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Tuesday, Sep 27, 2005

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FBT: Bench stays proceedings

Mohamed Imranullah S.

Notice issued to Union Finance Ministry and CBDT

MADURAI: The Madurai Bench of the Madras High Court has stayed all further proceedings pursuant to the introduction of fringe benefit tax (FBT).

Admitting a writ petition moved by the Tamil Nadu Chamber of Commerce and Industry, here last week, Justice K. Ravirajapandian also ordered notice to the Union Finance Ministry and the Central Board of Direct Taxes.

In his 40-page affidavit filed in support of the petition, the president of the chamber, S. Rethinavelu, said the Union Government, this year, amended the Income Tax Act, 1961 and inserted a new chapter XII-H, containing Sections 115WA to 115WL. The sections relate to FBT.

While introducing the bill in Parliament on February 28, the Finance Minister said that he found that many perquisites were disguised as fringe benefits and escaped tax and hence, where the benefits were usually enjoyed collectively by employees and could not be attributed to individual employees, should be taxed at the hands of the employer. The Minister named the new tax as fringe benefit tax, the president said.

But contrary to the statement of the Minister, Chapter XII-H stated that a payment made even to a person, other than an employee, would also fall within the ambit of the new tax law, Mr. Rethinavelu claimed.

As per the amendment, 20 per cent of expenditure on motor car expenses, 50 per cent on gifts, 20 per cent on guest house, 20 per cent on sales promotion, 20 per cent on telephone expenses, 20 per cent on hotel, boarding and lodging would be deemed FBT, even if the benefits were enjoyed only by customers and not by any of the employees, he added.

Under the new provision, even perquisites like medical benefits and expenses on education of children, which were exempted for individual employees under the IT Act, would be taxed in the hands of the employer. "This new chapter discourages employers to spend for the purpose of employees' welfare." He said that FBT paid would not be allowed as a deduction to the employer from his income.

He further said that the FBT levied under the new chapter was not a tax on income but a tax on expenditure and hence could not fall within the parameters of Entry 81 of List I of the Constitution of India, which empowered the Union Government to levy tax on income other than agricultural income.

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