By C. N. Vaze, Chartered Accountant
Is It Fair
1. Introduction :
Ordinarily, the Government resorts to surcharge on income-tax
for mobilising resources for tackling a particular situation — like natural
calamity, war, etc. It is intended to be a short-term measure. There is also an
implication of sharing the revenues with the states. However, in recent years,
the surcharge has almost come to stay for ever. It is further aggravated by the
education cess. Some solace is provided in terms of marginal reliefs; or some
threshold limits of income above which the surcharge becomes applicable.
2. Applicability of surcharge :
S. 2 of Finance Act, 2008 deals with the rates of income-tax.
Ss.(3) of S. 2 applies to persons covered under Chapter XII
or Chapter XIIA, Chapter XII H, S. 115JB; and so on. Clause (c) of 2nd proviso
to Ss.(3) states that in the case of every firm and domestic company, the
surcharge will be 10% of the income-tax where the total income exceeds one crore
rupees; whereas clause (a) of the same proviso makes surcharge applicable to
individuals, HUFs, AOPs, etc. when total income exceeds ten lakh rupees. This is
understandable.
However, the 4th proviso deals with surcharge on FBT. Here,
clause (a) states that in respect of AOP and BOI, surcharge on FBT is applicable
if the value of fringe benefits exceeds Rs.10 lakh. Thus, it is in line with
surcharge on normal income-tax. And when it comes to firms and domestic
companies, in terms of clause (b) of the 4th proviso, the surcharge on FBT will
apply to all such entities, irrespective of their total or the value of fringe
benefit.
There is a similar distinction in Ss.(9) as well.
3. Anomaly :
The 2nd proviso states that surcharge is applicable on the
normal income-tax where the income is chargeable to tax u/s.115A, 115AB,
. . . . . . . . . . . . . . . and u/s.115JB; or fringe benefits chargeable to
tax u/s.115WA.
It is not clear as to what is the relevance of including S.
115WA in the 2nd proviso, when the 4th proviso specifically deals with FBT.
Further, there is no reason why there should be a
discrimination in respect of FBT when the surcharge on normal tax applies only
to large companies having income exceeding Rs. one crore.
It is a fact that FBT is already a burden on the employer
firm or company. There is no justification as to why all firms and companies be
subjected to surcharge on FBT, irrespective of their income/value of fringe
benefits.
If it is viewed that FBT is basically in respect of the
benefits to the employees, it is common knowledge that majority of the employees
in majority of the organisations are most likely to have total income less than
Rs.10 lakhs.
Clause (a) of the 4th proviso gives the benefit of threshold
limit of FB value for AOPs and BOIs, but clause (b) deprives the firms and
domestic companies of this benefit.
4. Suggestions :
(a) The relevance of including S. 115WA in the second proviso
should be clarified, and
(b) Some threshold limit on FB be also prescribed for firms and domestic
companies in respect of levy of surcharge on FBT.
