FBT - Amendments during initial phase of FBT about estimation of value of Fringe Benefits can be considered applicable since inception of FBT. A point of view.

[DEV KUMAR KOTHARI]

Summary:

Provisions relating to FBT are new. FBT is levied on estimated value of fringe and the formulae of estimating value of fringe are prescribed in the provisions. In fact we were passing through the third previous year for FBT when the Finance Bill 2008 was proposed.
As in earlier years, in the Finance Act 2008 also several amendments have been made to reduce liability of FBT by reducing  estimated value of fringe  or by taking out some items from ambit of fringe. As the FBT is in its initial stage, it can be said that the process of evolving formulae of estimation and ascertaining the legislative intention is still on and the amendments which reduces the liability of FBT by way of lowering valuation or by excluding some items resulting into  benefit to assessee are really to show liberal legislative intention. Therefore, such amendments which have been made from time to time, since inception of FBT, can be considered as  declaratory, clarificatory, and curative and hence applicable since inception that is 1^st April, 2006. In this write-up, some such amendments made  vide the F.A. 2008 have been considered. 

Amendment relating to meaning of fringe benefit under section 115WB

The amendments are reproduced with high light, analyzed and discussed below:

Amendment of section 115WB.

25. In section 115WB of the Income-tax Act,—

(a)  in sub-section (1), in the Explanation to clause (d), in clause (i), for the words "and includes employees' stock option", the words "and, where employees' stock option has been granted under any plan or scheme therefor, includes the securities offered under such plan or scheme" shall be substituted;

(b)  in sub-section (2), with effect from the 1st day of April, 2009,—

(I)  in clause (B), after sub-clause (ii), the following sub-clause shall be inserted, namely:—

"(iii)  any expenditure on or payment through non-transferable pre-paid electronic meal card usable only at eating joints or outlets and which fulfils such other conditions as may be prescribed;";

(II)  in clause (E), for the Explanation, the following Explanation shall be substituted, namely:—

"Explanation.—For the purposes of this clause, any expenditure incurred or payment made to—

(i)  fulfil any statutory obligation; or

(ii)  mitigate occupational hazards; or

(iii)  provide first aid facilities in the hospital or dispensary run by the employer; or

(iv)  provide creche facility for the children of the employee; or

(v)  sponsor a sportsman, being an employee; or

(vi)  organise sports events for employees, shall not be considered as expenditure for employees' welfare;";

(III)  clause (K) shall be omitted.

Amendment of section 115WC.

26. In section 115WC of the Income-tax Act, in sub-section (1), with effect from the 1st day of April, 2009,—

(i)  in clause (c), for the words, brackets and letters "clauses (A) to (K)", the words, brackets and letters "clauses (A) to (L)" shall be substituted;

(ii)  in clause (d), for the words, brackets and letters "clauses (L) to (P)", the words, brackets and letters "clauses (M) to (P)" shall be substituted.

ESOP- Earlier  employees' stock options were included.  However, after the amendment, even securities offered under plan or scheme shall be included.

Thus, even if there is an offer for securities under the plan, the same will be included in the meaning of fringe irrespective of whether the same option is exercised by the employees or not. This appears to be unjust and illogical amendment. Surprisingly we do not find even any explanation or purpose of this amendment in the Memorandum explaining the proposals vide clause 22 and 23.

Electronic meal cards provided by employers to employees will also be exempted if the conditions as laid down in section and also any more conditions, as may be prescribed are met.  It is not understandable as to why any exemption which is intended for application by general businessman and for working class is burdened with so many conditions? Can't we make an intended exemption simple enough so that it can be availed easily and there are no doubts?

From the head "employees' welfare", the items to be excluded as per the earlier explanation and as per revised explanation, are reproduced below in a tabular form.

Existing explanation in S. 115WB (2) E	Proposed explanation in S.115WB(2) E.	Remarks
E) employees' welfare.                      Explanation.—For the purposes of this clause, any expenditure incurred or payment made to fulfil any statutory obligation or mitigate occupational hazards or provide first aid facilities in the hospital or dispensary run by the employer shall not be considered as expenditure for employees' welfare;	E.employees' welfare  ''Explanation.-For the purposes of this clause, any expenditure incurred or payment made to- (i) fulfil any statutory obligation; or (ii) mitigate occupational hazards; or (iii) provide first aid facilities in the hospital or dispensary run by the employer; or (iv) provide crèche facility for the children of the employee; or (v) sponsor a sportsman, being an employee; or (vi) organise sports events for employees, shall not be considered as expenditure for employees' welfare;";	By the F.A. 2008 the following new items are excluded from employees welfare (iv) provide crèche facility for the children of the employee; or (v) sponsor a sportsman, being an employee; or (vi) organise sports events for employees,

The present clause K reads as follows;

(K)  maintenance of any accommodation in the nature of guest house other than accommodation used for training purposes;

This clause will be omitted therefore; expenses for maintenance of any accommodation in the nature of Guest house shall not be liable to FBT from assessment year 2009-10.

Amendment in valuation rules S. 115WC:

23. In section 115WC of the Income-tax Act, in sub-section (1), with effect from the 1st day of April,

2009,—

(i) in clause (c), for the words, brackets and letters "clauses (A) to (K)", the words, brackets and letters "clauses (A) to (L)" shall be substituted;

(ii) in clause (d), for the words, brackets and letters "clauses (L) to (P)", the words, brackets and letters "clauses (M) to (P)" shall be substituted.

The amendment is a consequential amendment and also to allow further relief of lower valuation @ 20% instead of 50%, at present in case of festival celebrations.

Can the above amendments be considered as clarificatory?

 and therefore applicable since inception of FBT:

The provisions of FBT came into force only from 1^st April, 2006. They first became applicable for the previous year ended 31.03.06, thus only two years have lapsed and the third previous year was running at the time of presentation of the Finance Bill, 2008.Therefore, by any standard the provisions are new and in the stage of infancy. Therefore they need several clarifications, removal of anomalies, removal of difficulties, corrections in provisions to make them confirming the legislative intention. Accordingly there have been several clarifications by way of circulars and amendments. It can be said that the process of clarifications and removal of un-intended tax and hardship to the assessee is still going on.

Recent amendments through the Finance Act 2008, to reduce value of fringe from 50% to 20% for festival celebrations, and to take out guest house maintenance, crèche facility for children of employees, sponsor an employee sportsman, organise sports events for employees from ambit of FBT and to exempt provisions of meals through electronic cards can only be considered as clarificatory amendment. It can be said that in view of representations from trade and industry and trade unions, feelings observed by the finance minister and his team-mates about provisions and other feedback, the legislative intention is being gathered and accordingly amendments are brought in the statue book to make them as per legislative amendment. The FBT was introduced by the same Finance Minister while moving the Finance Bill 2005, various amendments have been made during his tenure as the Finance Minister and the Finance Bill 2008 was also moved by the same Finance Minister. Most of the members in the parliament are the same. Therefore, it cannot be said that legislative intention was different three years ago and that there is continuous change in legislative intention.

One can therefore definitely say that the legislative intention is being felt, gathered, assimilated and brought on the statute book to correctly reflect the legislative intention and also to remove and overcome incongruities, ambiguities and difficulties in estimation of the value of taxable fringe. The concept of FBT centers around estimation, therefore, new method of estimation should be applied to earlier years also. Therefore, all such amendments are of curative nature as they  relates to lower valuation of fringe benefits and are beneficial  can be regarded to have retrospective effect since insertion of provisions for charge and valuation of fringe benefits.

Some rulings which can be elide:

Regarding applicability, since inception of amendments the following rulings can be relied on:

Laws made justly and for the benefit of individual and the community as a whole may relate to a time antecedent to their commencement.

It cannot be said to be an invariable rule that a statute could not be retrospective unless so expressed in the very terms of the section which had to be construed. The question is whether, on a proper construction, the Legislature may be said to have so expressed its intention.- Mithilesh Kumari V Prem Behari khare 177 ITR 97,107 (SC).

When ab Act is declaratory in nature, the presumption against its retrospecitvity is not applicable CIT V podar Cement P. Ltd (1977) 226 ITR 625,652.

 The amendment which was made by the Finance Act, 1987 in section 43B by inserting, inter alia, the first proviso, was remedial in nature, designed to eliminate unintended conse­quences which may cause undue hardship to the assessee and which made the provision unworkable or unjust in a specific situation.Looking to the curative nature of the amendment made by the Finance Act, 1987 it can be said that the proviso which was inserted by the amending Finance Act, 1987 should be given retrospective effect and be read as forming a part of section 43B from its inception. The amendment will not serve its object in such a situation, unless it is construed as retrospective. - Allied Motors (P.) Ltd. v. CIT [1997] 91 Taxman 205/224 ITR 677 (SC).  CIT v. Jagannath Steel Corpn. [1991] 191 ITR 676 (Cal.)/Jamshedpur Motor Accesso­ries Stores v. Union of India [1991] 189 ITR 70 (Pat.)/CIT v. Govindaraja Reddiar [1991] 187 ITR 417 (Ker.)/CIT v. Chandulal Venichand [1994] 209 ITR 7 (Guj.)].

Conclusion:

Therefore, amendments which has effect on estimation of value of fringe and which have made some relaxation in levy of tax during a very short duration of its coming into force can be considered as   applicable to earlier years also including assessment year 2006-07- the first year of their application. The assesses who have opportunity and are eligible to file revised returns can do so, so that their claim is placed in a legally admissible manner.  However, with a view to play safe, tax may be paid, under protest, and without prejudice, on the basis of law as it stood prior to such amendments.