD/2010 FOR ASST. YEAR 2006-07 IN T HE CASE OF ADANI RETAIL LTD. VS. DCIT. ITA NO. 2019/AHD/13 & CO.17/AHD/2014 ASST. YEAR 2006-07 4 2. ITA NO.3508/AHD/2010 FOR ASST. YEAR 2006-07 IN T HE CASE OF ARVIND FASHIONS LTD. VS. DCIT AND OTHER. 3. ITA NO.906/AHD/2010 FOR ASST. YEAR 2006-07 IN TH E CASE OF JOSHI TECHNOLOGIES INTERNATIONAL INC. VS. ADIT (INT L TAXATION) 4. ITA NO.2656/MUM/2013 FOR ASST. YEAR 2008-09 IN T HE CASE OF KOTAK MAHINDRA BANK LTD. VS. DCIT. 6. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDER OF ASSESSING OFFICER. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD AND GONE THROUGH THE DECISIONS REFERRED A ND RELIEF ON BY THE LD. AR. THROUGH THIS GROUND, REVENUE IS AGGRIEV ED WITH THE ACTION OF LD. CIT(A) DELETING THE ADDITION OF FRINGE BENEF IT AT RS.16,88,576/- MADE BY ASSESSING OFFICER BY WAY OF APPLYING 20% OF 84,42,000/- INCURRED ON SALES PROMOTION/LODGING EXPENSES. FROM GOING THROUGH THE RECORD, WE OBSERVE THAT ASSESSEE IS MAINLY ENGA GED IN THE BUSINESS OF ISSUING MEMBERSHIP CARDS TO VARIOUS MEMBERS/CUSTOMERS WHICH ENTITLE THEM TO CERTAIN BEN EFITS AND FACILITIES ON THE BASIS ON THE BASIS OF VARIOUS RIG HTS MENTIONED TO THE MEMBERS IN THOSE CARDS WHICH ARE AVAILABLE TO THE M EMBERS. AGAINST ISSUANCE OF THESE CARDS, ASSESSEE COLLECTS THE FEES FROM THE MEMBERS/CUSTOMERS ON A PERIODICAL BASIS AND IN RETU RN PROVIDES THE SERVICES INCLUDING FREE HOLIDAY PACKAGES, PRIZES, A CCIDENTAL DEATH COVERAGE, FESTIVAL BONANZA COUPONS ETC. AND COST OF THESE SERVICES PROVIDED TO ITS MEMBERS IS MET OUT OF THE FEES COLL ECTED FROM THE ITA NO. 2019/AHD/13 & CO.17/AHD/2014 ASST. YEAR 2006-07 5 MEMBERS. DURING THE YEAR ASSESSEE INCURRED RESORT E XPENSES AT RS.86,48,475/- OUT OF WHICH EXPENDITURE RS.2,05,595 /- WAS OFFERED BY ASSESSEE FOR BEING SUBJECT TO FRINGE BENEFITS TAX T O BE CALCULATED ON 20% OF RS.2,05,595/- AS VALUE OF FRINGE BENEFIT AND THE REMAINING AMOUNT OF RS.84,42,880/- WAS SPECIFICALLY INCURRED FOR THE TRAVELLING PACKAGE COST OF ITS MEMBERS FROM WHOM ADVANCE FEES WAS ALREADY RECOVERED AND THERE WAS NO ELEMENT OF ANY FACILITY OR BENEFIT DIRECTLY OR INDIRECTLY PROVIDED TO ITS EMPLOYEES. WE FURTHER OBSERVE THAT LD. CIT(A) HAS DELETED THE IMPUGNED ADDITION OF VALUE O F FRINGE BENEFIT OF RS.16,88,576/- CALCULATED @ 20% ON THE RESORT EXPEN SES AT RS.84,42,880/- BY OBSERVING AS UNDER :- 3.3 DECISION: I HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER, SUBM ISSIONS GIVEN BY THE APPELLANT AND CBDT CIRCULAR NO. 8 DATED 29 TH AUGUST, 2005 RELIED UPON BY THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS MA DE ADDITION FOR VALUE OF FRINGE BENEFITS FOR RS. 39,93,670/-COMPRISING OF RESORT EXPENSES TREATED AS SALES PROMOTION, TELEPHONE EXPENSES AND GIFT EXP ENSES. SO FAR AS FIRST ISSUE IS CONCERNED, ASSESSING OFFIC ER HAS OBSERVED THAT APPELLANT HAS INCURRED RESORT EXPENSES WHICH IS IN NATURE OF SALES PROMOTION EXPENSES COVERED UNDER CLAUSE (D) OF SECT ION 115WB(2). EVEN AS PER ANSWER TO QUESTION NO. 67 OF CBDT CIRCULAR N O. 8 DATED 29 TH AUGUST, 2005, THESE EXPENDITURE IS IN NATURE OF LOD GING AND BOARDING OF CLIENTS AND CUSTOMERS WHICH IS EITHER COVERED UNDER CLAUSE (D) OR CLAUSE (G) OF SECTION 115WB(2). ON CAREFUL CONSIDERATION O F THE ENTIRE FACTS, IT IS AN UNDISPUTED FACT THAT APPELLANT IS ENGAGED IN THE BUSINESS OF ISSUING FACILITY CARDS TO VARIOUS MEMBERS AND MEMBERSHIP FE ES VARY FROM ONE YEAR TO SEVEN YEARS AND VARY ACCORDING TO TERMS OF MEMBE RSHIP. IN THE COURSE OF ITS BUSINESS AND AGAINST FEES COLLECTED FROM ITS M EMBERS, APPELLANT PROVIDES VARIOUS FACILITIES TO THE MEMBERS OVER THE PERIOD F OR WHICH THEIR MEMBERSHIP EXISTS WHICH BROADLY INCLUDE ACCIDENTAL DEATH COVER AGE, SPECIAL DISCOUNT RATES FOR SHOPS/ESTABLISHMENTS WITH WHOM APPELLANT COMPANY HAS MADE OFFER, UNIQUE HEALTHCARE PROGRAMME AND FREE STAY PACKAGES, ETC. AS SUCH IT I S PART OF PACKAGE PROVIDED AS PER CARD ISSUED TO MEMBERS. IT IS OBSERVED FROM THE RECORDS THAT FACILITIES OF FREE STAY ARE PROVIDED TO APPELLANT'S CUSTOMERS ON THE BASIS OF MEMBERSHIP CARD ISSUED TO ' J THEM AND EXPENDITURE INCURRED ON ITA NO. 2019/AHD/13 & CO.17/AHD/2014 ASST. YEAR 2006-07 6 THESE STAYS WHICH ARE DIRECTLY LINKED WITH MEMBERSH IP FEE COLLECTED IS CLAIMED UNDER THE HEAD 'RESORT EXPENSES'. THESE FAC ILITIES ARE PROVIDED TO CUSTOMERS AGAINST MEMBERSHIP FEES COLLECTED BY APPE LLANT WHICH BY NO MEANS IS AKIN TO SALES PROMOTION OR LODGING AND BOA RDING FACILITIES PROVIDED TO CUSTOMERS AS ENVISAGED IN CBDT CIRCULAR RELIED UPON BY ASSESSING OFFICER. THIS IS THE DIRECT COST WHICH AS SESSEE COMPANY HAS TO BEAR AND FACILITY IS DIRECTLY PROVIDED TO ITS CUSTO MERS AND NOT TO ANY EMPLOYEES AND IS PART OF PACKAGE COST PROVIDED TO C USTOMERS IN CONSIDERATION OF MEMBERSHIP FEES COLLECTED FROM THE M. ON CAREFUL CONSIDERATION OF PROVISIONS OF SECTION 115WB READ W ITH FINANCE MINISTER'S SPEECH AT THE TIME OF INTRODUCING FINANCE BILL AND NOTES ON CLAUSES, IT IS CLEAR THAT SECTION 115WB(1) DEFINES THE SCOPE OF FR INGE BENEFIT TAX PROVIDED BY EMPLOYERS TO EMPLOYEES AND DEEMING PROVISIONS CONTAINED IN SECTION 115WB(2) CANNOT BE INVOKED MECHANICALLY AN D IN RESPECT OF EVERY ITEM OF EXPENDITURE, IT IS NECESSARY FIRST TO CORRELATE THE BENEFIT OF EMPL OYEES ARISING OUT OF THEIR EMPLOYMENT BEFORE THE EXPENDIT URE CAN BE CATEGORIZED TO BE RESULTING INTO FRINGE BENEFIT AND IF THE EXPE NDITURE INCURRED BY THE ASSESSEE COMPANY IS FOR THE PURPOSE OF ITS BUSINESS AND NOT INCURRED FOR THE BENEFIT OF EMPLOYEES, FRINGE BENEFITS TAX (FBT) CANNOT BE LEVIED ON THESE EXPENDITURE. THESE PROVISIONS ARE ELABORATE LY DISCUSSED BY HON'BLE PUNE I.T.A.T. IN CASE OF DESAI BROLHERS LTD 32 TAXM ANN.COM 278 (2013) WHEREIN THE HON'BLE I.T.A.T, AT PARA 8 HAS HELD AS UNDER: 8. TO APPRECIATE THE LEGAL POSITION, WE MAY AGAIN REFE R TO THE MEANING OF THE EXPRESSION 'FRINGE BENEFITS', AS CONTAINED IN S ECTION 115WB(1) OF THE ACT. AS NOTED EARLIER, SUB-SECTION (1) OF SECTION 115WB CONTAINS THE EXPRESSION 'MEANS ANY CONSIDERATION FOR EMPLOYMENT'. THE PRESE NCE OF THE AFORESAID EXPRESSION MEANS THAT THE 'FRINGE BENEFITS' COVERED IN SECTION 115WB(1) ARE THOSE WHICH ARE IN CONSIDERATION FOR EMPLOYMENT. NO W, SECTION 115WB(2) CONTAINS 'FRINGE BENEFITS' WHICH ARE DEEMED TO HAVE BEEN PROVIDED BY THE EMPLOYER TO THE EMPLOYEES. SECTION 115 WB(2) DOES N OT CONTAIN THE EXPRESSION '.... MEANS ANY CONSIDERATION FOR EMPLOY MENT ...' AS CONTAINED IN SUB-SECTION (1) OF SECTION 115WB, AND THEREFORE, IT IS SOUGHT TO BE CANVASSED BY THE REVENUE THAT ANY PAYMENT MADE BY AN ASSESSEE FOR THE PURPOSES CONTAINED IN CLAUSES (A) TO (Q) OF SUBSECTION (2) O F SECTION 115WB SHALL RESULT IN 'FRINGE BENEFITS' DEEMED TO HAVE BEEN PRO VIDED BY THE EMPLOYER TO HIS EMPLOYEES, HI OTHER WORDS, AS PER THE REVENUE THE E XPENSES LISTED IN SECTION 115WB(2) NEED NOT BE INCURRED ON EMPLOYEES SO AS TO QUALIFY FOR CHARGING OF FBT. IN OUR CONSIDERED OPINION, SUB-SECTION (1) OF SECTION 115WB ITSELF QUALIFIES THAT THE MEANING OF THE EXPRESSION 'FRING E BENEFITS' CONTAINED THEREIN IS 'FOR THE PURPOSES OF THIS CHAPTER' AND, THEREFOR E, IT IMPLIES THAT THE OVERRIDING CONDITION OF THE INCURRENCE OF EXPENDITU RE IN CONSIDERATION FOR EMPLOYMENT IS EVEN RELEVANT FOR THE PURPOSES OF ASS ESSING OR ASCERTAINING FRINGE BENEFITS, WHICH ARE DEEMED TO HAVE BEEN PROV IDED BY THE EMPLOYER TO ITS ITA NO. 2019/AHD/13 & CO.17/AHD/2014 ASST. YEAR 2006-07 7 EMPLOYEES IN TERMS OF SUB-SECTION (2) OF SECTION 11 5WB OF THE ACT ALSO. THEREFORE, EVEN IN THE CIRCUMSTANCES PROVIDED IN SU B-SECTION (2) OF SECTION 115WB OF THE ACT 'FRINGE BENEFITS' CAN BE DEEMED TO HAVE BEEN PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES, ONLY IN CASES WHERE THE PRESCRIBED EXPENDITURE IS INCURRED IN CONSIDERATION FOR EMPLOYMENT.....' IN THE AFORESAID DECISION, THE HON'BLE PUNE I.T.A.T . HAS CONSIDERED CIRCULAR NO. 8 OF 2005 HEAVILY RELIED UPON BY THE ASSESSING OFFICER AND HAS OBSERVED THAT THIS CIRCULAR ISSUED BY CBDT CANNOT O VERRIDE THE PROVISIONS OF THE ACT AND CIRCULAR 6 TO ENLARGE THE SCOPE OF L EVY OF FBT WHICH IS NOT SUPPORTED BY THE LANGUAGE OF THE STATUTE. THE HON'B LE I.T.A.T. AT PARA 9 HAS HELD AS UNDER: '9. THE INTERPRETATION SOUGHT TO BE ADVANCED BY THE REVENUE IS NOT BORNE OUT OF THE STATUTORY PROVISIONS. OSTENSIBLY, THE CLARIF ICATION ISSUED BY THE CBDT VIDE QUESTION NO. 14 IN CIRCULAR NO. 8 OF 2005 (SUPRA) SEEKS TO ENLARGE THE SCOPE OF LEVY OF FBT, WHICH IS NOT SUPPORTED BY THE LANGUAGE OF THE STATUTE. THE HON'BLE SUPREME COURT IN THE CASE OF KERALA FINANCIAL CORPN. V. CIT [1994] 210 ITR 129/75 TAXMAN 573 (SC) HAS CLEARLY O PINED THAT THE CIRCULARS ISSUED BY CBDT CANNOT OVERRIDE THE PROVISIONS OF TH E ACT. IN ANY CASE, IT IS QUITE WELL-SETTLED THAT AN EXECUTIVE INSTRUCTION/CI RCULAR CANNOT CREATE ANY ADDITIONAL LIABILITY ON THE ASSESSEE. SECONDLY, IT IS ALSO TO BE APPRECIATED THAT THE STAND OF THE REVENUE IS ALSO NOT IN CONSONANCE WITH THE LEGISLATIVE INTENT. THE IMPORT AND INTENT OF INTRODUCING CHAPTER XII-H WAS TO TAX SUCH BENEFITS WHICH ARE COLLECTIVELY ENJOYED BY THE EMPLOYEES AND CANNOT BE ATTRIBUTED TO ANY INDIVIDUAL EMPLOYEE. SUCH BENEFITS ESCAPE TAXAT ION AS PERQUISITE IN THE HANDS OF THE INDIVIDUAL EMPLOYEES AS THEY ARE NOT A TTRIBUTABLE TO ANY INDIVIDUAL EMPLOYEE. THEREFORE, SUCH BENEFITS WERE SOUGHT TO B E TAXED IN THE HANDS OF THE CONCERNED EMPLOYER. THOUGH THE SPEECH OF THE HON'BL E FINANCE MINISTER MAY NOT BE A DECISIVE TEST, SO HOWEVER, IT IS INDEED A RELEVANT AND CONTEMPORANEOUS EXPOSITION OF THE LEGISLATIVE INTENT AND CAN BE REL IED UPON, AS PROPOUNDED BY THE HON'BLE SUPREME COURT IN THE CASE OF K.P. VARGHESE V. ITO [1981] 131 ITR 597 /7TAXMAN 131. CONSIDERED IN THAT LIGHT TOO, WE FIND THAT THE INTERPRETATION SOUGHT TO BE MADE OUT BY THE REVENUE WITH REGARD TO THE MEANING OF THE EXPRESSION 'FRINGE BENEFITS' FOR THE PURPOSES OF SECTION 115WB(2) OF THE ACT IS QUITE MISPLACED. CONSIDERING THE AFORESAID, WE THEREFORE DO NOT SUBSCRIBE TO THE INTERPRETATION SO UGHT TO BE PLACED BY THE REVENUE ON SECTION 115 WB(2) OF THE ACT AND INSTEAD , HOLD THAT THE EXPENSES PRESCRIBED THEREIN ARE LIABLE TO BE CONSIDERED AS F RINGE BENEFITS ONLY TO THE EXTENT THE SAME ARE INCURRED IN CONSIDERATION FOR E MPLOYMENT. TO THE SAME EFFECT IS ALSO THE VIEW OF OUR CO-ORDINATE BENCH IN THE CASE OF DY. CIT V. KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE LTD. [2012] 134 ITD 388 /[2011] 16 TAXMANN.COM 395 (MUM). ITA NO. 2019/AHD/13 & CO.17/AHD/2014 ASST. YEAR 2006-07 8 WITHOUT GETTING INFO CONTROVERSY AS TO WHETHER CBDT CIRCULARS ARE BINDING OR NOT, THE HON'BLE APEX COURT IN THE CASE OF CIT V. H ERO CYCLES (P) LTD. [1997] 228 ITR 463/ 94 TAXMAN 271 HAS HELD THAT CIRCULARS CAN BIND THE ITO BUT WILL NOT BIND THE APPELLATE AUTHORITY OR THE TRIBUNAL OR THE COURT OR EVEN THE ASSESSEE. HIGH COURT IN THE CASE OF EAST INDIA HOTE LS LTD. 230 ITR 630 HELD THAT - 'SIMILARLY, UNDER SECTION 119 OF THE ACT A POWER HA S BEEN RESERVED IN FAVOUR OF THE CENTRAL BOARD OF DIRECT TAXES (IN SHORT 'THE BOARD') TO ISSUE INSTRUCTIONS TO SUBORDINATE INCOME TAX AUTHORITIES FOR PROPER ADMINISTRATION OF THE ACT AND WHO ARE REQUIRED TO OBSERVE AND FOLLOW SUCH INSTRUCTIONS. NONE THE LESS, IT MAY BE MADE CLEAR THAT SUCH INSTRUCTIO NS WHICH MAY EVEN PERTAIN TO THE INTERPRETATION OF A STATUTORY PROVISION UNDE R THE ACT CANNOT BIND THE TAXPAYERS REQUIRING TO SEEK ANY REMEDY AGAINST THE SAID INSTRUCTIONS/CLARIFICATIONS EITHER STATUTORY OR CON STITUTIONAL. BUT TO MY UTTER SURPRISE THE RESPONDENT/DEPUTY COMMISSIONER HAS COM E ON OATH BEFORE THIS COURT TO FAKE A STAND THAT THE INSTRUCTIONS ISSUED BY THE COMMISSIONERS WILL BIND THE TAXPAYERS, UNLESS THEY GET RID OF IT BY AV AILING OF REMEDIES AS SUGGESTED BY HIM IN HIS STATEMENT QUOTED ABOVE. HIS STATEMENT TO THE SAID EFFECT NEEDS TO BE DENOUNCED AS NOT ONLY LEGAL NOTI ONS. I CAN ONLY TRUST THAT HENCEFORTH THE INCOME TAX AUTHORITIES SHOULD DETER FROM ENJOYING FIVE STAR COMFORTS AND DINNERS BY ACCEPTING THE HOSPITALITY O F CORPORATE PEOPLE BY GIVING AN ILLUSORY AND ILL-CONCEIVED IMPRESSION THA T THEY ARE THE FINAL LAW MAKING AND CLARIFYING AUTHORITIES. IT MAY BE CLARIF IED THAT THE INCOME TAX AUTHORITIES WHILE DISCHARGING THEIR QUASI-JUDICIAL FUNCTIONS HAVING A BEARING ON THE RIGHTS AND OBLIGATIONS OF THE TAX PAYERS UNDER THE PROVISIONS OF THE ACT MAY TAKE SUCH VIEWS ON THE INTERPRETATION OF A PART ICULAR STATUTORY PROVISION AS MAY BE PERMISSIBLE WHICH WILL BE ALWAYS SUBJECT TO THE STATUTORY REMEDIES UNDER THE ACT. BUT THE VIEW SO TAKEN IN THE PARTICU LAR CASE CANNOT PARTAKE OF THE COLOUR OF A LAW OF GENERAL APPLICATION SO AS TO BIND A WHOLE CLASS OF TAXPAYERS AND PROVIDING THEM A CAUSE OF ACTION FOR COMING BEFORE THIS COURT SEEKING INTERFERENCE UNDER THE WRIT JURISDICTIONS.. .' . . THE HON'BLE BANGALORE I.T.A.T. IN CASE OF TOYOTA KI RLOSKAR MOTOR PVT. LIMITED 24 TAXMAN 148 AFTER CONSIDERING CIRCULAR NO . 8 OF 2005 AND LEGAL PRECEDENT ON BINDING NATURE OF CIRCULAR AT PARA 11. 7 HAS OBSERVED THAT THE HON'BLE APEX COURT IN THE CASE OF STATE OF MADHYA P RADESH V. G.S. DALL & FLOUR MILLS [1 99 1 ] 187ITR 478 HELD THAT EXECUTIVE INSTRUCTIONS CAN SUPPLEMENT A STATUTE OR COVER AREAS TO WHICH THE ST ATUTE DOES NOT EXTEND BUT THEY CANNOT RUN CONTRARY TO STATUTORY PROVISION S OR WHITTLE DOWN THEIR EFFECT. FURTHER, HON'BLE I.T.A.T. AT PARA 11.8 HAS HELD THAT 'WE ARE OF THE OPINION THAT THE CIRCULAR NO.5 OF 2008 CANNOT BE RE LIED UPON TO THE DISADVANTAGE OF THE APPELLANT IN SUPPORT OF THE CON CLUSION THAT THE EXPENDITURE IN THE PRESENT CASE IS LIABLE FOR FBI.' ITA NO. 2019/AHD/13 & CO.17/AHD/2014 ASST. YEAR 2006-07 9 IN VIEW OF DISCUSSION MADE HEREINABOVE. FRINGE BENE FITS TAX CANNOT BE LEVIED ON EXPENDITURE INCURRED OTHER THAN EXPEND ITURE FROM WHICH EMPLOYEES HAS DERIVED BENEFITS. IN THE APPELLANT'S CASE, AS DISCUSSED HEREINABOVE, RESORT EXPENDITURE IS FOR FREE HOLIDAY PACKAGES PROVIDED TO MEMBERS OF APPELLANT COMPANY AGAINST MEMBERSHIP FEE S COLLECTED FROM THEM WHICH IS NO WAY CONNECTED TO PROVIDING ANY BEN EFITS TO EMPLOYEES. HENCE FBT CANNOT BE LEVIED ON THESE RESORT EXPENSES . RELIANCE IS ALSO PLACED ON DECISION OF HON'BLE BANGALORE I.T.A.T. IN CASE OF TOYOTA KIRLOSKAR MOTOR_..PVT. LIMITED (SUPRA) WHEREIN THE I.T.A.T, HAS HELD THAT LEGITIMATE BUSINESS EXPENDITURE IN NATURE OF SALES PROMOTION, CONVEYANCE, TOUR AND TRAVELS AND GIFTS WHICH DID NOT RESULT IN ANY BENEFIT TO EMPLOYEES WAS NOT LIABLE FOR FBT. THE APPELLANT HAS ITS BUSIN ESS MODEL PECULIAR IN ITSELF WHICH IS REQUIRED TO BE UNDERSTOOD TO DECIDE ISSUE UNDER CONSIDERATION. RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE I.T.A.T. AND PROVISIONS OF THE LAW, ASSESSING OFFICER WAS NOT JU STIFIED IN MAKING ADDITION FOR VALUE OF FRINGE BENEFIT FOR RESORT EXP ENSES TREATED AS SALES PROMOTION/LODGING EXPENSES. SO FAR AS SECOND ISSUE IS CONCERNED, ASSESSING OFFI CER HAS OBSERVED THAT APPELLANT HAS CLAIMED TELEPHONE EXPEN SES OF RS.15,95,171 IN PROFIT & LOSS ACCOUNT AGAINST WHICH IT HAS PAID FBT ON EXPENSES OF RS. 8,91,304 HENCE BALANCE TELEPHONE EXPENSES OF RS, 7, 03,867/- IS CONSIDERED FOR LEVY OF FBT AND ADDITION OF RS. 1,40 ,773/-HAS BEEN MADE. ON THE OTHER HAND, APPELLANT BOTH DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND IN APPELLATE PROCEEDINGS HAS SUBMIT TED THAT AS PER CLAUSE (J) OF SECTION 115WB(2) TELEPHONE EXPENSES O THER THAN EXPENDITURE ON LEASED TELEPHONE LINE IS LIABLE FOR FBT AND EXPENDITURE OF RS. 7,03,867/- PERTAINS TO EXPENDITURE ON LEASED LI NE HENCE NO FBT HAS BEEN PAID. THESE FACTS ARE NOT DISPUTED BY ASSESSIN G OFFICER AND AS PER PROVISION OF CLAUSE (J) REFERRED SUPRA. ASSESSING O FFICER WAS NOT JUSTIFIED IN LEVYING FBT ON TELEPHONE EXPENDITURE BEING PAYME NT MADE FOR LEASED LINE. SO FAR AS THIRD ISSUE IS CONCERNED, ASSESSING OFFIC ER HAS CONSIDERED EXPENDITURE AND PRIZES AND PRESENTS AS GIFT AND REL IED UPON CLARIFICATION IN ANSWER NO. 98 OF CIRCULAR NO. 8 DATED 29 TH AUGUST, 2005 AND OBSERVED THAT GIFT TO A CUSTOMER EVEN IF FOR THE PURPOSE OF SALES PROMOTI ON WOULD FALL WITHIN THE SCOPE OF PROVISIONS OF SECTION 115WB(2)(O). ON CAREFUL C ONSIDERATION OF EXPLANATION PROVIDED BY THE APPELLANT BOTH AT THE TIME OF ASSESSMENT PROCEEDINGS AND APPELLATE PROCEEDINGS ALONG WITH NECESSARY SUPPORTI NG EVIDENCES, IT IS OBSERVED THAT DURING THE COURSE OF ITS BUSINESS OF PROVIDING VARIOUS MEMBERSHIP FEE CARDS TO ITS CUSTOMERS, IT HAS APPOINTED AGENTS ACROSS TH E COUNTRY AND THESE AGENTS ARE COMPENSATED IN THE FORM OF COMMISSION AND THROU GH REWARDS WHICH ARE ITA NO. 2019/AHD/13 & CO.17/AHD/2014 ASST. YEAR 2006-07 10 DIRECTLY LINKED WITH THE PERFORMANCE OF THOSE AGENT S. THE AGENTS, CHAINS OF AGENTS, WHO HAVE ACHIEVED THE PRESCRIBED TARGETS GI VEN BY THE COMPANY, ARE PROVIDED WITH GIFTS ACCORDING TO TERMS AND CONDITIO NS OF THE VARIOUS CONTESTS PREVAILING DURING THE PERIOD. THESE GIFTS ARE NOT P ROVIDED TO CUSTOMERS AS OBSERVED BY ASSESSING OFFICER HENCE ANSWER TO QUEST ION NO. 98 OF THE CIRCULAR NO. 8 RELIED UPON BY THE ASSESSING OFFICER DO NOT A PPLY IN THIS CASE. ON THE CONTRARY, QUESTION NO. 61 OF THE SAID CIRCULAR CLEA RLY STATES THAT ANY SCHEME WHICH OFFERS REWARDS TO AGENTS, DEALERS, ETC., BASE D ON THE ACTUAL PERFORMANCE IS NOT SALES PROMOTION AND, THEREFORE, FALLS OUTSIDE T HE PURVIEW OF SECTION 115WB(2)(D). THE RELEVANT PORTION OF THE SAID CIR CULAR IS REPRODUCED HEREUNDER: '61. WHETHER EXPENDITURE ON INCENTIVES GIVEN TO DIS TRIBUTORS FOR MEETING QUANTITY TARGETS (INCLUDING FREE GOODS FOR ACHIEVIN G CERTAIN SALES TARGET LIKE, 100 FREE TELEVISIONS FOR ACHIEVING A TARGET SALE OF 10,000 TELEVISIONS AND CASH INCENTIVES ADJUSTABLE AGAINST FUTURE SUPPLIES) IS L IABLE TO FBT? ANS : INCENTIVE GIVEN TO DISTRIBUTORS FOR MEETING S ALES TARGETS (INCLUDING FREE GOODS GIVEN AS INCENTIVE TO DISTRIBUTORS FOR ACHIEV ING CERTAIN SALES AND CASH INCENTIVES ADJUSTABLE AGAINST FUTURE SUPPLIES) ARE IN THE NATURE OF PERFORMANCE-BASED COMMISSION. SUCH PERFORMANCE-BASE D COMMISSION IS IN THE NATURE OF ORDINARY SELLING COST. THEREFORE, EXPENDI TURE INCURRED FOR THE PURPOSE OF PROVIDING INCENTIVES GIVEN TO DISTRIBUTO RS FOR MEETING SALES TARGETS (INCLUDING FREE GOODS FOR ACHIEVING CERTAIN SALES T ARGET AND CASH INCENTIVES ADJUSTABLE AGAINST FUTURE SUPPLIES) DO NOT FALL WIT HIN THE SCOPE OF CLAUSE (D) OF SUB-SECTION (2) OF SECTION 115WB AND, THEREFORE, NO T LIABLE TO FBT.' EVEN ON THE BASIS OF CIRCULAR NO. 8 OF 2005 RELIED UPON BY THE ASSESSING OFFICER, APPELLANT IS NOT LIABLE TO FBT ON EXPENDIT URE OF GIFTS PROVIDED TO ITS AGENTS AS IT IS TARGET ORIENTED WHICH IS NOT AT ALL SALES PROMOTION AS PER ANSWER TO QUESTION NO. 61 OF SAID CIRCULAR REPRODUC ED HEREIN ABOVE. EVEN IN PRECEDING PARA AT 3.3.1,1 HAVE CAREFULLY CONSIDE RED THE PROVISIONS OF FBT, CIRCULAR ISSUED BY CBDT AS WELL AS DECISIONS O F HON'BLE ITAT'S AND OBSERVED THAT FBT IS NOT LEVIABLE ON EXPENDITURE IN CURRED FOR THE PURPOSE OF BUSINESS WHICH DOES NOT GIVE ANY BENEFIT TO EMPL OYEES. APPELLANT HAS PROVIDED THE GIFTS TO ITS AGENTS ON ACHIEVING THE V ARIOUS SALES TARGETS AND SUCH GIFTS ARE NOT PROVIDED TO EMPLOYEES HENCE EVEN ON THIS GROUND ALSO APPELLANT IS NOT LIABLE TO FBT. 8. WE FURTHER OBSERVE THAT THE CO-ORDINATE BENCH AH MEDABAD IN THE CASE OF JOSHI TECHNOLOGIES INTERNATIONAL INC. V S. ADIT (INTS TAX) IN ITA NO.906(AHD) OF 2010 FOR ASST. YEAR 2006-07 P RONOUNCED ON 1 ST MAY, 2013 HAS HELD AS UNDER :- ITA NO. 2019/AHD/13 & CO.17/AHD/2014 ASST. YEAR 2006-07 11 6.7. EVEN IN THE CASE OF CALCUTTA MEDICAL RESEARCH INSTITUTE REPORTED AT (2000) 75 ITD 484 (CAL.) IT WAS OPINED THAT WHEN A PERSON IS ENGAGED TO MANAGE A BUSINESS, THEN HE MAY BE A SERVANT OR AN AGENT ACCORDING TO T HE NATURE OF A SERVICE. IN A SITUATION, WHERE THE LIABILITY FOR DEDUCTION OF TAX WAS FULFILLED U/S.192 OF IT ACT , THEN IT IS ESTABLISHED THAT THERE WAS RELATIONSHIP OF MASTER AND SERVANT. CONSIDERING THE TERMS AND CONDITIONS IN THAT CASE, IT WAS HELD THAT THERE WAS NO RELATIONSHIP OF MASTER AND SERVANT. LASTLY, OUR ATT ENTION HAS ALSO BEEN DRAWN ON TOYOTA KIRLOSKAR MOTOR (P.) LTD. (2012) 24 TAXMANN. COM 149 (BANG.) FOR THE LEGAL PROPOSITION THAT THE PROVISIONS OF SECTION 115-WB(2) ARE REQUIRED TO BE INVOKED IF THERE IS AN EMPLOYER-EMPLOYEE RELATIONSHIP. RATHER, CIRCULAR NO.8 OF 2005 ALSO PRESCRIBES THAT THE PROVISIONS OF SECTION 115WB CAN BE INVOKED ONLY IF THERE IS AN EMPLOYER-EMPLOYEE RELATIONSHIP. THE FINANCE MINISTE R IN THE SPEECH WHILE INTRODUCING OF PROVISIONS OF FBT HAS STATED THAT WH EN THE BENEFITS ARE FULLY ATTRIBUTABLE TO THE EMPLOYEE, THEN TAX IN THE HANDS OF THE EMPLOYER. THE RATIONALE BEHIND THE INTRODUCTION OF FBT PROVISIONS THUS IS T O TAX A BENEFIT WHICH IS ENJOYED COLLECTIVELY BY THE EMPLOYEES. HITHERTO THA T WAS TAXED IN THE HANDS OF THE EMPLOYEES AND THE EMPLOYER WAS CLAIMING DEDUCTION. 6.8. SO THE FBT IS ELIGIBLE ONLY IN A CASE WHERE EX PENDITURE IS INCURRED BY THE EMPLOYER OSTENSIBLY FOR THE PURPOSE OF BUSINESS BUT INCLUDES PARTIALLY A BENEFIT OF A PERSONAL NATURE PASSED ON TO THE EMPLOYEE. BUT, A LEGITIMATE BUSINESS EXPENDITURE NOT WITHIN THE AMBITS OF EMPLOYER & EMP LOYEE RELATIONSHIP IS OUTSIDE THE SCOPE OF FBT. IN VIEW OF THESE OBSERVATIONS, WE HEREBY HOLD THAT THE FBT PROVISIONS HAVE WRONGLY BEEN ITA NO.906/AHD/2010 JO SHI TECHNOLOGIES INTERNATIONAL INC. VS. ADIT (INTNL.TAXN) ASST.YEAR - 2006-07 9. FROM GOING THROUGH THE DECISION OF THE CO-ORDINA TE BENCH AS WELL AS DETAILED OBSERVATION MADE BY LD. CIT(A) AND GOING THROUGH THE FACTS, WE ARE OF THE CONSIDERED VIEW THAT THE I MPUGNED EXPENDITURE OF RS.84,42,880/- HAS BEEN INCURRED FOR THE MEMBERS AGAINST MEMBERSHIP FEES TAKEN FROM TIME TO TIME AND THE INSTRUCTIONS OF CBDT CIRCULAR NO.8, DATED 29.8.2005 SHALL NOT AP PLY ON THE ASSESSEE AS NO BENEFIT HAS BEEN PASSED ON BY THE EM PLOYER TO ITS ITA NO. 2019/AHD/13 & CO.17/AHD/2014 ASST. YEAR 2006-07 12 EMPLOYEES AND, THEREFORE, DEEMING PROVISIONS OF SEC TION 115WB(2) OF THE ACT CANNOT BE INVOKED MECHANICALLY IN RESPEC T OF EVERY ITEM OF EXPENDITURE UNLESS AND UNTIL IT CO-RELATES TO THE B ENEFIT OF EMPLOYEES. WE THEREFORE, FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) ON THIS ISSUE. WE UPHOLD THE SAME. THIS GROUND OF R EVENUE IS DISMISSED. 10. GROUND NO.2 OF REVENUES APPEAL READS AS UNDER :- 2) THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XIV , AHMEDABAD HAS ERRED IN LAW AND ON FACTS TO DELETE THE ADDITION OF RS.1,40,773/- MADE ON ACCOUNT OF FBT BEING 20% OF TELEPHONE EXPENSES WITH OUT VERIFICATION OF CORRECTNESS OF ASSESSESS'S CLAIM THAT THE TELEPHONE EXPENSE OF RS.7,03,867/- PERTAINED TO LEASED LINES. . . : 11. WHILE FRAMING ASSESSMENT ORDER U/S 115WE(3) R.W .S. 115WG OF THE ACT, LD. ASSESSING OFFICER OBSERVED THAT ASSESS EE HAS INCURRED TELEPHONE EXPENDITURE OF RS.15,95,171/- OUT OF WHIC H ASSESSEE HAS ALREADY OFFERED RS.8,91,304/- TOWARDS EXPENDITURE S UBJECT TO FBT AND THE REMAINING AMOUNT OF RS.7,03,867/- WAS NOT O FFERED FOR THE VERY REASON THAT THIS EXPENDITURE OF RS.7,03,867/- WAS INCURRED TOWARDS TELEPHONE LEASE LINES. LD. AR SUBMITTED THA T THERE IS NO DISPUTE TO THIS EFFECT THAT RS.7,03,867/- HAS BEEN INCURRED SPECIFICALLY TOWARDS LEASE LINE WHICH DO NOT ATTRACT LEVY OF FBT AND, THEREFORE, LD. CIT(A) HAS RIGHTLY DELETED THE IMPUGNED ADDITION OF RS.1,40,173/-. 12. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDER O F ASSESSING OFFICER. ITA NO. 2019/AHD/13 & CO.17/AHD/2014 ASST. YEAR 2006-07 13 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THROUGH THIS GROUND REVENUE IS AGGRIEVED WITH THE ACTION OF LD. CIT(A) DELETING THE ADDITION OF RS.1,40,173/ - ON THE VALUE OF FBT CALCULATED BY LD. ASSESSING OFFICER ON THE TELE PHONE EXPENDITURE OF RS.7,03,867/-. WE OBSERVE THAT THE AMOUNT OF RS. 7,03,867/- HAS BEEN INCURRED TOWARDS TELEPHONE LEASE LINES AND THE Y WERE SPECIFICALLY NOT ATTRIBUTABLE TO THE EMPLOYEES. WE FURTHER OBSERVE THAT LD. CIT(A) WHILE DELETING THE IMPUGNED ADDITIO N OF RS.1,40,173/- HAS OBSERVED AS UNDER :- SO FAR AS SECOND ISSUE IS CONCERNED, ASSESSING OFFI CER HAS OBSERVED THAT APPELLANT HAS CLAIMED TELEPHONE EXPEN SES OF RS.15,95,171/- IN PROFIT & LOSS ACCOUNT AGAINST WH ICH IT HAS PAID FBT ON EXPENSES OF RS. 8,91,304 HENCE BALANCE TELEP HONE EXPENSES OF RS, 7,03,867/- IS CONSIDERED FOR LEVY O F FBT AND ADDITION OF RS. 1,40,773/-HAS BEEN MADE. ON THE OTH ER HAND, APPELLANT BOTH DURING THE COURSE OF ASSESSMENT PROC EEDINGS AND IN APPELLATE PROCEEDINGS HAS SUBMITTED THAT AS PER CLA USE (J) OF SECTION 115WB(2) TELEPHONE EXPENSES OTHER THAN EXPE NDITURE ON LEASED TELEPHONE LINE IS LIABLE FOR FBT AND EXPENDI TURE OF RS. 7,03,867/- PERTAINS TO EXPENDITURE ON LEASED LINE H ENCE NO FBT HAS BEEN PAID. THESE FACTS ARE NOT DISPUTED BY ASSESSIN G OFFICER AND AS PER PROVISION OF CLAUSE (J) REFERRED SUPRA. ASSESSI NG OFFICER WAS NOT JUSTIFIED IN LEVYING FBT ON TELEPHONE EXPENDITURE B EING PAYMENT MADE FOR LEASED LINE. 14. FROM GOING THROUGH THE OBSERVATION OF LD. CIT(A ) AND ALSO RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDINATE BENCH DISCUSSED ABOVE IN PARA 8 ABOVE IN THE CASE OF JOSHI TECHNOL OGIES INTERNATIONAL INC. VS. ADIT (INTS TAX) (SUPRA) AND ALSO LOOKING TO THE FACT THAT LD. ASSESSING OFFICER HAS NOT DISPUTED AB OUT THE INCURRING OF EXPENDITURE OF RS.7,03,867/- ON LEASE LINE TELEPHON E EXPENDITURE, WE ARE INCLINED TO ACCEPT THE CONTENTION THAT THERE IS NO ELEMENT OF ITA NO. 2019/AHD/13 & CO.17/AHD/2014 ASST. YEAR 2006-07 14 BENEFIT TO THE EMPLOYEES IN THE EXPENDITURE OF RS.7 ,03,867 AND THEREFORE, NO INTERFERENCE IS CALLED FOR IN THE ORD ER OF LD. CIT(A) ON THIS ISSUE. THIS GROUND IS DISMISSED. 15. GROUND NO.3 OF REVENUES APPEAL - 3) THE LD. COMMISSIONER OF INCOME-TAX (APPEA!S)-XI V, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.21,64,321/- MADE ON ACCOUNT OF F.B.T BEING 50% OF GIFT EXPENSES OF R S.43,28,642/- WRONGLY RELYING UPON THE Q&A98 OF BOARD'S CIRCULAR NO.-8 OF 2005 DATED 29/08/2005 WITHOUT VERIFYING THE FACT AS TO WHETHER THESE GIFTS WERE INCLUDED IN THE RECIPIENTS INCOME OR NOT, TO BE ELI GIBLE FOR EXEMPTION FROM FBT. 16. WHILE FRAMING ASSESSMENT ORDER U/S 115WE(3) R.W .S. 115WG OF THE ACT, LD. ASSESSING OFFICER OBSERVED THAT ASSESS EE HAS INCURRED EXPENDITURE ON GIFTS OF RS.43,50,495/- OUT OF WHICH ASSESSEE HAS ALREADY OFFERED RS.21,853/- TOWARDS EXPENDITURE EL IGIBLE FOR FBT AND THE REMAINING AMOUNT OF RS.43,28,642/-/- WAS NOT OF FERED FOR THE VERY REASON THAT THIS EXPENDITURE OF RS.43,28,642/- WAS INCURRED TOWARDS GIFTS. TO ALL ITS MEMBERS. LD. AR SUBMITTED THAT TH ERE IS NO DISPUTE TO THIS FACT THAT ASSESSEE HAS INCURRED EXPENDITURE OF RS.43,28,642/- TOWARDS PRIZES, PRESENTS,ETC. RS. 21,853/- WAS OFFE RED FOR DETERMINING THE VALUE OF FBT ON ACCOUNT OF GIFTS AND REMAINING AMOUNT OF RS. 43,28,642/- WERE EXPENDITURE ON GIFTS AND PRIZES TO ITS CUSTOMERS WHICH HAS EVEN BEEN ACCEPTED BY LD. ASSESSING OFFIC ER ALSO BUT THE IMPUGNED ADDITION OF RS.21,64,321/- WAS MADE BY HIM BY APPLYING THE INSTRUCTIONS OF CBDT CIRCULE NO.8 DATED 29.8.20 05 THEREBY BRINGING THE GIFTS TO THE CUSTOMERS FOR SALES PROMO TION PURPOSES WITHIN THE SCOPE OF SECTION 115WB(2)(O) OF THE ACT. LD. AR FURTHER SUBMITTED THAT LOOKING TO THE NATURE OF BUSINESS, A SSESSEE IS ITA NO. 2019/AHD/13 & CO.17/AHD/2014 ASST. YEAR 2006-07 15 ENGAGED INTO, THE COST TOWARDS PROVIDING FACILITIES LIKE PACKAGE TOUR, GIFT ETC. ARE ALL INCURRED OUT OF THE MEMBERSHIP RE CEIVED FROM THEM PERIODICALLY WHICH THEREBY PUSH UP THE MARKET OF TH E COMPANY AMONGST OTHER PERSONS WHICH GIVES MORE BUSINESS TO THE COMPANY. LD. AR FURTHER SUBMITTED THAT ON THE BASIS OF THESE FACTS AND CIRCUMSTANCES, LD. CIT(A) HAS RIGHTLY DELETED THE I MPUGNED ADDITION BY RELYING ON THE DECISION OF THE CO-ORDINATE BENCH THAT GIFTS WERE PROVIDED TO THE MEMBERS DURING THE COURSE OF ITS BU SINESS FOR GETTING INCREASE IN NUMBER OF MEMBERS AND AS SUCH THERE WA S NO BENEFIT TO THE EMPLOYEES. 17. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDER O F ASSESSING OFFICER. 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THROUGH THIS GROUND REVENUE IS AGGRIEVED WITH THE ACTION OF LD. CIT(A) IN DELETING THE ADDITION OF RS. 21,64,321/- MADE OUT OF GIFT EXPENDITURE. WE OBSERVE THAT LOOKING TO THE NA TURE OF BUSINESS OF THE ASSESSEE GIFTS AMOUNT OF RS. 43,28,642/- HAS BE EN INCURRED DURING THE COURSE OF BUSINESS AND GIFTS/PRIZES HAVE BEEN GIVEN TO ITS MEMBERS. WE FURTHER OBSERVE THAT LD. CIT(A) HAS OBS ERVED - SO FAR AS THIRD ISSUE IS CONCERNED, ASSESSING OFFIC ER HAS CONSIDERED EXPENDITURE AND PRIZES AND PRESENTS AS GIFT AND REL IED UPON CLARIFICATION IN ANSWER NO. 98 OF CIRCULAR NO. 8 DATED 29 TH AUGUST, 2005 AND OBSERVED THAT GIFT TO A CUSTOMER EVEN IF FOR THE PURPOSE OF SALES PROMOTI ON WOULD FALL WITHIN THE SCOPE OF PROVISIONS OF SECTION 115WB(2)(O). ON CAREFUL C ONSIDERATION OF EXPLANATION PROVIDED BY THE APPELLANT BOTH AT THE TIME OF ASSESSMENT PROCEEDINGS AND APPELLATE PROCEEDINGS ALONG WITH NECESSARY SUPPORTI NG EVIDENCES, IT IS OBSERVED ITA NO. 2019/AHD/13 & CO.17/AHD/2014 ASST. YEAR 2006-07 16 THAT DURING THE COURSE OF ITS BUSINESS OF PROVIDING VARIOUS MEMBERSHIP FEE CARDS TO ITS CUSTOMERS, IT HAS APPOINTED AGENTS ACROSS TH E COUNTRY AND THESE AGENTS ARE COMPENSATED IN THE FORM OF COMMISSION AND THROU GH REWARDS WHICH ARE DIRECTLY LINKED WITH THE PERFORMANCE OF THOSE AGENT S. THE AGENTS, CHAINS OF AGENTS, WHO HAVE ACHIEVED THE PRESCRIBED TARGETS GI VEN BY THE COMPANY, ARE PROVIDED WITH GIFTS ACCORDING TO TERMS AND CONDITIO NS OF THE VARIOUS CONTESTS PREVAILING DURING THE PERIOD. THESE GIFTS ARE NOT P ROVIDED TO CUSTOMERS AS OBSERVED BY ASSESSING OFFICER HENCE ANSWER TO QUEST ION NO. 98 OF THE CIRCULAR NO. 8 RELIED UPON BY THE ASSESSING OFFICER DO NOT A PPLY IN THIS CASE. ON THE CONTRARY, QUESTION NO. 61 OF THE SAID CIRCULAR CLEA RLY STATES THAT ANY SCHEME WHICH OFFERS REWARDS TO AGENTS, DEALERS, ETC., BASE D ON THE ACTUAL PERFORMANCE IS NOT SALES PROMOTION AND, THEREFORE, FALLS OUTSIDE T HE PURVIEW OF SECTION 115WB(2)(D). THE RELEVANT PORTION OF THE SAID CIR CULAR IS REPRODUCED HEREUNDER: '61. WHETHER EXPENDITURE ON INCENTIVES GIVEN TO DIS TRIBUTORS FOR MEETING QUANTITY TARGETS (INCLUDING FREE GOODS FOR ACHIEVIN G CERTAIN SALES TARGET LIKE, 100 FREE TELEVISIONS FOR ACHIEVING A TARGET SALE OF 10,000 TELEVISIONS AND CASH INCENTIVES ADJUSTABLE AGAINST FUTURE SUPPLIES) IS L IABLE TO FBT? ANS : INCENTIVE GIVEN TO DISTRIBUTORS FOR MEETING S ALES TARGETS (INCLUDING FREE GOODS GIVEN AS INCENTIVE TO DISTRIBUTORS FOR ACHIEV ING CERTAIN SALES AND CASH INCENTIVES ADJUSTABLE AGAINST FUTURE SUPPLIES) ARE IN THE NATURE OF PERFORMANCE-BASED COMMISSION. SUCH PERFORMANCE-BASE D COMMISSION IS IN THE NATURE OF ORDINARY SELLING COST. THEREFORE, EXPENDI TURE INCURRED FOR THE PURPOSE OF PROVIDING INCENTIVES GIVEN TO DISTRIBUTO RS FOR MEETING SALES TARGETS (INCLUDING FREE GOODS FOR ACHIEVING CERTAIN SALES T ARGET AND CASH INCENTIVES ADJUSTABLE AGAINST FUTURE SUPPLIES) DO NOT FALL WIT HIN THE SCOPE OF CLAUSE (D) OF SUB-SECTION (2) OF SECTION 115WB AND, THEREFORE, NO T LIABLE TO FBT.' EVEN ON THE BASIS OF CIRCULAR NO. 8 OF 2005 RELIED UPON BY THE ASSESSING OFFICER, APPELLANT IS NOT LIABLE TO FBT ON EXPENDIT URE OF GIFTS PROVIDED TO ITS ITA NO. 2019/AHD/13 & CO.17/AHD/2014 ASST. YEAR 2006-07 17 AGENTS AS IT IS TARGET ORIENTED WHICH IS NOT AT ALL SALES PROMOTION AS PER ANSWER TO QUESTION NO. 61 OF SAID CIRCULAR REPRODUC ED HEREIN ABOVE. EVEN IN PRECEDING PARA AT 3.3.1,1 HAVE CAREFULLY CONSIDE RED THE PROVISIONS OF FBT, CIRCULAR ISSUED BY CBDT AS WELL AS DECISIONS O F HON'BLE ITAT'S AND OBSERVED THAT FBT IS NOT LEVIABLE ON EXPENDITURE IN CURRED FOR THE PURPOSE OF BUSINESS WHICH DOES NOT GIVE ANY BENEFIT TO EMPL OYEES. APPELLANT HAS PROVIDED THE GIFTS TO ITS AGENTS ON ACHIEVING THE V ARIOUS SALES TARGETS AND SUCH GIFTS ARE NOT PROVIDED TO EMPLOYEES HENCE EVEN ON THIS GROUND ALSO APPELLANT IS NOT LIABLE TO FBT. 19. FROM GOING THROUGH THE OBSERVATION OF LD. CIT(A ) AND ALSO RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDINATE BENCH DISCUSSED ABOVE IN PARA 8 ABOVE IN THE CASE OF JOSHI TECHNOL OGIES INTERNATIONAL INC. VS. ADIT (INTS TAX) (SUPRA) AND ALSO LOOKING TO THE FACT THAT LD. ASSESSING OFFICER HAS NOT DISPUTED AB OUT THE INCURRING OF EXPENDITURE OF RS.43,26,642/- TOWARDS GIFTS/PRIZES IN VIEW OF THE BUSINESS OF ASSESSEE, WE ARE INCLINED TO ACCEPT THE CONTENTION THAT THERE IS NO ELEMENT OF BENEFIT TO THE EMPLOYEES IN THE EXPENDITURE OF RS.43,26,642/- AND THEREFORE, NO INTERFERENCE IS CA LLED FOR IN THE ORDER OF LD. CIT(A) ON THIS ISSUE. THIS GROUND IS ALSO DI SMISSED. 20. GROUND NO.4 IS OF GENERAL NATURE, WHICH DOES NO T REQUIRE ANY ADJUDICATION. 21. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ITA NO. 2019/AHD/13 & CO.17/AHD/2014 ASST. YEAR 2006-07 18 22. SINCE WE HAVE DISMISSED THE APPEAL OF REVENUE A ND THE LD. AR HAS NOT PRESSED THE GROUNDS OF CROSS OBJECTION, WE DISMISS THE CROSS OBJECTION AS NOT PRESSED. 23. IN THE RESULT, APPEAL OF REVENUE AND THE CROSS OBJECTION OF THE ASSESSEE BOTH ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST JUNE, 2016 SD/- SD/- (RAJPAL YADAV) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 21/6/2016 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD ITA NO. 2019/AHD/13 & CO.17/AHD/2014 ASST. YEAR 2006-07 19 1. DATE OF DICTATION: 17/06/2016 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 17/06/2016 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK:2 1/6/16 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: