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23-01-2020, Aristo Pharmaceuticals, Section 260A, 115W(b), HIGH COURT OF BOMBAY
1. Heard Mr. Suresh Kumar, learned standing counsel, revenue for the appellant.
2. This appeal under Section 260A of the Income Tax Act, 1961 ("the Act" for short) has been preferred against the order dated 25.1.2017 passed by the Income Tax Appellate Tribunal, Mumbai Bench "A", Mumbai ("Tribunal" for short) in Income Tax Appeal No. 7899/Mum/2011 for the assessment year 2006-07.
3. The appeal has been preferred projecting the following questions as substantial questions of law:-
(i) Whether on the facts and in the circumstances of the case and in law, Tribunal was right in setting aside the action of the AO without appreciating the fact that the fringe benefit assessment was framed after duly considering the CBDT Circular No. 8/2005 and the Explanatory Notes to the Finance Act, 2005 on the provisions relating to Fringe Benefit Tax.?
(ii) Whether on the facts and in the circumstances of the case and in law, Tribunal was right in ignoring the fact that the Tribunal has explained considering the case of ESkayef Ltd., 245 ITR 116, of the Supreme Court that free medical samples distributed to doctors is in the nature of sales promotion and similarly, any expenditure on free samples of other products distributed to trade or consumers would be liable to FBT?
4. Matter relates to income tax on fringe benefits which was introduced in the Act by way of the Finance Act, 2005 w.e.f. 1.4.2006. Chapter XXII-H of the Act provides for income tax on fringe benefits. Fringe benefit tax has been defined under Section 115W(b) as tax chargeable under Section 115WA.
5. Section 115WA is the charging section for charge of fringe benefit tax. Sub-section (1) says that in addition to the income tax charged under the Act, there shall be charged for every assessment year commencing on or after the 1st day of April, 2006, additional income tax (referred to as the fringe benefit tax) in respect of the fringe benefits provided or deemed to have been provided by an employer to his employees during the previous year at the rate of thirty percent on the value of such fringe benefits.
6. Therefore, for charge or levy of fringe benefit tax, the sine qua non is fringe benefits being provided or deemed to be provided by an employer to his employees. In other words, there has to be a relationship of employer and employees and in the course of such relationship, the employer provides fringe benefits to the employees.
7. The term 'employer' is defined in Section 115W(a) of the Act to mean (i) a company; (ii) a firm; (iii) an association of persons or a body of individuals, whether incorporated or not; (iv) a local authority; and (v) every artificial juridical person, not falling within any of the aforesaid categories.
8. Adverting to the facts of the present case, it is seen that assessee is a company engaged in pharmaceutical business i.e., in the business of manufacturing of pharmaceutical products of various types. Assessee filed a return of fringe benefit disclosing the value of fringe benefits to the extent of Rs. 5,41,64,140/-. Initial assessment was concluded by the Assessing Officer accepting the return of fringe benefit value as disclosed by the assessee.
9. Thereafter, the case was reopened under Section 115WG of the Act. The assessment was reopened on the ground that distribution of free samples was in the nature of fringe benefit and therefore, the expenditure incurred by the assessee on the same was includible for the purpose of fringe benefit tax. Though the assessee contended that the nature of expenditure was not covered within the meaning of sales promotion for the purpose of fringe benefit tax, the Assessing Officer did not accept such contention of the assessee. Accordingly, the Assessing Officer added a sum of Rs. 4,01,40,143.00 to the value of fringe benefit for the purpose of levy of fringe benefit tax vide the Fringe Benefit