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Residence-office transport out of FBT net
May, 27th 2008

Fringe Benefit Tax (FBT) is a new concept, introduced by the Finance Act, 2005. The tax is levied on the value of certain fringe benefits provided to the employees.

The Hon'ble Supreme Court in recent decision in case of R & B Falcon Pty Ltd (169 Taxman 515) pronounced on May 6, 2008 observed: "The intention of Parliament was to tax the employer who, on the one hand, deducts the expenditure for the benefit of the employees including entertainment, etc., and on the other when the employees getting the perks are to be taxed, those who get direct or indirect benefits from the expenditures incurred by the employer, no tax is leviable."

Section 115WB dealing with fringe benefits contains three sub-sections: sub-section (1) defines fringe benefits, sub-section (2) gives an expanded meaning to the various types of benefits provided to employees, and sub-section (3) exempts certain benefits from levy of FBT.

The issue for consideration is whether FBT is payable on transport facility provided to the employees from their residence to place of work and back. Benefits of conveyance' and tour and travel' are specifically covered for imposition of FBT under sub-section (2). But if the said facility falls in the general category of benefits as contained in sub-section (1), then there will be no FBT because sub-section (3) exempts from FBT such transport benefit, which is covered in sub-section (1).

In this context, it will be useful to refer to the decision of AAR in case of R & B Falcon Pty Ltd (289 ITR 369). An Australian company was engaged in the business of providing mobile offshore drilling rig (MODR) along with crew to drill offshore wells. It entered into an agreement with an Indian company for supplying MODR along with equipment and offshore crew.

The employees of foreign company were resident of various countries. The employees were transported from their home country to the MODR in two laps- first from the place of residence to a city in India and second was from that city to MODR.

The company approached AAR to decide whether transportation cost incurred in providing transportation facility for movement of offshore employees from their residence in home country to the place of work and back is liable to FBT.

The Authority observed that the transportation of employees is from their residences situated in countries outside India to the place of work in India. Therefore, the employer will be liable to pay FBT.

The ruling was challenged before the Supreme Court (See 169 Taxman 515). The Apex Court held that the transport facility provided by the employer would be covered under sub-section (1). The employer incurs the said expenditure as of necessity. It, therefore, clearly falls within the purview of the words consideration for employment'. If fringe benefits are provided for consideration for employment, which is given or provided to the employee by way of an amenity, reimbursement or otherwise; clearly clause (a) of sub-section (l) shall be attracted."

Since transport facility which is covered under sub-section (1) is exempt from FBT by virtue of sub-section (3), it was held that FBT was not payable on the transport facility provided by the employer to its employees to and fro their residence and place of work.

The Hon'ble Apex Court also held that for the purpose of claiming exemption from FBT, residence of an employee is not restricted to the territory of India. Thus, foreign employees will also be covered for exemption from FBT.

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