Ita/491/2013 Of The Commissioner Of Income Tax v. M/S Toyota Kirloskar

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 8 DAY OF SEPTEMBER 2020 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD LT.A. NO.491 OF 2013 BETWEEN: 1.THE COMMISSIONER OF INCOME-TAX LTU, JSS TOWERS BSK III STAGE, BANGALORE.| 2 |THE ASST. COMMISSIONER OF INCOME-T AX LTU, JSS TOWERS BSK III STAGE, BANGALORE. ... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,) AND: M/S. TOYOTA KIRLOSKARMOTOR PVT. LTD.,PLAT NO.1, BIDADI INDUSTRIAL AREA|RAMANAGARA DISTRICT-562109.. .. RESPONDENT (BY SRI. CHYTHANYA K.K. ADV.) THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,1961 ARISING OUT OF ORDER DATED 31.05.2013 PASSED IN [TA|NO.1269/BANG/2012 FOR THE ASSESSMENT YEAR 2009-10,|PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO:(1) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW.STATED THEREIN. (I) ALLOW THE APPEAL AND SET ASIDE THE ORDERPASSED BY THE ITAT, BANGALORE IN ITA NO.1269/BANG/2012|DATED 31-05-2013 CONFIRMING THE ORDER OF THE APPELLATE|COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE!DEPUTY COMMISSIONER OF INCOME TAX, LIU, BANGALORE. THIS ITA COMING ON FOR HEARING, THIS DAY, |ALOK ARADHE J.,DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax| Act, 1961 (hereinafter referred to as the Act for short)has been preferred by the revenue. The subject matterof the appeal pertains to the Assessment year 2009-10.The appeal was admitted by a bench of this Court videorder dated 09.10.2015 on the following substantialquestion of law: (I)WhetherOf)thefactsand|In|thecircumstances and in law the Tribunel wascorrect in holding that fringe benefitsbrought to tax on account of SalesPromotion Expenses,and|conferenceCharges does not attract provisions of.Section 115WB of the Act, as the samewere incurred to a third person andrecovered perverse finding?circumstances and in law the Tribunel wascorrect in holding that fringe benefitsbrought to tax on account of SalesPromotion Expenses,and|conferenceCharges does not attract provisions of.Section 115WB of the Act, as the samewere incurred to a third person andrecovered perverse finding? ",,$Whether the Tribunal committed an error|in not appreciating the fact that certain.expenses incurred by the assessee were.directly attributable to the benefit of the.and recorded a perverse finding?in not appreciating the fact that certain.expenses incurred by the assessee were.directly attributable to the benefit of the.and recorded a perverse finding? 2 |Facts leading to filing of this appeal brieflystated are that the assessee is engaged in the businessof manufacture and trading of automobiles, passengercars and multi utility vehicles. The assessee_ filed itsreturn of fringe benefits for assessment year 2009-10|on 29.09.2009 declaring total value of taxable fringebenefits to the tune of Rs.4,46,50,533/-. The Assessingofficer by an order dated 29.09.2011 inter alia held thatexpenses incurred by the assessee are chargeable tofringe benefit tax, even if the expenses are not incurredfor the purposes of the employees. It was further heldthat the employees have not derived any benefit from.the expenses incurred for the purposes of sales,promotion does not in any way exempt the expensesfrom being treated as deemed fringe benefits. The 2 |Facts leading to filing of this appeal brieflystated are that the assessee is engaged in the businessof manufacture and trading of automobiles, passengercars and multi utility vehicles. The assessee_ filed itsreturn of fringe benefits for assessment year 2009-10|on 29.09.2009 declaring total value of taxable fringebenefits to the tune of Rs.4,46,50,533/-. The Assessingofficer by an order dated 29.09.2011 inter alia held thatexpenses incurred by the assessee are chargeable tofringe benefit tax, even if the expenses are not incurredfor the purposes of the employees. It was further heldthat the employees have not derived any benefit from.the expenses incurred for the purposes of sales,promotion does not in any way exempt the expensesfrom being treated as deemed fringe benefits. The Assessing officer therefore, determined the taxablevalue of fringe benefits at Rs.8,/2,69,690/-. Theassessee challenged the aforesaid order in appeal. TheCommissioner of Income Tax (Appeals) by an orderdated 21.06.2012 allowed the assessee’s appeal inrespect.ofdealerstraining|EXPDeNSESand|salespromotion expenses. The aforesaid order was subjectmatter of challenge at the instance of the revenue.before the Income Tax Appellate Tribunal (nereinafterreferred to as the Tribunal’ for short). The Tribunal byan order dated 31.05.7013 #$63inter alia held texpenditure incurred on sales promotion whicn navemore nexus to employer-employee relationship is notliable for fringe benefit tax and upheld the order passedby the Commissioner of Income Tax (Appeals). In theaforesaid factual background, this appeal has been filed. 3 Learned counsel for the revenue has invited the.attention of this court to circular dated 29.08.2005 andhas submitted that employer-employee relationship is not a prerequisite for levy of fringe benefit tax. It isfurther submitted that the Assessing officer rightlydetermined the taxable value of fringe benefits and theCommissioner of Income Tax (Appeals) grossly erred ininterfering with the order passed by the Assessingofficer and the Tribunal erred in upholding the orderpassed by the Commissioner of Income Tax (Appeals).On the other hand, learned counsel for the respondentSupported the order passed by the Income Tax AppellateTribunal and has invited the attention of this court toSection 115WB of the Act. 4. We have considered the submissions made by learned counsel for the parties and have perused therecord. Before proceeding further, it is apposite to takenote of Section 115WB, which reads as under: Section 11]5WB of Income Tax Act‘Fringe benefits Section 115WB. (1) For the purposes of this Chapter, ‘fringe benefits” means any.consideration for employment provided by way of- (a) any privilege, service, facility or amenity,directlyOr>indirectly,providedby af)employer, whether by way of reimbursement.or otherwise, to his employees (includingformeremployeeOremployees);(b) any free or concessional ticket provided bythe employer for private journeys of his—employeesOrthelr|familymembers;(c) any contribution by the employer to anapproved superannuation fund for employees;and (d) any specified security or sweat equityShares allotted or transferred, directly orindirectly, by the employer free of cost or atconcessional rate to his employees (including—former employee or employees).| Explanation.-For the purposes of this|clause, - (1)“Specifiedsecurity’.meansthesecurities as defined in clause (h) of section 2.of the Securities Contracts (Regulation) Act,1956 (42 of 1956) and, where employees’ (d) any specified security or sweat equityShares allotted or transferred, directly orindirectly, by the employer free of cost or atconcessional rate to his employees (including—former employee or employees).| Explanation.-For the purposes of this|clause, - (1)“Specifiedsecurity’.meansthesecurities as defined in clause (h) of section 2.of the Securities Contracts (Regulation) Act,1956 (42 of 1956) and, where employees’ stock option has been granted under any plan-or scheme therefor, includes the securitiesofferedunderSUCh|planOrscheme;(ii) “sweat equity shares" means equityshares issued by a company to its employeesor directors at a discount or for consideration.other than cash for providing Know-how ormaking available rights in the nature ofintellectual property rights or value additions,by whateverNainecalled. (2) The fringe benefits shall be deemed tohave been provided by the employer to hisemployees, if the employer has, in the course.of his Dbusiness or profession (including anyactivity whether or not such activity is carriedon with the object of deriving income, profitsor gains) incurred any expense on, or madeany payment for, the following purposes,namely:-- (A entertainment; (B)provision of hospitality of everykind by the employer to anyDersoOr,whether.by Wayofprovision of food or beverages orin any other manner whatsoeverkind by the employer to anyDersoOr,whether.by Wayofprovision of food or beverages orin any other manner whatsoever (C) and whether or not such provisionis made by reason of any expressor implied contract or custom orusage of trade but does notinclude- (1)qdhhexpenditureOf),OF|payment for, food or beveragesprovided by the employer to hisemployees in office or factory;(il)dhhyexpenditureOf)Orpayment through paid voucherswhich are not transferable andusable only at eating joints oroutlets; (111)dhhyexpenditureOP)OF|payment through non-transferablepre-paid.electronicmealcardusable only at eating joints oroutlets and which fulfils such otherconditions as may be prescribed6; conference (other than fee forparticipation by the employees inany conference). Explanation.-For the purposes of this|clause, any expenditure on conveyance,|tourand|travel(includingforeigntravel), on hotel, or boarding andlodgingIn|connectionwith hy|conference shall be deemed to be.expenditure incurred for the purposes of|conference; (D) sales promotion including publicity: Provided|that|dhhyexpenditureOP)advertisement, - (i) being the expenditure (includingrental) on advertisement of any form in|any print (including Journals, catalogues|or price lists) or electronic media or)transport system, (il)beingtheexpenditureOf)theholding of, or the participation in, anyDressconferenceOrbusiness|convention, fair or exhibition; (111)beingtheexpenditure|Of)sponsorship of any sports event or any| othereventcorganisedby dhhyGovernment agency or trade association|or body; (iv) being the expenditure on thepublication in any print or electronic|media of any notice required to be)published by or under any law or by an)order of a court or tribunal; (Vv)beingtheexpenditure|Of)advertisement by way of signs, artwork, painting, banners, awnings, direct|mail,electric.spectaculars,KIOSKS,hoardings,bil]boards,displayofproducts or by way of such other|medium of advertisement; (vi) being the expenditure by way ofpayment to any advertising agency forthe purposes of clauses (i) to (v) above; (Vil)beingtheexpenditureOP)distribution of samples either free ofcost or at concessional rate; and (vill) being the expenditure by way ofpayment to any person of repute for)promoting the sale of goods or servicesOf|thebusiness|oftheemployer,Shall not be considered as expenditure|on sales promotion including publicity; (Vv)beingtheexpenditure|Of)advertisement by way of signs, artwork, painting, banners, awnings, direct|mail,electric.spectaculars,KIOSKS,hoardings,bil]boards,displayofproducts or by way of such other|medium of advertisement; (vi) being the expenditure by way ofpayment to any advertising agency forthe purposes of clauses (i) to (v) above; (Vil)beingtheexpenditureOP)distribution of samples either free ofcost or at concessional rate; and (vill) being the expenditure by way ofpayment to any person of repute for)promoting the sale of goods or servicesOf|thebusiness|oftheemployer,Shall not be considered as expenditure|on sales promotion including publicity; 5.|Admittedly,theexpenditureofRs.83,66,959/- was incurred by the assessee for thepurpose of nolding dealers conference. Therefore, theaforesaid expenditure would not have arrived at fordetermining assessee’s liability towards fringe benefittax under Section 115WB(2)(c). Similarly, the expensesincurred by the assessee towards sales promotioncannot be taxed in view of provision contained inSection 115WB(2)(d) of the Act. The Commissioner ofIncome Tax (Appeals) therefore, rightly allowed theassessee’s appeal in respect of dealers trading expensesand sales promotion expenses. It is pertinent to notethat the Tribunal in para 3.5.2 itself has recorded a finding that expenditure incurred by the assessee onSales promotion had no nexus on employer-employeerelationship and for expenses incurred in holding dealers meet, the question of employer-employee relationshipdoes not arise. Therefore, the order passed by theCommissioner of Income Tax (Appeals) was _ rightlupheld. In view of preceding analysis, the substantial|questions of law framed by this court are answeredagainst the revenue and in favour of the assessee. | In the result, the appeal fails and is hereby|dismissed. SS| Sd/-JUDGE. Sd/-—JUDGE.