47. Principal CIT vs. Aristo Pharmaceuticals P. Ltd. [2020] 423 ITR 295 (Bom.) Date of order: 23rd January, 2020 A.Y.: 2006-07
Fringe benefits tax – Charge of tax – Section 115WA of ITA, 1961 –
Condition precedent – Relationship of employer and employee – Free samples
distributed to doctors by pharmaceutical company – Not fringe benefit – Amount
spent not liable to fringe benefits tax; A.Y. 2006-07
The
following questions were raised in the appeal filed by the Revenue before the
Bombay High Court:
‘i)
Whether on the facts and in the circumstances of the case and in law, the
Tribunal was right in setting aside the action of the A.O. without appreciating
the fact that the fringe benefit assessment was framed after duly considering
the CBDT Circular No. 8 of 2005 ([2005] 277 ITR (St.) 20] 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, the
Tribunal was right in ignoring the fact that the Tribunal has explained
considering the case of Eskayef vs. CIT [2000] 245 ITR 116 (SC),
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 fringe
benefit tax?’
The
Bombay High Court held as under:
‘i) From
a bare reading of section 115WA of the Income-tax Act, 1961 it is evident that
for the levy of fringe benefits tax it is essential that there must be a
relationship of employer and employee and the fringe benefit has to be provided
or deemed to be provided by the employer to his employees. The relationship of
employer and employee is the sine qua non and the fringe benefits have
to be provided by the employer to the employees in the course of such
relationship.
ii) The
assessee was a pharmaceutical company. Since there was no employer-employee
relationship between the assessee on the one hand and the doctors on the other
hand to whom the free samples were provided, the expenditure incurred for them
could not be construed as fringe benefits to be brought within the additional
tax net by levy of fringe benefit tax.’
