The Bombay High Court a couple of weeks back dismissed an appeal filed against an order of the Income Tax Appellate Tribunal and held that for levy of fringe benefit tax, relationship of employer is the sine qua non and the fringe benefits has to be provided by the employer to the employees in the course of such relationship.
A division bench of Justices Ujjal Bhuyan and Milind Jadhav heard the appeal filed under Section 260A of Income Tax Act filed by the Commissioner of Income Tax against an order dated January 25, 2017 passed by ITAT.
Income tax on fringe benefits was introduced in the Act by way of the Finance Act, 2005. 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.
Aristo Pharmaceuticals, the respondent company filed a return of fringe benefit disclosing the value of fringe benefits to the extent of Rs. 5.4 crores (approx). Initial assessment was concluded by the Assessing Officer accepting the return of fringe benefit value as disclosed by the assessee.
Thereafter, the case was reopened under Section 115WG of the Act. The assessment was reopened on the grounds that the 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.
Although 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 the said contention. 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 through assessment order dated November 22, 2010.
On appeal by the assessee, the first appellate authority i.e Commissioner of Income Tax, Mumbai affirmed the decision of the Assessing Officer in order dated September 9, 2011.
The Appellate Tribunal relied upon a decision of the High Court in CIT Vs. Tata Consultancy Services Ltd and held that for levy of fringe benefit tax, the establishment of empoyer-employee relationship is a prerequisite. Thus, the order passed by the Assessing Officer as affirmed by the Commissioner of Income Tax was set aside.
At the very outset, the bench observed-
"Before adverting to the order passed by the Tribunal, we would once again revert back to the provisions of Section 115WA of the Act. From a bare reading of the said Section, it is evident that for levy of fringe benefit tax, it is essential that there must be a relationship between an employer and employees and the fringe benefit has to be provided or deemed to be provided by the employer to his employees. As alluded to hereinabove, for levy of fringe benefit tax, relationship of employer and employees is the sine qua non and the fringe benefits has to be provided by the employer to the employees in the course of such relationship."
Then, Court referred to the order passed by the ITAT and findings noted therein that in the course of its business, assessee distributes free samples to the doctors and others, the expenditure for which the assessee claims is not covered within the meaning of sales promotion for the purpose of fringe benefit tax.
Finally, the bench concurred with the findings of the Tribunal and dismissed the appeal-
"Since there was no employer-employee relationship between the assessee on one hand and the doctors on the other hand to whom the free samples were provided, the expenditure incurred for the same cannot be construed as fringe benefits to be brought within the additional tax net by the levy of fringe benefit tax."