TaxTMI 
TaxTMI 
2012 (2) TMI 30
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.... borrowings to the extent of Rs.2,54,88,085/-. Therefore, the assessee was asked to explain why interest on deposit of Rs.5 crore should not be considered for FBT. In response, it was mainly stated that the sum of Rs.5 crore was paid out of the share capital raised during the financial year 2001-02. The security deposit was paid for taking the abovesaid flat on lease basis which was provided to Capt. Jimmy Sarbh, Chairman & Managing Director of the company. Therefore, no benefit was passed on to Capt. Jimmy Sarbh. The AO, after considering the submissions, did not agree and observed that according to section 115WB(1), 'fringe benefit' means any privilege, service, facility or amenity, directly or indirectly, provided by an employer, whether by way of reimbursement or otherwise, to the employees (including former employee or employees)'. He further observed that the assessee paid the deposit for the premises which otherwise would have been paid by the employee. Since the employer made the payment of deposit and the employee got the benefit, therefore, equivalent interest on such deposit was to be treated as fringe benefit because, in the absence of this deposit, there was no necessi....
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....rd's circulars are binding on the department and in this regard referred to the decision of Hon'ble Supreme Court in the case of Uco Bank vs. CIT (237 ITR 889). 5. The ld. counsel then referred to sub-section (3) of sec. 115WB which provides that a perquisite, in respect of which tax is payable by the employee, is not includible as fringe benefit. Then he referred to the decision of Hon'ble Delhi High Court in the case of CIT vs. Vijay Singh (323 ITR 446) wherein identical issue arose. In that case also, the assessee had hired accommodation for its Mg. Director for Rs.50,000/- p.m. and also had given interest free security free deposit of Rs.3.10 crore plus additional guarantee of Rs.5.5 crore. Thereafter, the Mg. Director purchased the said accommodation for Rs.3.12 crore and a sum of Rs.3.10 crore was received as security deposit from employer. Notional interest @ 10% of this security deposit was treated as perquisite and the Hon'ble Court held that the same does not constitute perquisite. Therefore, if the same does not partake the nature of perquisite, the same cannot be treated even as fringe benefit. He also relied on the decision of Bombay Bench of Tribunal in the case of G....
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.... the nature of intellectual property rights or value additions, by whatever name called.] (2) The fringe benefits shall be deemed to have been provided by the employer to his employees, if the employer has, in the course of his business or profession (including any activity whether or not such activity is carried on with the object of deriving income, profits or gains) incurred any expense on, or made any payment for, the following purposes, namely:- (A) entertainment; (B) provision of hospitality of every kind by the employer to any person, whether by way of provision of food or beverages or in any other manner whatsoever and whether or not such provision is made by reason of any express or implied contract or custom or usage of trade but does not include- (i)any expenditure on, or payment for, food or beverages provided by the employer to his employees in office or factory; (ii)any expenditure on or payment through paid vouchers which are not transferable and usable only at eating joints or outlets; &nbs....
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....p; (E) employees' welfare. 26[Explanation.-For the purposes of this clause, any expenditure incurred or payment made to- (i)fulfil any statutory obligation; or (ii)mitigate occupational hazards; or (iii)provide first aid facilities in the hospital or dispensary run by the employer; or (iv)provide creche facility for the children of the employee; or (v)sponsor a sportsman, being an employee; or (vi)organise sports events for employees, shall not be considered as expenditure for employees' welfare;] (F) conveyance 27[***]; (G) use of hotel, boarding and lodging facilities; (H) repair, running (including fuel), maintenance of motor cars and the amount of depreciation thereon; (I) repair, running (including fuel) and maintenance of aircrafts and the amount of depreciation thereon; (J) use of telephone (....
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....; (ii)"option" means a right but not an obligation granted to an employee to apply for the specified security or sweat equity shares at a predetermined price;] (c) twenty per cent of the expenses referred to in clauses 33[(A) to (L)] of sub-section (2) of section 115WB; (d) fifty per cent of the expenses referred to in clauses 34[(M) to (P)] of sub-section (2) of section 115WB; 35[(e) five per cent of the expenses referred to in clause (Q) of sub-section (2) of section 115WB.] (2) Notwithstanding anything contained in sub-section (1),- (a) in the case of an employer engaged in the business of hotel, the value of fringe benefits for the purposes referred to in clause (B) of sub-section (2) of section 115WB shall be "five per cent" instead of "twenty per cent" referred to in clause (c) of sub-section (1); 35[(aa) in the case of an employer engaged in the business of carriage of passengers or goods by aircraft, the value of fringe benefits for the purposes referred to in clause (B) of sub-section (2) of section 115WB shall ....
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....; (f) in the case of an employer engaged in the business of carriage of passengers or goods by aircraft, the value of fringe benefits for the purposes referred to in clause (I) of sub-section (2) of section 115WB shall be taken as Nil. Reading of the above provisions would clearly show that Government wanted to levy a separate tax in the form of Fringe Benefit Tax on certain benefits given by the companies and other organizations to their employees which were not being taxed in the hands of such employees. This has been explained in the Board's Circular No. 8 under the heading "Objective" which reads as under : "2. Objective 2.1 The taxation of perquisites or fringe benefits is justified both on grounds of equity and economic efficiency. When fringe benefits are under-taxed, it violates both horizontal and vertical equity. A taxpayer receiving his entire income in cash bears a higher tax burden in comparison to another taxpayer who receives his income partly in cash and partly in kind, thereby violating horizontal equity. Further, fringe benefits are generally provided to senior executives in the organization. Therefore, ....
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....h fringe benefits. Therefore, it is clear that all the amenities, privileges, etc., cannot be brought to taxation under this Chapter and it is only those privileges or amenities which have been specifically defined as fringe benefits which can be brought to tax. It has to be noted that sec. 115WC, which deals with the valuation of such fringe benefits, starts with : "115WC (1) For the purposes of this Chapter, the value of fringe benefits shall be the aggregate of the following, namely :-" Thus, it is clear that valuation rules have been provided for all the benefits under this Chapter. At the same time, it would be noticed that no valuation rule has been provided in respect of fringe benefits covered by clause (a) of sub-section (1) of sec. 115WB. It is a cardinal principle of interpretation that an Act has to be interpreted in such a way so that none of the provisions becomes redundant. Therefore, if the argument of the ld. counsel of the assessee is accepted that since no valuation rules have been prescribed in respect of benefits mentioned under clause (a) of sub-section (1) of sec. 115WB, then the same cannot be taxed at all. This position can further be u....
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.... (a) provided by him to his employees; and (b) deemed to have been provided by him to his employees. The scope of fringe benefits provided or deemed to have been provided is defined in section 115WB. Sub-section (1) of the said section defines the scope of fringe benefits provided by the employer to his employees. Similarly, sub-section (2) of the said section defines the scope of fringe benefits deemed to have been provided by the employer to his employees. Therefore, sub-section (2) expands the scope of sub-section (1) through a deeming provision. The provision relating to the computation of the value of the fringe benefits is contained in section 115WC. It is a settled principle of law that where the computation provision fails, the charging section cannot be effectuated. Therefore, if there is no provision for computing the value of any particular fringe benefit, such fringe benefit, even if it may fall within clause (a) of sub-section (1) of section 115WB, is not liable to FBT. 8. Whether the value of any benefit provided by the employer to its employees by way of allotment of shares, debentu....