2017 (9) TMI 320 - HC - Income Tax

Fringe Benefits Tax chargeability - Reading down of Section 115WB(2) of the Income Tax Act, 1961 - as contended 17 broad heads stipulated in Subsection (2) of Section 115WB will prompt any Assessing Officer to charge FBT - Employer-employee relationship - legal fiction extension beyond the purpose for which it is created - Held that - A statute is to be read as a whole is the view expressed in Hindustan Bulk Carriers (2002 (12) TMI 10 - SUPREME Court). Ajmera Housing Corporation (2010 (8) TMI 35 - SUPREME COURT OF INDIA ) has held that, a taxing statute is to be construed strictly and that nothing is to be read in and nothing is to be implied, in respect of a taxing statute.Section 115WB is a part of Chapter XII-H of the Income Tax Act, 1961. Chapter XII-H of the Income Tax Act, 1961 was introduced to the statute from the year 2005-2006. It was deleted from the year 2009- 2010. Chapter XII-H deals with Fringe Benefits Tax. Section 115WA contemplates that, additional income tax referred to as Fringe Benefits Tax would be payable in respect of fringe benefits provided or deemed to have been provided by an employer to his employee during the previous year at the rate of 30 per cent of the value of such fringe benefits. There has to be an employer employee relationship between the persons for considering whether the employer is giving any fringe benefit to the employee or not. In other words, whether an employee is receiving a fringe benefit from the employer has to be considered and decided for Fringe Benefit Tax to be attracted. Fringe benefits are defined in Section 115WB. Sub-section (2) of Section 115WB stipulates that, fringe benefits shall be deemed to have been provided by the employer to his employees, if the employer has, in the course of his business incurred any expense on or made any payment for, the purposes stipulated thereunder. Basically 17 heads have been specified under Sub-section (2) of Section 115WB which attracts the legal fiction. Nandkishore Ganesh Joshi (2004 (10) TMI 610 - SUPREME COURT) and Sadan K. Bormal & Anr. (2004 (4) TMI 582 - SUPREME COURT) have held that, a fiction cannot be extended beyond the purpose for which it is created. Chapter XII-H of the Income Tax Act, 1961 is premised upon the legal fiction of fringe benefits being given by the employer to the employee. The petitioner is yet to establish that, the assessing officer has charged a Fringe Benefits Tax on an item which is not chargeable. Therefore, the petitioners cannot said to be have any cause of action for the Court to intervene. For the Court to admit such a resolution, an affected situation has to come before the Court for the Court to try and marry equity with the taxation law. In the present case, the Assessing Officer is yet to arrive at a finding whether the petitioner is liable to Fringe Benefits Tax on any head or not. It would not be prudent to enter into a discussion in the abstract, without any factual foundational basis. - Decided against the petitioners.

Summary

Issues:
(i) Constitutionality of Chapter XII-H of the Income Tax Act, 1961 under Articles 14 and 246(1) read with Entry 82, List I of the Seventh Schedule to the Constitution of India.
(ii) Interpretation of Section 115WB(2) of the Income Tax Act, 1961.
(iii) Relief entitled to the parties.

Analysis:

Constitutionality of Chapter XII-H:
The petitioners challenged the constitutionality of Chapter XII-H of the Income Tax Act, 1961, arguing it violated Articles 14 and 246(1) read with Entry 82. The Additional Advocate General contended that by reading down the impugned Chapter, it could pass the constitutionality test. Referring to the legal fiction created by Section 115WA and 115WB, it was argued that the levy of Fringe Benefits Tax should be limited to expenses related to the employer-employee relationship. The revenue's advocate argued that the section did not require reading down and should be construed as a whole. The Court held that the first issue was not pressed and did not require an answer.

Interpretation of Section 115WB(2):
Section 115WB(2) deems fringe benefits provided by the employer to employees based on specified expenses. The petitioners sought a reading down of this section. The Court emphasized that the legal fiction of fringe benefits must be limited to expenses related to the employer-employee relationship. It was noted that the Assessing Officer must determine the applicability of Fringe Benefits Tax on a case-by-case basis, considering the factual circumstances. The Court rejected the petitioners' claim that the section needed to be read down.

Relief Entitlement:
The Court held that the petitioners were not entitled to any relief in the writ petition, as the Assessing Officer had not yet determined the liability for Fringe Benefits Tax. The petition was dismissed, and no costs were awarded.

In conclusion, the Court dismissed the writ petition challenging the constitutionality of Chapter XII-H and the interpretation of Section 115WB(2) of the Income Tax Act, 1961. The petitioners were not granted any relief as the Assessing Officer had not made a determination regarding Fringe Benefits Tax liability. Stay of the judgment was refused.