ITAT holds advertising and sales promotion expenses not liable to FBT

The Mumbai ‘A’ Bench of the Income Tax Appellate Tribunal has allowed the appeal filed by Apar Lubricant Ltd. (now merged with Apar Industries Ltd.), holding that expenditure incurred on advertising, publicity and sales promotion does not constitute a “fringe benefit” liable to Fringe Benefit Tax (FBT) under Chapter XII-H of the Income-tax Act, 1961.

Advertising and promotion not a consideration for employment

The dispute arose from reassessment proceedings for AY 2009–10, where the Assessing Officer treated a portion of ₹1.41 crore spent on advertising, publicity and sales promotion as taxable fringe benefits under Sections 115WB and 115WA. The expenditure included dealer incentives, promotional articles such as bags and T-shirts, payments to advertising agencies, exhibition stall charges and sales commissions. The Tribunal noted that the statutory foundation of FBT rests on the concept of a “consideration for employment”. While Section 115WB(2) is a deeming provision, it cannot be read independently of Section 115WB(1), which requires that the expenditure result in a benefit to employees. In the present case, the material on record clearly showed that the impugned expenditure was incurred towards third parties such as dealers, distributors, customers and advertising vendors, and not towards employees.

Proviso to Section 115WB applies; addition set aside

The Bench further observed that the proviso to Section 115WB(2)(D) expressly excludes several categories of sales promotion and publicity expenses, including advertisements in print or electronic media, business conventions, sponsorships and distribution of samples. The assessee’s expenditure squarely fell within these exclusions. Relying on judicial precedents, including DCIT v. Kotak Mahindra Old Mutual Life Insurance Ltd. and T&T Motors Ltd. v. ACIT, the Tribunal reiterated that FBT cannot be levied on business promotion expenses that do not confer any direct or indirect benefit on employees.

Holding the addition to be unsustainable both in law and on facts, the Tribunal deleted the FBT addition on merits and treated the challenge to reopening under Section 147 as academic.