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TMI Blog2019 (12) TMI 1042X X X X Extracts X X X X X X X X Extracts X X X X ..... of various issues like extending certain benefits to the employees by the employer it is evident employers are avoiding tax, so the contention of the petitioners that all employers are tarred as tax avoiders is not tenable. Question of extending opportunity while assigning percentages under Section 115-WC may not arise, since it is a policy matter. The contention of noninclusion of Fringe Benefit under sub-Section (24) of Section 2 and its inclusion under sub-section (43) does not vitiates provision of FBT with reference to charging section-4, since FBT is incorporated as an independent provision. The cited decisions on behalf of the petitioners do not assist in view of the fact that source of power to incorporate Chapter XII-H of the Income Tax Act, 1961 is available at 7th Schedule to Constitution read under Entry 97. Further violation of Article 14 is not made out in view of my answer to the point in the preceding paragraphs. In that view of the matter petitioners have not made out ground to interfere with Chapter XII-H of the Income Tax Act, 1961 on Fringe Benefits or any part thereof, it is not unconstitutional and opposed to Articles 14 and 246(1) read with Entry 82, List ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses incurred, it becomes difficult to effectively capture the true extent of the perquisite provided because of the problem of cash flow in the hands of the employer. Therefore, it is proposed to adopt a two pronged approach for the taxation of fringe benefits under the Income Tax Act. Perquisites which can be directly attributed to the employees will continue to be taxed in their hands in accordance with the existing provisions of Section 17(2) of the Income Tax Act and subject to the method of valuation outlined in rule 3 of the Income Tax Rules. In cases, where attribution of the personal benefit poses problems or for some reasons, it is not feasible to tax the benefits in the hands of the employee, it is proposed to levy a separate tax known as the fringe benefit tax on the employer on the value of such benefits provided or deemed to have been provided to the employee. Chapter XII H reads as under: 2. Chapter XII- H was inserted into the Act with effect from 1.4.2005 by the Finance Act of 2005. It provides for the levy of additional income tax called fringe benefit tax (hereinafter referred to as FBT ) on fringe benefits provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self contradictory they become unworkable. The employer is entitled to collect the tax paid from the employees and thus the liability of the employee increases. In the alternative, if the employer decides to absorb the tax on fringe benefits, it would offend the provisions of Section 200(1) of the Companies At, 1956 and to this extent the provisions of the Chapter are to be struck down. I. All employers are tarred as tax avoiders with the same brush by the introduction of chapter XII H and to this extent the provisions therein requires to be struck down. J. The employer is not granted an opportunity to prove that the fringe benefits actually granted to the employees are much lower than the percentages fixed under Section 115 WC of the Act, in an adhoc manner and across the board and hence, the entire chapter offends Article 14 of the Constitution of India. K. Quash by an appropriate writ, order or direction in the nature of certiorari or otherwise the provisions of Chapter XII-H of the Indian Income Tax Act, 1961 in so far as it purports to levy a tax called the Fringe Benefit Tax under the provisions of the Act. In so far as Petitioner is conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticularly in the nature of a Writ of Declaration to declare the Rules brought into by the Finance Act 2005, in relation to the levy of Fringe Benefit Tax with effect from 01.04.2006 as ultra vires Article 14, 19 (1) (g) and 265 of the Constitution of India in so far as the Petitioners are concerned. S. Issue a writ, order or direction more particularly in the nature of a Writ of Declaration to declare the Circular No.8/2005 dated 29.08.2005 issued by the Central Board of Direct Taxes, the Second Respondent herein vide Annexure- B as inconsistent and this ultra vires Article 14, 19 (1) (g) and 265 of the Constitution of India in so far as the Petitioners are concerned. T. To direct the Respondents to pay the costs of this writ Petition. 4. Learned counsel for the petitioners vehemently contended that the definition of the Act, 1961 does not provide for inclusion of perquisite income. Further he pointed out from Section 115 W of the Act, 2005 which reads as under for ready reference: 115W. In this Chapter, unless the context otherwise requires; (a) employer means, (i) a company; (ii) a firm; (iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is available or not, contrary to Constitutional provision and arbitrariness? 9. Learned counsel for both the petitioners and respondents have submitted their written submissions/propositions which are as under: WRITTEN PROPOSITIONS BY REVENUE The respondents in the above matter respectfully submitted as under:- 1. The petitioners in the above matter have challenged the constitutional validity of Chapter-XII-H of the Income Tax Act dealing with levy of fringe benefit tax. The Central Board of Direct Taxes (CBDT) has issued Circular No.8/2005 dated 29/8/2005 where in the object of the legislation has been stated to bring equality. Hence the contention of the petitioner that the introduction of fringe benefit tax was in order to plug evasion of tax, without stating how the evasion was taking place, the introduction of fringe benefit tax is beyond the legislative competence is incorrect. The objective as stated by the CBDT is extracted below for ready reference. FINANCE ACT, 2005 EXPLANATORY NOTES ON THE PROVISIONS REALTING TO FRINGE BENEFIT TAX CIRCULAR NO.8/2005, DATED 29-8- 2005 The Finance Act, 2005 has introduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Finance Act, 1997. However, the withdrawal of the provisions relating to taxation of fringe benefits by the employer-based disallowance method resulted in significant erosion of the tax base. The Finance Act, 2005 has introduced a new levy, namely, the FBT as a surrogate tax on employer, with the objective of resolving the problems enumerated in para 2.1 above, expanding the tax base and maintaining equity between employers. 2. It is submitted that the above legislative intent is unambiguous expressing the intention is to bring equality. Hence the contrary contention of the petitioner is incorrect. 3. It is submitted that Chapter-XII-H (section 115W to 115WL) of the Act is a code by itself, providing for charging section, computation mechanism, assessment and other provisions. Hence the definition of income and provisions of section 4 of the Income Tax Act are not applicable. 4. It is submitted that the Explanation to section 115 WC of the act provides for different percentage of fringe benefit for different class of expenditures. The different percentage is on presumptive basis as a proportion of expenses incurred for the purposes refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to the judgment of the Apex Court in the case of R B Falcon. The Gujarat High Court has also dealt with the competence of the CBDT to interpret the provisions of the Act. (Paras-9.2, 9.3, 9.4, 12.2 and 13.0). d) Karnataka Bank Ltd., Vs. Union of India (2003) 185 CTR 18 (Kar) This Hon ble Court while dealing with the Constitutional Validity of the Interest Tax Act, considering the legislative competence as per Entry 82 of List-I to Schedule-VII of the Constitution of India and has held that Entry 97 of List-I to Schedule-VII of the Constitution of India would provide for levy of Interest Tax. Similarly the power to levy fringe benefit tax is traced to Entry 97 of List-I to Schedule-VII of the Constitution of India and hence levy of fringe benefit tax is within the legislative competence. (Paras-9, 11). e) Federation of Hotel Restaurant Association of India Vs UOI (1989) 77 CTR 141 (SC) The Apex Court while dealing with the constitutional validity of the Expenditure Tax Act has considered the reasonable classification of persona, subject matter, events etc, for taxation. Only restriction which has been read into is the discrimina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Hon ble Court. 5. The rebuttal regarding the case laws now provided by the Respondents are as under: a) R B Falcon (A) Pty. Ltd., Vs. CIT 301 ITR 309 (SC) The Hon ble Supreme Court dealing with Circular No.8/2005 dated 29/8/2005 has dealt with the concept or fringe benefit tax, interpretation of provisions of Section 115 WB and also the object of the Parliament in introducing the concept of fringe benefits. The constitutional validity was not in question. Further, para 20 clarifies that Fringe Benefit Tax is a tax on expenditure. b) Bengal SREI Infrastructure Development Vs. UOI (2017) 397 ITR 757 (Calcutta) The Calcutta High Court had two issues before it. The first was the question of constitutional validity. See para 6 (i) This issue was not pressed as noted in para 11. Hence, this case did not pertain to the constitutional validity. c) Gujarat Chamber of Commerce Industry Vs. UOI (2017) 395 ITR 457 (Gujarat) Here again the constitutional validity of Chapter XII H was not in issue. d) Karnataka Bank Ltd., Vs. Union of India (2003) 185 CTR 18 (Kar) Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployer to the employee. 12. Power of Taxation in the case of Citizens Savings and Loan Association V/s Topeka, 20 Wall 655,662,664 (1874) Justice Miller of United States Supreme Court has observed as follows: The power to tax is, therefore, the strongest, the most pervading of all the powers of government, reaching directly or indirectly to all classes of people ..To lay with one hand the power of the government on the property of the citizen and with the other to bestow it upon the favoured individuals, to aid private enterprises and build up private fortunes, is none the less a robbery because it is done under the form of law and is called taxation. This is not legislation. It is a decree under legislative forms .We have established, we think, beyond cavil that there can be no lawful tax which is not laid for a public purpose. 13. Even though Article 265 specifies that no tax shall be levied or collected except by the Authority of law whereas Article 265 is applicable not only for levy but also for the collection of taxes and the expression assessment within its compass covers both the aspects carried out by the executive functionary. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t corporations, tax levied on income earned from business transactions in India or any other Indian sources depending on bilateral agreement of that country. 17. In this backdrop, it is to be noted that fringe benefit tax is an independent provision viz., it does not fall under Income Tax (Entry No.82) of the Union List. It would fall under Entry No.97 of Union List. Therefore, the contention of the petitioners that Fringe Benefit Tax would not fall under Entry No.82 and there are no permission is not tenable. Consequently, Parliament is empowered to invoke Entry No.97 for the purpose of including any tax which are not part and parcel of List No. II and List No. III. Constitutionality of legislation. The question whether a law be void for its repugnancy to the Constitution, is, at all times, a question of much delicacy, which ought seldom, as ever, to be decided in the affirmative in a doubtful case. It is not on slight implication and vague conjecture that the Legislature is to be pronounced to have transcended its powers, and it s Act to be considered as void. The opposition between the Constitution and the law should be such that the Judge feels ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms or by necessary implication, the general powers conferred upon the Legislature we cannot declare a limitation under the notion of having discovered something in the spirit of the Constitution which is not even mentioned in the instrument. It is difficult upon any general principles to limit the omnipotence of the sovereign legislative power by judicial interposition, except so far as the express words of a written Constitution give that authority for a Court to vacate or repeal a statute on that ground alone. But it is only in express constitutional provisions limiting legislative power and controlling the temporary will of a majority by a permanent and paramount law, settled by the deliberate wisdom of the nation that one can find a safe and solid ground for the authority of Courts of Justice to declare void any legislative enactment. Any assumption of authority beyond this would be to place in the hands of the judiciary powers too great and too indefinite either for its own security or the protection of private rights 3 .- A.K.Gopalan v. State of Madras, AIR 1950 SC 27 at p 42. In determining whether the Legislature, in a particular enactment has passed the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be guided by a creative approach to ascertain what was intended to be done by the Legislature in enacting the legislation and so construe it as to give force and life to the intention of the Legislature. This is not charting any hazardous course but is amply borne out by an observation worth reproducing in extensor in Seaford Court Estates Ltd., v. Asher (1994) 2 KB 481. It reads as under: Whenever a statute comes up for consideration it must be remembered that it is not within human powers to foresee the manifold sets of facts which may arise, and, even if it were, it is not possible to provide for them in terms free from all ambiguity. The English language is not an instrument mathematical precision. Our literature would be much the poorer if it were. This is where the draftsmen of Acts of Parliament have been unfairly criticized. A Judge, believing himself to be fettered by the supposed rule that he must look to the language and nothing else, laments that the draftsmen have not provided for this or that, or have been guilty of some or other ambiguity. It would certainly save the Judges trouble if Acts of Parliament were drafted with divine prescience and perfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matters of common knowledge, matters of common report, the history of the times and may assume every state of facts which can be conceived existing at the time of legislation; (f) that while good faith and knowledge of the existing conditions on the part of a Legislature are to be presumed, if there is nothing on the face of the law or the surrounding circumstances brought to the notice of the Court on which classification may reasonably be regarded as based the resumption of constitutionality cannot be carried to the extent of always holding that there must be some undisclosed and unknown reasons for subjecting certain individuals or corporations to hostile or discriminating legislation. The above principles will have to be constantly borne in mind by the Court when it is called upon to adjudge the constitutionality of any particular law attacked as discriminatory and violative of the equal protection of the laws . 19. Learned counsel for the petitioners contended that the impugned fringe benefit tax legislation is violative of Article 14 of the Constitution as it discriminate among Government and its organization and Private organization. In other wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) The burden of proof is upon the writ petitioners as they have questioned the constitutionality of the provisions; (3) There is a presumption as regard the State s power on extent of its legislative competence; (4) Hardship of few cannot be the basis for determining the validity of any statute. While adjudicating upon the constitutionality of the provisions of the statute all relevant facts whether existing or conceived may also be noticed. In case of reimbursement of rent for school buildings if the Government had made a classification for purpose of extending need-based- aid, it cannot be faulted for making such a reasonable classification between those who were paying rent for the school buildings taken on lease and those who owned those buildings under the veil and wanted to be paid from public funds for their own profit making. The two classes are separate and distinct and the modified rules of Private Educational Institutions Grant-in-aid Rules, 1974 are founded on such rational distinction and intelligible differentia which has a close relation with the object sought to be achieved i.e. to provide aid to the needy private public i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act of the classification has been explained by the Supreme Court in the case of Mohd. Sujat Ali vs Union of India in the following words: This doctrine recognizes that the legislature may classify for the purpose of legislation but requires that the classification must be reasonable. It should ensure that persons or things similarly situated are all similarly treated. The measure of reasonableness of a classification is the degree of its success in treating similarly those similarly situated. But the question is what does the ambiguous and crucial phrase similarly situated means? Where are we to look for the test of similarity of situation which determines the reasonableness of a classification? The inescapable answer is that we must look beyond the classification to the purpose of the law. A reasonable classification is one which includes all persons or things similarly situated with respect of the purpose of the law. Test of Reasonable Classification;- Classification must be founded on intelligible differentia and the differentia must have a rational relation to the object sought to be achieved by the statute in question, and that the classification may be fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group, and the differentia must have a rational relation to the object sought to be achieved by the statute in question. In permissible classification mathematical nicety and perfect equality are not required. Similarity, not identity of treatment, is enough. If there is equality and uniformity within each group, the law will not be condemned as discriminative, bought due to some fortuitous circumstances arising out of a peculiar situation some included in a class get an advantage over others, so long as they are not singled out for special treatment. Taxation law is not an exception to this doctrine. 21. The power of the legislature to classify is of wide range and flexibility so that it can adjust its system of taxation in all proper and reason-able ways. On this issue Supreme Court has examined in the case of KHANDIGE SHAM BHAT OTHERS Vs AGRICULTURAL INCOME-TAX OFFICER, KASARAGOD reported in 1963 AIR 591, it was held that there is no violative of Article 14 in treating pending cases as a class different from decided cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the section as it stands, does not require a reading down. Chapter XII-H has to be read as a whole. There is no justification in the apprehension that the first petitioner or an assessee would be slapped with a Fringe Benefits Tax when such assesse is not liable for the same. In any event, assuming that, such a situation does arise, such individual assesse is entitled to challenge the order of assessment in terms of the Act of 1961. He has relied upon (2015) 374 Income Tax Reports page 112 (Bombay) (Commissioner of Income-Tax (LTU) v. Tata Consultancy Services Ltd.) and has submitted that, an assessee should follow the same procedure as followed by the assessee in such case. 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. Relying upon (2003) 259 Income Tax Reports page 449 (SC) (Commissioner of Income-Tax v. Hindustan Bulk Carriers) learned Advocate appearing for the revenue has submitted that, a statute must be read as a whole. One provision of the Act should be construed with reference to the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stomers. With respect, whether Fringe Benefit Tax is attracted to a given transaction or not has to be adjudged in the factual basis obtaining therein. Chapter XII-H is clear as to its range of operation. Its provisions have to apply to an individual instance. The legality, validity and sufficiency of its application in a given instance have to be adjudged on the basis of the factual situation obtaining therein. In Tata Consultancy Services Ltd. (supra) the assessee was assessed by the Assessing Officer on a particular basis and such assessment had received the consideration of the High Court in reference. Southern Motors (supra) has held that, although equity and taxation are often strangers, the Court should attempt that they do not remain always so. 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. (Emphasis supplied) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... house Property D. Profits and Gains of business or Profession E. Capital Gains F. Income from other sources. (2) 'Perquisite' includes : (i) the value of rent-free accommodation provided to the assessee by his employer; (ii) the value of any concession in the matter of rent respecting any accommodation provided to the assessee by the employer; (iii) the value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases : (a) by a company to an employee being a person who is a director thereof; (b) by a company to an employee being a person who has a substantial interest in the company; (c) by any employer (including a company) to an employee to whom the provisions of paras (a) and (b) of this sub-clause do not apply and whose income under the head 'Salaries' (whether due from, or paid or allowed by, one or more employers), exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds fifty thousand rupees; Provided that nothing contained in this sub-clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the head 'Income from salaries' is not confined to payment of periodical cash payment but is to be understood in its wider sense to include the valuation of any perquisite or profit in lieu of salary which he enjoys by dint of his employment under Section 2(24)(iii) r/w Section 17(2) and (3) of the Act. 9. In the world of employment, emolument is the wholesome expression what one gets from the employer for services rendered in whatever term. It is wider than 'salaries' in the literal sense. Salary in narrower sense denotes only fixed periodical payment in cash, but does not include reimbursement fee, cash, kind or other advantages from the employer. The expression perquisite with reference to the emoluments of an employment has a well-defined connotation and is not a term of art. 'Perquisites' and fringe benefits' as understood generally and as dealt with under taxing statute' 10. If we look at the ordinary dictionary meaning of perquisite , it reflects anything benefit, amenity or profit, attached to office or entitlement under employment in addition to regular fixed payment of salary in its narrower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d perquisite for all purposes which defines perquisites, Such profits of offices and employments as arise from fee and other emoluments and payable either by the Crown or by the State in the course of executing such office or employment. Perquisite means personal advantage and as used in Schedule II of para. 1 of the Finance Act, 1956, was held to include use of a car given to an, employee and return of wage reduction, Viewed in that light, the definition of perquisites being an inclusive definition and not exhaustive, the insertion of Clause (vi) by the Finance Act, 2001, to include 'the value of any other fringe benefits or amenity as may be prescribed' is not deviation from the basic concept of perquisite as part of salary. The insertion of Clause (vi) is by way of abundant caution and not by way of any expansion of the definition. No legal fiction has been created to bring within purview of perquisite something which otherwise does not come within the purview of expression perquisites. Where a particular advantage or benefit received by any person as an employee or as a member of the employee's family/household to be assessed under the IT Act wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o charging of income tax and Section 5 relates to scope of total income and Fringe Benefit is not included under Sub-section (2) of Section 24 of Act, 1961, whereas under Sub-section (43) Fringe Benefit is included. On the other hand, total income is required to be assessed under Section 4 which is a charging section. Perusal of sub-section 37(1) is not contrary to sub-section (2) of Section 24 of Act, 1961. Since XII - H is an independent provision and it is not against Section 5 'total income' and one cannot draw inference that it is an anti-avoidance measure as employer. There is a nexus in introducing FBT and question of irrational concept is not attracted. Section 115-WC (2) do not violate Article 14 of constitution in terms of the above discussion on the issue. Further question of double taxation is not attracted in view of independent provisions for taxation. The petitioners have not pointed out how Section 115-WB WC would be self contradictory and unworkable and it is only presumption, so also in what manner Section 200(1) of the Companies Act, 1956 offends. Perusal of various issues like extending certain benefits to the employees by the employer it is e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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