Fringe benefit tax upheld as a valid fiscal classification under Parliament's residuary power and Article 14 scrutiny.

Chapter XII-H of the Income-tax Act, 1961 was upheld as a valid fiscal levy because Parliament had legislative competence under its residuary power, and the classification of fringe benefits for tax purposes satisfied the test of reasonable classification. The court treated Sections 115WA, 115WB and 115WC as an independent charging scheme using a legal fiction to identify deemed fringe benefits, and held that the absence of perfect uniformity, alleged hardship, double taxation concerns, and asserted inconsistency with other income-tax provisions did not make the levy arbitrary or discriminatory. The constitutional challenge under Articles 14 and 246(1) read with Entry 82 of List I therefore failed.

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Issues: Whether Chapter XII-H of the Income-tax Act, 1961 levying fringe benefit tax was unconstitutional for want of legislative competence and for violating Article 14 of the Constitution of India.

Analysis: Chapter XII-H created a separate levy of fringe benefit tax as an additional income tax on fringe benefits provided or deemed to have been provided by an employer to employees. The challenge based on Entry 82 of List I failed because the levy was upheld as traceable to Parliament's residuary power under Entry 97 of List I. The Court applied the presumption of constitutionality and held that fiscal classification is permissible where there is intelligible differentia and rational nexus with the object of the legislation. The scheme of Sections 115WA, 115WB and 115WC was treated as an independent code with a legal fiction for identifying deemed fringe benefits, and the absence of perfect uniformity or the possibility of hardship did not establish arbitrariness or discrimination. The objections based on alleged double taxation, inconsistency with Sections 5 and 37, and alleged unworkability were rejected.

Conclusion: Chapter XII-H was held to be valid and within legislative competence, and the challenge under Articles 14 and 246(1) read with Entry 82 of List I failed.

Ratio Decidendi: A fiscal levy will be sustained if it is supported by legislative competence and satisfies the test of reasonable classification, and a tax provision creating a legal fiction and a separate charging mechanism will not be struck down merely because it is framed as a tax on employer-incurred fringe benefits rather than on traditional income.

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