Fringe benefits tax applies to liaison offices in India even when the foreign employer has no taxable income there.

Fringe benefits tax is a self-contained levy under Chapter XII-H of the Income-tax Act and is charged in addition to income-tax. Liability does not depend on the employer having taxable income in India; section 115WB deems specified employee-related expenditure and welfare benefits to be fringe benefits. On that basis, fringe benefits provided to employees working in liaison offices in India can attract FBT even where the foreign employer has no income accruing or arising in India. The ruling confirms that the levy attaches to the provision or deemed provision of fringe benefits, not to the existence of taxable income.

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Issues: Whether fringe benefits tax was chargeable on a foreign company having liaison offices in India and employees working in those offices, despite no income accruing or arising in India.

Analysis: Chapter XII-H of the Income-tax Act, 1961 creates a self-contained scheme for fringe benefits tax. Section 115WA charges FBT in addition to income-tax and sub-section (2) makes it clear that liability to FBT does not depend on the employer being liable to income-tax on total income. Section 115WB deems specified expenditure and benefits to be fringe benefits, including expenditure on employee welfare and related items. The statutory scheme, read with the CBDT circular clarifying that FBT applies to liaison offices of foreign companies in India if they have employees based in India, shows that absence of taxable income in India does not exclude FBT liability where fringe benefits are provided to employees.

Conclusion: The foreign applicant was liable to pay fringe benefits tax in respect of fringe benefits provided to employees working in its liaison offices in India.

Final Conclusion: Liability to fringe benefits tax was upheld on the basis that the levy attaches to specified employee-related expenditure and benefits, not to the existence of taxable income in India.

Ratio Decidendi: Fringe benefits tax is attracted to an employer who provides or is deemed to provide fringe benefits to employees, even if the employer has no taxable income in India.

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