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TMI Blog2012 (2) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... ta For Respondent: Shri CGK Nair ORDER Per: T R Sood: In these appeals, the assessee has raised various grounds but the only common dispute involved is regarding levy of Fringe Benefit Tax (FBT for short). 2. After hearing both the parties, we find that during assessment proceedings the AO noticed that the assessee had provided residential accommodation to its Chairman-cum- Managing Director as per terms of the employment contract with him. The assessee company had taken the premises on lease from M/s. SDN Company for a monthly rent of Rs.1 lakh, which was treated as perquisite in the hands of the employee. The assessee company had also given a deposit of Rs.5 crore towards interest free refundable deposit for the licence to use and occupy the Flat No.13 in Suneeta Building situated at 9-11, B.G. Khare Marg, Malabar Hill, Mumbai-400 006. It was further noticed that the assessee also had borrowings to the extent of Rs.2,54,88,085/-. Therefore, the assessee was asked to explain why interest on deposit of Rs.5 crore should not be considered for FBT. In response, it was mainly stated that the sum of Rs.5 crore was paid out of the share capital raised during the financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he course of business by incurring any expense or any expenditure on entertainment, hospitality, conference and sales promotion etc. has been listed. Section 115WC(1) deals with valuation of various fringe benefits. He pointed out that various clauses of this section have given the yardstick of valuation for various fringe benefits. However, no valuation rule has been provided for fringe benefit covered by section 115WB(1)(a). He then referred to the Board Circular No. 8, which has been filed at pages 8 to 47 of the paper book, and invited our attention to the answer to Question No. 7 wherein it has been clarified by the Board that wherever computation provision fails, the charging section cannot be effected. Since notional interest on security would fall under sub-section (1)(a) for which no valuation method has been provided and, therefore, the same cannot be subjected to FBT. He further argued that Board s circulars are binding on the department and in this regard referred to the decision of Hon ble Supreme Court in the case of Uco Bank vs. CIT (237 ITR 889). 5. The ld. counsel then referred to sub-section (3) of sec. 115WB which provides that a perquisite, in respect of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d superannuation fund for employees 16[; and] 17[(d) any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer free of cost or at concessional rate to his employees (including former employee or employees). Explanation.-For the purposes of this clause,- (i) specified security means the securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956)18 19[and, where employees stock option has been granted under any plan or scheme therefor, includes the securities offered under such plan or scheme]; (ii) sweat equity shares means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.] (2) The 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 or profession (including any activity whether or not such activity is carried on with the object of deriving income, profits or gains) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove; 24[25[(vii) being the expenditure on distribution of samples either free of cost or at concessional rate; and] (viii)being the expenditure by way of payment to any person of repute for promoting the sale of goods or services of the business of the employer,] shall not be considered as expenditure on sales promotion including publicity; (E) employees welfare. 26[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;] (F) conveyance 27[***]; (G) use of hotel, boarding and lodging facilities; (H) repair, running (including fuel), maintenance of motor cars and the amount of depreciation thereon; (I) repair, running (including fuel) and maintenance of aircrafts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price;] (c) twenty per cent of the expenses referred to in clauses 33[(A) to (L)] of sub-section (2) of section 115WB; (d) fifty per cent of the expenses referred to in clauses 34[(M) to (P)] of sub-section (2) of section 115WB; 35[(e) five per cent of the expenses referred to in clause (Q) of sub-section (2) of section 115WB.] (2) Notwithstanding anything contained in sub-section (1),- (a) in the case of an employer engaged in the business of hotel, the value of fringe benefits for the purposes referred to in clause (B) of sub-section (2) of section 115WB shall be five per cent instead of twenty per cent referred to in clause (c) of sub-section (1); 35[(aa) in the case of an employer engaged in the business of carriage of passengers or goods by aircraft, the value of fringe benefits for the purposes referred to in clause (B) of sub-section (2) of section 115WB shall be five per cent instead of twenty per cent referred to in clause (c) of sub-section (1); (ab) in the case of an employer engaged in the business of carriage of passengers or goods by ship, the value of fringe benefits for the purposes referred to in clause (B) of sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain benefits given by the companies and other organizations to their employees which were not being taxed in the hands of such employees. This has been explained in the Board s Circular No. 8 under the heading Objective which reads as under : 2. Objective 2.1 The taxation of perquisites or fringe benefits is justified both on grounds of equity and economic efficiency. When fringe benefits are under-taxed, it violates both horizontal and vertical equity. A taxpayer receiving his entire income in cash bears a higher tax burden in comparison to another taxpayer who receives his income partly in cash and partly in kind, thereby violating horizontal equity. Further, fringe benefits are generally provided to senior executives in the organization. Therefore, under-taxation of fringe benefits also violates vertical equity. It also discriminates between companies which can provide fringe benefits and those which cannot thereby adversely affecting market structure. However, the taxation of fringe benefits raises some problems primarily because (a) all benefits cannot be individually attributed to employees, particularly in cases where the benefit is collective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on rules have been provided for all the benefits under this Chapter. At the same time, it would be noticed that no valuation rule has been provided in respect of fringe benefits covered by clause (a) of sub-section (1) of sec. 115WB. It is a cardinal principle of interpretation that an Act has to be interpreted in such a way so that none of the provisions becomes redundant. Therefore, if the argument of the ld. counsel of the assessee is accepted that since no valuation rules have been prescribed in respect of benefits mentioned under clause (a) of sub-section (1) of sec. 115WB, then the same cannot be taxed at all. This position can further be understood by a simple example that in case a company provides a cook at the house of Chairman at a salary of Rs.5,000/- p.m., then perhaps no valuation rule is required because fringe benefit can be calculated @ Rs.5,000/- p.m. for the number of months the cook is employed. Similarly, as pointed out by the ld. DR, if a gold coin is given to the directors of the company on some occasion, then the value of that gold coin would constitute the value of that benefit. 9. However, all the privileges, amenities or facilities etc. cannot always be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision relating to the computation of the value of the fringe benefits is contained in section 115WC. It is a settled principle of law that where the computation provision fails, the charging section cannot be effectuated. Therefore, if there is no provision for computing the value of any particular fringe benefit, such fringe benefit, even if it may fall within clause (a) of sub-section (1) of section 115WB, is not liable to FBT. 8. Whether the value of any benefit provided by the employer to its employees by way of allotment of shares, debentures, or warrants directly or indirectly under any Employees Stock Option Plan or Scheme of the company, is liable to FBT ? Ans. The value of any benefit provided by the employer to its employees by way of allotment of shares, debentures, or warrants directly or indirectly under any Employees Stock Option Plan or Scheme of the company is a fringe benefit within the meaning of clause (a) of section (1) of section 115WB. However, in the absence of a computation provision in respect of such benefits, the charging section fails. Therefore, the value of such benefits is not liable to FBT. From above also, it becomes clear that unles ..... X X X X Extracts X X X X X X X X Extracts X X X X
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