UNJUST DECISION TO ADJUST FBT ADVANCE AS IT ADVANCE- it deprives assesses of their right to get timely refund with interest.

[C.A. DEV KUMAR KOTHARI]

Payment of advance FBT for AY 2010-11 (PYE 31.03.2010):

First installment of advance fringe benefit tax was payable by 15.06.2009 by companies and by 15th September 2009 by other assessee. Likewise first installment of advance IT was also payable by 15.09.09 in case of companies.

Particularly in case of companies, the first installment became due even before the Finance (No.2) Bill was presented in the Parliament on 06.07.2009.

There will be hardly any assesses who paid advance FBT after announcement of abolition on 06.07.2009, therefore, paymaent of installment falling due on 15.09.2009 is very unlikely.

Advance FBT is payable u/s 115WJ. Non payment or short payment attracts interest liability.

Tax paid as first installment of FBT cannot be considered as advance tax:

Once it is decided that FBT is not payable for AY 2010-11, advance tax collected cannot be considered as advance tax. This is only a provisional collection which need to be refunded.

Interest on refund of excess tax:

Interest on refund of excess tax paid become due only after commencement of assessment year. In case of advance tax paid during FY 2009-10 for assessment year 2010-11 refund, if any will be eligible for interest u/s 244A w.e.f. 01.04.2010.

FBT and income-tax are different:

It is needless to say that FBT and IT both are different levies of tax imposed under I.T. Act 1961. The procedure for collection, assessment and refund are different.

In many cases assesses have no liability to pay any income-tax but they had paid advance FBT.

Finance (No.2) Bill 2009:

Finance (No.2) Bill 2009 provided for abolition of levy of FBT for the PYE 31.03.2010 (AY 2010-11) by insertion of a new section 115WM. At that time it was stated by the Finance Minister that suitable mechanism will be devised for refund of FBT collected in advance which is no longer payable. However, no such mechanism was devised and law abiding assessee who paid first installment advance FBT were not allowed refund.

In view of computerized accounting of taxes paid by way of advance FBT it was not difficult for the government to issue e-cheques for refund of entire amount of FBT received in advance from assesses. However, it appears that no refund was actually allowed to any assessee in absence of policy decision.

Delayed circular of CBDT:

Recently CIRCULAR NO. 2/2010, F. N0.385/05/2010-IT (B) Dated: January 29, 2010 has been issued by the CBDT on this issue. The circular with its subject and contents is reproduced below with highlights

Sub: Adjustment of "Advance Tax in respect of Fringe Benefits" for Assessment Year 2010-11 against "Advance Tax" - matter regarding.

The Finance Act, 2005 introduced a levy namely Fringe Benefit Tax (FBT) on the value of certain fringe benefits as contained in Chapter XII H (Sections 115 W to 115 WL) of Income Tax Act, 1961. By the Finance (No. 2) Act, 2009 a new Section 115 WM was inserted to abolish the FBT with effect from Assessment Year (A.Y.) 2010-11. Consequently, benefits given to employees are taxed as perquisites in the hands of employees in terms of amendments to Clause 2 of Section 17 of Income Tax Act, 1961. However, during the current Financial Year 2009-10 some assessees have paid "advance tax in respect of fringe benefits" for Assessment Year 2010-11. In such cases the Board has decided that any installment of "advance tax paid in respect of fringe benefits" for A.Y. 2010-11 shall be treated as Advance Tax paid by assessee concerned for A.Y. 2010-11. The assessee can adjust such sum against its advance tax obligation in respect of income for A.Y. 2010-11 or in case of loss etc claim such payment as refund as advance tax paid in A.Y. 2010-11.

Analysis of unjustness of the Circular:

Circular is unjust for the reason that it is issued very late. In the budget proposals there should have been a proposal to refund all FBT collected as installment of advance FBT for AY 2010-11. In any case after passing of the Finance (No.2) Bill 2009 such advance FBT should have been refunded with interest.

The issuance of circular on 29.01.2010 is very late. Assesses had to pay two more installments of advance tax of IT even after presentation of the Finance(No.2) Bill2009 on 06.07.09 and before issuance of the Circular. This is really very much delayed and unjustified.

As discussed earlier IT and FBT are different. When FBT is not at all payable the FBT collected in advance should be refunded without any question or without any adjustment. Not issuing such refund results government holding tax collected which is not at all collectible. In such circumstance denying interest on such collection is totally unjust.

Advance installment of IT were paid separately, so there should not be any adjustment of FBT advance.

As per this circular the advance FBT can be adjusted, by assessee, against advance IT. It may be noted that major portion of advance IT was to be deposited by 15.12.2009 and the last installment will be payable by 15.03.2010. Thus the assessee can adjust only against last installment, payable on 15.03.2010 whereas the advance FBT was paid much earlier.

Even if assessee claims that advance FBT paid on 15.06.09 should be considered as advance IT first installment, the A.O. will not allow such claim. Even in case of such claim it is   likely that the A.O. will consider the adjustment only against installment due on 15.03.2010, because the Circular has been issued on 29.01.2010 that is after due date of earlier installments of IT.

 Advance FBT was paid before 15.06.09 then why it should be adjusted against installment due on 15.03.2010. A clarification is required that advance FBT should be considered as advance first installment of IT.

Interest u/s 244A will be allowed only from 01.04.2010 in case FBT paid is treated as advance IT. This is not justified. Furthermore, delay in refund is common feature.

The GOI should grant interest on advance FBT paid which is now refundable with interest from the day on which FBT advance was paid to GOI, say 15.06.2009 to the date of actual refund.

Likely cases of advance FBT refundable:

As discussed earlier only in case of companies first installment of FBT was payable before announcement of budget proposals to abolish FBT on 06.07.09. Therefore, there will be very few assesses, if at all who might have paid installment falling due on 15.09.2009. Like installment of FBT , first installment of IT was also due on 15.06.09 and the assesses might have paid such installment also therefore, there will be no benefit to assessee even if FBT advance is considered as IT advance payable on 15.06.09.

In nutshell it can be said that the Circular of the Board is unjust and the injustice is intensified by delayed issuance of the circular.

Tax Management India .Com

Circular - Income Tax

CIRCULAR NO. 2/2010,

F. N0.385/05/2010-IT (B)

New Delhi, Dated: January 29, 2010

Sub: Adjustment of "Advance Tax in respect of Fringe Benefits" for Assessment Year 2010-11 against "Advance Tax" - matter regarding.

The Finance Act, 2005 introduced a levy namely Fringe Benefit Tax (FBT) on the value of certain fringe benefits as contained in Chapter XII H (Sections 115 W to 115 WL) of Income Tax Act, 1961. By the Finance (No. 2) Act, 2009 a new Section 115 WM was inserted to abolish the FBT with effect from Assessment Year (A.Y.) 2010-11. Consequently, benefits given to employees are taxed as perquisites in the hands of employees in terms of amendments to Clause 2 of Section 17 of Income Tax Act, 1961. However, during the current Financial Year 2009-10 some assessees have paid "advance tax in respect of fringe benefits" for Assessment Year 2010-11. In such cases the Board has decided that any installment of "advance tax paid in respect of fringe benefits" for A.Y. 2010-11 shall be treated as Advance Tax paid by assessee concerned for A.Y. 2010-11. The assessee can adjust such sum against its advance tax obligation in respect of income for A.Y. 2010-11 or in case of loss etc claim such payment as refund as advance tax paid in A.Y. 2010-11.

2. This circular may be brought to the notice of all officers in the field for compliance.

Hindi version to follow

(Ansuman Pattnaik)

Director (Budget)