2008 (10) TMI 9 - AAR - Income Tax

Applicant has liaison offices in India - expenses relating to the Indian offices are reimbursed from Singapore office - held that even though the liaison offices of the applicant do not carry on any business in India and do not earn any income here still the applicant is liable to pay tax on fringe benefits extended to its employees - Held that Singapore Tourism Board is liable to pay FBT in terms of Chapter XII-H of I.T. Act in respect of impugned fringe benefits

Summary

Issues involved:
Applicability of Fringe Benefit Tax (FBT) on a foreign company having liaison offices in India.

Analysis:
The case involved a foreign company incorporated in Singapore, operating liaison offices in New Delhi, Mumbai, and Chennai. The company sought an advance ruling on the applicability of FBT on fringe benefits provided to its employees in India. The jurisdictional Commissioner argued that even though the company's liaison offices did not generate income in India, it was still liable to pay FBT on fringe benefits provided to employees, as per the Income-tax Act, 1961.

The Authority noted that the company failed to appear during the hearing despite adjournments. Referring to a previous ruling regarding a non-profit organization, the Departmental representative argued that the company, being profit-earning, was still liable for FBT on expenses like staff welfare, foreign travel, entertainment, and office-related costs. The Authority highlighted the introduction of FBT through the Finance Act, 2005, as a separate tax regime from income tax, with specific provisions for assessment, return filing, and tax payment related to fringe benefits.

The relevant provisions under Chapter XII-H of the Act, particularly sections 115WA and 115WB, outlined the charge of FBT and defined fringe benefits, respectively. The deeming provision in section 115WB(2) extended the scope of fringe benefits to various expenses incurred by the employer, even if not directly provided to employees. The Authority emphasized that FBT was a levy on employer expenditure benefiting employees, distinct from income tax, and liable even if no income tax was payable.

Citing the Population Council case, the Authority reiterated that the non-obstante clause in section 115WA clarified that FBT was payable irrespective of income tax liability. The CBDT Circular and the ruling in the Population Council case confirmed that foreign entities with employees in India, even if not earning income, were subject to FBT on fringe benefits provided to employees. Consequently, the Authority ruled that the Singapore Tourism Board was liable to pay FBT on fringe benefits provided to its employees in liaison offices in India.

In conclusion, the judgment affirmed the applicability of FBT on a foreign company's fringe benefits to employees in India, emphasizing the distinct nature of FBT as a tax on employer expenditure, independent of income tax liability.