2006 (12) TMI 92 - AAR - Income Tax

Non-resident FBT - section 115WB - contract with ONGC for supplying the Mobile Offshore Drilling Rig (MODR) along with equipment and offshore crew - Held that the transportation cost incurred by applicant in providing the transportation facility for movement of offshore employees from their residence in home countries (outside India) to the place of work (rig in India) and back is liable to fringe benefit tax.

Issues Involved:

1. Liability of transportation costs incurred by a non-resident company for offshore employees under Fringe Benefit Tax (FBT).
2. Interpretation and applicability of Section 115WB of the Income-tax Act, 1961.
3. Relevance of CBDT Circular No. 8/2005 in determining FBT liability.
4. Definition and scope of terms such as 'residence', 'conveyance', and 'tour and travel' in the context of FBT.

Issue-wise Detailed Analysis:

1. Liability of Transportation Costs Under FBT:

The primary issue is whether the transportation costs incurred by a non-resident company for moving offshore employees from their residence in home countries to the place of work in India (rig) and back are liable to FBT. The applicant, a non-resident company incorporated under Australian law, provides Mobile Offshore Drilling Rig (MODR) services along with crew on a day rate charter hire basis. The employees work on a commuter basis, alternating between 28 days on the rig and 28 days off at their residence. The applicant provides free air tickets and helicopter transport for these employees.

2. Interpretation and Applicability of Section 115WB of the Income-tax Act, 1961:

Section 115WB defines 'fringe benefits' and includes any consideration for employment provided by an employer to his employees. Sub-section (1) specifies direct or indirect privileges, services, facilities, or amenities, while sub-section (2) includes deemed fringe benefits such as conveyance and tour and travel (including foreign travel). The applicant argued that the transportation costs do not fall under FBT as per sub-section (3) of Section 115WB, which excludes free or subsidized transport for journeys from residence to the place of work and back.

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

The applicant relied on question No. 104 of CBDT Circular No. 8/2005, which states that free or subsidized transport for journeys from residence to the place of work is not liable to FBT. The Commissioner countered that the circular's context pertains to journeys within India and that the applicant's situation involves international travel, which falls under clauses (F) and (Q) of sub-section (2) of Section 115WB.

4. Definition and Scope of Terms in the Context of FBT:

The judgment delved into the definitions of 'residence', 'conveyance', 'tour and travel', and 'transport' as understood in common parlance and legal context. The term 'residence' was interpreted to mean a place of abode for a considerable length of time, not a temporary stay like on the rig. Therefore, the rig cannot be considered the residence of offshore employees. The terms 'conveyance' and 'transport' were analyzed to determine that they involve providing a means of transportation or the act of transporting people.

Judgment Analysis:

The judgment concluded that the transportation costs incurred by the applicant for moving offshore employees from their home countries to the rig in India and back fall under the deemed fringe benefits as per clauses (F) and (Q) of sub-section (2) of Section 115WB. Consequently, these costs are liable to FBT. The judgment clarified that sub-section (3) of Section 115WB, which excludes certain transportation benefits from FBT, applies only to journeys within India. The applicant, having employees based in India, is considered an employer in India and thus liable to FBT on the transportation costs.

Conclusion:

The ruling affirmed that the transportation costs incurred by the non-resident company for offshore employees' journeys from their residence in home countries to the place of work in India and back are liable to FBT. This decision is based on the interpretation of Section 115WB and the scope of the terms 'conveyance' and 'tour and travel' within the context of FBT, as well as the applicability of CBDT Circular No. 8/2005.

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