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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 ..... he Finance Minister in his speech rendered as under: 160. I have looked into the present system of taxing perquisites and I have found that many perquisites are disguised as fringe benefits, and escape tax. Neither the employer nor the employee pays any tax on these benefits which are certainly of considerable material value. At present, where the benefits are fully attributable to the employee they are taxed in the hands of the employee; that position will continue. In addition, I now propose that where the benefits are usually enjoyed collectively by the employees and cannot be attributed to individual employees, they shall be taxed in the hands of the employer. However, transport services for workers and staff and canteen services in an office or factory will be outside the tax net. EXPLANATORY MEMORANDUM EXPLAINING THE PROVISIONS OF THE FINANCE BILL. "the rationale for levying a fringe benefit tax on the employer lies in the inherent difficulty in isolating the 'personal element' where there is collective enjoyment of such benefits and attributing the same directly to the employee. This is so especially where the expenditure incurred by the employer is ostensibly for purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not amount to taxation of income at all, let alone constituting an additional income tax. C. Chapter XII- H cannot be an anti-avoidance measure as the employer is not guilty of any overt act in order to constitute tax avoidance and hence, chapter XII - H requires to be struck down. D. In as much as there cannot be any additional tax when there is no income tax, the tax on fringe benefits will not be in the nature of income tax and is thus beyond the legislative competence of Parliament. E. The entire concept of taxing fringe benefits is irrational and has no nexus to be objective sought to be achieved and hence, the chapter requires to be struck down. F. In as much as there is patent discrimination between Government and non-Government employees and also preferential treatment given as per the provisions of Section 115-WC (2), the chapter offends the provisions of Article 14 of the Constitution of India and requires to be struck down. G. In as much as the provisions of the Chapter would clearly lead to double taxation, the provisions therein offend Article 14 of the Constitution of India. H. The provisions of Section 115-WB and WC carve out various deemed fringe bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to double taxation which is not permissible under the Act. O. Without prejudice and in the alternative read down the provisions of Section 115 WB(2) in general and 115 WB(2)(D) in particular that only where any direct benefit/amenity arises to an employee by reason of the expenditure specified therein the levy of Fringe Benefit Tax is sustainable and not otherwise. P. In the alternative and without prejudice quash by an appropriate writ in the nature of certiorari or otherwise the statutory instructions of the Central Board of Direct Taxes contained in circular No.8 of 2005 dated: 29th August 2005, Annexure-A to the extent it provides for levy of FBT even on such expenditure which does not confer any benefit/amenity on the employee. Q. Issue a writ, order or direction more particularly in the nature of a Writ of Declaration to declare Section 115 WA to WL of the Income tax Act, 1961 as introduced by the Finance Act, 2005, with effect from 01.04.2006 vide Annexure-A as ultra vires Article 14, 19 (1) (g) and 265 of the Constitution of India in so far as the Petitioners are concerned. R. Issue a writ, order or direction more particularly in the nature of a Writ of Declaration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to scope of total income for which receipt is mandatory for income. Section 115 WA under chapter XII - H relates to additional income Tax. In this backdrop, learned counsel for the petitioners submitted that Article 265 of the Constitution provides for not to impose taxes save by authority of Law and Article 246 List I and Entry No.82 deals with Taxes on income other than Agriculture income. 7. Learned counsel for the petitioners further submitted that on perusal of the compilations of various provisions, it is evident that fringe benefits is not included in the definition of income under 'Sub-section 24 of Section 2 whereas Sub-section 43 relates to taxes wherein fringe benefits has been included. Therefore, total income is required to be taken under Section 4 which is the charging section. 8. Learned counsel for the respondent vehemently contended that where a validity of an Act is under challenge, scope of interference by the Court is limited to the extent of, "Whether legislative competency is available or not, contrary to Constitutional provision and arbitrariness?" 9. Learned counsel for both the petitioners and respondents have submitted their written submissions/proposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein many perquisites are disguised as reimbursements or other miscellaneous expenses so as to enable the employees to escape/reduce their tax liability; and (c) of the difficulty in the valuation of the benefits. 2.2 In India, prior to assessment year 1998-99, some perquisites/fringe benefits were included in salary in terms of section 17 and accordingly taxed under section 15 of the Income-tax Act in the hands of the employee and a large number of fringe benefits were taxed by the employer-based disallowance method where the quantum of the disallowance was estimated on a presumptive basis. In practice, taxation of fringe benefits by the employer-based disallowance method resulted in large-scale litigation on account of ambiguity in defining the tax base. Therefore, the taxation of fringe benefits by the employer-based disallowance method was withdrawn by the 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 reso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9/08/2005 has dealt with the concept of fringe benefit tax, interpretation of provisions of Section 115 WB and also the object of the Parliament in introducing the concept of fringe benefits. This Hon'ble Court attention is invited to paras-12, 13, 14 and 18 of the judgment. b) Bengal SREI Infrastructure Development Vs. UOI (2017) 397 ITR 757 (Calcutta) The Calcutta High Court while dealing with the constitutional validity of section 115 WB of the Act, has upheld the same. (Para- 10) c) Gujarat Chamber of Commerce & Industry Vs UOI (2017) 395 ITR 457 (Gujarat) The Gujarat High Court while dealing with the constitutional validity of Circular No.8/2005 dated 29/08/2005 by upholding the same has dealt with concept of fringe benefit tax referring 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture tax. Entry 97 is applicable to any stand-alone statue. And the definition of income does not include expenditure. 2. Secondly, the percentages fixed are arbitrary and not based on any intelligible criteria. Without prejudice, the provisions will have to read down to permit the assessee to show that the percentages fixed in its case are excessive and faulty. 3. Thirdly, the chapter is admittedly meant to plug tax evasion but does not come within the parameters of tax evasion as there is no overt act on the part of the assessee. 4. The Petitioner has relied on various case laws and these have been provided to 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 Infras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employee during the previous year at the rate of 30 percent of the value of such benefits. Whether an employee is receiving a fringe benefit from the employer has to be determined and decided for Fringe Benefits to be attracted. 17 issues have been specified under sub-section (2) of Section 115WB which attracts the legal fiction. Chapter XII-H of the Income Tax is premised upon the legal fiction of fringe benefits being given by the employer 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion list):- Income Tax Act, 1961 imposes tax on the income of the individuals or Hindu undivided families or firms or cooperative societies (other than companies) and trusts (identified as bodies of individuals associations of persons) or every artificial juridical person. In case of non resident 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 affirma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at liberty to declare an Act void because in their opinion it is opposed to a spirit supposed to pervade the Constitution but not expressed in words. Where the fundamental law has not limited, either 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernible, the Court cannot hold its hand and blame the draftsman and chart an easy course of striking down the statute. In such a situation the Court 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 guilt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to sustain the presumption of constitutionality, the Court may take into consideration 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 Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 institutions to sustain them for impartin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 founded on different bases, such as, geographical, or according to objects or the like. There is no question of any discrim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 22. In view of the inherent complexity of fiscal adjustment of diverse elements, a wider discretion is vested in the revenue for the purpose of taxation and ordinarily different int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its 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 other provisions of the said Act. A statute or any enacting provision thereto must be so construed so as to make it effective and operative. He has also relied upon (2010) 326 Income Tax Reports page 642 (SC) (Ajmera Housing Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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) 24. In ADITYA CEMENT STAFF CLUB Vs THE UNION OF INDIA & ORS reported in 2003 SCC Online Raj 503, Rajasthan High Court has held as under: Scheme under the patent Act to tax "Income from salaries" 7. In order to appreciate the contentions, and the effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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-clause shall apply to the value of any benefit provided by a company free of cost or at a concessional rate to its employees by way of allotment of shares, debentures of warrants directly or indirectly under any Employees' Stock Option Plan or Scheme of the company offered to such employees in accordance with the guidelines issued in this behalf by the Central Government. Explanation : For the removal of doubts, it is hereby declared that the use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sense. In Webster English International Dictionary its meaning is ; "A gain or profit incidentally made from employment in addition to regular salary or wages especially one of a kind expected or promised". The Oxford Dictionary gives perquisite its meaning as : "A casual emolument, fee or profit attached to an office or position in addition to salary or wages." The Random House Dictionary of English Language says 'perquisite' to be : "An incidental employment fee or profit over and above fixed income, salary or w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty 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 will have to be determined firstly, on the basis of general principle and then it is to be valued and to be determined in accordance with rules, if any, prescribing for its valuation else it is to be valued as per current market value of the benefit in the hands of the assessee from his' employer. We see no violation of constitutional limits of legislative powers in leaving it to the rulemaking authority to provide for the machinery provision for valuing the perquisites and fringe benefits which may form part of salary as 'perquisites' as per the term defined under Section 17(i)which is to be introduced. Clause (vi) of Section 17(2) does not occ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acted. 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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