Case: R &amp; B Falcon (A) Pty Ltd Vs. Commissioner Of Income Tax

3. Before embarking upon the said question, however, we may notice the basic fact of the matter. Appellant is incorporated under the laws of the Commonwealth of Australia. It is engaged in the business of providing Mobile Offshore Drilling Rig (MODR) along with crew on a day rate charter hire basis to drill offshore wells. The MODR operates offshore (upto 200 nautical miles off the coast of India). Allegedly, having regard to the harsh working environment and purported to be in line with global practices typical to such industry, the employees who may be residents of various countries including Australia, USA, UK, France etc. work on the MODR on a commuter basis. They come to India, stay in the Rig for 28 days and go back to their own country being their place of residence for a further period of 28 days. The crew or the employees are transported from their home country to the MODR in twois from the nearest designated base city at the place of residence in the home country to a designated city in India for which the petitioner provides free air tickets of economy classis from that city in India to the MODR through helicopter especially hired by the petitioner for this purpose.4. Allegedly, on completion of 28 days, they go back from the Rig to the designated base city in their home country in the same manner. Appellant states that no conveyance/transport allowance is paid to them. Appellant entered into a contract of supplying MODR along with equipment and offshore crew on charter hire basis with Oil and Natural Gas Commission, a public sector undertaking, on or about 10.10.2003. It filed an application under Section 245Q(1) of the Income Tax Act, 1961 before the Authority for Advance Ruling (AAR) on the followingtransportation cost incurred by the petitioner in providing transportation facility for movement of offshore employees from their residence in home country to the place of work and back is liable to Fringe BenefitChapter XII of the Act providing for income tax on fringe benefits was inserted by the Finance Act, 2005. It came into force with effect from 1.4.2006.6. Section 115W defines "employer" and "fringe benefit tax". "Fringe Benefit Tax" (FBT) has been defined as a tax chargeable under Section 115WA. Section 115 WA(1) provides for the basis for charge of fringe benefit tax in the following termsIn addition to thecharged under this Act, there shall be charged for levy assessment year commencing on or after the 1st day of April, 2006, additional(in this Act referred to as fringe benefit tax) in respect of the fringe benefits provided or deemed to have been provided by an employer to his employees during the previous year at the rate of thirty per cent on the value of such fringe benefits.(2) Notwithstanding that nois payable by an employer on his total income computed in accordance with the provisions of this Act, the tax on fringe benefits shall be payable by such115WB consists of threethe relevant clauses whereof read asge benefits (1) For the purposes of this Chapter, "fringe benefits" means any consideration for employment provided by wayany privilege, service, facility or amenity, directly or indirectly, provided by an employer, whether by way of reimbursement or otherwise, to his employees (including former employee or employees);(b) any free or concessional ticket provided by the employer for private journeys of his employees or their family members; andxxx xxx xxx(2) The fringe benefits shall be deemed to have been provided by the employer to his employees, if the employer has, in the course of his business or profession (including any activity whether or not such activity is carried on with the object of deriving income, profits or gains) incurred any expense on, or made any payment for, the following purposes,entertainment;xxx xxx xxx(F) conveyance;xxx xxx xxx(Q) tour and travel (including foreign travel).;(3) For the purposes of(1), the privilege, service, facility or amenity does not include perquisites in respect of which tax is paid or payable by the employee or any benefit or amenity in the nature of free or subsidised transport or any such allowance provided by the employer to his employees for journeys by the employees from their residence to the place of work or such place of work to the place of residence".Before the AAR, a circular issued by the Central Board of Direct Tax (CBDT) bearing No.8 of 2005, was relied upon by both the parties. We will refer to a part of it. The circular provides for explanatory notes on provisions relating to fringe benefit tax. The object for imposition of the said tax is stated to be astaxation of perquisites or fringe benefits is justified both on grounds of equity and economic efficiency. When fringe benefits areit violates both horizontal and vertical equity. A taxpayer receiving his entire income in cash bears a higher tax burden in comparison to another taxpayer who receives his income partly in cash and partly in kind, thereby violating horizontal equity. Further, fringe benefits are generally provided to senior executives in the organization.Therefore,of fringe benefits also violates vertical equity. It also discriminates between companies which can provide fringe benefits and those which cannot thereby adversely affecting market structure. However, the taxation of fringe benefits raises some problems primarilyall benefits cannot be individually attributed to employees, particularly in cases where the benefit is collectively enjoyed;(b) of the present widespread practice of providing perquisites, wherein many perquisites are disguised as reimbursements or other miscellaneous expenses so as to enable the employees to escape/reduce their tax liability; and(c) of the difficulty in the valuation of the benefits.The heading of paragraph 11 of the said circular is "Frequently asked questions". The questions which were posed and answered and in turn are relevant for our purpose read as underterms of the provisions of(1) of Section 115WA, an employer in India is liable to FBT in respect of the value of fringeProvided by him to his employees; and(b) Deemed to have been provided by him to hisemployees. The scope of fringe benefits provided or deemed to have been provided is defined in section 115WB.(1) of the said section defines the scope of fringe benefits provided by the employer to his employees. Similarly,(2) of the said section defines the scope of fringe benefits deemed to have been provided by the employer to his employees. Therefore,(2) expands the scope of(1) through a deeming provision.The provision relating to the computation of the value of the fringe benefits is contained in section 115WC. It is a settled principle of law that where the computation provisions fail, the charging section cannot be effectuated. Therefore, if there is no provision for computing the value of any particular fringe benefit, such fringe benefit, even if it may fall within clause (a) of(1) of section 115WB, is not liable to FBT.XXX XXX XXX19. FBT is payable in the year in which the expenditure is incurred irrespective of whether the expenditure is capitalized or not. However, the same expenditure will not be liable to FBT again in the year in which it is amortized and charged to profit.Is FBT payable by an Indian Company having employees based both in and outside India on its total (global) expenditure incurred by it for the purposes referred to in clauses (A) to (P) of(2) of section 115B?20. FBT is payable on the value of fringe benefits provided or deemed to have been provided to employees based in India and determined on a presumptive basis in accordance with the provisions of Section 115WC of theAct. The value of such fringe benefits is determined, inter alia, as a proportion of the total amount of expenses incurred for some identified purposes. In the case of an Indian company having employees based both in India and in a foreign country, FBT is payable on the proportion (50 per cent, 20 per cent or 5 per cent, as the case may be) of the total amount of expenses incurred for the purposes referred to in clauses (A) to (P) of(2) of section 115WB and attributable to the operations in India. If the company maintains separate books of account for its Indian and foreign operations, FBT would be payable on the amount of expenses reflected in the books of account relating to the Indian operations. If however, no separate accounts are maintained, the amount of expenses attributable to Indian operations would be the proportionate amount of the global expenditure. Further, such proportionate amount shall be determined by applying to the global expenditure the proportion which the number of employees based in India bears to the total worldwide employees of the company.Whether an Indian company carrying on business outside India would be liable to FBT even though none of its employees in such business may be liable to pay income tax in India?21. An Indian company would be liable to the FBT in India if it has employees based in India. Therefore, if an Indian company carries on business outside India but does not have any employees based in India, such company would not be liable to FBT in India.Does FBT apply to foreign companies?XXX XXX XXX103. FBT is a liability qua employer. It is an expenditure laid out or expended wholly and exclusively for the purposes of the business or profession of the employer. However,(ic) of clause (a) of section 40 of theAct expressly prohibits the deduction of the amount of FBT paid, for the purposes of computing the income under the head profits and gains of business or profession. This prohibition does not apply to the computation of book profit for the purposes of section 115JB. Accordingly, the FBT is an allowable deduction in the computation of book profit under section 115JB of theAct.Whether expenditure incurred by the employer for the purposes of providing free or subsidized transport for journeys to employees from their residence to the place of work or such place of work to the place of residence would attractAAR by reason of its judgment and order dated 13.12.2006 holding that the company is liable to pay fringe benefit tax for providing transportation and movement of offshore employees for their residence and home countries outside India to the place of rig and back, opined that(1) The exemption provision contained in(3) of Section 115WB is restricted to(1) whereas the exemption falls under the deeming provision contained in(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,(3) of Section 115WB is not applicable.

Court's reasoning:
For a detailed analysis of the rule of executive estoppel useful reference may be to the article authored by Francis Bennion entitled "Executive Estoppel: Pepper v. Hart revisited", published in Public Law, Spring 2007, pg. 1 which throws a new light on the subject matter.26. We may notice a decision of this Court in Sedco Forex International Drill. Inc. & Ors. v. Commissioner of Income Tax, Dehradun & Anr. [(2005) 12 SCC 717] , the question which arose therein was as to the salary paid to the employees of UK National Services for field breaks outside India would be subjected to tax under Section 9(1)(ii) and explanation appended thereto as inserted in 1983 w.e.f 1.4.1979. Appellant therein entered into agreements which are executed in the United Kingdom with each of the said employees who were residents of the said country. This Court, upon noticing the explanation appended to Section 9(1)(ii), as regards its retrospective operation,The departmental understanding of the effect of the 1999 Amendment even if it were assumed not to bind the respondents under Section 119 of the Act, nevertheless affords a reasonable construction of it, and there is no reason why we should not adopt it.17. As was affirmed by this Court in Goslino Mario a cardinal principle of the tax law is that the law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication. (See also Reliance Jute and Industries Ltd. v. CIT) An Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section. If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main provision came into force. But if it changes the law it is not presumed to be retrospective, irrespective of the fact that the phrases used are "it is declared" or "for the removal of doubts".It was categorically held that as the explanation sought to give an artificial meaning to "earned in India" and brings about a change effectively in the existing law, it should not be held to have any retrospective operation. Section 115WB does not contain such a provision. It must, therefore, be given its natural meaning. It would, therefore, be difficult to accept the contention of the learned Solicitor General that the employees must be based in India.28. 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 a 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 Section 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 FBT benefit tax would have, thus, to be determined by the assessing authority.CBDT categorically states in answer to question number 7 that(2) provides for an expansive definition. Does it mean that(2) is merely an extension of(1) or it is an independent provision? If(2) is merely an extension of(1), Mr. Ganesh may be right but we must notice that Section 115WA provides for imposition of tax on expenditure incurred by the employer or providing its employees certain benefits. Those benefits which are directly provided are contained in(1). 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 ofion (1) envisages any amount paid to the employee by way of consideration for employment, what would be the limits thereof are only enumerated in(2). We, therefore, are of the opinion that(1) and (2), having regard to the provisions of Section 115WA as also(3) of Section 115WB, must be held to be operating in differenthave noticed the factual matrix of the instant case. The employees concerned are experts in their field. They are necessarily residents of other country. They are brought to the Rig by providing air tickets for their coming from their place of residence to the Rig. The employer incurs the said expenditure as of necessity. It, therefore, clearly falls within the purview of the words consideration for employment. If fringe benefits are provided for consideration for employment, which is given or provided to the employee by way of an amenity, reimbursement or otherwise; clearly clause (a) of(1) shall be attracted. A statute, as is well known, must be read in its entirety. What would be the subject matter of tax is contained in(1) and (2).(3), therefore, provides for an exemption. There cannot be any doubt or dispute that the latter part of the contents of(3) must be given its logical meaning. What is sought to be excluded must be held to be included first. If the submission of learned Solicitor General is accepted, there would not be any provision for exclusion from payment of tax any amenity in the nature of free or subsidized transport.16. 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. The Advanced Law Lexicon defines "otherwise"other like means; contrarily; different from that to which it relates; in a different manner; in another way; in any other way; differently in other respects in different respects; in some other like capacity.We, therefore, are of the opinion that AAR was right in its opinion that the matters enumerated in(2) of Section 115WB are not covered by(3) thereof, and the amenity in the nature of free or subsidized transport is covered bye benefit tax being a tax on expenditure; the only concern of the revenue wherefor should be as to whether such expenditure has been made. Appellant has a permanent establishment in India. It paysin India. It carries on business in India. It has for the purpose of carrying out its business activities engaged persons from within India or outside India. If it makes any expenditure for bringing any employee from abroad, the same would also liable to be taken into consideration for the purpose of(1) of Section 115WB.