The Hindu Business Line : Are landlines in BPOs a fringe benefit?

The Board has through Circular No.8 of 2005 dated August 29, 2005 clarified that the expenditure in the nature of telephone calls incurred by a call centre for canvassing sales and for carrying out post sale activities will not be subject to FBT.

Query

For the purpose of FBT, will a non-resident employee also be treated as an employee and will the expenses incurred on him be subject to FBT? What is the definition of employee for the purpose of FBT? WillFBT be applicable on the travel expenses of the employees a freight forwarder given that it engaged in the business of carriage of goods by aircraft?

Shalaka Patil

Reply

If the employer is resident in India and is carrying on business outside India, it will be liable for FBT only in respect of expenses incurred on employees based in India. FBT will be payable on the total amount of expenses referred to in Section 115WB and attributable to the operations in India. If separate set of books is maintained in respect of the Indian and foreign operations, FBT will be payable in respect of the expenses reflected in the books relating to Indian operations. If no separate books are maintained, the expenditure would be apportioned on the basis of the number of employees based in India as compared to the total world wide employees of the company.

The term employee is not defined in Chapter XII-H. Generally an employee is one over whom the employer exercises a supervisory control in respect of the work entrusted to him and where such control is direct. The greater the amount of direct control over the person employed, the stronger will be the conclusion in favour of his being an employee. Similarly, in the case of an employee, the employer can, not only direct what to do but also how to do it. It is an application of these tests, which will have to be looked into in determining whether a particular person is an employee.

In case of an employer engaged in transportation of freight by air, FBT would be attracted if the employer is not directly engaged in operating the aircraft but is using an aircraft service provided by another company. It is only if the employer who is engaged in operation of aircraft is also engaged in carriage of passengers or goods by aircraft, the value of FBT in respect of the repair, running and maintenance including depreciation of aircraft can be taken as nil. This will be so because only where the employer is engaged in operating aircraft, the above referred expenses will arise. It may be noted that the value of fringe benefits can be taken as nil only in respect of items referred to in Clause (I) of Section 115WB(2) and not in respect of items referred to in Clause (F) of Section 115WB(2). Clause (I) and (F) of Section 115WB(2) read as follows:

115WB(2)(I) — repair, running (including fuel), maintenance of aircraft and the amount of depreciation thereon.

115WB(2)(F) — conveyance, tour and travel (including foreign travel).

Query

Will FBT be applicable in respect of house rent allowance paid by an employer to his employees?

Will FBT apply on reimbursement of medical expenses actually incurred by employees?

Renu

Reply

House rent allowance will continue to be taxed in the hands of the employees subject to the exemption under Section 10(13A). No FBT will be payable on the house rent allowance paid to employees. Though one would have thought that reimbursement of medical expenses would not be subject to FBT, the Board has, through Circular No.8 of 2005 dated August 29, 2005, clarified that if the medical treatment is in an unapproved hospital, the excess over Rs 15,000 per employee will be taxed in the hands of the employee and the amount up to Rs 15,000, which is not taxable in the hands of the employee, will be subject to FBT.

Query

Mobile phone expenses for the month of March 2005 have been debited in the books of account for the financial year 2004-05. The same has however been paid only in April 2005, that is,in the financial year 2005-06. Will FBT be payable in respect of such expenses?

Cheryl D'souza

Reply

Section 115WB(2) provides that fringe benefits will be deemed to have been provided by the employer to his employees if the employer has in the course of his business or profession incurred any expense on or made any payment for the purposes stated in the sub-section. Expenses on mobile phones are covered by Clause (J) of the sub-section. The only issue that arises is whether the expense which relates to the financial year 2004-05 but which is paid in the financial year 2005-06 will be subject to FBT. This issue arises because the sub-section does not talk of expense incurred or payment made whichever is earlier but only refers to either of the events. It is, however, felt that if the expenses relate to the financial year 2004-05 and are debited in the books of that year, no FBT will be payable though the payment is made in the financial year 2005-06. This would be so since the chapter relating to FBT would be applicable only from April 1, 2005 and where the expense relates to a period prior to this date, FBT would not apply.

Query

In case of mobile phone connections taken in the name of the company and used by employees, will the expense be subject to FBT?

Vani Srinath

Reply

Expenses on mobile phone connections taken in the name of the company and used by the employees will be subject to FBT.

Query

I understand that I will not be eligible for the exemption on long-term capital gains from sale of shares since I am a trader. Is this correct?

Joseph Fernandes

Reply

In the case of a trader in shares, the gains will normally be assessed as profits of the business or profession. In such a case the exemption under Section 10(38) cannot be claimed as this can only be claimed in a case where the gain is assessable as capital gains. You can however claim rebate under Section 88E in respect of the securities transaction tax paid by you. The rebate under Section 88E will be the lower of the securities transaction tax paid or the tax on the income from sale of shares chargeable under the head profits and gains of business or profession. The tax chargeable on the income from the sale of shares chargeable under the head profits and gains of business or profession should be computed on the basis of the average rate of income tax.

Mail your queries to taxtalk@thehindu.co.in or by post to `Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002.

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