2.3 The comments of the Commissioner made to the Applicant’s application, inter alia, stated that there is no element of transportation of these employees from the place of work and back on day-to-day basis, the expenses incurred on such transportation are covered within the scope of ‘General Fringe Benefits’ u/s.115WB(1)(a) as well as within the scope of ‘Deemed Fringe Benefits’ u/s.115 WB(2)(F),no taxes are paid by the employees for the transportation and therefore, such expenses incurred by the employer are liable to FBT. It was also stated that the applicant has a PE in India and has been filing returns of its income u/ s.44BB of the Act.
2.4 On behalf of the applicant, it was pointed oU.t that there are three categories of employees working under the applicant (i) employees based on land who attend to the administration, etc., (ii) Indian employees working on the rig, and (iii) foreign nationals (employees) who are transported to the rig from outside India. This application relates to the third category of the employees. It was, inter alia, further contended that considering its nature, such transportation of offshore employees does not fall within the charge of FBT u/s.115WA. Further, this position is made clear by the Circular No.8 of 200 which clearly excludes such transportation of employees from the ambit of the charge of FBT. The same position is also made clear by S. 115WB(3)and the view of the Commissioner is not tenable in law. On behalf of the Revenue, it was, inter alia, contended that the employees are carried in batches to the rig and they are alternated after each period of 28 days, such employees live on the rig for 28 days while they were on work there and therefore, the place of their residence is the rig and as such no ‘Free/Subsidised Transport Facility’ as contemplated in S. 115WB(3) is involved. A reference was also made to various questions and answers contained in the said Circular to support its case.
2.5 After considering the contentions raised by both the sides, the AAR noted the relevant provisions contained in 115WA, 115WB and 115WC and stated that the other provisions are mainly procedural provisions which are not relevant for the question under consideration.
2.6 Considering the provisions contained in S. 115WA, the AAR noted that FBT is leviable in respect of fringe benefit provided or deemed to have been provided by an employer to his employees during the previous year. It was further noted that S. 115WB(1)refers to fringe benefit provided to the employees in consideration for the employment and S. 115WB(2)provides that if employer incurs specified expenses, the fringe benefits shall be deemed to have been provided by the employer to his employees. Then the AAR referred to relevant part of the specified expenses in clause ‘F’ (Conveyance) and ‘Q’ [tour and travel (including foreign travel)] .
The AAR further noted that the rigor of FBT leviable on the ‘General Fringe Benefit’ is to some extent mitigated by 5. 115WB(3),which is clarificatory in nature. There are two exclusions provided in this sub-section viz. (i) ‘General Fringe Benefit’ in the nature of perquisites in respect of which tax is paid or payable by the employee; and (ii) ‘Pree /Subsidised transport Facility’ provided to the employee. The AAR then stated that rationale of the first exclusion appears to be to avoid double taxation of the same ‘General Fringe Benefit’ in the nature of the perquisites.
2.7 According to the AAR, 5. 115WB(1) does not take within its fold free or concessional tickets provided by an employer to his employees for the purpose of journey outside India. A combined reading of both the sub-sections would show that the ambit of such ‘General Fringe Benefit’ would not take in its ambit’ conveyance’ , and ‘tour and travel’ (including foreign travel); otherwise the said expressions could not have been elements of the deeming provisions contained in 5s.(2). The AAR also stated that the first limb of exclusion is not applicable in this case, as it is nobody’s case that the employees have paid or are liable to pay tax on the ‘General Fringe Benefit’ in the nature of perquisites, if any. According to the AAR, the transportation expenses in question being related to employees’ journeys outside India, the same is also not covered within the ambit of second limb of exclusion contained in 115WB(3). Accordingly, the AAR took the view that such transportation expenses are liable to FBT and the same are not excluded by virtue of the provisions of 5. 115WB(3). Finally, the AAR opined as under (page 238) :
“Now it may be recalled that we have held above that 5s.(1) of 5. 115WB does not take in its fold free or concessional tickets provided by an employer to his employees for the purpose of journeys outside India, therefore, it follows that the transportation costs incurred by the applicant in bringing the offshore employees from the place of their residence outside India to the rig (in India) will not fall within the second limb of 5s.(3) of 5. 115WB.”
2.8 The AAR then proceeded to consider whether such transportation expenses would fall within the meaning of ‘conveyance’, or ‘tour or travel’ (includ-ing foreign travel)’, as contemplated in S. 115WB(2). To resolve this controversy, the AAR stated that the terms ‘residence’, ‘tour or travel’, ‘conveyance’ and ‘transport’ should be understood. They are not defined as they are not technical terms. The AAR then noted the dictionary meanings of these terms as well as the concept of residence explained in Model Convention on Income and Capital issued by the OECD in the context of the tie-breaker rule for residence. The AAR took the view that the term ‘residence’ connotes a place of abode where a person intends to dwell for considerable length of time and not a place where a person is required to stay for a short duration in connection with his duties like the stay at the rig. Accordingly, the AAR did not accept the contention of the Revenue that the place of residence of the offshore employees is the rig where they stay for doing their duties. Referring to the dictionary meaning, the AAR also stated that conveyance and transport are used many a time interchangeably and the terms tour and travel are used to denote movement from one place to another, one country to another, both for pleasure, as well as for discharging of duty. One of the meanings of tour specifically refers to ‘on an oil rig’. The AAR then stated that the provision of free ticket for travelling of employees from home country to designated city in India would fall under clause (Q) ‘tour and travel’ and journey from the chopper based in India to the rig by helicopter would fall under clause (F) – ‘Conveyance’.
2.9 Finally, while deciding the issue against the as-sessee, the AAR held as under (page 242) :
“…. It is interesting to note question No. 24 and answer thereto in the said Circular. That question deals with the case of foreign company, which sends its employees on tour to India; the answer provides that the liability to pay FBT would depend upon whether or not the company is an employer in India. A foreign company is treated as an employer in India provided it has employees. based in India; if such foreign company has no employees based in India, it is not an employer in India and is not liable to pay FBT in India. It has been pointed out above that the applicant has three categories of employees – (i) employees working on land and dealing with administration; (ii) Indian employees working on the rig, and (ill) foreign employees transported to India for the purpose of working on the rig. Therefore, the employer though a foreign company will be treated as employer in India inas-much as a section of its employees are based in India. It is worthwhile to point out that the liability of the foreign company to pay Fringe Benefit Tax on sending its employees on tour and travel to India depends on whether the foreign company is an employer in India and not whether the employees are working in India. After a careful reading of the questions and answers in the Circular it has been pointed out above that Question No. 104 relating to transportation of employees whether free or on subsidised basis for journeys from their residence to the place of work and from the place of work to their residence, refers to the residences of the employees within India and that the same position will govern sub-section (3) of 5. 115WB.”
R & B Falcon (A) (Pty.) Ltd. v. CIT, 301 ITR 309 (5C) :
3.1 The above-referred ruling of the AAR came up for consideration before the Apex Court. After referring to the facts of the case, the Court referred to the relevant provisions of Chapter XII-H. The Court also referred to the objects of the introduction of the said provisions as stated in the said Circular and noted that an employer in India is liable to FBT in respect of the value of Fringe Benefits provided by him to his employees and deemed to have been provided by him to his employees. The Court also noted from the said Circular that if there is no provision for computing the value of any particular Fringe Benefit, such Fringe Benefit, even it may fall within the 5. 115WB(1)(a) (i.e., ‘General Fringe Benefits’) is not liable to FBT.
3.2 The Court then referred to some of the questions and answers given in the said Circular. The Court noted the answer to question No. 20, in which, it is, inter alia stated that in case of Indian Company having employees based both in India as well as outside India and incurs the Specified Expenses, the value of such Fringe Benefit is determined, as a proportion of total amount of expenses incurred for identified purposes. For this purpose, such expenses attributable to operations in India should be taken into account. The Court also noted answer to question No. 21, in which, while dealing with the FBT liability of Indian Company carrying on business outside India, where none of its employees in such business is liable to pay tax in India, it is stated that the Indian Company would be liable to FBT,if its employees are based in India. Therefore, if such Indian Company does not have any employees based in India, such Company would not be liable to FBT.The Court also noted the question No. 104 with regard to FBT liability on the expenditure incurred by the employer for the purpose of providing ‘Pree /Subsidised Transport Facility’.
3.3 Having referred to the relevant provisions of the Act and some paras of the said Circular, the Court noted that in the above case, with regard to FBT liability for providing transportation and moves. ment of offshore employees from their residence and home countries outside India to the place to rig and back, the AAR has opined as under (page 524) :
“(1) The exemption provision contained in 5s.(3) of 5. 115WB is restricted to 5s.(1) whereas the exemption falls under the deeming provision contained in 5s.(2).
(2) Residence within the meaning of the said provision would mean residence in India and as the employees concerned are residents of the countries outside India, 5s.(3) of 5. 115WB is not applicable”
3.4 On behalf of the assessee, it was, inter alia, cone tended that the distinction between 5s.(1) and (2) is highly artificial and unless both the provisions are read into 5s.(3), the same would be rendered otiose; the Parliament has not restricted the operation of that provision only to regular employees and hence no restrictive meaning can be given to the said provisions; residence of the employees being not restricted to the territory of India, the AAR are committed serious error in taking a view that the place of residence would mean residence in India in 115WB(3);the CBDT itself, in the said Circular, has expressed view that 5s.(2) is merely in expansion of 5s.(1) and overall reading of the said Circular als indicates that the FBT is not payable in respect of the expenditure incurred by the employer for an employee who is not based in India.
3.5 On behalf of the Revenue, it was, inter alia, contended that the FBT is a new concept in terms where of any consideration for employees provided, inter alia, for facility or amenity comes within the purview of FBT liability, the tax is payable only when employer incurs specified expenses and such exemption has to be granted only on the tax leviable U/ss.(l). The terms residence, transport, etc. must be given broad meaning, which would lead to conclusion that only when employees are provided ‘Free /Subsidised Transport Facility’ on regular basis, the exemption should be granted. The Parliament has used the words’ employees’, ‘journey’ and hence the same would only mean that it should cover only the journey undertaken by the employees for regularly attending the work on periodic basis.
3.6 After considering argument on both the sides, the Court stated that the object for imposition of FBT is evident from the said Circular, which is to bring about an equity. The intention of the Parliament to tax the employer where on the one hand he deducts the expenditure for the benefit of employees and on the other hand, on the employees getting the direct or indirect benefits from such expenditure, no tax is leviable. Indisputably, Ss.(3) refers to Ss.(l) only and ex-facie, it does not have any application to the ‘Deemed Fringe Benefit’. The CBDT categorically states in answer to question No.7 that Ss.(2) provides for an expansive definition. Having noted these positions, the Court stated as under (pages ‘526/527) :
“Does it mean that Ss.(2) is merely an extension of Ss.(l) or it is an independent provision? If Ss.(2) is merely an extension of Ss.(1), Mr. Ganesh may be right, but we must notice that S. 115 WA provides for imposition of tax on expenditure incurred by the employer on providing its employees certain benefits. Those benefits which are directly provided are contained in Ss.(l). Some other benefits, however, which the employer provides to the employees by incurring any expenditure or making any payment for the purpose enumerated therein in the course of his business or profession, irrespective of the fact as to whether any such activity would be carried on a regular basis or not, e.g., entertainment would, by reason of the legal fiction created, also be deemed to have been provided by the employer for the purpose of Ss.(2). Whereas Ss.(1) envisages any amount paid to the employee by way of consideration for employment, what would be the limits thereof are only enumerated in Ss.(2). We, therefore, are of the opinion that Ss.(1) and Ss.(2), having regard to the provisions of S. 115WAas also Ss.(3) of S. 115WB must be held to be operating in different fields.”
3.7 The Court further explained the effect of the provisions of S. 115WB(3) and stated as under (page 527) :
“A statute, as is well known, must be read in its entirety. What would be the subject-matter of tax is contained in Ss.(l) and Ss.(2). 5s.(3), therefore, provides for an exemption. There cannot be any doubt or dispute that the latter part of the contents of Ss.(3) must be given its logical meaning. What is sought to be excluded must be held to be included first. If the submission of the learned Solicitor General is accepted, there would not be any provision for exclusion from payment of tax on amenity in the nature of free or subsidised transport.
Thus, when the expenditure incurred by the employer so as to enable the employee to undertake a journey from his place of residence to the place of work or either reimbursement of the amount of journey or free tickets therefor are provided by him, the same, in our opinion, would come within the purview of the term by way of reimbursement or otherwise.”
3.8 Finally while upholding the view of the AAR that ‘Deemed Fringe Benefit’ is not covered within the scope of S. 115WB(3), the Court held as under (page 528) :
“The Parliament, in introducing the concept of fringe benefits, was clear in its mind insofar as on the one hand it avoided imposition of double taxation, i.e., tax both on the hands of the employees and employers; on the other, it intended to bring succour to the employers offering some privilege, service, facility or amenity which was otherwise thought to be necessary or expedient. If any other construction is put to Ss.(l) and Ss.(3), the purpose of grant of exemption shall be defeated. If the latter part of Ss.(3) cannot be given any meaning, it will result in an anomaly or absurdity. It is also now a well-settled principle of law that the Court shall avoid such construc-tions which would render a part of the statutory provision otiose or meaningless – Visitor v. K. S. Misra, (2007) 8 SCC 593; CST v. Shri Krishna Engg. Co., (2005) 2 SCC 692.
We, therefore, are of the opinion that AAR was right in its opinion that the matters enumerated in Ss.(2) of S. 115WB are not covered by Ss.(3) thereof, and the amenity in the nature of free or subsidised transport is covered by Ss.(l).”
3.9 The Court then proceeded to consider the view of the AAR that in S. 115WB(3), after the word ‘residence’ the words ‘in India’ should be read and stated that the AAR was not correct in taking such a view. In this context, the Court further observed as under (pages 528/529) :
” …For the purpose of obtaining the benefit of the said exemption, however, the expenditure must be incurred on the employees directly for the purposes mentioned therein, namely, they are to be provided transport from their residence to the place of work or from such place of work to the place of residence. Any expenditure incurred for any other purpose, namely, other than for their transport from their residence to the place of work or from the place of work to the place of residence would not attract the exemption provision. The assessing authority, therefore, must, in each case, would have a right to scrutinise the claim. CBDT has the requisite jurisdiction to interpret the provisions of Income-tax Act. The interpretation of CBDT being in the realm of executive construction should ordinarily be held to be binding, save and except where it violates any provisions of law or is contrary to any judgment rendered by the courts. The reason for giving effect to such executive construction is not only the same as contemporaneous which would come within the purview of the maxim temporania caste pesto, even in certain situation a representation made by an authority like Minister presenting the Bill before the Parliament may also be found bound thereby.”
3.10 The Court then stated that there is no provision in S. 115WB(3) that the employees’ residence must be based in India and therefore, provision must be given its natural meaning. Hence, it would be difficult to accept the contention that employees’ residence must be based in India for that purposes. The Court further observed as under (page 530) :
“However, it appears that the contention that such expenditure should be paid on a regular basis or what would be the effect of the words “employees’ journey” did not fall for consideration of AAR. What, therefore, is relevant would be the nature of expenses. The question as to whether the nature of travelling expenditure incurred by the appellant would attract the benefits sought to be granted by. the statute did not and could not fall for consideration of the AAR. Its opinion was sought for only on one issue. It necessarily had to confine itself to that one and no other. No material in this behalf was brought on record by the parties. Whether the payments were made to them on a regular basis or whether the expenditures incurred, which strictly come within the purview of S. 115WB or not must, therefore, be answered having regard to the materials placed on records. If any question arises as to whether the agreement entered into by and between the appellant and the employees concerned would attract, in given cases, the liability under Fringe Benefit Tax would have, thus, to be determined by the assessing authority.”
Conclusion:
4.1 From the above judgment of the Apex Court it is now clear that the exemption contained in the S. 115WB(3)is applicable only to the ‘General Fringe Benefit’ and the same cannot be extended to ‘Deemed Fringe Benefit’.
4.2 For the purpose of S. 115WB(3), the place of residence of an employee need not be in India. The provision also applies to employees having residence outside India.
4.3 This is the first judgment of the Apex Court dealing with FBT provisions and it appears that these provisions should be interpreted bearing the object for which the same are introduced, as observed by the Court. The above judgment is also useful to avoid double taxation of the same amount (i.e., in the hands of employer as well as employees).
4.4 From the above judgment it also becomes important to note that while interpreting these provisions, the views expressed in the said Circular should also be given due weightage. Likewise, the representation made by the Minister at the time of introduction of the Bill also carries a great weight.
