10. os itxa 1961-17.doc R.M. AMBERKAR (Private Secretary) IN HIGH COURT OF JUDICATURE AT BOMBAY O.O.C.J. INCOME TAX APPEAL NO. 1961 OF 2017 Pr. Commissioner of Income Tax 2 .. Appellant Versus M/s. Aristo Pharmaceuticals P Ltd Respondent Mr. Suresh Kumar for Appellant CORAM : UJJAL BHUYAN & MILIND N. JADHAV, JJ. DATE : JANUARY 23, 2020. P.C.: 1. Heard Mr. Suresh Kumar, learned standing counsel, revenue for appellant. 2. This appeal under Section 260A of Income Tax Act, 1961 ("the Act" for short) has been preferred against order dated 25.1.2017 passed by Income Tax Appellate Tribunal, Mumbai Bench "A", Mumbai ("Tribunal" for short) in Income Tax Appeal No. 7899/Mum/2011 for assessment year 2006-07. 1 of 9 10. os itxa 1961-17.doc 3. appeal has been preferred projecting following questions as substantial questions of law:- (i) Whether on facts and in circumstances of case and in law, Tribunal was right in setting aside action of AO without appreciating fact that fringe benefit assessment was framed after duly considering CBDT Circular No. 8/2005 and Explanatory Notes to Finance Act, 2005 on provisions relating to Fringe Benefit Tax.? (ii) Whether on facts and in circumstances of case and in law, Tribunal was right in ignoring fact that Tribunal has explained considering case of ESkayef Ltd., 245 ITR 116, of Supreme Court that free medical samples distributed to doctors is in 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 Act by way of Finance Act, 2005 w.e.f. 1.4.2006. Chapter XXII-H of 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 charging section for charge of fringe benefit tax. Sub-section (1) says that in addition to income tax charged under Act, there shall be 2 of 9 10. os itxa 1961-17.doc charged for every assessment year commencing on or after 1st day of April, 2006, additional income tax (referred to as fringe benefit tax) in respect of fringe benefits provided or deemed to have been provided by employer to his employees during previous year at rate of thirty percent on value of such fringe benefits. 6. Therefore, for charge or levy of fringe benefit tax, sine qua non is fringe benefits being provided or deemed to be provided by employer to his employees. In other words, there has to be relationship of employer and employees and in course of such relationship, employer provides fringe benefits to employees. 7. term 'employer' is defined in Section 115W(a) of Act to mean (i) company; (ii) firm; (iii) association of persons or body of individuals, whether incorporated or not; (iv) local authority; and (v) every artificial juridical person, not falling within any of aforesaid categories. 3 of 9 10. os itxa 1961-17.doc 8. Adverting to facts of present case, it is seen that assessee is company engaged in pharmaceutical business i.e., in business of manufacturing of pharmaceutical products of various types. Assessee filed return of fringe benefit disclosing value of fringe benefits to extent of Rs. 5,41,64,140/-. Initial assessment was concluded by Assessing Officer accepting return of fringe benefit value as disclosed by assessee. 9. Thereafter, case was reopened under Section 115WG of Act. assessment was reopened on ground that distribution of free samples was in nature of fringe benefit and therefore, expenditure incurred by assessee on same was includible for purpose of fringe benefit tax. Though assessee contended that nature of expenditure was not covered within meaning of sales promotion for purpose of fringe benefit tax, Assessing Officer did not accept such contention of assessee. Accordingly, Assessing Officer added sum of Rs. 4,01,40,143.00 to value of fringe benefit for purpose of levy of fringe benefit tax vide Fringe Benefit 4 of 9 10. os itxa 1961-17.doc Assessment Order dated 22.11.2010. 10. On appeal by assessee, first appellate authority i.e Commissioner of Income Tax (Appeals)-4, Mumbai affirmed decision of Assessing Officer vide order dated 9.9.2011. 11. Aggrieved, assessee preferred further appeal before Tribunal. Tribunal referred to and relied upon decision of this Court in CIT Vs. Tata Consultancy Services Ltd1 and held that for levy of fringe benefit tax, establishment of empoyer-employee relationship is pre-requisite. Following decision in Tata Consultancy Services Ltd (supra), Tribunal vide order dated 25.1.2017 upheld contention of assessee and set aside order passed by Assessing Officer as affirmed by Commissioner of Income Tax (Appeals). 12. Submissions made have been considered. 1 374 ITR 112 5 of 9 10. os itxa 1961-17.doc 13. Before adverting to order passed by Tribunal, we would once again revert back to provisions of Section 115WA of Act. From bare reading of said Section, it is evident that for levy of fringe benefit tax, it is essential that there must be relationship between employer and employees and fringe benefit has to be provided or deemed to be provided by employer to his employees. As alluded to herein above, for levy of fringe benefit tax, relationship of employer and employees is sine qua non and fringe benefits has to be provided by employer to employees in course of such relationship. 14. In Tata Consultancy Services Ltd (supra), this Court referred to Circular No. 8/2005 of CBDT which indicated that objective of taxing perquisite of fringe benefit is both on ground of equity and economic efficiency. Thereafter, this Court held that basis of fringe benefit tax is benefit or perquisite which emanates out of employer- employee relationship which is pre-requisite for levy of fringe benefit tax. 6 of 9 10. os itxa 1961-17.doc 15. Having noticed this Court's order in Tata Consultancy Services Ltd (supra), we may now advert to order passed by Tribunal dated 25.1.2017, relevant portion of which is extracted here-under:- "7. We have carefully considered rival submissions. relevant facts are that assessee is engaged in business of manufacture of pharmaceutical products of various types. In its business, assessee distributes free samples to Doctors and others and claim of assessee was that such expenditure is not covered within meaning of sales promotion for purposes of FBT. On contrary, lower authorities have concluded that free samples distributed by pharmaceutical companies are in nature of sales promotion based on judgment of Hon'ble Supreme Court in case of Eskayef (supra) and, therefore, Assessing Officer included free samples distributed to Doctors and others in FBT. In our considered opinion, without going into any other arguments, stand of assessee is liable to be upheld in view of judgment of Hon'ble Bombay High Court in case of Tata Consultancy Services Ltd. (supra). In case before Hon'ble High Court, assessee was engaged in business of rendering technical consultancy services, marketing of software and hardware products and also export of software. Assessee had claimed expenses on account of payment to one M/s. Tata Sons towards Tata brand equity contribution. Assessing Officer included such expenditure while computing value of FBT as according to him it was in nature of sales promotion. CIT(A) held that subscription fee could not be treated as falling under head sales promotion and he allowed claim of assessee that such amount was not includible for purposes of FBT. said stand of CIT(A) was upheld by Tribunal, which has been affirmed by Hon'ble 7 of 9 10. os itxa 1961-17.doc High Court. In said case, it was noticed that expenditure by way of subscription had been incurred in terms of contractual agreement between Tata Consultancy Services Ltd. and Tata Sons and that there was no employer-employee relationship between two. Hon'ble High Court observed that basis of FBT is benefit or perquisite which emanates out of employer-employee relationship. As consequence, it is safe to deduce that in order to justify levy of FBT, establishing of employer-employee relationship is pre- requisite. In present case, no case has been made out by income-tax authorities that expenditure incurred by assessee on distribution of free samples to Doctors and others involved any employer-employee relationship between assessee and recipients of such samples. Therefore, at very threshold, following ratio of judgment of Hon'ble Bombay High Court in case of Tata Consultancy Services Ltd. (supra), action of Assessing Officer is untenable and is hereby set-aside. Thus, assessee succeeds on its plea." 16. Tribunal recorded as finding of fact that in course of its business, assessee distributes free samples to doctors and others expenditure for which assessee claims is not covered within meaning of sales promotion for purpose of fringe benefit tax. Tribunal also noted that no case was made out by Income Tax authorities that expenditure incurred by assessee on distribution of free samples to doctors and others involved any employer- employee relationship. 8 of 9 10. os itxa 1961-17.doc 17. Therefore, following judgment of this Court in Tata Consultancy Services Ltd (supra), we concur with findings rendered by Tribunal. Since there was no employer- employee relationship between assessee on one hand and doctors on other hand to whom free samples were provided, expenditure incurred for same cannot be construed as fringe benefits to be brought within additional tax net by levy of fringe benefit tax. 18. Consequently, we find no merit in this appeal. Appeal is accordingly dismissed. However, there shall be no order as to cost. [ MILIND N. JADHAV, J. ] [ UJJAL BHUYAN, J. ] Digitally signed by Ravindra M. Ravindra Amberkar M. Date: 2020.01.29 Amberkar 14:32:06 +0530 9 of 9 Pr. Commissioner of Income-tax 2 v. Aristo Pharmaceuticals P. Ltd