Fringe benefit treatment of advertising and sales promotion expenses excluded where payments to non-employees; appeal allowed

Fringe benefit treatment does not extend to advertising, publicity and sales promotion expenses paid to third parties because such payments are not consideration for employment; therefore these expenses cannot be treated as fringe benefits and are excluded under the proviso covering advertising, business conventions, sponsorships, publications and distribution of samples. The factual finding that payments were made to outsiders for promotional articles and marketing services supports this legal position, and established precedent treating the provision as a deeming rule confined to payments to employees reinforces that outcome, resulting in allowance of the appeal.

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Issues: Whether the advertising, publicity and sales promotion expenditure incurred by the assessee constitutes a "fringe benefit" within the meaning of section 115WB and is therefore liable to fringe benefit tax under section 115WA for the relevant assessment year.

Analysis: Chapter XII-H defines a fringe benefit as any consideration for employment; sub-section (2) of section 115WB operates as a deeming provision that brings specified categories of business expenditure within the ambit of fringe benefits only to the extent such expenditure partakes the character of a benefit to employees. The proviso to section 115WB(2)(D) expressly excludes several categories of sales promotion and publicity expenditure from FBT. The material on record establishes that the impugned payments were made to third parties (dealers, distributors, advertising agencies, vendors) for promotional activities and supplies, and no material indicates that recipients were employees or that the expenditures resulted in any direct or indirect benefit to employees. Documentary evidence including ledgers, sample invoices and vendor proofs was placed on record and accepted as evidentiary support for the business nature of the expenses. Established tribunal and high court authorities construe section 115WB as a deeming provision applicable only where expenditure is in substance a consideration for employment and do not extend FBT to ordinary business promotion expenses or promotional items supplied to customers where consideration for sale has been paid.

Conclusion: The expenditure on advertising, publicity and sales promotion does not constitute a fringe benefit within the meaning of section 115WB and is not liable to fringe benefit tax under section 115WA; the addition is deleted in favour of the assessee.

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