TMI Blog2006 (12) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... Offshore Drilling Rig (MODR) along with crew on a day rate charter hire basis to drill offshore wells. On 10th October, 2003 the applicant entered into a contract with ONGC for supplying MODR along with equipment and offshore crew. The employees of the applicant work on the MODR on commuter basis. Under this system an employee works on MODR for 28 days (called on days) which is then alternated by a 28 days field break (called off days) when he stays at the place of his residence. The members of the crew are residents of various countries like Australia, USA, U.K. etc. They are transported from their home country to the MODR in two laps - the first is from the nearest designated base city at the place of residence in the home country to a designated city in India for which the applicant provides free air tickets of economy class and the second is from that city in India to MODR through helicopter especially hired by the applicant for this purpose. On completion of 28 days they are transported back from MODR to the designated base city in their home country in the same manner. They are not paid any conveyance/transportation allowance. The Fringe Benefit Tax (for short 'FBT') ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n filing returns of its income under section 44BB of the Act. Since its employees have been working on the rig in India, the applicant would be the employer in India and as such is liable to FBT on the travel cost. 3. Mr. Mukesh Bhutani, learned counsel appearing for the applicant, submits that three categories of employees are working under the applicant (i) employees based on land who attend to the administration, etc. (ii) Indian employees working on the rig and (iii) foreign nationals (employees) who are transported to the rig from outside India; and this application relates to the third category of employees. Having regard to the nature of duties to be performed by the offshore employees on the rig, namely, staying during on days (for 28 days) on the rig and staying off days (for 28 days) at the place of their residence, they are being transported by the applicant from their home country to a designated airport in India by airplane and from there to the rig by helicopter; such transportation of offshore employees does not fall within the charge of FBT under section 115WA of the Act. According to him the position is made clear by the CBDT circular No. 8 of 2005 which cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to as fringe benefit tax) in respect of the fringe benefits provided or deemed to have been provided by an employer to his employees during the previous year at the rate of thirty per cent on the value of such fringe benefits. (2) Notwithstanding that 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. Section 115WB defines 'fringe benefits' which is in the following term: Fringe benefits. 115WB.(1) For the purposes of this Chapter, "fringe benefits" means any consideration for employment provided by way of any privilege, service, facility or amenity, directly or indirectly, provided by an employer, whether by way of reimbursement or otherwise, to his employees (including former employee or employees); any free or concessional ticket provided by the employer for private journeys of his employees or their family members; and any contribution by the employer to an approved superannuation fund for employees. (2) The fringe benefits shall be deemed to have been provided by the employer to his employees, if the employer has, in the course of hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of his employees or their family members; and (c) any contribution to an approved superannuation fund for employees. Further if in the course of his business or profession the employer has incurred any expenditure on or made any payment for any of the purposes enumerated in clauses (A) to (Q) of sub-section (2) of 115WB the fringe benefits shall be deemed to have been provided by the employer to his employees. We are concerned here with clause (F) "conveyance" and clause (Q) "tour and travel (including foreign travel)" of sub-section (2) which, among others, are specified as deemed fringe benefits. The said clauses read as follows: (A) to (E) : xx xx xxx xx (F) : Conveyance (G) to (P) xxx xx xx xx xx tour and travel (including foreign travel)* The rigour of FBT leviable on the fringe benefits defined in sub-section (1) is to some extend mitigated by sub-section (3) of 115WB which is clarificatory in nature. It is important to note that no relief is provided in the case of levy of FBT on the deemed fringe benefits specified in sub-section (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily members is concerned, it is confined to private journeys only. In the instant case providing free air tickets for the round trip, the first sector (from the home State of employees to the designated city in India and the return journey) cannot be termed as private journeys. They are undertaken for the purpose of the employment. It would be pertinent to refer to sub-section (3) of section 115WB which excludes for the purpose of sub-section (1) 'perquisites' (on which tax is paid or is payable by the employees) and any benefit or amenity in the nature of free or subsidized 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, from the concept of the privilege, service, facility or amenity. The term "perquisites" in sub-section (3) is not defined in the definition clause - sec.115W. We have, therefore, to understand 'perquisites" as defined in section 17(2) of the Act. The point whether the benefit or amenity provided by the employer satisfies the requirements of perquisites need not detain us because perquisites get excluded from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, which is not liable to FBT. Accordingly, the expenditure incurred by the employer for the purposes of providing free or subsidized transport for journeys to employees from their residence to the place of work or such place of work to the place of residence will not be liable to FBT". From a cursory reading of the above question and the answer, it appears that the free or subsidized transport provided to employees for journeys from their residence to the place of the work or such place of work to the place of residence if in lieu of conveyance/transportation allowance, is not liable to FBT and therefore the expenditure incurred by the employer thereof will not be liable to FBT. The gist of the aforementioned question and answer is to be found in the amended sub-section (3) of Section 115WB. However, a careful reading and the context of question no. 104 and the answer and our finding on the second limb of sub-section (3) of section 115WB, would disclose that the journeys of the employees spoken of therein relate to journeys from the residence of the employees within India to the place of work in India. The transportation of employees in the instant case, according to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stay is intended to be of short duration". It is stated that the concept of residence implies arranging a dwelling place available to him at all times continuously and not occasionally for the purpose of stay which, owing to the reasons for, it is necessarily for short duration like for pleasure, business travel, education travel, attending course etc. Mr. Bhutani also invited attention to the observation of the Hon'ble Supreme Court in Smt. Jeewanti Pandey vs. Kishan Chandra Pandey2, There the Hon'ble Court in considering the concept of residence for the purpose of section 19(ii) of the Hindu Marriage Act, 1955, pointed out that in ordinary sense 'residence' was more or less of a permanent character. A perusal of the judgement of the Hon'ble Supreme Court in Sukh Lal and others v. State Bank of India and others3 would show that a place of residence need not necessarily be permanent and exclusive but it must be occupied with the intention of setting up a fixed though not permanent abode and that sojourn for a purely temporary purpose would not constitute residence and the place of sojourn would not be deemed to be a place of residence. From the above discussion it follows t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have noted above that for the first lap of the journey of the offshore employees from their home countries to the designated city in India, the applicant is providing free (round-trip) tickets; it would, therefore, fall under clause (Q) of sub-section (2). For the journeys from the chopper base in India to the rig for which the applicant is providing helicopters, it would amount to the employer providing conveyance. Inasmuch as the transportation of the employees from their residence in their home countries to the rig falls within the above mentioned clauses (F) and (Q) respectively of sub-section (2) of section 115WB of the Act; it cannot but be held that the fringe benefits shall be deemed to have been provided by the applicant to the employees in the course of its business; therefore, the applicant is liable to pay fringe benefit tax under the Act. While considering applicability of FBT to the transportation costs incurred by the applicant on the employees, it must be remembered that if the transportation of offshore employees of the applicant falls within sub-section (1) of section 115WB the provisions of sub-section (3) thereof would, subject to the terms contained therein, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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