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Pr. Commissioner of Income Tax 2 v/s M/s. Aristo Pharmaceuticals P Ltd.


Company & Directors' Information:- B S P PHARMACEUTICALS LIMITED [Active] CIN = U24231GJ1987PLC009556

Company & Directors' Information:- G P T PHARMACEUTICALS PRIVATE LIMITED [Active] CIN = U24233TG2009PTC064156

Company & Directors' Information:- A N PHARMACEUTICALS PRIVATE LIMITED [Active] CIN = U24233DL2000PTC108617

Company & Directors' Information:- ARISTO PHARMACEUTICALS PRIVATE LIMITED [Active] CIN = U24239MH1971PTC015425

Company & Directors' Information:- P AND B PHARMACEUTICALS LIMITED [Active] CIN = U24230MH1978PLC020846

Company & Directors' Information:- E L C PHARMACEUTICALS PRIVATE LIMITED [Active] CIN = U24239DL1998PTC097310

Company & Directors' Information:- V C PHARMACEUTICALS (INDIA) PRIVATE LIMITED [Active] CIN = U24230KL2012PTC031429

Company & Directors' Information:- C I PHARMACEUTICALS PVT. LTD [Active] CIN = U24233WB1988PTC045057

Company & Directors' Information:- M J PHARMACEUTICALS PRIVATE LIMITED [Active] CIN = U24230MH1996PTC101370

Company & Directors' Information:- R. J. PHARMACEUTICALS (INDIA) PRIVATE LIMITED [Under Liquidation] CIN = U24232RJ1994PTC008899

Company & Directors' Information:- R P L (INDIA) PHARMACEUTICALS PRIVATE LIMITED [Active] CIN = U24239DL2002PTC115402

Company & Directors' Information:- L S K PHARMACEUTICALS PRIVATE LIMITED [Strike Off] CIN = U24231KA1990PTC011299

Company & Directors' Information:- P P PHARMACEUTICALS PRIVATE LIMITED [Active] CIN = U24232WB2003PTC096731

Company & Directors' Information:- F C PHARMACEUTICALS PRIVATE LIMITED [Active] CIN = U24239GJ2007PTC051567

Company & Directors' Information:- G D S J PHARMACEUTICALS PRIVATE LIMITED [Strike Off] CIN = U24239DL2001PTC109888

Company & Directors' Information:- S S M PHARMACEUTICALS PRIVATE LIMITED [Active] CIN = U24232RJ1982PTC002502

Company & Directors' Information:- S S PHARMACEUTICALS PRIVATE LIMITED [Active] CIN = U24231UP1982PTC005587

Company & Directors' Information:- M A S PHARMACEUTICALS PRIVATE LIMITED [Active] CIN = U51397PB2004PTC027688

Company & Directors' Information:- A V PHARMACEUTICALS PRIVATE LIMITED [Amalgamated] CIN = U24232DL1999PTC098651

Company & Directors' Information:- P G PHARMACEUTICALS PRIVATE LIMITED [Active] CIN = U74899DL1990PTC039757

Company & Directors' Information:- E M PHARMACEUTICALS PRIVATE LIMITED [Active] CIN = U24239MH1992PTC066216

Company & Directors' Information:- B D PHARMACEUTICALS PRIVATE LIMITED [Active] CIN = U24233WB2009PTC132243

Company & Directors' Information:- A G D PHARMACEUTICALS PVT LTD [Strike Off] CIN = U24231KL1984PTC003885

Company & Directors' Information:- S T PHARMACEUTICALS PVT LTD [Strike Off] CIN = U51909WB1989PTC047031

Company & Directors' Information:- N V K PHARMACEUTICALS PRIVATE LIMITED [Under Process of Striking Off] CIN = U24296UP2016PTC082942

Company & Directors' Information:- G K D PHARMACEUTICALS PRIVATE LIMITED [Strike Off] CIN = U24231WB1999PTC089334

Company & Directors' Information:- C F PHARMACEUTICALS PRIVATE LIMITED [Strike Off] CIN = U24231TN1982PTC009598

Company & Directors' Information:- M D PHARMACEUTICALS PRIVATE LIMITED [Strike Off] CIN = U24232WB2008PTC121471

Company & Directors' Information:- I. S. PHARMACEUTICALS PRIVATE LIMITED [Active] CIN = U24306KA2016PTC097524

Company & Directors' Information:- A M PHARMACEUTICALS (INDIA) PRIVATE LIMITED [Strike Off] CIN = U24233KL2010PTC026018

Company & Directors' Information:- B. C. PHARMACEUTICALS PRIVATE LIMITED [Active] CIN = U51900UP2018PTC109946

Company & Directors' Information:- M M PHARMACEUTICALS LIMITED [Strike Off] CIN = U24231TN1982PLC009714

Company & Directors' Information:- S AND S PHARMACEUTICALS INDIA PVT LTD [Strike Off] CIN = U24232CH1984PTC005799

Company & Directors' Information:- N C PHARMACEUTICALS PVT LTD [Strike Off] CIN = U24239HP1986PTC006997

Company & Directors' Information:- R G PHARMACEUTICALS CO PVT LTD [Strike Off] CIN = U24231HP1978PTC003877

Company & Directors' Information:- B M G PHARMACEUTICALS PVT LTD [Under Liquidation] CIN = U24232WB1974PTC029532

Company & Directors' Information:- M S PHARMACEUTICALS PRIVATE LIMITED [Strike Off] CIN = U24231UP1995PTC018120

Company & Directors' Information:- B G PHARMACEUTICALS PRIVATE LIMITED [Strike Off] CIN = U24231OR2002PTC006872

Company & Directors' Information:- D R P S PHARMACEUTICALS PRIVATE LIMITED [Strike Off] CIN = U24232UP2004PTC028820

Company & Directors' Information:- K N B PHARMACEUTICALS LIMITED [Strike Off] CIN = U24239CH1996PLC018286

Company & Directors' Information:- J S I PHARMACEUTICALS PRIVATE LIMITED [Strike Off] CIN = U24232UP1998PTC023778

Company & Directors' Information:- B I PHARMACEUTICALS PRIVATE LIMITED [Active] CIN = U24231CH1997PTC019728

Company & Directors' Information:- J G PHARMACEUTICALS PRIVATE LIMITED [Strike Off] CIN = U24231DL1987PTC027452

Company & Directors' Information:- J N PHARMACEUTICALS LIMITED [Strike Off] CIN = U24230TG1996PLC023652

Company & Directors' Information:- J AND J PHARMACEUTICALS PRIVATE LIMITED [Strike Off] CIN = U24119OR1973PTC000584

Company & Directors' Information:- C W C PHARMACEUTICALS PVT. LTD. [Active] CIN = U24231HR1990PTC030903

Company & Directors' Information:- A J S PHARMACEUTICALS (INDIA) PRIVATE LIMITED [Strike Off] CIN = U24232KA1972PTC002273

Company & Directors' Information:- A C PHARMACEUTICALS PVT LTD [Active] CIN = U51397WB1970PTC027869

Company & Directors' Information:- R K PHARMACEUTICALS PRIVATE LIMITED [Strike Off] CIN = U24232DL2006PTC154640

Company & Directors' Information:- A. PHARMACEUTICALS PVT LTD [Strike Off] CIN = U24232DL1999PTC100973

Company & Directors' Information:- N G PHARMACEUTICALS PRIVATE LIMITED [Strike Off] CIN = U24100MH2010PTC202028

Company & Directors' Information:- S V N PHARMACEUTICALS PRIVATE LIMITED [Strike Off] CIN = U24230MH2005PTC155731

Company & Directors' Information:- S. V. G. PHARMACEUTICALS PRIVATE LIMITED [Active] CIN = U24297MH2010PTC202540

Company & Directors' Information:- K. D. PHARMACEUTICALS PRIVATE LIMITED [Under Process of Striking Off] CIN = U74999UP2016PTC084198

Company & Directors' Information:- Y. R. PHARMACEUTICALS PRIVATE LIMITED [Strike Off] CIN = U24232CH2011PTC032883

Company & Directors' Information:- A. B. PHARMACEUTICALS PRIVATE LIMITED [Strike Off] CIN = U51909AS2012PTC011351

Company & Directors' Information:- N. S. PHARMACEUTICALS PRIVATE LIMITED [Active] CIN = U52311JH2007PTC012709

Company & Directors' Information:- J A PHARMACEUTICALS PRIVATE LIMITED [Active] CIN = U24232DL2005PTC136777

Company & Directors' Information:- S P R PHARMACEUTICALS PRIVATE LIMITED [Active] CIN = U24232DL2005PTC137405

Company & Directors' Information:- D F L PHARMACEUTICALS PRIVATE LIMITED [Strike Off] CIN = U51101DL2014PTC270743

Company & Directors' Information:- A R K PHARMACEUTICALS PRIVATE LIMITED [Active] CIN = U74120DL2014PTC266920

Company & Directors' Information:- N N PHARMACEUTICALS PRIVATE LIMITED [Strike Off] CIN = U33111BR2012PTC018665

Company & Directors' Information:- V AND B PHARMACEUTICALS PRIVATE LIMITED [Active] CIN = U24290UP2020PTC133785

Company & Directors' Information:- M D PHARMACEUTICALS PRIVATE LIMITED [Active] CIN = U24290MH2021PTC360217

Company & Directors' Information:- U V PHARMACEUTICALS PRIVATE LIMITED [Strike Off] CIN = U99999MH1998PTC117667

Company & Directors' Information:- J. V. PHARMACEUTICALS PRIVATE LIMITED [Strike Off] CIN = U24239MH2009PTC189669

Company & Directors' Information:- K R R PHARMACEUTICALS PRIVATE LIMITED [Strike Off] CIN = U24232TG2008PTC062007

Company & Directors' Information:- A P PHARMACEUTICALS PRIVATE LIMITED [Strike Off] CIN = U24233TG2008PTC062019

Company & Directors' Information:- C K PHARMACEUTICALS PRIVATE LIMITED [Strike Off] CIN = U24233UP2007PTC033596

    Income Tax Appeal No. 1961 of 2017

    Decided On, 23 January 2020

    At, High Court of Judicature at Bombay

    By, THE HONOURABLE MR. JUSTICE UJJAL BHUYAN & THE HONOURABLE MR. JUSTICE MILIND N. JADHAV

    For the Appellant: Suresh Kumar, Advocate. For the Respondent: -------



Judgment Text


P.C.:

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 Assessment Order dated 22.11.2010.

10.On appeal by the assessee, the first appellate authority i.e Commissioner of Income Tax (Appeals)-4, Mumbai affirmed the decision of the Assessing Officer vide the order dated 9.9.2011.

11. Aggrieved, assessee preferred further appeal before the Tribunal. Tribunal referred to and relied upon a decision of this Court in CIT Vs. Tata Consultancy Services Ltd (374 ITR 112) and held that for levy of fringe benefit tax, establishment of empoyer-employee relationship is a pre-requisite. Following the decision in Tata Consultancy Services Ltd (supra), Tribunal vide the order dated 25.1.2017 upheld the contention of the assessee and set aside the order passed by the Assessing Officer as affirmed by the Commissioner of Income Tax (Appeals).

12. Submissions made have been considered.

13. 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 herein above, 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.

14. In Tata Consultancy Services Ltd (supra), this Court referred to Circular No. 8/2005 of CBDT which indicated that the objective of taxing perquisite of fringe benefit is both on the ground of equity and economic efficiency. Thereafter, this Court held that the basis of fringe benefit tax is the benefit or perquisite which emanates out of an employeremployee relationship which is a pre-requisite for levy of fringe benefit tax.

15.H aving noticed this Court's order in Tata Consultancy Services Ltd (supra), we may now advert to the order passed by the Tribunal dated 25.1.2017, relevant portion of which is extracted here-under:-

"7. We have carefully considered the rival submissions. The relevant facts are that the assessee is engaged in the business of manufacture of pharmaceutical products of various types. In its business, assessee distributes free samples to Doctors and others and the claim of assessee was that such expenditure is not covered within the meaning of sales promotion for the purposes of FBT. On the contrary, the lower authorities have concluded that free samples distributed by pharmaceutical companies are in the nature of sales promotion based on the judgment of the Hon'ble Supreme Court in the case of Eskayef (supra) and, therefore, the Assessing Officer included the free samples distributed to Doctors and others in the FBT. In our considered opinion, without going into any other arguments, the stand of assessee is liable to be upheld in view of judgment of Hon'ble Bombay High Court in the case of Tata Consultancy Services Ltd. (supra). In the case before the Hon'ble High Court, assessee was engaged in the 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. The Assessing Officer included such expenditure while computing the value of FBT as according to him it was in the nature of sales promotion. The CIT(A) held that subscription fee could not be treated as falling under the head ‘sales promotion’ and he allowed the claim of assessee that such amount was not includible for the purposes of FBT. The said stand of CIT(A) was upheld by the Tribunal, which has been affirmed by the Hon'ble High Court. In the 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 the two. The Hon'ble High Court observed that the basis of FBT is the benefit or perquisite which emanates out of employer-employee relationship. As a consequence, it is safe to deduce that in order to justify the levy of FBT, establishing of employer-employee relationship is a prerequisite. In the present case, no case has been made out by the income-tax authorities that the expenditure incurred by assessee on distribution of free samples to Doctors and others involved any employer-employee relationship between the assessee and the recipients of such samples. Therefore, at the very threshold, following the ratio of judgment of the Hon'ble Bombay High Court in the 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 a finding of fact that in the course of its business, assessee distributes

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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. Tribunal also noted that no case was made out by the Income Tax authorities that the expenditure incurred by the assessee on distribution of free samples to doctors and others involved any employer-employee relationship. 17. Therefore, following the judgment of this Court in Tata Consultancy Services Ltd (supra), we concur with the findings rendered by the Tribunal. 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 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.
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