The Mumbai bench of the Income Tax Tribunal, has recently ruled that the employer is not liable to pay Fringe Benefit Tax if the employer has no tax liability under the provisions of the Income Tax Act, 1961.
The Tribunal was considering an appeal filed by the assessee challenging the assessment order in which the Department imposed Fringe Benefit Tax on them. The highlights of the judgment are below.
The assessee-company is engaged in farming and agriculture. The assessee, for the AYs 2006-07 and 2007-08 has furnished return of Fringe Benefits at Nil. However, the assessing Officer initiated re-assessment proceedings against the assessee on ground that the assessee had paid wages and salary to its employees and certain other expenditure incurred by the assessee on business promotions, conveyance, staff welfare, telephone and travelling expenses, which constitute fringe benefits provided to the employees as per section 115WA(2) of the Income Tax Act and the same is exigible to fringe benefit tax. According to him, though the assessee had only agricultural income which was exempt from income-tax, even then the assessee is liable to FBT for fringe benefits provided by the assessee to its employees for the reason that fringe benefits shall be deemed to have been provided by the employer to his employees in the course of his business irrespective of the fact that whether such activity was carried on with the object of deriving income and that FBT shall be payable by the employer even if no income tax is payable by him/it on his total income computed in accordance with the provisions of the Act. Accordingly, the officer completed assessment against the assessee by imposing FBT.
Though the assessment order was challenged by the assessee through appeal before the Commissioner of Income Tax (Appeals), the same was dismissed. Hence, the assessee preferred a second appeal before the ITAT challenging these orders. The question raised before the Appellate Tribunal was that whether the assessee employer is liable to be charged with FBT, notwithstanding the fact that the assessee’s income derived only from agriculture was exempt from income tax under section 10(1) of the Income Tax Act.
The Tribunal noticed the decision of the Calcutta High Court in Apeejay Tea Ltd, in which the Court has reversed the order of the ITAT, Kolkata by holding that an employer is not liable to pay fringe benefit tax when no income-tax is payable by an employer on his total income computed in accordance with the provisions of the Income-tax Act.
In the light of the above decision, the Tribunal arrived at a conclusion that the instant case squarely covered by this decision. Accordingly, the matter was concluded by accepting the contentions of the assessee.
Read the full text of the order below.
