FBT if there is no employee

This query is : Resolved

Game oveR (Querist)
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24 June 2008 if assasse is an AOP & have appointed a contractor for civil construction or otherwise, further in such case if assessee has re-imbursed any exp. like conveyance, tele. phone exp. to contractor's labour, which is liable for FBT. in such case wether assessee will be liable for pay FBT on such exp. or not? if yes pls refer relevant secion.

CA Vivek Jain

CA Vivek Jain (Expert)
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24 June 2008 No Employee No FBT

Game oveR

Game oveR (Querist)
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24 June 2008 as we know that if there is no employee then there will not be any FBT. but in case two companies (A ltd. & Y Ltd.) incorporates an AOP for specific purpose & there is an agreement that salary will be give by such companies on behalf of AOP, in fact there is no new appointment of employees in AOP, while employees of A Ltd & B ltd. are doing the job for AOP work.

in the given case if any re-imbursment is made by AOP to such employees of A & B Ltd. & such exp. are liable for FBT like conveyance, tele. ph. etc.

PROB 1 In such case is AOP is liable to pay FBT ?
PROB 2 as we know if there are No Employees than no FBT will occur. but in above said case manupulation may be done by making AOP in order to avoid FBT

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taxindiaconnect

taxindiaconnect (Expert)
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02 May 2009 A very intelligent query is this. The answer to your query first query lies in the following two queries clarified by CBDT in it’s circular no 8 dated 29/08/2005 from which is clear that the FBT is not to be paid by an entity which do not have an employee.

2. Whether employer-employee relationship is a pre-requisite for the levy of FBT?
Yes.
3. Whether FBT is payable by an entity having no employee? For example, will law firms having retainer-relationship arrangements and no employees be liable to pay FBT?
An entity, which does not have any employee on its rolls, will not be liable to FBT. Therefore, law firms having retainer-relationship arrangements and no employees will not be liable to FBT.
The Second query, I would say it is not a manipulation as this only a tax planning tool. Though this my be challenged by the tax authorities following the decision of Hob’le Apex Court in the case of Mcdowell Case. The agreements between the companies forming AOP needs to be drafted very carefully.