Fringe Benefit Tax - Apex Court solved the confusion relating to applicability of sub-sections (1), (2) and (3) of Section 115WB

Fringe Benefit Tax - Apex Court solved the confusion relating to applicability of sub-sections (1), (2) and (3) of Section 115WB "

Since the inception (as Introduced by Finance Act, 2005, w.e.f. 1-4-2006) of the concept of fringe benefit tax in Income Tax, there was wide confusion and ambiguity over applicability of provisions sub-sections (1), (2) and (3) of 115WB of the Act.

Sub-section (1) of 115WB defines the meaning of the term ""fringe benefit"".

Sub-section (2) of 115WB prescribes that any expenses incurred or payment made for the purposes mentioned in clause (A) to clause (Q) shall be deemed to have been provided by the employer to his employees. Sub-section (3) excludes the followings from the purview of FBT:

(a) perquisites in respect of which tax is paid or payable by the employee.

(b)  any benefit or amenity in the nature of free or subsidised transport or any such allowance provided by the employer to his employees for journeys by the employees from their residence to the place of work or such place of work to the place of residence

Whereas the section 115WA is a charging Section

In view of this, the following doubts / ambiguities have been cleared by the Honorable Supreme Court:

1. Whether exemption provided in sub-section (3) is included into sub-section (1) or sub-section (2).

Held: We, therefore, are of the opinion that AAR was right in its opinion that the matters enumerated in sub-section (2) of Section 115WB 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).

2. Whether the provisions of FBT are restricted to employees having residence in India

Held:  The statute does not say so.  Fringe benefit tax being a tax on expenditure; the only concern of the revenue where for should be as to whether such expenditure has been made.  Appellant has a permanent establishment in India.  It pays income-tax in India.  It carries on business in India.  It has for the purpose of carrying out its business activities engaged persons from within India or outside India.  If it makes any expenditure for bringing any employee from abroad, the same would also liable to be taken into consideration for the purpose of sub-section (1) of Section 115WB.

3. Scope and power of CBDT while interpreting the statutory provisions (Circular No. : 8/2005, DATED 29-8-2005)

Held: CBDT has the requisite jurisdiction to interpret the provisions of Income-tax Act.  The interpretation of CBDT being in the realm of executive construction, should ordinarily be held to be binding, save and except where it violates any provisions of law or is contrary to any judgment rendered by the courts.

4. The question as to whether the nature of a travelling expenditure incurred by the appellant would attract the benefits sought to be granted by the statute did not and could not fall for consideration of the AAR.

Held: Whether the payments were made to them on a regular basis or whether the expenditures incurred which strictly come within the purview of Section 115WB or not must, therefore, be answered having regard to the materials placed on records.  If any question arises as to whether the agreement entered into by and between the appellant and the employees concerned would attract, in given cases, the liability under FBT benefit tax would have, thus, to be determined by the assessing authority.

[For full text of judgments - visit:

-  Ruling of the AAR - 2008 -TMI - 3923 - AUTHORITY FOR ADVANCE RULINGS

-  Decision of the Apex Court - 2008 -TMI - 3878 - Supreme court]