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TMI Blog2006 (12) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... G (By Mr. Justice Syed Shah Mohammed Quadri) This application by a non-resident - R B Falcon(A) Pty Limited - is filed under section 245Q(1) of the Income-tax Act, 1961 (for short 'the Act"). The applicant is incorporated under the laws of the Commonwealth of Australia. It is engaged in the business of providing Mobile Offshore Drilling Rig (MODR) along with crew on a day rate charter hire basis to drill offshore wells. On 10th October, 2003 the applicant entered into a contract with ONGC for supplying MODR along with equipment and offshore crew. The employees of the applicant work on the MODR on commuter basis. Under this system an employee works on MODR for 28 days (called on days) which is then alternated by a 28 days field break (called off days) when he stays at the place of his residence. The members of the crew are residents of various countries like Australia, USA, U.K. etc. They are transported from their home country to the MODR in two laps - the first is from the nearest designated base city at the place of residence in the home country to a designated city in India for which the applicant provides free air tickets of economy class and the second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the applicant to its employees are covered under FBT and it is only when they cannot be quantified, they will not be brought under FBT. Answers to questions No. 34 and 78 would show that the applicant falls within the ambit of clause (F) to sub-section (2) of Section 115WB of the Act. It is added that the applicant has a PE in India and has been filing returns of its income under section 44BB of the Act. Since its employees have been working on the rig in India, the applicant would be the employer in India and as such is liable to FBT on the travel cost. 3. Mr. Mukesh Bhutani, learned counsel appearing for the applicant, submits that three categories of employees are working under the applicant (i) employees based on land who attend to the administration, etc. (ii) Indian employees working on the rig and (iii) foreign nationals (employees) who are transported to the rig from outside India; and this application relates to the third category of employees. Having regard to the nature of duties to be performed by the offshore employees on the rig, namely, staying during on days (for 28 days) on the rig and staying off days (for 28 days) at the place of their residence, they ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h effect from 1st April, 2006. We shall reproduce the relevant provisions of Chapter XII-H of the Act: Charge of fringe benefit tax. 115WA. (1) In addition to the income-tax charged under this Act, there shall be charged for every assessment year commencing on or after the 1st day of April, 2006, additional income-tax (in this Act referred to as fringe benefit tax) in respect of the fringe benefits provided or deemed to have been provided by an employer to his employees during the previous year at the rate of thirty per cent on the value of such fringe benefits. (2) Notwithstanding that no income-tax is payable by an employer on his total income computed in accordance with the provisions of this Act, the tax on fringe benefits shall be payable by such employer. Section 115WB defines 'fringe benefits' which is in the following term: Fringe benefits. 115WB. (1) For the purposes of this Chapter, "fringe benefits" means any consideration for employment provided by way of - any privilege, service, facility or amenity, directly or indirectly, provided by an employer, whether by way of reimbursemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of the Act, the tax on fringe benefits is nonetheless payable by such employer. The expression "fringe benefits" is defined in sub-section (1) of section 115WB to mean any consideration for employment provided by an employer by way of : (a) any privilege, service, facility or amenity, directly or indirectly, whether by way of reimbursement or otherwise, to his employees (including former employee or employees); (b) any free or concessional ticket for private journeys of his employees or their family members; and (c) any contribution to an approved superannuation fund for employees. Further if in the course of his business or profession the employer has incurred any expenditure on or made any payment for any of the purposes enumerated in clauses (A) to (Q) of sub-section (2) of 115WB the fringe benefits shall be deemed to have been provided by the employer to his employees. We are concerned here with clause (F) "conveyance" and clause (Q) "tour and travel (including foreign travel)" of sub-section (2) which, among others, are specified as deemed fringe benefits. The said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to his employees for the purpose of journeys outside India. A combined reading of sub-sections (1) and (2) of 115WB of the Act would show that the ambit of privilege, service, facility or amenity, provided directly or indirectly, by an employer to his employees by way of reimbursement or otherwise does not take in its ambit 'conveyance' and 'tour and travel (including foreign travel)' otherwise the said expressions could not have been the elements of the deeming provision in sub-section(2). In so far as FBT on the fringe benefits of free and concessional tickets by the employer to his employees or their family members is concerned, it is confined to private journeys only. In the instant case providing free air tickets for the round trip, the first sector (from the home State of employees to the designated city in India and the return journey) cannot be termed as private journeys. They are undertaken for the purpose of the employment. It would be pertinent to refer to sub-section (3) of section 115WB which excludes for the purpose of sub-section (1) 'perquisites' (on which tax is paid or is payable by the employees) and any benefit or amenity in the nature of free or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is said to be the precursor of the clause inserted, by Finance Act, 2006 in sub-section(3) of Section 115WB of the Act and the answer thereto read as follows:- "104. Whether expenditure incurred by the employer for the purposes of providing free or subsidized transport for journeys to employees from their residence to the place of work or such place of work to the place of residence would attract FBT? Ans. The free or subsidized transport provided to employees for journeys from their residence to the place of work or such place of work to the place of residence is in lieu of conveyance/transportation allowance, which is not liable to FBT. Accordingly, the expenditure incurred by the employer for the purposes of providing free or subsidized transport for journeys to employees from their residence to the place of work or such place of work to the place of residence will not be liable to FBT". From a cursory reading of the above question and the answer, it appears that the free or subsidized transport provided to employees for journeys from their residence to the place of the work or such place of work to the place of residence if in lieu of conveyance/transportation allowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt….. Conveyance - The action of carrying or transporting;a means of transport ……. Transport . Carry (people or goods) from one place to another by means of vehicle, aircraft or ship…….. 7. In the Model Convention on Income and Capital issued by OECD term 'residence' is explained in the context of the tie-breaker rule. It is stated " the residence is that place where the individuals own or possess a home; this home must be permanent, that is to say, the individual must have arranged and retained it for his permanent use as opposed to staying at a particular place under such conditions that it is evident that the stay is intended to be of short duration ". It is stated that the concept of residence implies arranging a dwelling place available to him at all times continuously and not occasionally for the purpose of stay which, owing to the reasons for, it is necessarily for short duration like for pleasure, business travel, education travel, attending course etc. Mr. Bhutani also invited attention to the observation of the Hon'ble Supreme Court in Smt. Jeewanti Pandey vs. Kishan Chandra Pandey, There the Hon'ble Court in considering the concept of residence for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The meaning of 'tour and travel' (including foreign travel)' in clause (Q) of sub-section (2) of 115WB will have to be understood in contra distinction to clause (b) of sub-section (1) of section 115WB. Whereas clause (b) of sub-section (1) brings free or concessional tickets provided by the employer for private journeys of his employees or their family members within the meaning of fringe benefits, clauses (F) and (Q) of sub-section (2) cover 'conveyance' and 'tour and travel' (including foreign travel), other than on private journeys, within the meaning of fringe benefits deemed to have been provided by the employer to his employees. We have noted above that for the first lap of the journey of the offshore employees from their home countries to the designated city in India, the applicant is providing free (round-trip) tickets; it would, therefore, fall under clause (Q) of sub-section (2). For the journeys from the chopper base in India to the rig for which the applicant is providing helicopters, it would amount to the employer providing conveyance. Inasmuch as the transportation of the employees from their residence in their home countries to the rig falls within the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he foreign company is an employer in India and not whether the employees are working in India. After a careful reading of the questions and answers in the circular it has been pointed out above that question No. 104 relating to transportation of the employees whether free or on subsidized basis for journeys from their residence to the place of work and from the place of work to their residence, refers to the residences of the employees within India and that the same position will govern sub-section(3) of Section 115WB. 9. For the reasons mentioned above, we rule on the aforementioned question that the transportation cost incurred by R B Falcon (A) Pty Limited (hereinafter referred to as the "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. Pronounced in the open court of the Authority on this 13th day of December 2006. Sd/- (JUSTICE S.S.M. QUADRI) CHAIRMAN Sd/- (A.S. NARANG) MEMBER Sd/- (A.SINHA) MEMBER F.No. AAR/730/2006 - - TaxTMI - TMIT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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