Fringe Benefit Tax requires an employer-employee nexus; without it, business outgoings cannot be taxed as employee benefits.

Fringe Benefit Tax could not be levied where the impugned expenditure on conveyance, tours, welfare, entertainment and club-related items was not shown to arise from an employer-employee relationship. The Tribunal followed its earlier coordinate Bench ruling for prior years, which had held that Chapter XII-H applies only when an employer incurs expenditure and passes a personal benefit to employees. As no material change in facts was shown for the year under review, and the Revenue did not dislodge the earlier view, the FBT addition was held unsustainable and the assessee succeeded on this issue.

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Issues: Whether Fringe Benefit Tax could be levied where the assessee claimed that the persons receiving the benefit were consultants and not employees, and the expenditure was asserted to be ordinary business expenditure outside the scope of Chapter XII-H of the Income-tax Act, 1961.

Analysis: The dispute turned on whether the impugned expenses, including conveyance, tour, welfare, entertainment and club-related outgoings, were incurred in a setting amounting to an employer-employee or master-servant relationship. The Tribunal noted that identical facts for earlier assessment years had already been considered in the assessee's favour by the coordinate Bench, which held that Fringe Benefit Tax applies only where expenditure is incurred by an employer and includes a personal benefit passed on to employees. On the facts of the present year also, no material change was shown and the Revenue did not dislodge the earlier view.

Conclusion: Fringe Benefit Tax was wrongly invoked on these facts and the addition could not be sustained; the assessee succeeded on this issue.

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