The Hindu Business Line : Taxed even from the fringe

The revised tax audit form has an annexure that could be taken to be a ready-reckoner for FBT. However, being new, doubts do linger as an American organisation — the Population Council — recently found before the Authority for Advance Rulings (AAR) reported in 2006-TIOL-10-ARA-IT.

The applicant was a US-based international non-profit, non-governmental organisation engaged in carrying out charitable, scientific and educational activities which qualify for exemption under the American laws. The expenses incurred in India by the applicant, including the fringe benefits provided to the employees, are met by remittances from the head-office in New York.

The applicant submitted before the AAR that it was not liable to pay the FBT under Section 115WA of the Act, by virtue of the the DTAA (Double Taxation Avoidance Agreement) between India and the US on the fringe benefits available to its employees in India. It was submitted that the FBT is chargeable when the employer is chargeable to income-tax and not otherwise, and as the applicant was not chargeable to income-tax in India for its activities in view of Article 1(2) of the DTAA, sub-section (2) of Section 115WA would not apply because sub-section (1) is not attracted.

AAR ruling

The AAR ruled that: Sub-section (1) of Section 115WA of the Act, provides that: (i) there shall be charged for every assessment year commencing on or after April 1, 2006, additional income-tax (in this Act referred to as the fringe benefit tax); (ii) the tax is in respect of fringe benefits provided or deemed to have been provided by an employer to his employees during the previous year; (iii) the tax is leviable on the value of such fringe benefits at 30 per cent; and (iv) this is in addition to the income-tax charged under the Act.

Sub-section (2) of Section 115WA, commences with a non-obstante clause and states that notwithstanding that no income-tax is payable by an employer on his total income computed in accordance with the provisions of the Act, the tax on fringe benefits shall be payable by such employer.

Clarificatory provision

This provision is clarificatory in nature. Inasmuch as sub-section (i) of Section 115WA of the Act mandates that the FBT shall be charged for every assessment year in addition to the income-tax charged under this Act, sub-section (2) thereof clarifies that even when no income-tax is payable by an employer on his total income computed in accordance with the provisions of this Act, the tax on fringe benefits shall be payable by such employer.

The words `total income', computed in accordance with the provisions of this Act, are used to amplify the first limb of sub-section (1) and not to destroy it, and when Section 115WA says that the FBT is in addition to income-tax and even when no income-tax is payable by an employer on his total income computed in accordance with the provisions of this Act, it will be futile to contend that if there is no total income which can be computed in accordance with the provisions of the Act, no FBT would be payable by the employer since such an interpretation would be contrary not only to the intention of Parliament but also the plain language of the provision and the basic principles of interpretation.

Clearly, a tax that has come to stay and extends beyond tax treaties.

(The author is a Hyderabad-based Chartered Accountant.)

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