The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) has ruled that there exists no employer-employee relationship between Piramal Enterprises and doctors, leading to the deletion of additions under Sections 115WB(2)(d) and 115WB(2)(o) related to Fringe Benefit Tax ( FBT ).
The assessee filed its fringe benefit return under Section 115WD(1) of the Act on 21/10/2006 declaring the value of fringe benefit at Rs. 7,18,73,324. During the assessment proceedings, it was noticed that the assessee has not included the following amounts in the value of the fringe benefit, which was debited under the head “Advertisement and Business Promotion.”
The Assessing Officer passed under section 115WE(3) of the Act held that the above expenditure of Rs. 23,52,82,100 is such expenditure that is routed through the CRM or KAM personal on which there is no controlled by the assessee so as to ensure that the same is allowable under Section 37(1) of the Income Tax Act.
It was further held that the very fact that the incurring of the above expenses are not fully receipted by the beneficiaries and that the CRM/KAM personnel only submit the details, neither the assessee nor such CRM/KAM can support the claim as required by law, therefore the said expenses are to be held as forming part of the taxable fringe benefit value.
Mr. Ronak Doshi representing the assessee submitted that the AO, vide its remand report furnished before the learned CIT(A), has accepted that the advertisement expenses under the head CRM/KAM are the benefits given to the Doctors. It was further submitted that since there is no employer-employee relationship between the assessee and the Doctors, the expenditure incurred does not fall within the category of fringe benefits under the Act.
The bench considered the submissions of both sides and perused the material available on record. The only dispute raised by the assessee, in the present appeal, is against charging of Fringe Benefit Tax on business promotion expenses by treating the same as fringe benefit accorded by the assessee to its employees.
Further the expenses debited under the head “Advertisement and Business Promotion” and considered by the AO to be covered under section 115WB(2)(d) and section 115WB(2)(o) of the Income Tax Act are not incurred on its employees and rather the same has been incurred on the Doctors.
The tribunal found that the jurisdictional High Court in Pr.CIT v/s Aristo Pharmaceuticals (P) Ltd. after analysing the provisions of Section 115WA of the Income Tax Act held that for levy of FBT, the relationship of employer and employees is the sine qua non and the fringe benefits have to be provided by the employer to the employees in the course of such relationship.
Accordingly, the High Court held that since there was no employer-employee relationship between the taxpayer and the Doctors, the expenditure incurred for distributing free samples to the Doctors could not be construed as fringe benefits to be brought within the additional tax net by levy of FBT.
Since, in the present case, the two member bench of the tribunal comprising Om Prakash Kant (Accountant member) and Sandeep Singh Karhail (Judicial member) concluded that no material has been brought on record by the Revenue to show that the Doctors were employees of the assessee, therefore, respectfully following the aforesaid decision of the jurisdictional High Court, the addition made by the AO under Section 115WB (2)(d) and Section 115WB(2)(o) of the Income Tax Act was deleted. Accordingly, these grounds raised by the assessee are allowed.
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