The Hindu Business Line : Conferences: Work or play?

COLLECTIVE enjoyment of benefits and perquisites was the prime reason for the introduction of the controversial fringe benefit tax (FBT). While group benefits are common in most countries, in India it assumed significance mainly because the so-called `enjoyment' was not exposed to tax both at the hands of recipient and the disbursing officer. Employer-employee relationship is the starting point for taxing any payment under the head `income from salaries'.

Unfortunately, the provision relating to deemed fringe benefit extends beyond employer-employee to cover payment to any other person as well. It is in this context that the item relating to conference in Section 115WB(2)(C) assumes significance. In the conduct of business, conferences and meetings are indispensable. Most of such conferences, internal or external, are essentially for business development. Where is the `enjoyment' of benefit, collective or otherwise, in a business conference?

What is conference?

The Oxford Dictionary defines the word conference as "a large official meeting, usually lasting for a few days, at which people with the same work or interests come together to discuss their views." Without the aid of any judicial precedence or decisions on the subject, one can establish without any doubt that a conference is essentially official in nature and relating to the work in an organisation. To bring in conference within the ambit of deemed fringe benefit is, to say the least, inexplicable. All conference expenses are exposed to FBT at an effective rate of 6.73 per cent in the hands of the company. Internal conferences are conducted only amongst employees, which can be in the nature of staff training as well. One can take the stand that staff training does not come within the ambit of a conference, as the basic nature of a conference relates to discussions with outsiders or deputing staff for a seminar or workshop which is in the nature of a conference.

Hence, staff-training costs can be a separate item altogether without coming under the ambit of conference. What is the status of a conference organised by a company involving dealers, manufacturers and customers?

Such meetings are essentially brainstorming sessions designed to throw up new ideas in a competitive environment. Can these be called collective enjoyment of a benefit? If so, who is the beneficiary? As the provision stands, these conferences are exposed to FBT unless the much-awaited circular clarifies to the contrary.

Exceptions

The only exception relating to the rule is that any delegate fee paid for the participation by the employee in any conference will not be subject to FBT. Where a company deputes an employee for a conference within the city, delegate fee is the major element of the cost. Fortunately, this element escapes FBT. In the process of attending a conference, if travelling, boarding and lodging expenses are incurred, these are deemed to be incurred for the purposes of conference and liable for FBT.

In any case, travel and conveyance are a separate item exposed to FBT under Section 115WB(2)(F). The position is made clear in the entry relating to conference highlighting that it is only the delegate fee that is exempt and not the travel element associated with a conference.

This opens up the question as to whether organisers of a conference, particularly those conducting residential programmes, will structure their affairs in a manner that a composite delegate fee is charged covering all associated costs of a conference viz. paper book, delegate fee and other costs.

If the composite element is called `delegate fee' or `participation fee', it will be outside the scope of FBT. In any case, the test of reasonableness will have to be applied in structuring the residential programmes on a composite basis. In the technological age of conducting business, conference calls are undertaken sitting in different geographical locations. Will this be construed as a conference or will the costs of conference calls be treated as a part of communication expenses coming under a separate item under Section 115WB(2)(J)?

These are hazy issues requiring clarification. Till such time, tax practitioners will offer their own interpretations on items featuring in deemed fringe benefit.

Most administrative overheads which are covered under Section 115WB(2) presupposes some sort of facility enjoyed by employees. The fact is, in some of these payments, no employee will be associated in any capacity. How does one reconcile the basic objective of the levy which seeks to tax collective enjoyment by an employee and paid by the employer with normal business expenditure incurred in transacting business?

It is clearly a case of going overboard in prescribing a medicine for a disease. In the case of FBT, the medicine is worse than the disease itself. The hotel industry will not complain since the conference halls are full with organisers competing with one another in conducting seminars on FBT, with speakers expressing their own views on the subject with a caveat — wait for the circular.

(The author is a Chennai-based chartered accountant.)

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