The Supreme Court recently decided the first case on the Fringe Benefit Tax under the Income Tax Act. I reproduce a post by Shantanu Naravane posted on the Indian Corporate Law blog. The original post is found here.
Ever since its introduction by the 2005 Finance Act, the concept of Fringe Benefit Taxes [“FBT”] has spawned several controversies. However, the first judicial consideration of its provisions is the recent decision of the Supreme Court in R & B Falcon (A) Pty. Ltd. v. CIT (Appeal (civil) 3326 of 2008).
The Appellant was a company incorporated in
U/s. 115WB(1)(a), a fringe benefit means a consideration for employment provided by way of any ‘privilege, service, facility or amenity … provided by an employer, whether by way of reimbursement or otherwise, to his employees’. S. 115WB(1)(b) also includes ‘any free or concessional ticket provided by the employer for private journeys of his employees of their family members’ as a fringe benefit. S. 115WB(2) deems certain expenditures to be fringe benefits, of which two expenditures relevant for the purposes of this issue are ‘conveyance’ and ‘tour and travel (including foreign travel)’. Finally, s. 115WB(3) provides that for the purposes of sub-section (1), privilege, service, facility or amenity shall not include any allowance provided by the employer ‘for journeys by their employees from their residence to the place of work, or such place of work to the place of residence’.
The crux of the issue was whether the exemption to FBT provided under sub-section (3) could be availed of in this case. Before the Authority for Advance Rulings [“
(a) the exemption under sub-section (3) was only in respect of sub-section (1) and since the tickets here fell within sub-section (2), no exemption could be claimed;
(b) in any event, for the purposes of the section, the ‘residence’ would be the residence on the rig, and not their actual residence; and
(c) the provision applied only to employees resident in India, and since the employees here lived abroad, the exemption could not be claimed by them.
The Court upheld contention (a), holding that sub-section (3) was an exception only to sub-section (1) and not (2). However, they also pointed out that this holding should not be interpreted in such a way as to render sub-section (3) nugatory. If the only expenditures on transport formed part of sub-section (2), sub-section (3) would be denuded of all meaning, since there would be no taxable benefit under sub-section (1), which was being exempted under sub-section (3). Thus, in order to give effect to sub-section (3), they held that all expenditures other than ‘conveyance’ and ‘tour and travel’ would be included under the term ‘or otherwise’ used in sub-section (1). Thus, although the Court agreed with the decision of the
However, one additional contention was also raised before the Supreme Court, i.e. for the purpose of falling within the exemption under sub-section (3), the allowance has to be for regular journeys, and not for periodical journeys like the ones being undertaken here. The Court chose not to answer the question since the argument had not been raised before the
In arriving at its decision, the Court repeatedly asserted the object of introducing the FBT, and reiterated the importance of using that object as a guiding principle in interpreting the relevant provisions. Thus, apart from the obvious precendential value of the decision, it also assumes significance as laying down some of the guiding principles for future decisions on FBT-related issues.