Withdrawal of the exemption under Rule 3 does not mean that the perquisite will be otherwise taxable.

Clause (iii) of sub-rule (7) of Rule 3 exempted the value of free food and beverages supplied by the employer in office during office hours as well as non-transferable paid vouchers usable only at eating joints. This clause has been omitted in Rule 3 with effect from April 1, 2005, that is, assessment year 2005-06. The amount expended by way of non-transferable paid vouchers usable only at eating joints or outlets along with any expenditure for payment for foods or beverage provided by the employer to his employee in office or factory is excepted from liability under Sec. 115WB(2)(B). It may probably mean that in view of the amendment to Sec. 17(2)(vi) requiring fringe benefits to be taxed, where it is not taxed under Sec. 115WB, such amount will now be taxable in the hands of employees. Is such an inference correct?Sec. 17(2)(vi) inserted by the self-same Finance Act, 2005, which had brought in the Fringe Benefits Tax (FBT), covers all fringe benefits, that are listed under Chapter XII-H, so that such untaxed benefits in the hands of the employer become liable in the hands of the employee as a perquisite. In the case of benefit by way of free supply of food and beverages in the office or during working hours or by non-transferable paid vouchers, it was exempt under Rule 3. The mere fact that it is also exempt by way of exception under Sec. 115WB(2)(B) will not make it liable in the hands of the employee. If it was intended to be made liable, Rule 3 should provide a measure of valuation of such perquisite. Withdrawal of the exemption under Rule 3 does not mean that it will be otherwise taxable. Paragraph 53 of the Board Circular No. 8 of 2005 dated August 29, 2005 (2005) 277 ITR (St.) 20 explaining the scope of fringe benefits tax has dealt with this issue, wherein non-liability of such perquisite for FBT has been indicated. In such cases, where there is liability in the hands of the employee, it is invariably mentioned in the answers given in the circular. It is not so mentioned. It is one such instance where the value of such benefit of free food and beverages during working hours is not treated as a personal taxable perquisite and is also therefore not considered as either disallowable under Sec. 37 or otherwise liable for fringe benefits tax in the hands of employer nor is it taxable in the hands of the employee. There is, therefore, no need for any apprehension of liability for the employee on such amounts.

S. RAJARATNAM