2006 (12) TMI 88 - AAR - Income Tax

Issues Involved:
1. Liability of Fringe Benefit Tax (FBT) on transportation costs incurred by the applicant for offshore employees.
2. Interpretation of relevant provisions under the Income-tax Act, 1961, specifically sections 115WA and 115WB.
3. Applicability of CBDT Circular No. 8/2005 to the case.

Detailed Analysis:

1. Liability of Fringe Benefit Tax (FBT) on Transportation Costs:

The applicant, a non-resident entity incorporated in Australia, entered into a contract with ONGC for supplying a Mobile Offshore Drilling Rig (MODR) along with equipment and crew. The crew, consisting of residents from various countries, is transported from their home country to India and then to the MODR. The applicant sought an advance ruling on whether the transportation costs incurred for this purpose are liable to FBT.

The jurisdictional Commissioner argued that the transportation expenses are covered under sections 115WB(1)(a) and 115WB(2)(F) as deemed fringe benefits. The Commissioner emphasized that since employees are not paying tax on these benefits, the expenses should be treated as fringe benefits under the Act.

2. Interpretation of Relevant Provisions under the Income-tax Act, 1961:

Section 115WA imposes FBT at a rate of 30% on the value of fringe benefits provided by an employer to employees. Section 115WB defines "fringe benefits" and includes any privilege, service, facility, or amenity provided by an employer to employees. Sub-section (2) of Section 115WB enumerates deemed fringe benefits, including conveyance and tour and travel (including foreign travel).

The applicant argued that the transportation of offshore employees does not fall within the charge of FBT under section 115WA, citing the CBDT circular No. 8/2005 which excludes such transportation from the ambit of FBT. However, the Commissioner contended that the transportation from the home country to the rig is not covered by sub-section (3) of Section 115WB and is liable to FBT under sections 115WB(1)(a) and 115WB(2)(F).

3. Applicability of CBDT Circular No. 8/2005:

The circular clarifies that free or subsidized transport provided to employees for journeys from their residence to the place of work is not liable to FBT. The applicant relied on this circular to argue that their transportation costs should not attract FBT. However, the Commissioner argued that the circular's provisions apply only to journeys within India, not to international transportation.

Judgment:

The Authority analyzed the provisions of Sections 115WA and 115WB, concluding that FBT is an additional tax payable by the employer on fringe benefits provided to employees. The Authority noted that the term "fringe benefits" includes any privilege, service, facility, or amenity provided by an employer to employees, directly or indirectly. The Authority also considered the definitions and interpretations of terms such as "residence," "tour and travel," "conveyance," and "transport."

The Authority held that the transportation costs incurred by the applicant for bringing offshore employees from their home countries to the rig in India fall within the meaning of "conveyance" and "tour and travel (including foreign travel)" under clauses (F) and (Q) of sub-section (2) of Section 115WB. Consequently, these costs are deemed to be fringe benefits provided by the employer and are liable to FBT.

The Authority further clarified that the provisions of sub-section (3) of Section 115WB, which exclude certain benefits from the purview of FBT, do not apply to deemed fringe benefits under sub-section (2). Therefore, the transportation costs incurred by the applicant are subject to FBT.

Conclusion:

The transportation cost incurred by the applicant in providing transportation facilities for the movement of offshore employees from their residence in home countries to the place of work (rig in India) and back is liable to Fringe Benefit Tax. The ruling was pronounced in the open court on December 13, 2006.