2013 (10) TMI 607 - AT - Income Tax

Employer's Fringe Benefit Tax decision upheld by Tribunal, clarifying FBT calculation and employee benefits.

The Tribunal upheld the Assessing Officer's decision regarding Fringe Benefit Tax (FBT) computation, emphasizing that FBT is payable by the employer on ... Fringe Benefit Tax - Fringe Benefits - non-obstante clause - Rule 8 apportionment between agricultural and non agricultural income - chargeability of FBT on benefits provided (and not on assessable business income)Rule 8 apportionment between agricultural and non agricultural income - Fringe Benefit Tax - Applicability of Rule 8 of the Income Tax Rules, 1962 for computing taxable value of Fringe Benefits for the purpose of Fringe Benefit Tax. - HELD THAT: - The Assessing Officer held that Rule 8, which provides a methodology for apportionment of income between agricultural and non agricultural activities, does not prescribe a methodology for bifurcation of expenses between activities and therefore does not apply to computation of taxable value of Fringe Benefits (Para 5). The Tribunal agreed that Fringe Benefit Tax is a charge on the fringe benefits provided by an employer and not on the assessable income of the employer; accordingly the contention that only 40% of the fringe benefit value should be taxed by applying Rule 8 was rejected. The reasoning emphasises that Rule 8 addresses apportionment of income and does not furnish a basis for bifurcating the value of fringe benefits or related expenses for the purpose of charging FBT; hence Rule 8 is not applicable to determine taxable value of fringe benefits under the FBT provisions (Paras 3, 7). [Paras 3, 7]Rule 8 does not apply for computation of taxable value of Fringe Benefits for Fringe Benefit Tax; the claim that only 40% should be charged was rejected.Non-obstante clause - chargeability of FBT on benefits provided (and not on assessable business income) - Fringe Benefit Tax - Whether Fringe Benefit Tax is payable notwithstanding that a portion of the assessee's income is agricultural and not taxable under the Income Tax Act. - HELD THAT: - The Tribunal examined Sub section (2) of Section 115WA, which contains a non obstante clause, and held that an employer is liable to pay Fringe Benefit Tax in relation to fringe benefits provided to employees even if no income tax is payable by the employer on his total income computed under the Act. On that basis the Tribunal accepted the Revenue's submission that FBT is chargeable on the provision of fringe benefits themselves and is not negated by the agricultural character of a portion of the assessee's income; therefore the assessee's argument that 60% related to agricultural income exempts that portion from FBT was unsustainable (Para 7). [Paras 7]Fringe Benefit Tax is payable on fringe benefits provided by the employer notwithstanding that part of the employer's income is agricultural and not subject to income tax.Final Conclusion: The Tribunal dismissed the appeal, upholding the Assessing Officer and CIT(A) that Rule 8 does not apply to computation of taxable value of fringe benefits and that Fringe Benefit Tax is chargeable on the benefits provided (by operation of the non obstante clause), consequently rejecting the assessee's grounds of appeal. Issues:1. Interpretation of Rule 8 of Income Tax Rules, 1962 in relation to Fringe Benefit Tax computation.2. Rejection of revised computation of Taxable Fringe Benefit by excluding expenditure related to agricultural activities.3. Computation of value of Fringe Benefit under Section 115WE(3) of Income Tax Act, 1961.Analysis:1. The appeal was filed against the order of Ld. CIT(A) for assessment year 2006-07 regarding Fringe Benefit Tax (FBT) computation. The dispute arose from the application of Rule 8 of Income Tax Rules, 1962. The appellant contended that only 40% of the benefits provided by the employer should be considered taxable under Rule 8, contrary to the Assessing Officer's decision to tax 100% of such benefits. The Assessing Officer argued that Rule 8 does not apply to the taxable value of Fringe Benefit, emphasizing that FBT is charged on expenses incurred to provide privileges to employees, not on the income of the assessee. The Tribunal upheld the Assessing Officer's decision, stating that FBT is payable by the employer on the benefits provided to employees, regardless of the income tax liability of the employer.2. The second issue involved the rejection of the revised computation of Taxable Fringe Benefit by the Assessing Officer, who did not accept the exclusion of 60% of the expenditure as related to agricultural activities. The appellant argued that since 60% of the income represented agricultural income, a proportionate amount of expenditure should also be considered for agricultural purposes. However, the Assessing Officer maintained that FBT is charged on expenses related to employee privileges, not on income allocation between agricultural and non-agricultural activities. The Tribunal supported the Assessing Officer's decision, emphasizing that FBT is based on benefits provided to employees, not on the nature of income.3. The final issue revolved around the computation of the value of Fringe Benefit under Section 115WE(3) of the Income Tax Act, 1961. The appellant challenged the calculation of the Fringe Benefit value by the Assessing Officer and Ld. CIT(A), arguing for the application of Rule 8 to determine the taxable value. However, the Tribunal reiterated that FBT is specifically charged on privileges provided by the employer to employees, as outlined in Section 115WA and 115WB of the Income Tax Act. The Tribunal upheld the decision of the Ld. CIT(A) and dismissed the appeal, emphasizing that FBT is distinct from income tax and is based on benefits provided to employees, irrespective of the employer's income tax liability.In conclusion, the Tribunal's judgment clarified that the computation of Fringe Benefit Tax is based on benefits provided by the employer to employees, distinct from income tax considerations. The application of Rule 8 of Income Tax Rules, 1962 was deemed irrelevant in determining the taxable value of Fringe Benefits, as FBT is specifically charged on privileges provided to employees, regardless of the employer's income tax liability.