FBT S. 115WI, 115WJ and 115WL read with S. 208 - LIMIT OF Rs. TEN THOUSAND APPLY FOR ADVANCE FRINGE BENEFIT TAX.

[C.A. DEV KUMAR KOTHARI]

Summary:

FBT is a new and short lived tax which remained in force only for four assessment years from 2006-07 to 2009-10. There is general perception that howsoever less amount be payable towards FBT, installments of advance fringe benefit tax are required to be paid and in case of short or non-payment, the assessee is liable to pay interest. As discussed in this short article, an assessee whose FBT liability for any previous year is less than Rs.10000 is not required to pay installments of advance tax on account of fringe benefits. This view is found on conjoint reading of relevant provisions. The Circular of the Board about FBT does not specifically answer on this issue except that other provisions relating to collection and recovery of income tax will apply to FBT. A clear circular in this regard is required so that Assessing Officers do not raise demand for interest when FBT less than Rs.10000 has been paid by way of self assessment tax without making payment in installments as advance tax. 

Relevant provisions:

Section 208, 115WI, 115WJ and 115WL of the Income-tax Act, 1961.

Circular No. 8/2005, dated 29-8-2005 questions and answers nos. 9 and 107.

Liability of pay advance tax:

Advance tax is payable as per the provisions of Income-tax Act, 1961 in prescribed manner and at prescribed time. Section 208 was in existence even before insertion of provisions relating to FBT vides Chapter XIIH w.e.f. 01.04.2006.

Minimum limit to fasten liability for advance tax :

Section 208 read as follows:

Conditions of liability to pay advance tax.

208. Advance tax shall be payable during a financial year in every case where the amount of such tax payable by the assessee during that year, as computed in accordance with the provisions of this Chapter, is ten thousand  rupees or more.

Conditions to fasten pay tax in advance :

A bare reading of the section 208 suggest that the conditions where assessee is liable to pay advance tax must exist to fasten liability to pay tax in advance. According to the section liability is fastened only when advance tax payable is Rs. ten thousand or more. In section 208 word use are 'advance tax shall be payable'. Thus it is not restricted to income tax, it also extend to other tax like FBT.

History about limit :

Limit to Rs.10000 was enhanced from Rs. five thousand by the Finance (No. 2) Act, 2009, w.r.e.f. 1-4-2009 and it is continuing.

Limit of five thousand was in force between   01.10.1996 to 31.03.2008.

Prior to 01.10.1996 limit of Rs.  one thousand five hundred was applicable for several years. It is not necessary to go in further past, for the purpose of this study.

The purpose- to spare small collection and small taxpayers :

The limit for requirement to pay tax in advance has been increased from time to time. This is with a view to make administration easy and less time consuming for small tax payers. It is worth to note that non-payment or short payment of any installment of advance tax involves cumbersome process and calculation of interest for the assessee and the A.O. both. In case  any exemption limit is not prescribed, in each and every case , involving small payment of tax also the assessee shall be required to pay advance tax installments and in case of failure to pay any installment or short payment  of amount in any installment, he will be required to calculate and pay interest. Likewise the A.O. will also be required to calculate and check if there was short or non- payment of any installment then to calculate interest, and issue demand notice and then collect the same. These exercises will not be of much worth and will dilute the principal of better control and monitoring with result orientation. This is perhaps the reason that over a period of time the limit for non applicability of advance tax has been raised. In such cases the assessee can pay entire amount of tax as calculated by him by way of self assessment tax.

Section 208 is a machinery provision for collection and recovery of tax :

The section 208 is part of the Chapter XVII under the Chapter Heading  "Collection and recovery of tax". Therefore this section is a general provision relating to collection and recovery of any tax which may be levied under the Act.

Applicability of the provision of Section 208 in relation to FBT :

Collection and recovery of FBT is also to be governed by general provisions of Chapter XVII, including Section 208, though there are some other  provisions in Chapter XII H relating to FBT including provisions  for payment of FBT in advance by assessee- employers to whom provisions of FBT apply. However, there is no basic exemption or any limit prescribed for fastening liability to pay advance tax or to grant exemption from such liability. We find provisions for payment of advance FBT and installments thereof in sections 115WI and 115WJ. However,  we do not find any provision by way of proviso or other exclusion for non- payment of advance tax in case total amount of FBT payable by assessee is less than Rs.10000/-. There is also no express or implied exclusion of section 208 in relation to FBT.

General application of provisions of other provisions in relation to FBT :  

We find section 115WL, which adopts other provisions of the Income-tax Act for the purpose of FBT. The section 115WL reads as follows:

Application of other provisions of this Act.

115WL. Save as otherwise provided in this Chapter, all other provisions of this Act shall, as far as may be, apply in relation to fringe benefits also.

According to this section, save as otherwise provided in the Chapter XIIH, relating to FBT  all provisions of the Act shall apply in relation to fringe benefits also.

We find that there is provision for liability to pay FBT in advance vide Section 115WI and  payment of FBT in advance by installments vide Section 115WJ including interest payable in case of non or short payment of advance tax installments.

However, there is no provision corresponding to Section 208 of the Act, to lay a limit only above which assessee is required to pay FBT in advance. There is no express or implied provision to suggest that Section 208 is excluded from the extension, vide Section 115WL, of other provisions of the Act, in relation to FBT.

Therefore, it can be said that Section 208 is also applicable in relation to FBT. Therefore, an assessee having liability to pay FBT below Rs.10000/- is not required to pay any installment of advance FBT and accordingly there will be no liability to pay interest under sub-sections (3) and (4) of section 115WJ. 

Circular relating to FBT :

In the circular relating to FBT the following paragraphs nos. 9 and 107 are relevant to this write-up:

9. Application of other provisions of the Act

9.1 All other provisions of the Act relating to income-tax authorities, appeal, collection and recovery of taxes, penalties, prosecution, etc., shall apply to fringe benefits also, unless otherwise provided in Chapter XII-H.

Whether excess advance tax paid for the preceding quarter can be adjusted against advance tax for the subsequent quarter(s)?

107. Any excess advance tax paid for the preceding quarter can be adjusted against the advance tax for the subsequent quarter(s) - Circular : No. 8/2005, dated 29-8-2005.

According to the answer to question no. 9, other provisions relating to collection and recovery of tax are applicable to FBT also. As we noticed in early part of this write-up we find that section 208 is part of the Chapter  XVII under the Chapter Heading" Collection and recovery of tax".  Therefore, it can be said that the  above referred circular of the Board also support the view that Section 208 and other provisions in relation to recovery and collection of FBT are applicable. However, this is not very clear in terms to say that Section 208 is also applicable and assessee is not required to pay FBT in advance where liability is less than Rs.10000/-. Therefore, it is desirable to issue a clarification in this regard so that Assessing Officers do not raise demand for interest where assessee had paid FBT , for any year up to Rs.10000 by way of self assessment tax, without paying any installment of advance tax.

Conclusions:

An assessee having liability to pay FBT below Rs.10000/- is not required to pay any installment of advance FBT and accordingly there will be no liability to pay interest under sub-sections (3) and (4) of section 115WJ. A specific clarification in this regard is desirable to avoid harassment of small employers whose FBT liability is below Rs.10000 for any year.

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