employer employee relationship in FBT

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Tharangini (Querist)
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20 July 2008 Hello Mr. CA.Ramesh Ahuja,

Thanks for your reply for my querry dated 19/7/08.

Further to my first querry- what do you think about a partner in a partnership firm? is he an employee for the purposes of FBT? Does the FB or deemed FB as per chapter XII-H enjoyed by a partner/ Managing partner will atract FBT in the hands of the firms.

Actually, the term 'employee' has neither beeen defined in chapter XII-H or anywhere under the Act.

The "guidance Note on Audit of Fringe Benefits under the Income-tax Act,1961" issed by our CA Institute takes the help of the obsevations made by the Hon'ble Supreme Court in Ram Prashad v. CIT(1972) 86 ITR 122(SC).

pls give your opinion...

Thanks and Regards,
CA.R.Tharangini

CA RAMESH KUMAR AHUJA

CA RAMESH KUMAR AHUJA (Expert)
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21 July 2008 Dear Tharangini,

You hav erightly said that the term employee has not been defined in chapter XII-H. As such, we have to derive the meaning and incidence of Fringe Benefit Tax from the intent and interpretation of the relevant provisions of the Act. The law intended to charge the FBT only on the benefit derived by employees in respect of expenses incurred by the employer. However, the language used in Section 115WB(2) seems to provide that even the expenses incurred by partners or other persons and which fall within the classifications in this provision will be subject to the FBT. While it is argued in some quarters that it will be attracted only in respect of expenses incurred on employees, this argument appears to be far-fetched. This view is being taken because: For example, in sales promotion one of the exclusions provided is in respect of samples given to doctors and if only employee expenses were covered, there would have been no need to provide for such an exclusion. Given this background, it may be stated that even expenses incurred by partners or on partners will be subject to FBT.