The Commissioner Of Income Tax-Ii, Ludhiana v. M/S Hero Cycles Ltd., Gt Road,Hero Nagar, Ludhiana

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Income Tax Appeal No.180 of 2013 Date of Order: 09.09.2013 The Commissioner of Income Tax-II, Ludhiana ...Appellant Versus M/s Hero Cycles Ltd., GT Road,Hero Nagar, Ludhiana. ..Respondent CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE DR. BHARAT BHUSHANPARSOON Present:Ms. Savita Saxena, Advocatefor the appellant RAJIVE BHALLA, J. The revenue is before us impugning the correctness of anorder dated 30.01.2013, passed by the Income Tax Appellate Tribunal,Chandigarh, primarily on a plea that expenses incurred under the head“Selling Expenses” are to be treated as “Fringe Benefits” and computedand taxed as such. Counsel for the appellant submits that as a scheme, called“Hero Bumper Bonanza Foreign Trip and Attractive Gift” provided thatfree gifts/foreign trips would be given to dealers for specified amount ofpurchases from the assessee, the expense so incurred is liable to fringebenefit tax. The Central Board of Direct Taxes (hereinafter referred to as'the CBDT”), has clarified in answer to question No.61 that such abenefit shall invite fringe benefit tax. The ITAT has wrongly held to thecontrary by relying upon answer of the CBDT to question No.66 and,therefore, the following questions of law arises for consideration:- “Whether, on the facts and circumstances of the case,the Hon'ble ITAT is right in law in holding that the caseof the assessee is covered by question No.66 ofcircular No.8/2005 dated 29.08.2005 of the CBDTthereby deleting the addition of Rs.63,84,090/-?” We have heard counsel for the appellant and perused theimpugned order. The assessee filed a return disclosing certain FringeBenefits but at the same time claimed allowance of Rs.3,19,20,449/-incurred as ordinary selling expenses on “Hero Bumper BonanzaForeign Trip and Attractive Gift” scheme. The Assessing Officer heldthat as expenses incurred, on the scheme, were incurred to increasesale, it is covered by answer of the CBDT to question No.61 and,therefore, is in the nature of sale promotion and publicity covered underSection 115WB(2)(D) of the Income Tax Act, 1961 (hereinafter referredto as 'the Act'). Rs.63,84,090/- was accordingly added to fringe benefits.Penalty under Section 271(1)(d) of the Act was initiated separately forfurnishing inaccurate particulars. Aggrieved by this order, the assessee filed an appeal. TheCommissioner of Income Tax examined answers of the CBDT toquestion nos.61 and 66 and while dismissing the appeal, held asfollows:- “From the aforesaid facts it emerges that there is oneessential difference between the incentives referred toin Question No.61 & Question No.66. While theincentives referred to in Question No.61 are given todistributors after they meet the sales target the incentives referred to in Question No.66 are given todealers and consumers bases on the purchases madeby them irrespective of their achieving the salestarget.” Points No.2&3 of the scheme clearly show thatboth the parts of the scheme promise free gifts/foreigntrips to the dealers on their making specified amountof purchases irrespective of the quantity of saleachieved by them. The scheme also provides that it isnot convertible in cash implying thereby that thedealers will get only free gifts or free foreign trips.From this analysis it is very clear that the scheme is topromote sales of the appellant. As it is not based onthe performance of the dealers in achieving certainsales target it cannot by any stretch of imagination betermed as performance based commission ascontemplated under Q.No.61 of the aforesaid circular.Thus the expenditure of Rs.3,19,20,449/- is squarelycovered by the provisions of Question no.66 of CBDTCircular No.8 of 2005 and does not fall within thescope of Question No.61. Keeping in view the aforesaid factual position,the AO was fully justified in holding that the saidexpenditure is in the nature of sales promotion andpublicity covered u/s 115WB(2)(D) of the I.T. Act.These grounds of appeal are accordingly dismissed.” The assessee filed an appeal before the Income Tax Income Tax Appeal No.180 of 2013 Appellate Tribunal. After perusal of the scheme and answers to questionnos.61 and 66, the Income Tax Appellate Tribunal allowed the appeal byholding as follows:- “Careful reading of both the above questions andanswers show that question no.61 relates to thesituation where incentive are given to the distributorsfor meeting quantity target. This can be in the form offree gifts like television or cash incentives or evenforeign trip. On the other hand, situation covered byquestion no.66 relates to free gifts to distributors aswell as the consumers without any quantitative target.In our opinion, these are two different situations andapply separately. For example in case of questionno.61, the situation can be that of free mixy would begiven if the dealer achieve the target of let us say 100nos. If the dealer achieves target of more than 250number then he would be entitled to a free televisionand if such dealer achieves the target to more than1000 number then he would be entitled to free foreigntrip. The situation would be covered by answer toquestion no.61 and would be known as incentive tothe dealer. The situation in question no.66 can be ofvarious types. For example if the consumer buys onetrouser and he may be entitled to one free shirt or thedealer would get a free silver coin being offered onevery 10 units of the products sold. Therefore,situation in question no.66 is quite different because that does not refer to a particular target and isavailable for trade sale or to customers.TheAssessing Officer and the CIT(A) has both opined thatmerely by lifting of a particular quantity of the productsold by the assessee, it cannot be said that dealer hasachieved a particular target but while holding so theyhave not considered basic effect that as far as theassessee-company is concerned, once a particularquantity is lifted from it, it becomes sales for the-assesseecompany and from point of view of thecompany particular sales target stands achieved bythat dealer. There may be a situation where thedealer achieved a sale target of say 580 cyclesobviously for the prize of foreign trip he would leftanother 20 cycles and can get higher prize. This willnot effect the position of the company because fromthe company's point of view sale target of 600 cycleshas been achieved by that dealer. Therefore, in ourview in the case before us, the assessee has simplyframed a scheme which was meant to provide certainincentives to the dealer for achieving particular targetand is clearly covered by the situation covered byanswer to question no.61 in the circular no.8/2005issued by the CBDT. Therefore, we set aside the orderof the Ld. CIT(A) and direct the Assessing Officer notto include the amounts spent on “Hero BumperBonanza Foreign Trip and Attractive Gift” in the fringe benefit.” benefit.” A perusal of the statutory provisions, answers by the CBDT,to question nos.61 and 66 and due consideration of findings recorded bythe Income Tax Appellate Tribunal, leave no manner of doubt thatopinion recorded by the Income Tax Appellate Tribunal is legally correctand free from error. The distinction between the two situations, referredto in answers to questions No.61 and 66, may appear to be minimal,depending upon ones perception, but a careful perusal of theseanswers reveals that where incentives are given to distributors formeeting quantity target, the expenses fall within answer to questionNo.61, whereas free gifts to distributors and customers without anyquantitative target, fall within answer to question No.66. The learnedTribunal has examined answers to question nos.61 and 66 and onlythereafter recorded its conclusion, which is neither perverse, arbitrarynor illegal and, therefore, does not warrant interference on the questionof law framed by the revenue. In view of what has been stated hereinabove, the appeal isdismissed. (RAJIVE BHALLA) JUDGE September 09, 2013 (DR. BHARAT BHUSHAN PARSOON)nt JUDGE