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Judgment
The petitioners have assailed Chapter XII-H of the Income Tax Act,
1961 as unconstitutional being opposed by Article 14 and 246(1) read
with Entry 82 in List I of the Seventh Schedule to the Constitution of
India.
Learned Additional Advocate General appearing in support of the
writ petition has contended at the hearing of the writ petition that, the
impugned Chapter if read down in the manner suggested, then, the
entire Chapter can pass the test of constitutionality. He has referred to the budget speech of the Hon''ble Finance Minister while introducing
Chapter XII-H to the Act of 1961. He has submitted that, Fringe Benefits
Tax was introduced by such Chapter. The Chapter was, thereafter,
deleted subsequently in the year 2009-2010. He has referred to the
budget speech for such year also.
Referring to Section 115WB(2) of the Act of 1961 learned Additional
Advocate General has submitted that, Section 115WA provides for Fringe
Benefits Tax to be charged in respect of fringe benefit provided or to be
provided by an employer to his employees during the previous year at a
stipulate rate. He has submitted that, Section 115WA(1) of the Act of
1961 creates a legal fiction. The legal fiction created cannot be stretched
to include items of expenditure which has no nexus with the object of
the levy. He has referred to Section 115WB particularly Sub-section (2)
and has submitted that, the items provided thereunder would not
attract Fringe Benefits Tax unless it satisfies the legal fiction created in
Section 115WA of the Act of 1961. The existence of an employer
employee relationship is a condition precedent for the purpose of
charging Foreign Fringe Benefits Tax. Such legal fiction may not exist in
the provisions of Section 115WB of the Act of 1961. He has relied upon
2004 Volume 11 Supreme Court Cases page 417 ( Nandkishore
Ganesh Joshi v. Commissioner, Municipal Corporation of Kalyan & Dombivali & Ors .) and 2004 Volume 6 Supreme Court Cases page
59 ( State of West Bengal v. Sadan K. Bormal & Anr .) in support of
the contentions that, a legal fiction cannot be extended beyond the
purpose for which it is created. He has contended that, Section 115WB
(2) has to be read down to mean that only items which satisfies the test
of Section 115WA(1) and which are relatable to employer employee
relationship can be charged for Fringed Benefits Tax. He has relied upon
2017 Volume 3 Supreme Court Cases page 467 ( Southern Motors v.
State of Karnataka & Ors .) and has submitted that, although equity
and taxation are often strangers, the Court should attempt that they do
not remain always so.
Learned Advocate appearing for the revenue has submitted that,
the section as it stands, does not require a reading down. Chapter XII-H
has to be read as a whole. There is no justification in the apprehension
that the first petitioner or an assessee would be slapped with a Fringe
Benefits Tax when such assesse is not liable for the same. In any event,
assuming that, such a situation does arise, such individual assesse is
entitled to challenge the order of assessment in terms of the Act of 1961.
He has relied upon (2015) 374 Income Tax Reports page 112
(Bombay) ( Commissioner of Income-Tax (LTU) v. Tata Consultancy
Services Ltd .) and has submitted that, an assessee should follow the same procedure as followed by the assessee in such case. The petitioner
is yet to establish that, the assessing officer has charged a Fringe
Benefits Tax on an item which is not chargeable. Therefore, the
petitioners cannot said to be have any cause of action for the Court to
intervene. Relying upon (2003) 259 Income Tax Reports page 449
(SC) ( Commissioner of Income-Tax v. Hindustan Bulk Carriers )
learned Advocate appearing for the revenue has submitted that, a
statute must be read as a whole. One provision of the Act should be
construed with reference to the other provisions of the said Act. A
statute or any enacting provision thereto must be so construed so as to
make it effective and operative. He has also relied upon (2010) 326
Income Tax Reports page 642 (SC) ( Ajmera Housing Corporation v.
Commissioner of Income-Tax ) for the proposition that, a taxing statute
is to be construed strictly. Nothing is to be read in and nothing is to be
implied in respect of a taxing statute.
Learned Additional Advocate appearing on behalf of the petitioners
has distinguished the cases cited on behalf of the revenue. He has
submitted that, Tata Consultancy Services Ltd. (supra) has held that,
the basis of the Fringe Benefits Tax is the benefits of perquisites which
emanates out of an employer employee relationship. So far as the
Hindustan Bulk Carriers (supra) is concerned, he has submitted that, the Court should reject a construction of a statute which will defeat the
plain intention of the legislature. With regard to Ajmera Housing
Corporation (supra) he has submitted that, the principle of reading
down can be pressed into service to save any provision from the vice of
unconstitutionality.
The issues that have arisen in this writ petition can be summarised
as follows:-
(i) Is Chapter XII-H of the Income Tax Act, 1961 or any part
thereof unconstitutional being opposed to Articles 14 and
246(1) read with Entry 82, List I of the Seventh Schedule to
the Constitution of India ?
(ii) Is Section 115WB(2) of the Income Tax Act, 1961 required to
be read down ?
(iii) To what relief or reliefs, if any, are the parties entitled to ?
The petitioners have sought reading down of Section 115WB(2) of
the Income Tax Act, 1961. A statute is to be read as a whole is the view
expressed in Hindustan Bulk Carriers (supra). Ajmera Housing
Corporation (supra) has held that, a taxing statute is to be construed
strictly and that nothing is to be read in and nothing is to be implied, in
respect of a taxing statute.
Section 115WB is a part of Chapter XII-H of the Income Tax Act,
1961. Chapter XII-H of the Income Tax Act, 1961 was introduced to the
statute from the year2005-2006. It was deleted from the year 2009-
2010. Chapter XII-H deals with Fringe Benefits Tax.
Section 115WA contemplates that, additional income tax referred to
as Fringe Benefits Tax would be payable in respect of fringe benefits
provided or deemed to have been provided by an employer to his
employee during the previous year at the rate of 30 per cent of the value
of such fringe benefits. There has to be an employer employee
relationship between the persons for considering whether the employer
is giving any fringe benefit to the employee or not. In other words,
whether an employee is receiving a fringe benefit from the employer has
to be considered and decided for Fringe Benefit Tax to be attracted.
Fringe benefits are defined in Section 115WB . Sub-section (2) of Section
115WB stipulates that, 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 incurred any expense on or made any payment
for, the purposes stipulated thereunder. Basically 17 heads have been
specified under Sub-section (2) of Section 115WB which attracts the
legal fiction. Nandkishore Ganesh Joshi (supra) and Sadan K.
Bormal & Anr. (supra) have held that, a fiction cannot be extended beyond the purpose for which it is created. Chapter XII-H of the Income
Tax Act, 1961 is premised upon the legal fiction of fringe benefits being
given by the employer to the employee.
It has been contended that, the 17 broad heads stipulated in Sub-
section (2) of Section 115WB will prompt any Assessing Officer to charge
Fringe Benefits Tax whenever an expenditure on such broad account is
looked at, without considering whether or not it is fringe benefit given by
an employer to an employee. An employer, in its usual course of
business, may be called upon to entertain its customers. Such
entertainment of customers should not attract Fringe Benefits Tax, as
an employee of such employer is not receiving any benefit out of the
entertainment extended by the employer to the customers. With respect,
whether Fringe Benefit Tax is attracted to a given transaction or not has
to be adjudged in the factual basis obtaining therein. Chapter XII-H is
clear as to its range of operation. Its provisions have to apply to an
individual instance. The legality, validity and sufficiency of its
application in a given instance have to be adjudged on the basis of the
factual situation obtaining therein. In Tata Consultancy Services Ltd.
(supra) the assessee was assessed by the Assessing Officer on a
particular basis and such assessment had received the consideration of
the High Court in reference. Southern Motors (supra) has held that, although equity and taxation are often strangers, the Court should
attempt that they do not remain always so. For the Court to admit such
a resolution, an affected situation has to come before the Court for the
Court to try and marry equity with the taxation law. In the present case,
the Assessing Officer is yet to arrive at a finding whether the petitioner is
liable to Fringe Benefits Tax on any head or not. It would not be prudent
to enter into a discussion in the abstract, without any factual
foundational basis.
The first issue has not been pressed at the hearing on behalf of the
writ petitioners. Therefore, the same need not be answered. The second
issue has been pressed and the same is answered in the negative and
against the petitioners.
In view of the discussions above, the third issue is answered by
holding that the petitioners are not entitled to any relief in the writ
petition.
W.P. No. 116 of 2006 is dismissed. No order as to costs.