Fringe benefit tax
A matter regarding the interpretation and application of the provisions of section 115WB of the Income Tax Act, 1961, based on the imposition of tax on fringe benefits, recently arose in an appeal before the Supreme Court of India. The apex court passed a ruling dated 6 May that modified the advanced ruling on fringe benefit tax (FBT) in the case of R&B Falcon (A) Pvt Ltd v Commissioner of Income Tax. In this case, the appellant company was incorporated under Australian law and was engaged in the business of providing mobile offshore drilling rigs (MODR) along with a crew on a day-rate charter hire basis to drill offshore wells. In line with global practices typical to the industry, the employees, who were residents of various countries including Australia, the US, the UK and France, worked on the MODR on a “commuter basis”. They would come to India, stay on the rig for 28 days and then go back to their country of residence for a further period of 28 days. The crew and the employees were transported from their home country to the MODR in two laps. However, they received no conveyance or transport allowance.
The appellant company filed an application under section 245Q(1) of the Income Tax Act before the Authority for Advance Ruling (AAR), raising the question of whether transportation costs incurred by the petitioner company in providing transportation facilities for the movement of offshore employees from their home country to their workplace and back was liable for FBT.
The AAR held that the company was liable to pay FBT for providing such transportation on the grounds that “residence” meant residence in India. Since the employees concerned were residents of countries outside India, section 115 WB(3) of the Income Tax Act was not applicable.
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While allowing the appeal filed by the company, the Supreme Court reversed the order passed by the AAR and held that the company was not liable to pay FBT on expenditure incurred by the employer to enable the employees to undertake a journey from his or her place of residence to the workplace; or the reimbursement of the amount of the journey. The Supreme Court further held that for the purpose of obtaining the benefit of the exemption under section 115 WB(3) of the Income Tax Act, expenditure must be incurred by the employees directly for the purposes mentioned. In other words, they must be provided with transportation from their residence to their workplace and vice versa.
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The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm that provides legal and tax counselling. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.
