M/s Glaxo Smithkline Consumer Healthcare Ltd., Gurgaon V. Addl. CIT, Chandigarh

ITA 83/CHANDI/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60935 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 17-05-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 24-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: ROHIT JAIN
• Keywords: Gift
• Section: 244A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.931 /CHD/2009 (ASSESSMENT YEAR: 2006-07) M/S GLAXO SMITHKLINE CONSUMER VS. THE A.C.I.T. HEALTHCARE LTD., PATIALA ROAD. RANGE IV NABHA. CHANDIGARH. PAN: AACCS0144E ITA NO.256 /CHD/2011 (ASSESSMENT YEAR: 2007-08) M/S GLAXO SMITHKLINE CONSUMER VS. THE ADDL.C.I.T. HEALTHCARE LTD., PATIALA ROAD. RANGE IV NABHA. CHANDIGARH. PAN: AACCS0144E ITA NO.83 /CHD/2012 (ASSESSMENT YEAR: 2008-09) M/S GLAXO SMITHKLINE CONSUMER VS. THE ADDL.C.I.T. HEALTHCARE LTD., NABHA. RANGE IV DLF PLAZA TOWER CHANDIGARH. DLF CITY PHASE-1, GURGAON. PAN: AACCS0144E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ROHIT JAIN RESPONDENT BY : SHRI N.K.SAINI, DR DATE OF HEARING : 17.05.2012 DATE OF PRONOUNCEMENT : 19.07.2012 O R D E R PER SUSHMA CHOWLA, J.M, : THESE THREE APPEALS FILED BY THE ASSESSEE ARE AGAI NST THE SEPARATE ORDERS OF THE COMMISSIONER OF INCOME-TAX(APPEALS), CHANDIGARH DATED 10.7.2009, 30.9.2010 AND 30.11.2009 RELATING TO ASS ESSMENT YEARS 2006- 07, 2007-08 AND 2008-09 AGAINST THE ORDER PASSED U/ S 115WE(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2 2. ALL THE THREE APPEALS RELATING TO THE SAME ASSES SEE ON SAME ISSUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY T HIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE ASSESSEE IN ITA NO.931/CHD/2011 HAS RAISED T HE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ER RED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN ASSES SING THE TAXABLE VALUE OF FRINGE BENEFITS AT RS. 16,16,64,428 AGAINST RETURNED VALUE OF FRINGE BENEFITS OF RS.9,97,91,424. 2. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ER RED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN T REATING 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 H AVE BEEN INCURRED FOR THE PURPOSE OF 'SALES PROMOTION AND PUBLICITY' UNDER THE PROVISION S OF SECTION 115WB(2)(D) OF THE INCOME TAX ACT, 1961 ('THE ACT'). 3. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ER RED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN T REATING 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 ALLE GING THE SAME TO HAVE BEEN INCURRED FOR THE PURPOSE OF 'SALES PROMOTION AND PU BLICITY' UNDER THE PROVISIONS OF SECTION 115WB(2)(D) OF THE ACT. 4. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ER RED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN T REATING THE EXPENDITURE INCURRED ON CELEBRITY ENDORSEMENT FOR ADVERTISEMENT AMOUNTIN G TO RS.85,28,219 AS LIABLE TO FRINGE BENEFIT TAX ALLEGING THE SAME TO HAVE BEE N INCURRED FOR THE PURPOSE OF 'SALES PROMOTION AND PUBLICITY' UNDER THE PROVISION S OF SECTION 115WB(2)(D) OF THE ACT. 5. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ER RED ON FACTS AND IN LAW IN UPHOLDING THE LEVY OF INTEREST UNDER SECTION 234D A ND IN WITHDRAWING INTEREST GRANTED UNDER SECTION 244 A OF THE ACT. 4. THE ASSESSEE IN ITA NO.256/CHD/2011 HAS RAISED T HE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN 3 CONFIRMING THE ACTION OF ASSESSING OFFICER IN ASSES SING THE TAXABLE VALUE OF FRINGE BENEFITS AT RS. 15,27,59,108 AGAINST RETURNED VALUE OF FRINGE BENEFITS OF RS.9,15,81,054. 2. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN T REATING THE EXPENDITURE INCURRED ON FREEBIES LIKE BADMINTON RACKETS, BISCUITS, ETC., AMOUNTING TO RS.28,44,30,865 AS LIABLE TO FRINGE BENEFIT TAX ALLEGING THE SAME TO H AVE BEEN INCURRED FOR THE PURPOSE OF 'SALES PROMOTION AND PUBLICITY' UNDER THE PROVIS IONS 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 T REATING THE EXPENDITURE INCURRED ON SAMPLES OF COMPANY'S PRODUCTS GIVEN FREE TO THE CUSTOMERS AMOUNTING TO RS.2,14,59,405 AS LIABLE TO FRINGE BENEFIT TAX ALLE GING THE SAME TO HAVE BEEN INCURRED FOR THE PURPOSE OF' SALES PROMOTION AND PU BLICITY' UNDER THE PROVISIONS OF SECTION 115WB(2)(D) OF THE ACT. 4. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRE D ON FACTS AND IN LAW IN UPHOLDING THE LEVY OF INTEREST UNDER SECTION 234D A ND IN WITHDRAWING INTEREST GRANTED UNDER SECTION 244 A OF THE ACT. 5. THE ASSESSEE IN ITA NO.83/CHD/2012 HAS RAISED TH E FOLLOWING GROUNDS OF APPEAL: 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN ASSES SING THE TAXABLE VALUE OF FRINGE BENEFITS AT RS. 13,84,27,204 AGAINST RETURNED VALUE OF FRINGE BENEFITS OF RS. 7,89,72,761. 2. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN T REATING THE EXPENDITURE INCURRED ON FREEBIES LIKE BADMINTON RACKETS, BISCUITS, ETC., AMOUNTING TO RS. 29,71,52,606 AS LIABLE TO FRINGE BENEFIT TAX ALLEGING THE SAME T O HAVE BEEN INCURRED FOR THE PURPOSE OF 'SALES PROMOTION AND PUBLICITY' UNDER TH E 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 T REATING 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 ALLEGI NG THE SAME TO HAVE BEEN INCURRED FOR THE PURPOSE OF 'SALES PROMOTION AND PUBLICITY' UNDER THE PROVISIONS OF SECTION 115WB(2)(D)OF TH E ACT. 4 6. ALL THE THREE APPEALS RELATING TO THE SAME ASSES SEE ON SAME ISSUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY T HIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 7. THE ISSUE RAISED IN THE PRESENT APPEAL IS IN REL ATION 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 ASSESSE E IS ENGAGED IN THE MANUFACTURE AND SALE OF HEALTHCARE AND FOOD PRODUCT S. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD FILED RETURN O F FRINGE BENEFITS ON 29.11.2006 DECLARING TOTAL VALUE OF FRINGE BENEFITS AT RS.9,97,91,424/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASS ESSING OFFICER NOTED THAT IN COLUMN-6 OF SCHEDULE-XVII, THE ASSESSEE HAD TREATED THE EXPENDITURE ON SALE PROMOTION AMOUNTING TO RS.5,54, 68,148/- AS FRINGE BENEFITS UNDER SECTION 115WB(2)(D) AND HAD SHOWN TH E VALUE OF FRINGE BENEFITS AT RS.1,10,93,630/-. THE ASSESSING OFFICE R ON THE PERUSAL OF THE PROFIT & LOSS ACCOUNT NOTED THAT THE ASSESSEE H AD NOT TREATED THE EXPENDITURE ON FREEBIES EXPENDITURE AND COST OF SAM PLES OF COMPANIES OWN PRODUCTS GIVEN FREE TO CUSTOMER ON PURCHASE OF ITS PRODUCTS AND EXPENDITURE ON CELEBRITY ENDORSEMENT AS FRINGE BENE FITS 115WB(2)(D) OF THE ACT. THE EXPLANATION OF THE ASSESSEE WHY THE S AID ITEMS ARE NOT TO BE TREATED AS FRINGE BENEFITS IS REPRODUCED UNDER P ARA 2.1 AT PAGES 3 TO 6 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER IN RESPECT OF EXPENDITURE ON FREEBIES OBSERVED THAT CLAUSE(D) OF SECTION 115W B(2) OF THE ACT PROVIDED FOR LEVY OF TAX ON FRINGE BENEFITS IN RESP ECT OF EXPENDITURE INCURRED ON SALE PROMOTION INCLUDING PUBLICITY AND ONLY EXCEPTIONS WERE DETAILED IN THE ACT ITSELF. THE ASSESSING OFFICER REFERRED TO THE MEANING OF SALES PROMOTION AND ALSO CIRCULAR NO.8/2005 DATE D 29.8.2005 UNDER WHICH IT HAS BEEN CLEARLY STATED THAT ANY EXPENDITU RE ON FREE OFFERS, 5 PRODUCTS SUCH AS FREEBIES TO TRADES OR CONSUMERS (E XCLUDING EMPLOYEES) WAS FOR THE PURPOSE OF SALE PROMOTION AND PUBLICITY AND ACCORDINGLY LIABLE TO FRINGE BENEFIT TAX (FBT). ACCORDINGLY, T HE EXPENDITURE OF RS.24.11 CRORES INCURRED ON FREEBIES WAS DEEMED FRI NGE BENEFITS UNDER THE PROVISIONS OF SECTION 115WB(2)(D) OF THE ACT. SIMILARLY, THE COST OF SAMPLES OF COMPANYS PRODUCTS GIVEN TO THE CUSTOMER S UPON PURCHASE OF COMPANYS OWN PRODUCTS AMOUNTING TO RS.5.97 CRORES WAS HELD TO BE EXPENSES ON SALES PROMOTION AND PUBLICITY AND, THER EFORE, LIABLE TO FBT. THE ASSESSING OFFICER FURTHER HELD THE EXPENDITURE ON CELEBRITY ENDORSEMENT AMOUNTING RS.85,28,129/- AS NOT FALLING WITHIN THE EXCEPTION AND TO BE TREATED AS DEEMED FRINGE BENEFI TS UNDER THE PROVISIONS OF SECTION 115WB(2)(D) OF THE ACT. THE ASSESSING OFFICER COMPUTED THE VALUE OF FRINGE BENEFITS AT RS.16,16,6 4,428/-. 10. THE CIT (APPEALS) RELYING ON THE CIRCULAR NO.8 OF 2005, FAQ NO.66 HELD THE SAME TO BE APPLICABLE TO THE FACTS O F THE CASE. THE CIT (APPEALS) OBSERVED THAT THE EXPENDITURE IF INCREASE S THE CONSUMER BASE THEN IT WOULD COME WITHIN THE MEANING OF SALE PROMO TION. RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE CHANDIGARH BEN CH OF THE TRIBUNAL IN THE CASE OF GLAXO SMITHKLINE CONSUMER HEALTHCARE [1 12 TTJ 94 (CHD) WHEREIN WHILE DECIDING THE ISSUE WHETHER THE PRODUC T DEVELOPMENT EXPENDITURE WERE CAPITAL IN NATURE OR REVENUE IN NA TURE, IT WAS HELD THAT PROMOTION AND TRADE MARKETING EXPENSES INCURRED ON EXISTING PRODUCTS OF THE ASSESSEE AND INCLUDING COST OF PRESENTATION ITE MS, GIFTS, ETC. GIVEN TO THE CUSTOMERS ON THE SALE OF PRODUCTS, WAS EXPENDIT URE ON ADVERTISEMENT MATERIAL AND WERE REVENUE IN NATURE. THE PRODUCT D EVELOPMENT EXPENSES WERE ALSO HELD TO BE REVENUE IN NATURE BY THE TRIBU NAL. THE CIT (APPEALS) FURTHER PLACED RELIANCE ON ANOTHER DECISI ON OF THE CHANDIGARH BENCH OF THE TRIBUNAL IN MEERA & COMPANY [15 ITD 22 7 (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 CONS UMER GIFTS OFFERED TO THE CUSTOMERS WERE TO INVITE THEIR ATTENTION TO THE PRODUCTS, FOR 6 INCREASING THE SALES OF THE PRODUCTS AND WERE SALES PROMOTION EXPENSES, WHICH WERE NOT DIRECTLY RELATED TO ANY SINGLE SALE. THE CIT (APPEALS) FURTHER HELD THAT THE RELIANCE OF THE ASSESSING OFF ICER ON THE CIRCULAR FOR TAXING THE EXPENDITURE INCOME ON FREEBIES LIABLE TO FBT WAS RIGHTLY APPLIED. SIMILAR FINDINGS WERE GIVEN BY THE CIT (A PPEALS) IN RESPECT OF CELEBRITY ENDORSEMENT AND ORDER OF THE ASSESSING OF FICER WAS THUS UPHELD BY THE CIT (APPEALS). 11. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF THE CIT (APPEALS). THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT THAT SECTION 115WA WAS THE CHARGING SECTION AND THE TERM FRINGE BENEFITS W AS DEFINED UNDER SECTION 115WB. IT WAS FURTHER POINTED OUT THAT UND ER SECTION 115WB(1) TAX WAS ON THE BENEFIT PROVIDED BY THE EMPLOYER TO THE EMPLOYEES AND UNDER SECTION 115WB(2) TAX WAS ON VARIOUS ITEMS DEF INED UNDER THE SAID SUB-SECTION, GIVING BENEFITS TO THE EMPLOYEES. THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT THAT DEEMING FICTION CREATED C OULD NOT GO BEYOND THE CHARGING SECTION. THE NEXT SUBMISSION OF THE L EARNED A.R. FOR THE ASSESSEE WAS THAT MEMORANDUM EXPLAINING THE FINANCE BILL WHICH HAD INTRODUCED CHAPTER OF FRINGE BENEFITS REPORTED IN 2 73 ITR (ST) 60 AT PAGE 196 POINTED OUT THAT WHAT THE LEGISLATURE WANTED TO TAX WAS WHERE THERE COLLECTIVE BENEFITS OF THE EMPLOYEES AND IT COULD N OT BE EXTENDED TO THE WHOLE OF THE EXPENDITURE. THE LEARNED A.R. FOR THE ASSESSEE FURTHER SUBMITTED THAT BECAUSE OF THE FACT THAT PARTICULAR PERCENTAGE WAS FRINGE BENEFITS, THE WHOLE OF THE EXPENDITURE COULD NOT BE CONSIDERED FOR FRINGE BENEFITS. RELIANCE WAS PLACED ON THE DECISION OF D ELHI HIGH COURT IN THE CASE OF T & T MOTORS LTD. [341 ITR 332 (DEL)] AND O N THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS . KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE LTD. [134 ITD 288 (MUM)]. THE LEARNED A.R. FOR THE ASSESSEE FURTHER POINTED OUT THAT THE DISCO UNT BY WAY OF FREEBIES WAS GIVEN FOR PURCHASING PRODUCTS OF THE COMPANY, WHICH WAS SALES DISCOUNT AND IN THE ABSENCE OF ANY PURCHASE, NO C ONCESSION OR DISCOUNT WAS GIVEN BY THE ASSESSEE. SUCH EXPENDITURE COULD NOT BE HELD 7 TO BE SALE PROMOTION AS THE SALE PROMOTION EXPENSES HAD TO BE EXPENDED IRRESPECTIVE OF THE CUSTOMERS PURCHASING THE GOODS. IN RESPECT OF THE OTHER FREEBIES GIVEN, THE PLEA OF THE LEARNED A.R. FOR THE ASSESSEE WAS THAT THE SAME WERE NONE-COMPANY PRODUCTS AND NONE O F THE EMPLOYEES WERE GIVEN THE SAID PRODUCTS. IT WAS STRESSED BY T HE 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 ENDO RSEMENT IT WAS POINTED OUT THAT BY WAY OF INSERTION W.E.F. 1.4.2007, THE P AYMENT TO CELEBRITY WAS EXCLUDED FROM THE PURVIEW OF SALE PROMOTION UND ER SECTION 115WB(D)(7). THE LEARNED A.R. FOR THE ASSESSEE PL ACED 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.1357/DEL/2010, ORDER DATED 25.11.2011, IN THIS R EGARD. 12. THE LEARNED D.R. FOR THE REVENUE PLACED RELIANC E ON THE OBSERVATIONS OF THE ASSESSING OFFICER AND THE CIT ( APPEALS) AND POINTED OUT THAT THE EXPENDITURE INCURRED BY THE ASSESSEE W AS SALE PROMOTION EXPENSES AND CONSEQUENTLY INCLUDED IN THE VALUE FRI NGE BENEFITS. FURTHER RELIANCE WAS PLACED ON THE OBSERVATION OF THE CIT ( APPEALS) AT PAGE 4 IN PARAS 6 TO 8 WHEREIN THE CLAIM OF THE ASSESSEE IN R ESPECT OF PRODUCT DEVELOPMENT EXPENSES WAS THAT THE SAME WAS IN THE N ATURE OF REVENUE EXPENSES. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS IN RELATION TO THE COMPUTATION OF FRINGE BENEFITS. UNDER SECTION 115WA OF THE ACT IT HAS BEEN PROVIDED THAT IN ADDITION TO THE INCOME TAX CHARGED UNDER TH E ACT, ADDITIONAL INCOME TAX BY WAY OF FBT IN RESPECT OF FRINGE BENEF ITS PROVIDED OR DEEMED TO HAVE BEEN PROVIDED BY AN EMPLOYER TO HIS EMPLOYEES, DURING THE PREVIOUS YEAR, IS TO BE CHARGED @ 30% ON THE VA LUE OF SUCH FRINGE BENEFITS. IT HAS BEEN FURTHER PROVIDED UNDER SECTI ON 115WA(2) OF THE 8 ACT THAT NOT WITHSTANDING WHERE NO INCOME TAX IS PA YABLE BY AN EMPLOYER ON HIS TOTAL INCOME COMPUTED UNDER THE ACT, THE TAX ON FRINGE BENEFITS SHALL BE PAYABLE BY SUCH EMPLOYER. 14. FRINGE BENEFITS IS DEFINED UNDER SECTION 115WB OF THE ACT. SUB- SECTION (1) TO SECTION 115WB OF THE ACT RELATES TO THE CONSIDERATION PROVIDED BY THE EMPLOYER TO ITS EMPLOYEES FOR EMPLO YMENT AS PROVIDED IN CLAUSES (A) TO (D) UNDER THE SAID SUB-SECTION. UNDER SUB-SECTION 2 TO SECTION 115WB ARE DEEMING PROVISIONS UNDER WHICH TH E FRINGE BENEFITS SHALL BE DEEMED TO HAVE BEEN PROVIDED BY AN EMPLOYE R TO HIS EMPLOYEES. SUB-SECTION (2) TO SECTION 115WB ENTAILS THE PROVIS IONS OF THE BENEFITS BY AN EMPLOYER TO HIS EMPLOYEES, IF THE EMPLOYER HA D IN THE COURSE OF CARRYING ON HIS BUSINESS INCURRED ANY EXPENDITURE O R MADE ANY PAYMENT FOR THE UNDERLINE PURPOSE AS PROVIDED IN CLAUSES (A ) TO (Q) UNDER THE SAID SUB-SECTION. THE SAID SUB-SECTION PRIOR TO IT S AMENDMENT BY THE FINANCIAL ACT 2006 W.E.F. 1.4.2007 READ AS UNDER: (2) THE FRINGE BENEFITS SHALL BE DEEMED TO HAVE BEE N PROVIDED BY THE EMPLOYER TO HIS EMPLOYEES, IF THE EMPLOYER HAS, IN THE COURSE OF HIS BUSINESS OR PROFESSION (INCLUDING ANY ACTIVITY WHET HER OR NOT SUCH ACTIVITY IS CARRIED ON WITH THE OBJECT OF DERIVING INCOME, P ROFITS OR GAINS) INCURRED ANY EXPENSE ON, OR MADE ANY PAYMENT FOR, THE FOLLOW ING PURPOSES, NAMELY: XXXXXXXX (D) SALES PROMOTION INCLUDING PUBLICITY: PROVIDED THAT ANY EXPENDITURE ON ADVERTISEMENT, (I) BEING THE EXPENDITURE (INCLUDING RENTAL) ON ADVERTI SEMENT OF ANY FORM IN ANY PRINT (INCLUDING JOURNALS, CATALOGUES O R PRICE LISTS) OR ELECTRONIC MEDIA OR TRANSPORT SYSTEM; (II) BEING THE EXPENDITURE ON THE HOLDING OF, OR TE PART ICIPATION IN, ANY PRESS CONFERENCE OR BUSINESS CONVENTION, FAIR O R EXHIBITION; (III) BEING THE EXPENDITURE ON SPONSORSHIP OF ANY SPORTS EVENT OR ANY OTHER EVENT ORGANISED BY ANY GOVERNMENT AGENCY OR T RADE ASSOCIATION OR BODY; (IV) BEING THE EXPENDITURE ON THE PUBLICATION IN ANY PRI NT OR ELECTRONIC MEDIA OF ANY NOTICE REQUIRED TO BE PUBLI SHED BY OR UNDER ANY LAW OR BY AN ORDER OF A COURT OR TRIBUNAL ; (V) BEING THE EXPENDITURE ON ADVERTISEMENT BY WAY OF SI GNS, ART WORK, PAINTING, BANNERS, AWNINGS, DIRECT MAIL, ELECTRIC S PECTACULARS, 9 KIOSKS, HOARDINGS, BILL BOARDS [, DISPLAY OF PRODUC TS] OR BY WAY OF SUCH OTHER MEDIUM OF ADVERTISEMENT; (VI) BEING THE EXPENDITURE BY WAY OF PAYMENT TO ANY ADVE RTISING AGENCY FOR THE PURPOSES OF CLAUSES (I) TO (V) ABOVE ; SHALL NOT BE CONSIDERED AS EXPENDITURE ON SALES PR OMOTION INCLUDING PUBLICITY; 15. THE ISSUE ARISING IN THE PRESENT APPEAL BEFORE US IS IN RELATION TO THE EXPENDITURE INCURRED BY THE ASSESSEE ON FREEBIE S INCLUDING LIKE BADMINTON RACKET, ETC., AMOUNTING TO RS.24,11,16,49 8/- 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 COMPANYS PR ODUCTS GIVEN FREE TO THE CUSTOMERS AMOUNTING TO RS.5,97,20,311/- BEING I NCURRED FOR THE PURPOSES SALE PROMOTION AND PUBLICITY. THE THIRD ISSUE ARISING IN THE APPEAL IS IN RESPECT OF EXPENDITURE INCURRED ON CEL EBRITY ENDORSEMENT FOR ADVERTISEMENT AMOUNTING TO RS.85,28,219/- ALSO HAVI NG INCURRED FOR THE PURPOSES SALE PROMOTION AND PUBLICITY. BOTH THE AS SESSING OFFICER AND CIT (APPEALS) ARE OF THE VIEW THAT THE ABOVE SAID I TEMS OF EXPENDITURE WERE LIABLE TO FBT BEING INCURRED FOR THE PURPOSES SALE PROMOTION AND PUBLICITY UNDER THE PROVISIONS OF SECTION 115WB(2)( D) OF THE ACT. 16. THE FIRST ASPECT OF THE ISSUE TO BE CONSIDERED IS THE MEANING OF EXPRESSION SALE PROMOTION AND PUBLICITY FALLING W ITHIN THE SCOPE OF THE DEEMED FRINGE BENEFITS. ADMITTEDLY THE EXPRESSION SALE PROMOTION IS NOWHERE DEFINED OR EXPLAINED UNDER THE ACT. THE MA INING OF THE TERM PROMOTION AND SALE PROMOTION AS PROVIDED IN VARIOUS DICTIONARIES READS AS UNDER: - THE OXFORD ENGLISH DICTIONARY DEFINES THE TERM 'PRO MOTION' TO MEAN 'ACTIVITY THAT SUPPORTS OR ENCOURAGES; THE PUBLICIZ ING OF A PRODUCT OR CELEBRITY.' - ADVANCED LAW LEXICON, 3 RD EDITION, 2005 DEFINES 'SALES PROMOTION' AS 'MARKETING ACTIVITIES THAT STIMULATE CONSUMER PURCHASING AND DEALER EFFECTIVENESS THROUGH A COMBINATION OF P ERSONAL SELLING, ADVERTISING AND ALL SUPPLEMENTARY SELLING ACTIVITIE S. (ADVERTISING LAW)' 10 - THE MEANING OF THE WORD 'PROMOTE' HAS BEEN GIVEN IN WEBSTER'S NEW WORLD DICTIONARY, 2 ND EDITION, AS UNDER: 'I. TO RAISE OR ADVANCE TO A HIGHER POSITION OR R ANK (PROMOTED TO A FOREMANSHIP). 2. TO HELP BRING ABOUT OR FURTHER THE GROWTH OR ESTABLISHMENT OF (TO PROMOTE THE GENERAL WELFARE), 3. TO FURTHER THE POPULARITY, SALES, ETC., BY PUBLISHING AND ADVERTISING (TO PROMOTE A PRODUCT), 4. (SLANG) TO CLEAR (SOMETHING) BY DEVIOUS OR CUNNING MEANS, 5. TO MOVE FORWARD A GRADE IN SCHOOL .' 17. THE COURTS HAD INTERPRETED THE MEANING OF EXPRE SSION SALE PROMOTION AS USED IN SECTION 37(3B) OF THE ACT UNDE R WHICH CERTAIN DISALLOWANCES WERE TO BE MADE ON ACCOUNT OF EXPENDI TURE ON SALE PROMOTION. WHILE INTERPRETING THE EXPRESSION SALE PROMOTION THE COURTS HAVE ALSO DISTINQUISHED BETWEEN THE EXPRESSI ON SALE PROMOTION AND SELLING EXPENSES. WE MAKE REFERENCE TO VARIOUS JUDGMENTS ON THE ISSUE HEREUNDER: I) CIT VS. THE STATESMAN LTD. [198 ITR 582 (CAL)] THE EXPRESSION 'SALES PROMOTION' USED IN SECTION 3 7(3B), THOUGH ONE OF WIDE AMPLITUDE IS NOT DEFINED. IT HAS, THEREFORE, T O BE UNDERSTOOD IN ITS MEANING IN THE SETTING IN WHICH IT OCCURS. 'SALES P ROMOTION' NECESSARILY INVOLVES AN ELEMENT OF ADVERTISEMENT AND PUBLICITY. A MANUFACTURER OF A PRODUCT MAY INTEND TO FURTHER THE POPULARITY OR SAL ES 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 'SA LES PROMOTION' ---------------- WHERE THE STATUTE IMPOSES RESTRICTION ON ADVERTISEM ENT, PUBLICITY AND SALES PROMOTION, THE EXPRESSION 'SALES PROMOTION' C ANNOT INCLUDE THE SELLING EXPENSES INCURRED IN THE ORDINARY COURSE OF THE BUSINESS. II) CIT VS. INDO ASIAN SWITCHGEARS (P) LTD. [257 ITR 645 (P &H)] HOWEVER, A DISCOUNT ALLOWED BY AN ASSESSEE TO AN A GENT IS NOT AN EXPENSE IN CONNECTION WITH THE PUBLICITY OR ADVERTI SEMENT, ETC. IT IS AN AMOUNT FORGONE BY THE ASSESSEE IN FAVOUR OF THE DEA LER FOR EFFECTING THE ACTUAL SALE. IT IS NOT LIKE THE FASHION SHOW CONDUC TED BY A GARMENT MANUFACTURER, BUT A COMMISSION ALLOWED TO A DEALER. TRADE DISCOUNT CANNOT BE TREATED AS A WASTEFUL EXPENDITURE INCURRE D BY AN ASSESSEE IN CONNECTION WITH SALES PROMOTION. IT IS NOT A GIFT A S GIVEN ON A FESTIVAL OR A FREE SAMPLE AS DISTRIBUTED BY A PHARMACEUTICAL CO MPANY TO THE DOCTORS 11 BUT AN ACTUAL COMMISSION ALLOWED OR PAID TO A DEALE R. IT DOES NOT FALL WITHIN THE MISCHIEF OF SECTION 37(3A). II) USHA INTERNATIONAL LTD. VS. ACIT 1995) 53 TTJ (DEL) 408] 9. GROUND NO. 5 TALKS OF TREATING DISCOUNT GIVEN TO DE ALERS ON SALE OF DIESEL ENGINES AS IN THE NATURE OF SALES PROMOTION. SINCE IT IS NOT DISPUTED THAT THESE ARE DISCOUNTS ALLOWED TO DEALERS THAT TO O ON SALE OF DIESEL ENGINES ONLY, THEY COULD NOT PARTAKE THE CHARACTER OF SALES PROMOTION. WE, ACCORDINGLY, DELETE ITS INCLUSION FOR SECTION 3 7(3A) OF THE ACT. 10. IN GROUND NO. 6, THE CLAIM IS IN REGARD TO VARIOUS TYPES OF DISCOUNTS ALLOWED TO DEALERS AND CUSTOMERS AND SELLING COMMIS SION PAID TO EMPLOYEES TREATED BY THE AUTHORITY AS IN THE NATURE OF SALES PROMOTION. FOR THE REASONS MENTIONED IN GROUND NO. 5, WE DELET E INCLUSION OF THESE ITEMS FOR DISALLOWANCE UNDER SECTION 37(3A) OF THE ACT. 18. COMING TO THE PROVISIONS OF SECTION 115WB(2) OF THE ACT WE FIND THAT THE SAID DEEMING PROVISIONS HAVE BEEN INTRODUC ED WHERE CERTAIN EXPENDITURE HAS BEEN INCURRED BY THE EMPLOYER IN TH E COURSE OF HIS CARRYING OF THE BUSINESS AND THE SAME WOULD BE DEEM ED TO HAVE BEEN PROVIDED BY THE EMPLOYER TO HIS EMPLOYEE. SUB-SECT ION (1) TO SECTION 115WB OF THE ACT WHICH DEFINES FRINGE BENEFITS FOR THE PURPOSES OF CHAPTER-XII-H I.E. ANY CONSIDERATION FOR EMPLOYMENT PROVIDED BY THE EMPLOYER TO HIS EMPLOYEE, WOULD GOVERN THE DEEMING PROVISIONS LAID DOWN IN SUB-SECTION (2) TO SECTION 115WB OF THE ACT . ANY EXPENDITURE INCURRED BY AN ASSESSEE WHICH IS NOT IN THE CONSIDE RATION OF THE EMPLOYMENT PROVIDED BY THE EMPLOYER TO HIS EMPLOYEE , WOULD NOT BE CONSIDERED AS FRINGE BENEFITS WITHIN THE MEANING OF SECTION 115WB OF THE ACT. WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE MUMBAI BENCH OF THE TRIBUNAL IN DCIT VS. KOTAK MAHINDRA OLD MUTU AL LIFE INSURANCE LTD. (2012) 134 ITD 388 (MUMBAI) WHEREIN IT HAS BEE N HELD AS UNDER: 10. SUB-SECTION (2) OF SECTION 115WB IS A DEEMING PROVI SION WHERE CERTAIN EXPENDITURES INCURRED BY THE EMPLOYEE, FRIN GE BENEFIT ARE DEEMED TO HAVE BEEN PROVIDED BY THE EMPLOYER TO HIS EMPLOY EE. IN OUR OPINION, SUB-SECTION (1) OF SECTION 115WB WHICH DEFINES 'FRI NGE BENEFIT' UNDER CHAPTER-XII-H, CONTROL SUB-SECTION (2) AND ANY EXPE NDITURE INCURRED BY AN EMPLOYER IN THE COURSE OF HIS BUSINESS OR PROFES SION, WHICH IS NOT A CONSIDERATION FOR EMPLOYMENT, CANNOT BE CONSIDERED AS 'FRINGE 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 ASSE SSING OFFICER TO APPLY THE PROPOSITION OF LAW AS INTERPRETED BY US WHILE D ETERMINING THE VALUE OF 12 FRINGE BENEFIT. ON THE ISSUE OF EXPENDITURE INCURRE D ON CONFERENCE AND MEETINGS, THE ASSESSING OFFICER SHALL CONSIDER BIFU RCATION SUBMITTED TO HIM WITH RESPECT TO THE EXPENDITURE INCURRED ON THE AGENTS AND BROKERS AND PASS APPROPRIATE ORDERS. 'FRINGE BENEFIT' CANNO T ARISE WHEN EXPENDITURE IS INCURRED ON PERSONS WHO ARE NOT EMPL OYEES. ON THE ISSUE OF CLUB MEMBERSHIP FEE, THE PAYMENTS MADE TO LIMRA AND ACTUARIAL SOCIETY OF INDIA, ARE TO BE EXCLUDED AS THEY ARE NO T PAYMENTS TO CLUBS. WITH THESE OBSERVATIONS, WE RESTORE THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR ADJUDICATION AFRESH. (UNDERLINE PR OVIDED 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 DELIB ERATED UPON WAS THE COST OF ACCESSORIES PROVIDED FEE OF COST TO THE CUS TOMERS WHO PURCHASED CAR AND WHETHER THE SAME WAS AN ITEM OF HOSPITALITY OR SALE PROMOTION LIABLE TO FBT. THE HON'BLE HIGH COURT OBSERVED AS UNDER: 13. CLAUSE (D) TO SECTION 115WB(2) STIPULATES THAT SALES PROMOTION INCLUDING PUBLICITY ARE DEEMED TO BE FRINGE BENEFIT . THE TERM 'SALES PROMOTION' AND 'PUBLICITY' HAVE TO BE INTERPRETED. THESE TERMS HAVE NOT BEEN SPECIFICALLY DEFINED FOR THE PURPOSE OF THIS S ECTION AND, THEREFORE, WE HAVE TO READ THEM AND UNDERSTAND THEM AS USED IN COMMON PARLANCE OR POPULAR SENSE AND THEN INTERPRET THE WORDS 'SALE PROMOTION' AND 'PUBLICITY' WITH REFERENCE TO THE PROVISIONS AND TH E CONTEXT IN WHICH THEY HAVE BEEN USED. INTERPRETATION BASED UPON NORMAL DA Y TO DAY USAGE AND COMMON MAN UNDERSTANDING OF THE SAID TERMS HAS TO B E KEPT IN MIND. BOTH THE TERMS CONTEMPLATE, EXPENDITURE INCURRED ON EFFORTS MADE TO PROMOTE SALES WHICH CAN TAKE VARIOUS FORMS BUT ARE NOT LIMITED TO MERE PUBLICATION OR ADVERTISEMENTS IN MEDIA BUT WOULD IN CLUDE VARIED ACTIVITIES WHICH CAN BE UNDERSTOOD AND TREATED AS S ALES PROMOTION OR PUBLICITY EXPENSES. 14. IN SMITH KLINE & FRENCH (INDIA) LTD. V. CIT, [1 992] 193 ITR 582 /[1991] 59 TAXMAN 387 (KAR.), IT HAS BEEN HELD THAT IN NORMAL COMMERCIAL SENSE AND IN COMMON PARLANCE SALES PROMO TION AND PUBLICITY ARE ACTIVITIES TO GAIN GOODWILL IN MARKET . THESE NEED NOT BE CONFINED TO THE ACT OF MEDIA PROPAGANDA BUT CAN INV OLVE INDIRECT APPROACHES. IN CIT V. STATESMAN LTD. [1992] 198 ITR 582 /[1993] 70 TAXMAN 267 (CAL.), IT WAS OBSERVED THAT THE TERM 'SALES PROM OTION' OCCURRING UNDER SECTION 37(3A), NECESSARILY SHOULD INVOLVE THE ELEMENT OF PUBLICITY AND ADVERTISEMENT TO POPULARIZE OR INC REASE SALES. 15. THE SUPREME COURT IN ESKAYEF V. CIT, [2000] 6 S CC 451, APPROVED THE VIEW TAKEN IN SMITH KLINE & FRENCH IND IA LTD. CASE (SUPRA) AND HELD THAT IN THE CASE OF PRESCRIPTION DRUGS, TH E TARGET OF ANY SALE PROMOTION WOULD ONLY BE THE DOCTORS AND DISTRIBUTIO N OF SAMPLES OF DRUGS TO DOCTORS WAS TO MAKE THEM AWARE THAT SUCH D RUGS WERE AVAILABLE IN THE MARKET AND THEY SHOULD PRESCRIBE THEM IN APP ROPRIATE CASES. THIS WOULD TANTAMOUNT TO PUBLICITY AND SALES PROMOTION. THE SUPREME COURT DID NOT APPROVE THE VIEW TAKEN IN CIT V. AMPRO FOO D PRODUCTS, [1995] 215 ITR 904 (AP), WHEREIN DISTINCTION WAS DRAWN BETWEEN BARE MINIMUM EXPENSES TO CARRY ON THE TRADE [WHICH WAS F OLLOWED IN CIT V. J&J DECHANE LABORATORIES (P) LTD., [1996] 222 ITR 11 (AP)] AND EXPENDITURE UNDER THE HEAD ADVERTISEMENT AND PUBLIC ITY OR SALES PROMOTION. 16. THE OBJECT AND PURPOSE BEHIND FBT AND SECTION 1 15WB(2)(D) IS DIFFERENT FROM SECTION 37(3A). EXPENDITURE INCURRED AS STIPULATED IN 13 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 O N 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 PERSON S. THE EXEMPTION IN THESE CLAUSES, IT IS APPARENT, HAS BEEN GRANTED BEC AUSE THIS IS NOT A FRINGE BENEFIT WHICH IS ENJOYED BY THE 'EMPLOYEE/RE CIPIENT' BUT IT IS AN EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS AN D THE PAYMENT IS INCOME EARNED BY THE THIRD PARTY. IN THE HANDS OF T HE SAID RECIPIENT THE EXPENDITURE IS TAXABLE AS INCOME EARNED. 21. THE HON'BLE DELHI HIGH COURT FURTHER RELIED UPO N THE RATIO LAID DOWN AS UNDER: 18. WE MAY REPRODUCE THE FOLLOWING OBSERVATIONS OF MADRAS HIGH COURT IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS ( SUPRA ), WHEREIN IT HAS BEEN HELD AS UNDER:- 'THE TERM 'SALES PROMOTION' IS NOT TO BE CONFUSED W ITH THE SALES ACTUALLY EFFECTED. WHILE 'SALES PROMOTION' ARE MEASURES TAKE N BY THE ASSESSEE TO PROMOTE GENERALLY THE SALES OF THE PRODUCTS MANUFAC TURED BY IT, OR DEALT WITH BY IT, INDIVIDUAL SALES MADE IN THE NORMAL COU RSE OF BUSINESS ON COMMERCIAL TERMS EITHER DIRECTLY TO THE CUSTOMER, O R THROUGH ITS WHOLESALE AND OTHER DEALERS TO WHOM, UNDER THE TERM S OF TRADE DISCOUNTS AND COMMISSIONS ARE ALLOWED, CANNOT BE REGARDED AS SALES PROMOTION. THIS COURT IN THE CASE OF CIT V. INDIA PISTONS LTD. [20011 250 ITR 279 HAS HELD THAT SALE OF A PRODUCT AT A DISCOUNT DID N OT AMOUNT TO A SALES PROMOTION EXPENSE. IT WAS OBSERVED IN THAT JUDGMENT THAT: 'THE SALES PROMOTION NORMALLY REFERS TO AN ACTIVITY WHICH IS INTENDED TO PROMOTE THE SALE OF ALL THE PRODUCTS BY WAY OF ADVE RTISEMENT OR SPECIAL CAMPAIGNS. OFFERING A DISCOUNT ON THE PRICE IN EFFE CT IS ONLY AN INSTANT OF THE SALE OF THE COMPANY'S PRODUCT AT A LOWER PRICE AND CANNOT BE REGARDED AS EXPENDITURE ON SALES PROMOTION.'' 19. ON THE BASIS OF FACTUAL MATRIX ON RECORD AND AS FOUND BY THE ASSESSING OFFICER, WE ARE OF THE VIEW THAT THE EXPE NDITURE INCURRED ON ACCESSORIES WHICH WERE SUPPLIED TO CUSTOMERS WHO HA VE PURCHASED CARS CANNOT BE TREATED AS SALE PROMOTION INCLUDING PUBLI CITY EXPENSES UNDER CLAUSE (D). IN THE PRESENT CASE, THE SAID EXPENDITU RE CANNOT BE CATEGORIZED AS EXPENSE INCURRED FOR PROMOTION OF SA LES WITH A VIEW TO GAIN PUBLICITY AND POPULARIZE THE PRODUCT. THE CUST OMERS IN THE PRESENT CASE HAVE PURCHASED THE CARS, THEY HAVE PAID MONEY OR SALE CONSIDERATION FOR PURCHASE OF CARS. AS A SALES PACK AGE, THE APPELLANT HAS PROVIDED AND GIVEN SOME ACCESSORIES FOR WHICH NO IN DEPENDENT OR ADDITIONAL CHARGE HAS BEEN LEVIED. THE CUSTOMER, HO WEVER, IN ACTUAL FACT HAS PAID FOR THE SAID ACCESSORIES AS THE COST OF TH E ACCESSORIES IS INBUILT IN THE SALE CONSIDERATION PAID BY THE CUSTOMER . ONLY WHEN A CUSTOMER PAYS THE SALE CONSIDERATION, SOME ACCESSORIES ARE P ROVIDED AND FIXED IN THE CAR AS PER MUTUAL AGREEMENT OR ON THE REQUEST M ADE BY THE CUSTOMER. UNTIL AND UNLESS A CUSTOMER PURCHASES A CAR, NO ACC ESSORIES ARE PROVIDED OR FURNISHED. THE CUSTOMER WAS NOT GIVEN A LARGESSE BUT WAS OFFERED AND HAS MANAGED TO GET A BETTER DEAL FOR TH E CONSIDERATION PAID. 14 THE CUSTOMER HAS PAID OUT HIS OF POCKET, BUT HE HAS BARGAINED AND SECURED A FAVOURABLE DEAL. THE INTERPRETATION SUGGE STED BY THE REVENUE IS CONTRARY TO THE INTEREST OF THE CUSTOMERS OR PUB LIC INTEREST. THE INTERPRETATION AS SUGGESTED BY THE REVENUE WOULD ME AN 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 FITMENT S AND ACCESSORIES. WE DO NOT THINK THAT IT IS THE INTENTION OF THE LEG ISLATURE TO IMPOSE FBT ON THE CAR DEALER WHO OFFERS A BETTER DEAL WITH FIT MENTS 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 UPON PURCHASE OF COMPANY S PRODUCTS I.E. HORLICKS, BOOST. THE SAID PRODUCTS ARE GIVEN TO TH E CUSTOMERS AT THE TIME WHEN THE CUSTOMERS PURCHASE ASSESSEES PRODUCTS AND THE SAME IS AKIN TO SALE DISCOUNT GIVEN BY THE ASSESSEE TO ITS CUSTOMER S AND CONSEQUENTLY THE SAME WAS SALES EXPENSE IN THE HANDS OF THE ASSESSEE . BY WAY OF OFFERING FREEBIES, THE ASSESSEE HAD RECEIVED LESSER MARGIN O F PROFITS AND SUCH EXPENDITURE IS NOT IN THE NATURE OF SALE PROMOTION EXPENSES. FOLLOWING THE RATIO LAID DOWN BY THE HON'BLE DELHI HIGH COURT IN T & T MOTORS LTD. (SUPRA), WE ARE OF THE VIEW THAT THE EXPENDITU RE INCURRED BY THE ASSESSEE ON FREEBIES AMOUNTING TO RS.24.11 CRORES I S NOT A FRINGE BENEFITS COVERED UNDER THE PROVISIONS OF SECTION 11 5WB(2)(D) OF THE ACT. SIMILARLY THE EXPENDITURE INCURRED BY WAY OF GIVING SAMPLES OF COMPANYS PRODUCTS FREE TO THE CUSTOMERS ALONGWITH SALE OF PRODUCTS OF THE ASSESSEE COMPANY WAS IN THE NATURE OF SALE EXPE NSE AND CANNOT BE INCLUDED AS FRINGE BENEFITS UNDER SECTION 115WB(2(D ) OF THE ACT. 23. THE THIRD ISSUE RAISED IN THE PRESENT APPEAL IS IN RELATION TO THE TREATMENT OF EXPENDITURE INCURRED ON CELEBRITY ENDO RSEMENT FOR ADVERTISEMENT BEING TREATED AS SALE PROMOTION OR PU BLICITY. WE FIND THAT THE SAID ISSUE IS COVERED BY THE RATIO LAID DOWN BY THE DELHI BENCH OF THE TRIBUNAL IN GLAXO SMITHKLINE ASIA PVT. LTD. VS. DCIT (ITA NO.1357/DEL/2010) RELATING TO ASSESSMENT YEAR 2006- 07, WHEREIN VIDE ORDER DATED 25.11.2011 IT HAS BEEN HELD THAT THE SA ID EXPENDITURE DOES NOT COME UNDER THE PURVIEW OF SALE PROMOTION INCLUD ING PUBLICITY. FOLLOWING THE SAME WE HOLD THAT THE EXPENDITURE OF RS.85,28,219/- 15 INCURRED BY THE ASSESSEE ON CELEBRITY ENDORSEMENT F OR ADVERTISEMENT OF ITS PRODUCTS IS NOT LIABLE TO FBT UNDER THE PROVISI ONS OF SECTION 115WB(2(D) OF THE ACT. 24. THE ASSESSING OFFICER WHILE DISALLOWING THE CLA IM OF THE ASSESSEE HAD PLACED RELIANCE ON THE CIRCULAR NO.8 OF 2005 DA TED 29.8.2005 UNDER WHICH IN RESPONSE TO FAQ NO.66 IT HAS BEEN STATED T HAT ANY EXPENDITURE ON FREE OFFERS SUCH AS FREEBIES OR SIMILAR PRODUCTS TO TRADER OR CONSUMER WAS FOR THE PURPOSES OF SALE PROMOTION AND PUBLICIT Y AND ACCORDINGLY LIABLE TO FBT. WE FIND THAT THE SAID CIRCULAR BEIN G CONTRARY TO THE EXPRESS LANGUAGE OF THE STATUTE IS NOT BINDING. ME RE RELIANCE ON THE SAID CIRCULAR BY THE ASSESSING OFFICER TO DISENTITLE THE ASSESSEE OF ITS CLAIM IS UNWARRANTED, IN VIEW OF THE EXPRESS PROVISIONS O F SECTION 115WB(2(D) OF THE ACT. 25. FURTHER THE CIT (APPEALS) WHILE UPHOLDING THE O RDER OF THE ASSESSING OFFICER HAD RELIED UPON THE DECISION OF T HE CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF REPORTED IN 112 TTJ 94(CHD) (SUPRA) THE ISSUE BEFORE THE TRIBUNAL WAS T WO FOLDS I.E. A) ALLOWABILITY OF THE EXPENDITURE ON PROMOTIONAL AND TRADING MARKETING EXPENSES AND; B) PRODUCT DEVELOPMENT EXPENSES. THE CIT (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 TRI BUNAL REFLECT THAT THE PROMOTIONAL AND TRADING MARKETING EXPENSES INCLUDIN G THE EXPENDITURE OF BOOST, BADMINTON RACKET, TENNIS BALL, ETC. AND PROD UCT DEVELOPMENT EXPENSES FOR NUTRIBAR CHOCOLATE. THE TRIBUNAL VIDE PARA 9 REFERRED TO THE PROMOTIONAL AND TRADE MARKETING EXPENSES AND OBSERV ED THAT SUCH EXPENDITURE HAS BEEN INCURRED ON EXISTING PRODUCTS OF THE ASSESSEE AND INCLUDE COST OF PRESENTATION ITEMS, GIFTS, ETC. GIV EN TO THE CUSTOMERS ON THE SALE OF THE PRODUCT, EXPENDITURE ON ADVERTISEME NT MATERIAL ETC. THE EXPENDITURE CAN BE VIEWED AS IF ACTUALITY DISCOUNT IN-KIND ALLOWED TO THE 16 CUSTOMERS AND EXPENDITURE ON ADVERTISEMENT OF THE E XISTING 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 HE LD TO BE REVENUE IN NATURE. THE OBSERVATION OF THE CIT (APPEALS) THAT THE ASSESSEE HAD MADE CERTAIN ARGUMENTS THAT THE PRODUCT DEVELOPMENT EXPE NSES WERE NECESSARY FOR INCREASING PROFITABILITY OF THE ASSESSEE AND NO W THE ASSESSEE WAS TAKING CONTRADICTORY STAND THAT SUCH EXPENDITURE WA S REDUCING ITS PROFITS IS IRRELEVANT AS THE EXPENDITURE BOOKED ON FREEBIES WAS UNDER THE HEAD PROMOTIONAL AND TRADE MARKETING EXPENSES AND NOT UN DER THE PRODUCT DEVELOPMENT EXPENSES, THE TWO ITEMS OF EXPENDITURE HAVE BEEN SEPARATELY DEALT IN BY THE TRIBUNAL VIDE PARAS 9 AN D 10 AS REPRODUCED BY THE CIT (APPEALS) ITSELF IN ITS ORDER AT PAGES 7 AN D 8 OF THE APPELLATE ORDER. 27. THE NEXT OBJECTION OF THE CIT (APPEALS) WAS BEC AUSE OF THE JUDGMENT OF HON'BLE MADRAS HIGH COURT IN PRINTS SYS TEM PRODUCTS [243 ITR 8 (MAD)] WHEREIN IT HAS BEEN HELD THAT THE TERM S PUBLICITY AND SALE PROMOTION HAD WIDE AMPLITUDE AND EXPENDITURE INCURR ED ON FASHION SHOW, CONSUMER GIFTS AND FREE SAMPLES AND GIFTS WITHIN TH E AMBIT OF SECTION 37(3) OF THE ACT, WE FIND THAT THE JURISDICTIONAL H IGH COURT IN CIT VS. INDO ASIAN SWITCHGEARS (P) LTD. (SUPRA) HAVE HELD T O THE CONTRARY AND WE ARE BOUND BY THE JURISDICTIONAL HIGH COURT. FURTHE R THE ISSUE RAISED IN THE PRESENT APPEALS I.E. COMPUTATION OF FRINGE BENE FITS IS DELIBERATED UPON BY THE HON'BLE DELHI HIGH COURT IN T & T. MOTO RS LTD. VS. ACIT (SUPRA). IN VIEW THEREOF, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE INCURRED ON FREEBIES AMOUNTING TO RS.24 .11 CRORES, SAMPLES OF COMPANYS PRODUCTS AMOUNTING TO RS.5.97 CRORES A ND CELEBRITY ENDORSEMENT AMOUNTING TO RS.85.28 LACS NOT BEING FR INGE BENEFITS LIABLE TO FBT. THE GROUNDS OF APPEALS NO.1 TO 4 RAISED BY THE ASSESSEE IN ITA NO.931/CHD/2009 ARE THUS ALLOWED. 17 28. THE ISSUE IN GROUND NO.5 I.E. CHARGING OF INTER EST UNDER SECTION 234D AND WITHDRAWING OF INTEREST 244A OF THE ACT BE ING CONSEQUENTIAL IS DISMISSED. 29. THE FACTS IN ITA NO.256/CHD/2011 AND ITA NO.83/ CHD/2012 ARE SIMILAR TO THE FACTS IN ITA NO.931/CHD/2009. OUR D ECISION IN ITA NO.931/CHD/2009 SHALL APPLY MUTATIS AND MUTANDIS TO ITA NO.256/CHD/2011 AND ITA NO.83/CHD/2012. 30. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 9 TH JULY, 2012. SD/- SD/- (T.R.SOOD) (SUSHMA CHOW LA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 19 TH JULY, 2012 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH