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

ITA 933/CHANDI/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2426 (ITAT-CHANDIGARH)
• Duration Of Justice: 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 12-06-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 17-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMARVEER
• Assessee Lawyers: AJAY VOHRA NEERAJ JAIN
• Keywords: Gift
• Section: 234B; 11

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.933 /CHD/2012 (ASSESSMENT YEAR : 2009-10) GLAXO SMITHKLINE CONSUMER VS. THE ADDL.C.I.T., HEALTHCARE LTD., RANGE IV, DLF PLAZA TOWERS, CHANDIGARH. DLF CITY, PHASE 1, GURGAON. PAN: AACCS0144E (APPELLANT) (RESPONDENT) APPELLANT BY : S/SHRI AJAY VOHRA &NEERAJ JAIN RESPONDENT BY : SHRI AMARVEER, DR DATE OF HEARING : 25.06.2013 DATE OF PRONOUNCEMENT : 27.06.2013 O R D E R PER SUSHMA CHOWLA, J.M. : THE APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS), CHANDIGARH DA TED 02.07.2012 RELATING TO ASSESSMENT YEAR 2009-10 AGAINST THE ORD ER PASSED U/S 115WE(3) OF INCOME TAX ACT, 1961 (IN SHORT THE ACT ). 2. THE ASSESSEE HAS RAISED THE 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. 15,87,73,592 AGAINST RETURNED VALUE OF FRINGE BENEFITS OF RS. 9,28,29,725. 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 DISTRIBUTION OF ARTICLES/ITEMS LIKE BADMINTON RA CKETS, BISCUITS, ETC., AMOUNTING TO RS. 32,97,19,335 AS LIABLE TO FRINGE BENEFIT TAX ('FBT') ALLEGING THE SAME TO HAVE BEEN INCURRED FOR THE PURPOSE OF 'SALES PROMOT ION AND PUBLICITY' UNDER THE PROVISIONS OF SECTION 115WB(2)(D) OF THE INCOME TAX ACT, 1961 ('THE ACT'). 2 2.1 THAT THE COMMISSIONER OF INCOME TAX (APPEALS) F AILED TO APPRECIATE THAT THE PROVISIONS OF FBT AS CONTAINED IN CHAPTER XII-H OF THE ACT WERE NOT APPLICABLE SINCE NO BENEFIT WAS DERIVED BY THE EMPLOYEE, WHETH ER DIRECTLY / INDIRECTLY COLLECTIVELY, AS A RESULT OF INCURRING OF THE AFORE SAID EXPENDITURE BY THE APPELLANT. 3. THE LEARNED A.R. FOR THE ASSESSEE AT THE OUTSE T POINTED OUT THAT THE ISSUE RAISED IN THE PRESENT APPEAL IS COVE RED BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEARS 2006-07 AND 2008-09 WHEREIN SIMILAR ISSUE OF THE EX PENDITURE INCURRED ON DISTRIBUTION OF ARTICLES WAS HELD TO BE NOT LIABLE OF FRINGE BENEFIT AS THE SAME HAD BEEN INCURRED FOR TH E PURPOSE OF SALE PROMOTION AND PUBLICITY. 4. THE LEARNED D.R. FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF THE AUTHORITIES BELOW. HOWEVER, THE LEARNED D.R . FOR THE REVENUE FAIRLY ADMITTED THAT SIMILAR ISSUE HAD ARIS EN BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN THE EARLIER YEAR S. 5. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E WAS ENGAGED IN MANUFACTURE AND SALE OF HEALTH CARE AND FOOD PRO DUCTS. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD FILED RETURN OF INCOME OF FRINGE BENEFIT DECLARING TOTAL VALUE OF FRINGE B ENEFIT AT RS.9,28,29,725/-. THE ASSESSING OFFICER NOTED THAT IN THE AUDIT REPORT FURNISHED IN FORM NO.3CD, IN COLUMN NO.6 OF THE SCHEDULE TREATED THE EXPENDITURE OF SALE PROMOTION AMOUNTING TO RS.37,11,40,439/- AS FRINGE BENEFIT UNDER SECTION 1 15WB(2)(D) AND HAD SHOWN VALUE OF FRINGE BENEFIT UNDER THE SAID HE AD AT RS.7,42,28,088/-. FROM THE PERUSAL OF THE PROFIT & LOSS ACCOUNT THE ASSESSING OFFICER NOTED THAT THE EXPENDITURE OF RS.32,97,19,335/- ON FREEBIES LIKE BADMINTON RACKE T, TOYS, ETC. GIVEN FREE TO THE CUSTOMERS UPON PURCHASE OF COMPAN YS PRODUCTS I.E. HORLICKS AND BOOST WERE NOT INCLUDED AS FRINGE BENEFIT UNDER 3 THE PROVISIONS OF SECTION 115WB(2)(D) OF THE ACT. THE EXPLANATION OF THE ASSESSEE IN THIS REGARD IS INCORPORATED UNDE R PARA 2.1 AT PAGES 2 AND 3 OF THE ASSESSMENT ORDER. THE CLAIM O F THE ASSESSEE THAT THE SAID EXPENDITURE INCURRED ON FREEBIES AMOU NTING TO RS.32.97 CRORES DOES NOT FALL WITHIN THE SCOPE OF F RINGE BENEFIT WAS REJECTED BY THE ASSESSING OFFICER AND THE EXPENDITU RE OF RS.32.97 CRORES INCURRED ON FREEBIES WAS DEEMED AS FRINGE BE NEFIT UNDER THE PROVISIONS OF SECTION 115WB(2)(D) OF THE ACT AND AD DITION OF RS.6,59,43,867/- I.E. 20% OF THE TOTAL EXPENDITURE WAS ADDED TO THE VALUE OF FRINGE BENEFIT DECLARED BY THE ASSESSEE. 6. THE CIT (APPEALS) UPHELD THE ORDER OF THE ASSESS ING OFFICER. WE FIND THAT IDENTICAL ISSUE OF ASSESSABILITY OF VA LUE OF FRINGE BENEFIT COMPUTED UNDER THE PROVISIONS OF SECTION 11 5WB(2)(D) OF THE ACT AROSE BEFORE THE TRIBUNAL IN ASSESSEE OWN C ASE IN ITA NO.931/CHD/2009 RELATING TO ASSESSMENT YEAR 2006-07 , ITA NO.256/CHD/2011RELATING TO ASSESSMENT YEAR 2007-08 AND ITA NO.83/CHD/2012 RELATING TO ASSESSMENT YEAR 2008-09. THE TRIBUNAL VIDE ORDER DATED 19.7.2012 WHILE ADJUDICATING THE I SSUE IN ITA NO.931/CHD/2009 VIDE PARAS 13 TO 22 AT PAGES 7 TO 1 4 OF THE ORDER HELD AS UNDER: 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS IN RELATION TO THE COMPUTATION OF FRINGE BENEFITS. UN DER SECTION 115WA OF THE ACT IT HAS BEEN PROVIDED THAT IN ADDITION TO THE INCOME TAX CHARGED UNDER THE ACT, ADDITIONAL INCOME TAX BY WAY OF FBT IN RESPECT OF F RINGE BENEFITS PROVIDED OR DEEMED TO HAVE BEEN PROVIDED B Y AN EMPLOYER TO HIS EMPLOYEES, DURING THE PREVIOUS YEAR , IS TO BE CHARGED @ 30% ON THE VALUE OF SUCH FRINGE BENEFI TS. IT HAS BEEN FURTHER PROVIDED UNDER SECTION 115WA(2) OF THE ACT THAT NOT WITHSTANDING WHERE NO INCOME TAX IS PA YABLE BY AN EMPLOYER ON HIS TOTAL INCOME COMPUTED UNDER T HE ACT, THE TAX ON FRINGE BENEFITS SHALL BE PAYABLE BY SUCH EMPLOYER. 4 14. FRINGE BENEFITS IS DEFINED UNDER SECTION 115WB OF THE ACT. SUB-SECTION (1) TO SECTION 115WB OF THE A CT RELATES TO THE CONSIDERATION PROVIDED BY THE EMPLOY ER TO ITS EMPLOYEES FOR EMPLOYMENT 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 PROVID ED BY AN EMPLOYER TO HIS EMPLOYEES. SUB-SECTION (2) TO S ECTION 115WB ENTAILS THE PROVISIONS OF THE BENEFITS BY AN EMPLOYER TO HIS EMPLOYEES, IF THE EMPLOYER HAD IN T HE COURSE OF CARRYING ON HIS BUSINESS INCURRED ANY EXPENDITURE OR 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 ITS AME NDMENT BY THE FINANCIAL ACT 2006 W.E.F. 1.4.2007 READ AS U NDER: (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, PROFITS OR GAINS) INCURRED ANY EXPENSE ON, OR MADE ANY PAYMENT FOR, T HE FOLLOWING 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, 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 ASSESSE E ON FREEBIES INCLUDING LIKE BADMINTON RACKET, ETC., AMOUNTING TO 5 RS.24,11,16,498/- WERE FRINGE BENEFITS INCURRED BY THE ASSESSEE FOR THE PURPOSES SALE PROMOTION AND PUBLICITY. THE SEC OND ISSUE ARISING IN THE PRESENT APPEAL IS IN RELATION TO THE EXPENDITURE INCURRED ON SAMPLES OF COMPANYS PRODUCTS GIVEN FRE E TO THE CUSTOMERS AMOUNTING TO RS.5,97,20,311/- BEING INCUR RED FOR THE PURPOSES SALE PROMOTION AND PUBLICITY. THE THIRD ISSUE ARISING IN THE APPEAL IS IN RESPECT OF EXPENDITURE INCURRED ON CELEBRITY ENDORSEMENT FOR ADVERTISEMENT AMOUNTING TO RS.85,28 ,219/- ALSO HAVING INCURRED FOR THE PURPOSES SALE PROMOTION AND PUBLICITY. BOTH THE ASSESSING OFFICER AND CIT (APPEALS) ARE OF THE VIEW THAT THE ABOVE SAID ITEMS OF EXPENDITURE WERE LIABLE TO FBT BEING INCURRED FOR THE PURPOSES SALE PROMOTION AND PUBLIC ITY 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 FALLIN G WITHIN THE SCOPE OF THE DEEMED FRINGE BENEFITS. ADMITTEDLY TH E EXPRESSION SALE PROMOTION IS NOWHERE DEFINED OR EXPLAINED UN DER THE ACT. THE MAINING OF THE TERM PROMOTION AND SALE PROMOTIO N 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)' - 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' 6 ---------------- 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 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 PR OMOTION. SINCE IT IS NOT DISPUTED THAT THESE ARE DISCOUNTS ALLOWED TO DEALER S THAT TOO ON SALE OF DIESEL ENGINES ONLY, THEY COULD NOT PARTAKE THE CHA RACTER OF SALES PROMOTION. WE, ACCORDINGLY, DELETE ITS INCLUSION FO R SECTION 37(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 B EEN INTRODUCED WHERE CERTAIN EXPENDITURE HAS BEEN INCUR RED BY THE EMPLOYER IN THE COURSE OF HIS CARRYING OF TH E BUSINESS AND THE SAME WOULD BE DEEMED TO HAVE BEEN PROVIDED BY THE EMPLOYER TO HIS EMPLOYEE. SUB-SECT ION (1) TO SECTION 115WB OF THE ACT WHICH DEFINES FRING E BENEFITS FOR THE PURPOSES OF CHAPTER-XII-H I.E. ANY CONSIDERATION FOR EMPLOYMENT PROVIDED BY THE EMPLOY ER TO HIS EMPLOYEE, WOULD GOVERN THE DEEMING PROVISIONS L AID DOWN IN SUB-SECTION (2) TO SECTION 115WB OF THE ACT . ANY EXPENDITURE INCURRED BY AN ASSESSEE WHICH IS NOT IN THE CONSIDERATION OF THE EMPLOYMENT PROVIDED BY THE EMP LOYER 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 MUM BAI BENCH OF THE TRIBUNAL IN DCIT VS. KOTAK MAHINDRA OL D MUTUAL LIFE INSURANCE LTD. (2012) 134 ITD 388 (MUMB AI) WHEREIN IT HAS BEEN HELD AS UNDER: 7 10. SUB-SECTION (2) OF SECTION 115WB IS A DEEMING PROVI SION WHERE CERTAIN EXPENDITURES INCURRED BY THE EMPLOYEE , FRINGE BENEFIT ARE DEEMED TO HAVE BEEN PROVIDED BY THE EMP LOYER TO HIS EMPLOYEE. IN OUR OPINION, SUB-SECTION (1) OF SECTIO N 115WB WHICH DEFINES 'FRINGE BENEFIT' UNDER CHAPTER-XII-H, CONTROL SUB- SECTION (2) AND ANY EXPENDITURE INCURRED BY AN EMPL OYER IN THE COURSE OF HIS BUSINESS OR PROFESSION, WHICH IS NOT A CONSIDERATION FOR EMPLOYMENT, CANNOT BE CONSIDERED AS 'FRINGE BEN EFIT'. THUS, THE DEEMING PROVISIONS OF SUB-SECTION (2) OF SECTIO N 115WB, APPLIES ONLY WHEN THE EXPENDITURE IS IN THE NATURE OF CONSIDERED FOR EMPLOYMENT. THUS, WHILE RESTORING THE ISSUE BAC K TO THE FILE OF ASSESSING OFFICER FOR ADJUDICATION AFRESH, WE DIREC T THE ASSESSING OFFICER TO APPLY THE PROPOSITION OF LAW AS INTERPRE TED BY US WHILE DETERMINING THE VALUE OF FRINGE BENEFIT. ON THE ISS UE OF EXPENDITURE INCURRED ON CONFERENCE AND MEETINGS, TH E ASSESSING OFFICER SHALL CONSIDER BIFURCATION SUBMITTED TO HIM WITH RESPECT TO THE EXPENDITURE INCURRED ON THE AGENTS AND BROKE RS AND PASS APPROPRIATE ORDERS. 'FRINGE BENEFIT' CANNOT ARISE W HEN 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 NOT PAYMENTS TO CLUBS. WITH THESE OBSERVATIONS, WE REST ORE THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR ADJUDICAT ION AFRESH. (UNDERLINE PROVIDED BY US) 19. FURTHER BEFORE THE HON'BLE DELHI HIGH COURT IN T & T MOTORS LTD. VS. ACIT (2012) 341 ITR 332 (DELHI) T HE ISSUE DELIBERATED UPON WAS THE COST OF ACCESSORIES PROVIDED FEE OF COST TO THE CUSTOMERS 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 FRIN GE BENEFIT. THE TERM 'SALES PROMOTION' AND 'PUBLICITY' HAVE TO BE INTERPRETED. THESE TERMS HAVE NOT BEEN SPECIFICALLY DEFINED FOR THE PURPOSE OF THIS SECTION AND, THEREFORE, WE HAVE TO READ THEM A ND UNDERSTAND THEM AS USED IN COMMON PARLANCE OR POPULAR SENSE AN D THEN INTERPRET THE WORDS 'SALE PROMOTION' AND 'PUBLICITY ' WITH REFERENCE TO THE PROVISIONS AND THE CONTEXT IN WHICH THEY HAV E BEEN USED. INTERPRETATION BASED UPON NORMAL DAY TO DAY USAGE A ND COMMON MAN UNDERSTANDING OF THE SAID TERMS HAS TO BE KEPT IN MIND. BOTH THE TERMS CONTEMPLATE, EXPENDITURE INCURRED ON EFFO RTS MADE TO PROMOTE SALES WHICH CAN TAKE VARIOUS FORMS BUT ARE NOT LIMITED TO MERE PUBLICATION OR ADVERTISEMENTS IN MEDIA BUT WOU LD INCLUDE VARIED ACTIVITIES WHICH CAN BE UNDERSTOOD AND TREAT ED AS SALES 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 SALE S PROMOTION AND PUBLICITY ARE ACTIVITIES TO GAIN GOOD WILL IN MARKET. THESE NEED NOT BE CONFINED TO THE ACT OF MEDIA PROP AGANDA BUT CAN INVOLVE INDIRECT APPROACHES. IN CIT V. STATESM AN LTD. [1992] 198 ITR 582 /[1993] 70 TAXMAN 267 (CAL.), IT WAS OBSERVED THAT THE TERM 'SALES PROMOTION' OCCURRING UNDER SECTION 8 37(3A), NECESSARILY SHOULD INVOLVE THE ELEMENT OF P UBLICITY AND ADVERTISEMENT TO POPULARIZE OR INCREASE 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 D RUGS, THE TARGET OF ANY SALE PROMOTION WOULD ONLY BE THE DOCTORS AND DISTRIBUTION OF SAMPLES OF DRUGS TO DOCTORS WAS TO MAKE THEM AWA RE THAT SUCH DRUGS WERE AVAILABLE IN THE MARKET AND THEY SHOULD PRESCRIBE THEM IN APPROPRIATE CASES. THIS WOULD TANTAMOUNT TO PUBLICITY AND SALES PROMOTION. THE SUPREME COURT DID NOT APPR OVE THE VIEW TAKEN IN CIT V. AMPRO FOOD PRODUCTS, [1995] 215 ITR 904 (AP), WHEREIN DISTINCTION WAS DRAWN BETWEEN BARE MI NIMUM EXPENSES TO CARRY ON THE TRADE [WHICH WAS FOLLOWED 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 115WB(2)(D) IS DIFFERENT FROM SECTION 37(3A). EXPEN DITURE INCURRED AS STIPULATED IN CLAUSE (I) TO (VIII) HAVE TO BE EXCLUDED AND NOT TO BE TREATED AS SALES PROMOTION EXPENDITUR E INCLUDING PUBLICITY. CLAUSE (VII) TO SECTION 115WB(2)(D) EXPR ESSLY STIPULATES THAT EXPENDITURE ON DISTRIBUTION OF SAMP LE 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 P ERSONS. THE EXEMPTION IN THESE CLAUSES, IT IS APPARENT, HAS BEE N GRANTED BECAUSE THIS IS NOT A FRINGE BENEFIT WHICH IS ENJOY ED BY THE 'EMPLOYEE/RECIPIENT' BUT IT IS AN EXPENDITURE INCUR RED FOR THE PURPOSE OF BUSINESS AND THE PAYMENT IS INCOME EARNE D BY THE THIRD PARTY. IN THE HANDS OF THE 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 & FERTILIZ ERS (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 MEAS URES TAKEN BY THE ASSESSEE TO PROMOTE GENERALLY THE SALES OF THE PRODUCTS MANUFACTURED BY IT, OR DEALT WITH BY IT, INDIVIDUAL SALES MADE IN THE NORMAL COURSE OF BUSINESS ON COMMERCIAL TERMS E ITHER DIRECTLY TO THE CUSTOMER, OR THROUGH ITS WHOLESALE AND OTHER DEALERS TO WHOM, UNDER THE TERMS OF TRADE DISCOUNTS AND COMMISSIONS ARE ALLOWED, CANNOT BE REGARDED AS SALE S PROMOTION. THIS COURT IN THE CASE OF CIT V. INDIA P ISTONS LTD. [20011 250 ITR 279 HAS HELD THAT SALE OF A PRODUCT AT A DISCOUNT 9 DID NOT 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 ADVERTISEMENT OR SPECIAL CAMPAIGNS. OFFERING A DISC OUNT ON THE PRICE IN EFFECT IS ONLY AN INSTANT OF THE SALE OF T HE 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 CUST OMERS WHO HAVE PURCHASED CARS CANNOT BE TREATED AS SALE PROMO TION INCLUDING PUBLICITY EXPENSES UNDER CLAUSE (D). IN T HE PRESENT CASE, THE SAID EXPENDITURE CANNOT BE CATEGORIZED AS EXPENSE INCURRED FOR PROMOTION OF SALES WITH A VIEW TO GAIN PUBLICITY AND POPULARIZE THE PRODUCT. THE CUSTOMERS IN THE PRESEN T CASE HAVE PURCHASED THE CARS, THEY HAVE PAID MONEY OR SALE CO NSIDERATION FOR PURCHASE OF CARS. AS A SALES PACKAGE, THE APPEL LANT HAS PROVIDED AND GIVEN SOME ACCESSORIES FOR WHICH NO IN DEPENDENT OR ADDITIONAL CHARGE HAS BEEN LEVIED. THE CUSTOMER, HOWEVER, IN ACTUAL FACT HAS PAID FOR THE SAID ACCESSORIES AS TH E COST OF THE ACCESSORIES IS INBUILT IN THE SALE CONSIDERATION PA ID BY THE CUSTOMER . ONLY WHEN A CUSTOMER PAYS THE SALE CONSIDERATIO N, SOME ACCESSORIES ARE PROVIDED AND FIXED IN THE CAR AS PER MUTUAL AGREEMENT OR ON THE REQUEST MADE BY THE CUSTOMER. U NTIL AND UNLESS A CUSTOMER PURCHASES A CAR, NO ACCESSORIES A RE 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. THE CUSTOMER HAS PAID OUT HIS O F POCKET, BUT HE HAS BARGAINED AND SECURED A FAVOURABLE DEAL. THE INTERPRETATION SUGGESTED BY THE REVENUE IS CONTRARY TO THE INTEREST OF THE CUSTOMERS OR PUBLIC INTEREST. THE I NTERPRETATION AS SUGGESTED BY THE REVENUE WOULD MEAN THAT THE CAR DE ALER WOULD HAVE TO PAY FBT, IF HE ENTERS INTO AND GIVES A BETT ER DEAL TO THE CUSTOMER WHO PURCHASES A CAR WITH EXTRA FITMENTS AN D ACCESSORIES. WE DO NOT THINK THAT IT IS THE INTENTI ON OF THE LEGISLATURE TO IMPOSE FBT ON THE CAR DEALER WHO OFF ERS A BETTER DEAL WITH FITMENTS AND ACCESSORIES TO A CUSTOMER WH O IS MAKING PAYMENT FOR PURCHASE OF THE CAR IN QUESTION. (U NDERLINE PROVIDED BY US) 22. IN THE FACTS OF THE PRESENT CASE BEFORE US THE ASSESSEE HAS OFFERED FREEBIES TO ITS CUSTOMERS UPON PURCHASE OF COMPANYS PRODUCTS I.E. HORLICKS, BOOST . THE SAID PRODUCTS ARE GIVEN TO THE CUSTOMERS AT THE TIME WHEN THE CUSTOMERS PURCHASE ASSESSEES PRODUC TS AND THE SAME IS AKIN TO SALE DISCOUNT GIVEN BY THE ASSESSEE TO ITS CUSTOMERS AND CONSEQUENTLY THE SAME WAS SALES EXPENSE IN THE HANDS OF THE ASSESSEE. BY WAY OF OFFERING FREEBIES, THE ASSESSEE HAD RECEIVED LES SER MARGIN OF PROFITS AND SUCH EXPENDITURE IS NOT IN TH E NATURE OF SALE PROMOTION EXPENSES. FOLLOWING THE R ATIO LAID DOWN BY THE HON'BLE DELHI HIGH COURT IN T & T MOTORS LTD. (SUPRA), WE ARE OF THE VIEW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON FREEBIES 10 AMOUNTING TO RS.24.11 CRORES IS NOT A FRINGE BENEFI TS COVERED UNDER THE PROVISIONS OF SECTION 115WB(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 ASSESSE E COMPANY WAS IN THE NATURE OF SALE EXPENSE AND CANNO T BE INCLUDED AS FRINGE BENEFITS UNDER SECTION 115WB(2(D) OF THE ACT. 7. THE FACTS OF THE PRESENT CASE ARE IDENTICAL TO T HE FACTS IN THE EARLIER YEARS AND FOLLOWING THE ORDER OF THE TRIBUN AL (SUPRA) WE HOLD THAT THE EXPENDITURE INCURRED ON FREEBIES AMOU NTING TO RS.32.97 CRORES IS NOT FRINGE BENEFIT COVERED UNDER THE PROVISIONS OF SECTION 115WB(2)(D) OF THE ACT AND THE SAME IS N OT INCLUDIBLE IN THE HANDS OF THE ASSESSEE. IN VIEW THEREOF, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE THE VALUE OF FRINGE BE NEFIT AMOUNTING TO RS.6.59 CRORES I.E 20% OF RS.32.97 CRORES FROM T HE TOTAL VALUE OF THE FRINGE BENEFIT ASSESSED IN THE HANDS OF THE ASS ESSEE. THE GROUNDS OF APPEAL NOS. 1 TO 2.1 ARE THUS ALLOWED. 8. THE GROUND NO.3 RAISED BY THE ASSESSEE BEING CON SEQUENTIAL I.E. CHARGING OF INTEREST UNDER SECTION 234B OF THE ACT IS DISMISSED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF JUNE, 2013. SD/- SD/- (T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 27 TH JUNE, 2013 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 11