Whether expenditure incurred towards channel placement charges for broadcasting of channel on desired bands can be construed as expenditure for sales promotion or publicity - NO: ITAT

THE issues before the Bench are - Whether expenditure incurred towards channel placement charges for broadcasting of channels on the desired bands is in the nature of sales promotion or publicity; Whether such payments attracts the levy of FBT and Whether channel placement charges made to third parties meets the requirement of employer-employee relationship between the assessee and such recipient. And the verdict partly goes in favour of the assessee.

Facts of the case

The assessee company is broadcasting news through its four news channels, viz., Aaj Tak, Headlines Today, Dilli Aaj Tak and Tez. The assessee has incurred expenses in respect of channel placement charges which is in the nature of distribution expenses. However, the AO was of the opinion that the same was for sales promotion and attracted the rigours of fringe benefit tax (FBT).

On appeal, the CIT(A) upheld the order of the AO. Aggrieved, the assessee has filed this appeal before the Tribunal.

The counsel of the assessee stated that it had to pay money to multi system operators and local cable operators to carry their channels on the desired band. Thus, the payment made by the assessee was for distribution of the channel and it has no relevancy to the advertising or sales promotion. He further stated that the FBT is chargeable in respect of fringe benefit provided by the employer to the employees, whether directly or indirectly. He further argued that the channel placement expenses which are incurred by the assessee for distribution of its channels are by no stretch of imagination in the nature of sales promotion expenses. He further stated that there is no employer employee relationship between the assessee and the recipient of channel placement agencies. Unless there is an employer employee relationship, fringe benefit tax cannot be levied. In support of this contention, he relied upon the CBDT's Circular No.8 of 2005 dated 29th August, 2005 wherein the provisions relating to fringe benefit tax have been explained by the CBDT.

The Departmental Representative relied upon the orders of authorities below and stated that Section 115WB(2) is a deeming provision where the Government has provided the levy of fringe benefit in respect of the expenses. He argued that both the AO as well as CIT(A) has clearly mentioned that the assessee has incurred the expenditure for getting the place in prime band because by this way, channel is noticed and more revenue is generated through advertisement leading to better revenue for the channel. Thus, the expenditure was incurred by the assessee for promoting its channels which is certainly in the nature of sales promotion.

Having heard the parties, the Tribunal held that,

++ from the above, it is evident that Section 115WB(2) is a deeming provision which provides that the fringe benefit shall be deemed to have been provided by the employer to his employee if the employer has incurred the expenses provided in various clauses of the above sub-section. In this regard, we find that the CBDT has issued Circular No.8 dated 29th August, 2005 which explains the newly introduced provisions of FBT, the CBDT itself has clarified that employer-employee relationship is a prerequisite for levy of FBT;

++ the Apex Court has considered the above Circular in the case of R & B Falcon (A) Pty.Ltd. and held as [“The interpretation of the CBDT in its circulars being in the realm of executive construction, should primarily be held to be binding, save and except where it violates any provisions of law or is contrary to any judgment rendered by the courts……];

++ that in the case under appeal before us, admittedly, the expenditure was incurred by the assessee for channel placement which is made to third persons and there is no employer-employee relationship between the assessee and the recipient. Therefore, the Circular of the CBDT as well as the decision of Apex Court in the case of R & B Falcon (A) Pty.Ltd. would be squarely applicable. Moreover, Jurisdictional High Court in the case of T & T Motors Ltd. has stated that in respect of payment to third persons, FBT is not applicable because no fringe benefit is enjoyed by the employee/recipient. The ratio of the above decision of Jurisdictional High Court would also be squarely applicable to the facts of the assessee's case because payment had been made for channel placement. By such payment, no fringe benefit is enjoyed by the employee/recipient. The payment is in the nature of expenditure incurred for the purpose of business by the assessee and in the hands recipient, the expenditure is taxable as income. Moreover, the expenditure incurred by the assessee is not in the nature of expenditure for sales promotion. The assessee has incurred the expenditure for broadcasting of its channels on the desired bands. Therefore, the expenditure is for the broadcasting of its channels and not for sales promotion or publicity.