Fringe Benefit Tax
Fringe Benefit Tax was introduced by the Finance Act, 2005 and came into effect on April 1, 2006. As its name suggests, it is levied on fringe benefits which some employees receive.
In the case of R & B Falcon (A) Pty Ltd. v. Commissioner of Income Tax, 2008, a Bench of the Supreme Court comprising Justices S.B. Sinha & V.S. Sirpurkar interpreted Section 115WB of the Income Tax Act, 1961 which deals with the imposition of tax on fringe benefits. It said:
Section 115 WB comprises three sub-sections. Section 115WB (1) contains the interpretation section. It is in two parts. It provides for a direct meaning, as also an expanded meaning. The expanded meaning of the said provision is contained in sub-section (2). Sub-section (1) takes within its sweep any consideration for employment, inter alia, by way of privilege service, facility or amenity directly or indirectly, sub-section (2) thereof expands the said definition stating as to when the fringe benefit would be deemed to have been provided. The expansive meaning of the said term ‘benefits’ by reason of a legal fiction created also brings within its purview, benefits which would be deemed to have been provided by the employer to his employees during the previous year. Indisputably, sub-section (3), which exempts certain ‘benefits’ from the purview of the tax refers to sub-section (1) only. It does not have any application in regard to the matters which have been brought within the purview of the fringe benefit tax by reason of application of the deeming provision.
The taxes to be levied on the fringe benefits provided or deemed to have been provided by an employer to employees during the previous year is at the rate of 30 per cent on the value of such fringe benefits. The object for imposition of the said tax, as is evident from the said circular dated 29.8.2005, is to bring about equity.
The intention of the Parliament was to tax the employer who, on the one hand, deducts the expenditure for the benefit of the employees including entertainment, etc. and on the other when the employees getting the perks are to be taxed, those who get direct or indirect benefits from the expenditures incurred by the employer, no tax is leviable. The tax aims to bring about horizontal equity and not vertical equity.
If fringe benefits are provided for consideration for employment, which is given or provided to the employee by way of an amenity, reimbursement or otherwise; clearly sub-section (1)(a) shall be attracted.
When the expenditure incurred by the employer so as to enable the employee to undertake a journey from his place of residence to the place of work or either reimbursement of the amount of journey or free tickets therefor are provided by him, the same, would come within the purview of the term ‘by way of reimbursement or otherwise’.
The Advanced Law Lexicon defines “otherwise” as: “By other like means; contrarily; different from that to which it relates; in a different manner; in another way; in any other way; differently in other respects in different respects; in some other like capacity.”
The Parliament, in introducing the concept of fringe benefits, was clear in its mind in so for as on the one hand it avoided imposition of double taxation, i.e., tax both on the hands of the employees and employers; on the other, it intended to bring succour to the employers offering some privilege, service, facility or amenity which was otherwise thought to be necessary or expedient. If any other construction is put to sub-sections (1) and (3), the purpose of grant of exemption shall be defeated. If the latter part of sub-section (3) cannot be given any meaning, it will result in an anomaly or absurdity. It is also now a well settled principle of law that the court shall avoid such constructions which would render a part of the statutory provision otiose or meaningless. [See Visitor and Ors. v. K.S. Misra [(2007) 8 SCC 593]; Commissioner of Sales Tax, Delhi and Ors. v. Shri Krishna Engg. Company and Ors. [(2005) 2 SCC 692].
The matters enumerated in Section 115WB (2) are not covered by sub-section (3) thereof, and the amenity in the nature of free or subsidized transport is covered by sub-section (1).
Fringe benefit tax being a tax on expenditure, the only concern of the revenue should be as to whether such expenditure has been made. The place of residence of the employee is immaterial.
It is payable in the year in which the expenditure is incurred irrespective of whether the expenditure is capitalized or not. However, the same expenditure will not be liable to FBT again in the year in which it is amortized and charged to profit.
The provision relating to the computation of the value of the fringe benefits is contained in section 115WC. It is a settled principle of law that where the computation provisions fail, the charging section cannot be effectuated. Therefore, if there is no provision for computing the value of any particular fringe benefit, such fringe benefit, even if it may fall within Section 115WB (1)(a) is not liable to FBT.
(This is an edited excerpt of the judgment.)
