2012 (4) TMI 224 - HC - Income Tax

Fringe benefit tax The AO opined that expenditure incurred towards maintenance of residential quarters provided to its employees on rental basis constituted fringe benefit tax and tax was levied at 30% of the maintenance expenditure on the employer - Held that - for the reason that the charge under Chapter XII-H of the Act is on the value of the fringe benefit extended by an employer to its employees, unless such fringe benefits enjoyed in the hands of the employee is quantified, there is no question of leaving fringe benefit tax on the employer at 30% of the tax levied and enjoyed by the employer appeal of revenue dismissed.

Summary

Issues:
1. Whether the expenditure incurred by the assessee towards repairs and maintenance of residential quarters is liable to fringe benefit tax under Sections 115WB(1)(a) and 115WB(2) of the Income Tax Act?
2. Whether the expenditure incurred by the assessee towards repairs and maintenance of residential quarters can be considered as fringe benefit when provided to employees?

Analysis:

Issue 1: The dispute revolves around the applicability of fringe benefit tax on the expenditure incurred by the assessee for the maintenance of residential quarters provided to its employees. The Assessing Officer contended that such expenditure constituted fringe benefit tax, levying a 30% tax on the employer. However, the Tribunal overturned this decision, stating that since the maintenance was related to the employer's business activity and the building was owned by the employer, it did not fall under the purview of fringe benefit tax as per Chapter XII-H of the Income Tax Act. The Tribunal emphasized that without quantifying the fringe benefits enjoyed by the employees, the employer cannot be taxed. The High Court upheld the Tribunal's decision, stating that the charging section was not applicable in this scenario as no fringe benefits were quantified as enjoyed by the employees. Thus, the appeal by the Revenue was dismissed.

Issue 2: The Tribunal's decision was based on the premise that since the accommodation was provided on rent by the employer and no part of the benefit was considered a fringe benefit in the hands of the employee, the expenditure towards maintenance and repair of such accommodation did not attract fringe benefit tax. The High Court concurred with this reasoning, highlighting that without quantifying the fringe benefits received by the employees, the employer cannot be taxed under Chapter XII-H of the Act. Therefore, the High Court upheld the Tribunal's decision and dismissed the appeal without disturbing the order passed by the Tribunal.

In conclusion, the High Court ruled in favor of the assessee, stating that the expenditure incurred by the employer towards the maintenance of residential quarters provided to employees on rent basis did not attract fringe benefit tax as the fringe benefits enjoyed by the employees were not quantified. The Court emphasized that the charging section of the Act was not applicable in this situation, leading to the dismissal of the Revenue's appeal.