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 benefits under sections 115WB(2)(d) and 115WB(2)(o), claiming they were provided to employees. Assessee contended expenses were incurred on doctors, not employees. ITAT found revenue accepted expenses were for doctors' benefit through gifts and travel facilities for product promotion. Following Bombay HC precedent in Pr.CIT v/s Aristo Pharmaceuticals, ITAT held FBT requires employer-employee relationship as sine qua non. Since no evidence showed doctors were assessee's employees, expenses could not constitute fringe benefits. Addition deleted, assessee's grounds allowed.

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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 expenses
The 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 benefits
During 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.

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