I-T - Whether if a benefit given to employee is taxed as fringe benefit, same would not form part of perquisite of employee, subjecting him to further tax as additional income - YES: HC
By TIOL News Service
AHEMDABAD, OCT 03, 2016: THE ISSUE IS - Whether where a benefit paid by an employer to an employee is treated as a fringe benefit liable to tax u/s 115WA, the employer alone shall suffer tax at a prescribed rate and the said benefit would not form part of the perquisite of the employee, subjecting him to further tax as additional income. YES IS THE VERDICT.
Facts of the case:
The assessee is employed as a General Manager by Oil and Natural Gas Corporation of India. For the A.Y 2007-08, the assessee had filed its return declaring total income of Rs.9,03,346/-. After once accepting such return, the AO issued notice u/s 148 on the ground that the employer ONGC had reimbursed Conveyance Maintenance and Repair Expenditure and uniform allowance to the assessee, which was not reflected in the salary certificate issued by the employer, nor ONGC had deducted tax at source on such amounts. Pursuant to such notice, the AO passed the assessment order u/s 143(3) r/w/s 147, levying tax on 20% of CMRE and 100% on the uniform reimbursement expense. He accordingly added a sum of Rs.7720/towards disallowance of CMRE amount and Rs.21,422/towards uniform reimbursement. In response, the assessee contended that on such benefits, the employer ONGC had paid fringe benefit in terms of section 115WA and that therefore, there was no liability for the employee to pay tax on such amounts as part of his salary. On such basis, the assessee filed a revision petition before the CIT, which was however rejected on the short ground that the CIT under similar cases had confirmed 20% of CMRE disallowance and 100% of the uniform disallowance received by the employees.
The High Court held that:
1. It is not in dispute that on the amounts in question, the ONGC had paid FBT in terms of section 115WA. Revenue has not questioned this stand of the ONGC in this respect and accepted the FBT from the employer. We must, therefore, proceed on the basis that even as per the Revenue it was a fringe benefit for the purpose of section 115WA during the period when the FBT regime was in force. If that be so, immediate question would be, can the employee also be asked to pay tax on such amounts treating them as salary. As is well known, the FBT regime survived for a short time. It was introduced under chapter XIIH under the Finance Act, 2005 w.e.f April 1st, 2006. Various fringe benefits were specified u/s 115WB. Under subsection (1) of section 115WA thus, in addition to income tax charged, an additional charge was created w.e.f April 1st, 2006 in form of fringe benefit tax in respect of fringe benefit provided or deemed to have been provided by the employer to the employees, which would be taxed at the rate of 30% of the value of such fringe benefits. U/s 115WA(2), such tax would be collected irrespective of the fact that no income tax was payable by the employer on the total income computed in accordance with the provisions of the Act. This provision thus made two major departures from the normal tax provision. First, the payer of fringe benefits was held responsible to pay tax at flat rate of 30% of the value of benefit and second such tax would be paid by the employer even if otherwise not liable to pay tax on the basis of normal computation of his income. The FBT is therefore, referred to as a surrogate tax.
2. Section 17 of the Act defines the term salary, perquisite etc. Subsection (2) of section 17 which defines the term 'perquisite' is worded in inclusive fashion. We may notice that with dismantling of the FBT regime, relevant portion of subsection (2) of section 17 has undergone a change. It can thus be seen that before and after the FBT provisions, section 17(2) included within the meaning of term perquisite, the value of any other fringe benefit or amenity as may be prescribed. In other words, any fringe benefit or amenity which is prescribed under the rules would form part of the perquisite. During the period when the fringe benefit was being separately taxed u/s 115WA, this definition of perquisite consciously referred to an exclusion providing that term 'perquisite' would include the value of any other fringe benefit or amenity as may be prescribed, excluding the fringe benefits chargeable to tax under chapter XIIH. In plain terms therefore in case of fringe benefit chargeable to tax under chapter XIIH, the same benefit would not form part of a perquisite of an employee in terms of section 17(2). The statutory provisions were thus, so framed in a manner as to avoid the same benefit suffering the taxation at two ends. If a benefit paid by an employer to an employee is treated as a fringe benefit liable to tax u/s 115WA, the employer alone shall suffer tax at a prescribed rate. Such benefit would not form part of the perquisite of the employee, subjecting him to further tax as additional income.
3. The CBDT also in its circular no.9 of 2007 dated 20.12.2007, in response to a question whether the benefits arising on account of shares alloted or transferred under ESOP can be taxed as a perquisite u/s 17 instead of being taxed as fringe benefit under chapter XIIH at the option of employer, clarified that any fringe benefit liable to be taxed in the hands of the employer under chapter XIIH cannot be taxed in the hands of the employee as perquisite u/s 17. The employer, therefore, does not have an option to tax the benefit arising on account of share allotment as perquisite which is otherwise to be taxed as FBT. Under the circumstances, once a certain benefit is held to be a fringe benefit and the employer is taxed accordingly under chapter XIIH of the Act, the same benefit cannot be included in the income of the employee treating it as a perquisite. In any case, the Revenue has accepted the ONGC's treatment to this payment as fringe benefit and accepted tax from the employer on such basis in terms of chapterXIIH of the Act, Revenue now cannot change its stand and seek to tax the same amount in the hands of the employees which would be a clear case of double taxation. In the result, impugned order passed by the Commissioner is set aside and the disallowance of 20% of the CMRE benefit and 100% of the uniform allowance made in case of the assessee by the AO is reversed.
(See 2016-TIOL-2325-HC-AHM -IT)
