COMMISSIONER OF IT-II LDH vs. HERO CYCLES LTD, G.T. RD, HERO NAGAR, LDH

While the incentives referred to in Question No.61 are given to distributors after they meet the sales target the Kumar Naresh N 2013.09.30 15:53 integrity of this document High Court Chandigarh -3- incentives referred to in Question No.66 are given to dealers and consumers bases on the purchases made by them irrespective of their achieving the sales target.” Points No.2&3 of the scheme clearly show that both the parts of the scheme promise free gifts/foreign trips to the dealers on their making specified amount of purchases irrespective of the quantity of sale achieved by them. The scheme also provides that it is not convertible in cash implying thereby that the dealers will get only free gifts or free foreign trips. From this analysis it is very clear that the scheme is to promote sales of the appellant. As it is not based on the performance of the dealers in achieving certain sales target it cannot by any stretch of imagination be termed as performance based commission as contemplated under Q.No.61 of the aforesaid circular. Thus the expenditure of Rs.3,19,20,449/- is squarely covered by the provisions of Question no.66 of CBDT Circular No.8 of 2005 and does not fall within the scope of Question No.

Keeping in view the aforesaid factual position, the AO was fully justified in holding that the said expenditure is in the nature of sales promotion and publicity covered u/s 115WB(2)(D) of the I.T. Act. These grounds of appeal are accordingly dismissed.” The assessee filed an appeal before the Income Tax Kumar Naresh N 2013.09.30 15:53 integrity of this document High Court Chandigarh -4- Appellate Tribunal. After perusal of the scheme and answers to question nos.61 and 66, the Income Tax Appellate Tribunal allowed the appeal by holding as follows:- “Careful reading of both the above questions and answers show that question no.61 relates to the situation where incentive are given to the distributors for meeting quantity target. This can be in the form of free gifts like television or cash incentives or even foreign trip. On the other hand, situation covered by question no.66 relates to free gifts to distributors as well as the consumers without any quantitative target. In our opinion, these are two different situations and apply separately. For example in case of question no.61, the situation can be that of free mixy would be given if the dealer achieve the target of let us say 100 nos. If the dealer achieves target of more than 250 number then he would be entitled to a free television and if such dealer achieves the target to more than 1000 number then he would be entitled to free foreign trip. The situation would be covered by answer to question no.61 and would be known as incentive to the dealer. The situation in question no.66 can be of various types. For example if the consumer buys one trouser and he may be entitled to one free shirt or the dealer would get a free silver coin being offered on every 10 units of the products sold. Therefore, situation in question no.66 is quite different because Kumar Naresh N 2013.09.30 15:53 integrity of this document High Court Chandigarh -5- that does not refer to a particular target and is available for trade sale or to customers. The Assessing Officer and the CIT(A) has both opined that merely by lifting of a particular quantity of the product sold by the assessee, it cannot be said that dealer has achieved a particular target but while holding so they have not considered basic effect that as far as the assessee-company is concerned, once a particular quantity is lifted from it, it becomes sales for the assessee-company and from point of view of the company particular sales target stands achieved by that dealer. There may be a situation where the dealer achieved a sale target of say 580 cycles obviously for the prize of foreign trip he would left another 20 cycles and can get higher prize. This will not effect the position of the company because from the company's point of view sale target of 600 cycles has been achieved by that dealer. Therefore, in our view in the case before us, the assessee has simply framed a scheme which was meant to provide certain incentives to the dealer for achieving particular target and is clearly covered by the situation covered by answer to question no.61 in the circular no.8/2005 issued by the CBDT. Therefore, we set aside the order of the Ld. CIT(A) and direct the Assessing Officer not to include the amounts spent on “Hero Bumper Bonanza Foreign Trip and Attractive Gift” in the fringe Kumar Naresh N 2013.09.30 15:53 integrity of this document High Court Chandigarh -6- benefit.” A perusal of the statutory provisions, answers by the CBDT, to question nos.61 and 66 and due consideration of findings recorded by the Income Tax Appellate Tribunal, leave no manner of doubt that opinion recorded by the Income Tax Appellate Tribunal is legally correct and free from error. The distinction between the two situations, referred to in answers to questions No.61 and 66, may appear to be minimal, depending upon ones perception, but a careful perusal of these answers reveals that where incentives are given to distributors for meeting quantity target, the expenses fall within answer to question No.61, whereas free gifts to distributors and customers without any quantitative target, fall within answer to question No.

The learned Tribunal has examined answers to question nos.61 and 66 and only thereafter recorded its conclusion, which is neither perverse, arbitrary nor illegal and, therefore, does not warrant interference on the question of law framed by the revenue. In view of what has been stated hereinabove, the appeal is dismissed. (RAJIVE BHALLA) JUDGE September 09, 2013 (DR. BHARAT BHUSHAN PARSOON) nt JUDGE Kumar Naresh N 2013.09.30 15:53 integrity of this document High Court Chandigarh