2024 (2) TMI 1104 - AT - Income Tax

Advertisement and business promotion expenses to doctors not subject to FBT under sections 115WB(2)(d) and 115WB(2)(o) without employer-employee relationship

ITAT Mumbai ruled in favor of assessee regarding FBT on business promotion expenses. AO treated advertisement and business promotion expenses as fringe ... Fringe Benefit Tax (“FBT”) - business promotion expenses treated as fringe benefit accorded by the assessee to its employees - As per the assessee, the expenses debited under the head “Advertisement and Business Promotion” and considered by the AO to be covered u/s 115WB(2)(d) and section 115WB(2)(o) are not incurred on its employees and rather the same has been incurred on the Doctors. HELD THAT:- We find that the assessee filed the details of expenses, vouchers, etc. to substantiate its claim that the Advertisement and Business Promotion expenses are recurring expenditures incurred during the normal course of the business exclusively for the purpose of business. AO after examination and verification of these details on a text check basis stated that the expenses are incurred by field staff for giving various gifts, travel facilities, etc. to the Doctors for promoting the products of the assessee. Therefore, from the aforesaid remand report, it is sufficiently evident that the Revenue has accepted that the expenses under the head CRM/KAM are incurred for the benefit of the Doctors. We find that in Pr.CIT v/s Aristo Pharmaceuticals (P) Ltd., [2020 (1) TMI 1155 - BOMBAY HIGH COURT] after analysing the provisions of section 115WA of the 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 Hon’ble 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, no material has been brought on record by the Revenue to show that the Doctors were employees of the assessee, therefore, addition made by the AO u/s 115WB(2)(d) and section 115WB(2)(o) of the Act is deleted. Grounds raised by the assessee are allowed. Issues Involved:1. Charging of Fringe Benefit Tax (FBT) on business promotion expenses.2. Inclusion of expenses under the head 'Advertisement and Business Promotion' in the value of fringe benefits.Summary:Issue 1: Charging of Fringe Benefit Tax (FBT) on business promotion expensesThe assessee challenged the impugned order confirming the action of the Deputy Commissioner of Income Tax in charging FBT on business promotion expenses, including KAM expenses, CRM expenses, conference and meeting expenses, and gift articles, treating them as deemed fringe benefits accorded to employees. The assessee argued that the expenses were incurred on non-employees, specifically Doctors, and thus should not be liable to FBT. The Assessing Officer (AO) held that the expenses were not fully receipted by beneficiaries and were routed through CRM/KAM personnel, thus forming part of the taxable fringe benefit value. The learned CIT(A) dismissed the appeal, and the assessee appealed before the Tribunal.Issue 2: Inclusion of expenses under the head 'Advertisement and Business Promotion' in the value of fringe benefitsDuring the assessment, it was noted that the assessee did not include certain amounts under 'Advertisement and Business Promotion' in the value of fringe benefits. The AO included these expenses, stating they were not controlled by the assessee and were not fully receipted, thus forming part of the taxable fringe benefit value. The assessee submitted that the expenses under CRM/KAM were benefits given to Doctors, and since there was no employer-employee relationship, they should not be considered fringe benefits. The Tribunal noted that the Revenue accepted the expenses were incurred for the benefit of Doctors and not employees.Judgment:The Tribunal referred to the jurisdictional High Court's decision in Pr.CIT v/s Aristo Pharmaceuticals (P) Ltd., which held that for the levy of FBT, an employer-employee relationship is essential. Since no material was brought to show that the Doctors were employees of the assessee, the Tribunal deleted the addition made by the AO under section 115WB(2)(d) and section 115WB(2)(o) of the Act. Consequently, the appeal by the assessee was allowed. Order:The appeal by the assessee is allowed, and the order was pronounced in the open Court on 20/02/2024.