In a recent ruling, the division bench of the Gujarat High Court upheld the levy of Fringe Benefit Tax (FBT) on sales promotion expenditure, cost of free samples given to Doctors, gift to business associates etc.
The bench comprising of Justice M.R. Shah and Justice B.N. Karia was hearing a bunch of petitions wherein the petitioner – Chamber of Commerce and others challenged the levy of FBT in respect of sales promotion expenditure, conveyance, tour and travel expenditure, miscellaneous repairs and maintenance, other allowances, telephone expenses, cost of free samples given to Doctors, gift to business associates, medical expenses and club membership fees etc.
Fringe Benefit Tax was introduced in the year 2005 by inserting Chapter XIIH to the Income Tax Act. Subsequent to the insertion of the new chapter, the CBDT issued an circular clarifying that the FBT is leviable on the expenses incurred by the employer in respect of entertainment; provision of hospitality; conference excluding the fee from participation by the employees in any conference; sales promotion including publicity but excluding specified expenditure on advertisement; conveyance, tour and travel (including foreign travel); use of hotel, boarding and lodging facilities; repair, running (including fuel) and maintenance of motor cars and the amount of depreciation thereon; maintenance of any accommodation in the nature of guest house other than accommodation used for trading purposes; festival celebrations; use of any other club facilities, gifts and scholarships etc. The petitioners also challenged the above circular stating that there is no nexus to levy the FBT on the expenses incurred by the concerned employer with respect to the above expenditures. The petitioners submitted that the circular is inconsistent with the scheme of FBT and the legislative intention.
The bench noted that under section 115WB(1) of the Income Tax Act the expenses incurred by the employer, in consideration for employment, for the benefits, services etc. as mentioned under Clause (a) to (d) of his employees are liable to be subjected to the FBT.
The bench also found that the words “consideration for employment”, “employer”, “employee”, “employees” have been repeatedly mentioned not only in the main section (Section 115WA) but also in every clause of section 115WB(1) of the Income Tax Act.
“On perusal of entire section 115WB(2) it reveals that wherever the Parliament has intention to include the expenditure from which any benefit is derived out to the employees, the word “employees” has been specifically used. Whereas, the expenditure as mentioned under other heads i.e. mentioned in clauses (A) to (D) of subsection (2) of Section 115WB, the word “employee” has been intentionally omitted. Rather the word “any person” has been used. Even certain expenses which are generally incurred by the employer in the ordinary course of business and cannot be in any manner said to be incurred by the employer for the welfare of benefit of the employee, in the nature of those expenses being such, even without any benefit to the employees have been subjected to FBT through expressed provision of statutes and by legal fiction during the same as deemed fringe benefit.”
It was also noted that the language of both sections 115WB and Section 115WA are clear and unambiguous.
Upholding the legality of the impugned circular, the bench held that “the Board has rightly clarified that with respect to the expenses incurred by the assessee / employer for the services / activities referred to in clause (A) to (P) of subsection (2) of Section 115WB, there shall be FBT, is absolutely just and proper and in consonance with the provisions of the Statute more particularly sections 115WA, 115WB and 115WC. The clarifications made by the CBDT in the impugned circular cannot be said to be contrary to the provisions of the Statute more particularly Sections 115W, 115WA, 115WB(1) and 115WB(2).”
Read the full text of the Judgment below.
