Pr. Commissioner Of Income Tax 2 v. M/S. Aristo Pharmaceuticals P Ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAYO.O.C.J. INCOME TAX APPEAL NO. 1961 OF 2017 Pr. Commissioner of Income Tax 2 ..Appellant Versus M/s. Aristo Pharmaceuticals P Ltd ..Respondent ................... Mr. Suresh Kumar for the Appellant Mr. Suresh Kumar for the Appellant ................... CORAM : UJJAL BHUYAN & MILIND N. JADHAV, JJ. DATE : JANUARY 23, 2020. P.C.: 1.Heard Mr. Suresh Kumar, learned standing counsel,revenue for the appellant. 2.This appeal under Section 260A of the Income Tax Act,1961 ("the Act" for short) has been preferred against theorder dated 25.1.2017 passed by the Income Tax AppellateTribunal, Mumbai Bench "A", Mumbai ("Tribunal" for short)in Income Tax Appeal No. 7899/Mum/2011 for theassessment year 2006-07. 3.The appeal has been preferred projecting the following questions as substantial questions of law:- (i) Whether on the facts and in the circumstances of the case andin law, Tribunal was right in setting aside the action of the AOwithout appreciating the fact that the fringe benefitassessment was framed after duly considering the CBDTCircular No. 8/2005 and the Explanatory Notes to the FinanceAct, 2005 on the provisions relating to Fringe Benefit Tax.?in law, Tribunal was right in setting aside the action of the AOwithout appreciating the fact that the fringe benefitassessment was framed after duly considering the CBDTCircular No. 8/2005 and the Explanatory Notes to the FinanceAct, 2005 on the provisions relating to Fringe Benefit Tax.? (ii) Whether on the facts and in the circumstances of the case andin law, Tribunal was right in ignoring the fact that the Tribunalhas explained considering the case of ESkayef Ltd., 245 ITR116, of the Supreme Court that free medical samplesdistributed to doctors is in the nature of sales promotion andsimilarly, any expenditure on free samples of other productsdistributed to trade or consumers would be liable to FBT?in law, Tribunal was right in ignoring the fact that the Tribunalhas explained considering the case of ESkayef Ltd., 245 ITR116, of the Supreme Court that free medical samplesdistributed to doctors is in the nature of sales promotion andsimilarly, any expenditure on free samples of other productsdistributed to trade or consumers would be liable to FBT? 4.Matter relates to income tax on fringe benefits whichwas introduced in the Act by way of the Finance Act, 2005w.e.f. 1.4.2006. Chapter XXII-H of the Act provides forincome tax on fringe benefits. Fringe benefit tax has beendefined under Section 115W(b) as tax chargeable underSection 115WA. 5. Section 115WA is the charging section for charge offringe benefit tax. Sub-section (1) says that in addition tothe income tax charged under the Act, there shall be charged for every assessment year commencing on or afterthe 1st day of April, 2006, additional income tax (referred toas the fringe benefit tax) in respect of the fringe benefitsprovided or deemed to have been provided by an employerto his employees during the previous year at the rate ofthirty percent on the value of such fringe benefits. 6.Therefore, for charge or levy of fringe benefit tax, thesine qua non is fringe benefits being provided or deemed tobe provided by an employer to his employees. In otherwords, there has to be a relationship of employer andemployees and in the course of such relationship, theemployer provides fringe benefits to the employees. 7.The term 'employer' is defined in Section 115W(a) ofthe Act to mean (i) a company; (ii) a firm; (iii) an associationof persons or a body of individuals, whether incorporated ornot; (iv) a local authority; and (v) every artificial juridicalperson, not falling within any of the aforesaid categories. 6.Therefore, for charge or levy of fringe benefit tax, thesine qua non is fringe benefits being provided or deemed tobe provided by an employer to his employees. In otherwords, there has to be a relationship of employer andemployees and in the course of such relationship, theemployer provides fringe benefits to the employees. 7.The term 'employer' is defined in Section 115W(a) ofthe Act to mean (i) a company; (ii) a firm; (iii) an associationof persons or a body of individuals, whether incorporated ornot; (iv) a local authority; and (v) every artificial juridicalperson, not falling within any of the aforesaid categories. 8.Adverting to the facts of the present case, it is seenthat assessee is a company engaged in pharmaceuticalbusiness i.e., in the business of manufacturing ofpharmaceutical products of various types. Assessee filed areturn of fringe benefit disclosing the value of fringe benefitsto the extent of Rs. 5,41,64,140/-. Initial assessment wasconcluded by the Assessing OfÏcer accepting the return offringe benefit value as disclosed by the assessee. 9.Thereafter, the case was reopened under Section115WG of the Act. The assessment was reopened on theground that distribution of free samples was in the nature offringe benefit and therefore, the expenditure incurred by theassessee on the same was includible for the purpose offringe benefit tax. Though the assessee contended that thenature of expenditure was not covered within the meaningof sales promotion for the purpose of fringe benefit tax, theAssessing OfÏcer did not accept such contention of theassessee. Accordingly, the Assessing OfÏcer added a sum ofRs. 4,01,40,143.00 to the value of fringe benefit for thepurpose of levy of fringe benefit tax vide the Fringe Benefit Assessment Order dated 22.11.2010. 10. On appeal by the assessee, the first appellate authorityi.e Commissioner of Income Tax (Appeals)-4, MumbaiafÏrmed the decision of the Assessing OfÏcer vide the orderdated 9.9.2011. 11. Aggrieved, assessee preferred further appeal beforethe Tribunal. Tribunal referred to and relied upon a decisionof this Court in CIT Vs. Tata Consultancy Services Ltd[1]and held that for levy of fringe benefit tax, establishment ofempoyer-employee relationship is a pre-requisite. Followingthe decision in Tata Consultancy Services Ltd (supra),Tribunal vide the order dated 25.1.2017 upheld thecontention of the assessee and set aside the order passed bythe Assessing OfÏcer as afÏrmed by the Commissioner ofIncome Tax (Appeals). 12. Submissions made have been considered. 1374 ITR 112 13. Before adverting to the order passed by the Tribunal,we would once again revert back to the provisions of Section115WA of the Act. From a bare reading of the said Section, itis evident that for levy of fringe benefit tax, it is essentialthat there must be a relationship between an employer andemployees and the fringe benefit has to be provided ordeemed to be provided by the employer to his employees.As alluded to herein above, for levy of fringe benefit tax,relationship of employer and employees is the sine qua nonand the fringe benefits has to be provided by the employerto the employees in the course of such relationship. 14. In Tata Consultancy Services Ltd (supra), this Courtreferred to Circular No. 8/2005 of CBDT which indicated thatthe objective of taxing perquisite of fringe benefit is both onthe ground of equity and economic efÏciency. Thereafter,this Court held that the basis of fringe benefit tax is thebenefit or perquisite which emanates out of an employer-employee relationship which is a pre-requisite for levy offringe benefit tax. 15. Having noticed this Court's order in Tata ConsultancyServices Ltd (supra), we may now advert to the order passedby the Tribunal dated 25.1.2017, relevant portion of which isextracted here-under:- 14. In Tata Consultancy Services Ltd (supra), this Courtreferred to Circular No. 8/2005 of CBDT which indicated thatthe objective of taxing perquisite of fringe benefit is both onthe ground of equity and economic efÏciency. Thereafter,this Court held that the basis of fringe benefit tax is thebenefit or perquisite which emanates out of an employer-employee relationship which is a pre-requisite for levy offringe benefit tax. 15. Having noticed this Court's order in Tata ConsultancyServices Ltd (supra), we may now advert to the order passedby the Tribunal dated 25.1.2017, relevant portion of which isextracted here-under:- "7.We have carefully considered the rival submissions. Therelevant facts are that the assessee is engaged in the business ofmanufacture of pharmaceutical products of various types. In itsbusiness, assessee distributes free samples to Doctors and othersand the claim of assessee was that such expenditure is not coveredwithin the meaning of sales promotion for the purposes of FBT. Onthe contrary, the lower authorities have concluded that free samplesdistributed by pharmaceutical companies are in the nature of salespromotion based on the judgment of the Hon'ble Supreme Court inthe case of Eskayef(supra) and, therefore, the Assessing Officerincluded the free samplesdistributed to Doctors and others in theFBT. In our considered opinion, without going into any otherarguments, the stand of assessee is liable to be upheld in view ofjudgment of Hon'ble Bombay High Court in the case of TataConsultancy Services Ltd. (supra). In the case before the Hon'bleHigh Court, assessee was engaged in the business of renderingtechnical consultancy services, marketing of software and hardwareproducts and also export of software. Assessee had claimedexpenses on account of payment to one M/s. Tata Sons towardsTata brand equity contribution. The Assessing Officer included suchexpenditure while computing the value of FBT as according to him itwas in the nature of sales promotion. The CIT(A) held thatsubscription fee could not be treated as falling under the head ‘salespromotion’ and he allowed the claim of assessee that such amountwas not includible for the purposes of FBT. The said stand of CIT(A)was upheld by the Tribunal, which has been affirmed by the Hon'ble High Court. In the said case, it was noticed that expenditure by wayof subscription had been incurred in terms of contractual agreementbetween Tata Consultancy Services Ltd. and Tata Sons and thatthere was no employer-employee relationship between the two. TheHon'ble High Court observed that the basis of FBT is the benefit orperquisite which emanates out of employer-employee relationship.As a consequence, it is safe to deduce that in order to justify the levyof FBT, establishing of employer-employee relationship is a pre-requisite. In the present case, no case has been made out by theincome-tax authorities that the expenditure incurred by assessee ondistribution of free samples to Doctors and others involved anyemployer-employee relationship between the assessee and therecipients of such samples. Therefore, at the very threshold,following the ratio of judgment of the Hon'ble Bombay High Court inthe case of Tata Consultancy Services Ltd. (supra), action ofAssessing Officer is untenable and is hereby set-aside. Thus,assessee succeeds on its plea." 16. Tribunal recorded as a finding of fact that in the course of its business, assessee distributes free samples to thedoctors and others the expenditure for which the assesseeclaims is not covered within the meaning of sales promotionfor the purpose of fringe benefit tax. Tribunal also noted thatno case was made out by the Income Tax authorities that theexpenditure incurred by the assessee on distribution of freesamples to doctors and others involved any employer-employee relationship. 16. Tribunal recorded as a finding of fact that in the course of its business, assessee distributes free samples to thedoctors and others the expenditure for which the assesseeclaims is not covered within the meaning of sales promotionfor the purpose of fringe benefit tax. Tribunal also noted thatno case was made out by the Income Tax authorities that theexpenditure incurred by the assessee on distribution of freesamples to doctors and others involved any employer-employee relationship. 17. Therefore, following the judgment of this Court in TataConsultancy Services Ltd (supra), we concur with the findingsrendered by the Tribunal. Since there was no employer-employee relationship between the assessee on one handand the doctors on the other hand to whom the free sampleswere provided, the expenditure incurred for the same cannotbe construed as fringe benefits to be brought within theadditional tax net by levy of fringe benefit tax. 18. Consequently, we find no merit in this appeal. Appealis accordingly dismissed. However, there shall be no order asto cost. [ MILIND N. JADHAV, J. ] [ UJJAL BHUYAN, J. ] Digitally signedRavindraby Ravindra M.AmberkarM.Date:Amberkar2020.01.2914:32:06+0530