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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 ..... bsp; Present for the Department Mr. Mukesh Bhutani, Head of Tax BMRG Associates Present for the Applicant Mr. Y.S. Rawat, CITMr.Javel Akhtar,ACIT R U L I N 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under section 115WB(1)(a) and also u/s. 115WB(2)(F) as deemed fringe benefits. No tax is being paid by employees for the transportation, therefore the expenses incurred by the applicant have to be treated as fringe benefits under the Act. The CBDT issued circular No. 8 of 2005 dated August 29, 2005 to explain the operation of the fringe benefits tax in the form of questions and answers. The applicant has incorrectly placed reliance on question No. 104 and the answer thereto. As per the clarification given in the answer to the question No. 7 in the circular such benefits as are provided by 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rig where the employees work and reside for 28 days; for the first sector no conveyance/ transportation is provided by the employer to the employees but for the rest of the three sectors, the employer provides conveyance/ transportation which falls under section 115WB(2)(F) & (Q). He has taken us through various questions and answers, contained in the said circular, in his endeavour to bring home the point that the applicant is liable to FBT. Since the controversy in this case centres round the scope of FBT, it will be apposite to refer to the material provisions of the Act. By the Finance Act, 2005 Chapter XII-H which comprises of sections 115W to 115WL, was inserted in the Act with 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the place of work or such place of work to the place of residence]. Section 115WC lays down the method of valuing the fringe benefits and Sections 115WD to 115WL are procedural provisions, which are not relevant for the present discussion. 4. It may be seen that Section 115W contains definitions of terms used in the said Chapter. Clause (b) of section 115W defines the terms "fringe benefit tax" or "tax" to means the tax chargeable under section 115WA which is the charging section for the purpose of this Chapter. An analysis of section 115WA would bring out the following ingredients: on or after 1st April, 2006 additional income-tax referred to as FBT shall be charged for every assessment year; FBT is leviable in respect of the fringe benefits provided or deemed to have been provided by an employer to his employees during the previous year; FBT is taxed at the rate of 30% on the value of such benefits; even when no income tax is payable by an employer on his total income computed in accordance with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; xx xx xx xx tour and travel (including foreign travel) The rigour of FBT leviable on the fringe benefits defined in sub-section (1) is to some extend mitigated by sub-section (3) of 115WB which is clarificatory in nature. It is important to note that no relief is provided in the case of levy of FBT on the deemed fringe benefits specified in sub-section (2). The relief is composed of fringe benefits embodied in two limbs of sub-section (3), which are excluded from the purview of sub-section (1). They are (i) "the privilege, service, facility or amenity in the nature of perquisites in respect of which tax is paid or is payable by the employee"; and (ii) "any benefit or amenity in the nature of free or subsidized transport or any such allowance provided by the employer to his employees for journeys by the employees from their residence to the place of work or such place of work to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' (on which tax is paid or is payable by the employees) and any benefit or amenity in the nature of free or subsidized transport or any such allowance provided by the employer to his employees for journeys by the employees from their residence to the place of work or such place of work to the place of residence, from the concept of the privilege, service, facility or amenity. The term "perquisites" in sub-section (3) is not defined in the definition clause - sec.115W. We have, therefore, to understand 'perquisites" as defined in section 17(2) of the Act. The point whether the benefit or amenity provided by the employer satisfies the requirements of perquisites need not detain us because perquisites get excluded from the purview of FBT only when the employees have paid or are liable to pay tax on them. It is nobody's case that the employees have paid or are liable to pay tax on such perquisites. Consequently the benefit/amenity in the nature of free or subsidized transport or any such allowance provided by the employer to his employees for journeys by the employees from their residence to the place of work or such place of work to the place of residence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 allowance, is not liable to FBT and therefore the expenditure incurred by the employer thereof will not be liable to FBT. The gist of the aforementioned question and answer is to be found in the amended sub-section (3) of Section 115WB. However, a careful reading and the context of question no. 104 and the answer and our finding on the second limb of sub-section (3) of section 115WB, would disclose that the journeys of the employees spoken of therein relate to journeys from the residence of the employees within India to the place of work in India. The transportation of employees in the instant case, according to the applicant as well as for purposes of the question, is from their residences in the home countries (outside India) to the place of work in India (the rig). Mr. Rawat has argued that the transportation of the employees falls within clause (F) and clause (Q) of sub-section (2) of Section 115WB and Mr. Bhutani's contention is that such transporta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the purpose of section 19(ii) of the Hindu Marriage Act, 1955, pointed out that in ordinary sense 'residence' was more or less of a permanent character. A perusal of the judgement of the Hon'ble Supreme Court in Sukh Lal and others v. State Bank of India and otherswould show that a place of residence need not necessarily be permanent and exclusive but it must be occupied with the intention of setting up a fixed though not permanent abode and that sojourn for a purely temporary purpose would not constitute residence and the place of sojourn would not be deemed to be a place of residence. From the above discussion it follows that the word 'residence" takes its colour from the context in which it is used. In so far as the said term is used in the context of FBT, it is clear to us that it connotes a place of abode where a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yees 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 above mentioned clauses (F) and (Q) respectively of sub-section (2) of section 115WB of the Act; it cannot but be held that the fringe benefits shall be deemed to have been provided by the applicant to the employees in the course of its business; therefore, the applicant is liable to pay fringe benefit tax under the Act. While considering applicability of FBT to the transportation costs incurred by the applicant on the employees, it must be remembered that if the transportation of offshore employees of the applicant falls within sub-section (1) of section 115WB the provisions of sub-section (3) thereof would, subject to the terms contained therein, apply. But if such transportation falls within the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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