The Hindu Business Line : The return of fringe benefits

Capturing of information at source in the required format is crucial for successful completion of FBT assessments. Linking it with income-tax assessments will help and speed up the process.

The Central Board of Direct Taxes (CBDT) has notified Form 3B — return of fringe benefits. This form was awaited with much interest, as assessees were curious to know what sort of information needs to be provided in their first return of fringe benefit applicable for assessment year 2006-07. In all fairness, the new Form No 3B is comprehensive and exhaustive, capturing all the information necessary for expediting fringe benefit tax (FBT) assessment.

Any new legislation has its teething problems, and the FBT is passing through this phase. The hullabaloo over the tax has died down, and it is now time to get to the business of filing the inaugural FBT return. Fortunately for assessees, and unfortunately for consultants, the return is user-friendly and simple to fill up.

Computation of fringe benefits

The main part of the return deals with the computation, which is contained in Part B of the return.

The following issues in the computation are relevant:

a) The computation requires the value of fringe benefits to be reflected for each quarter. However, any shortfall for the first quarter which is made good in the subsequent quarter is not captured in the computation.

b) The instructions for filling up the form dictate that no statement of computation or other annexure should be filed. If so, they shall be returned by the officer.

c) The return of fringe benefits, that is, Form 3B, forms part of the return of income tax which has to be in Form 1 or Form 2, as the case may be. This suggests that the assessment of income-tax and FBT will be taken up together. From a cost benefit point of view, this is ideal since the basic thrust of information scrutiny both for income-tax and FBT assessment is on the debit side and can be dealt with in one go.

Safeguards

In a new legislation, it is essential to take precautions while filing the return for the first time. The matter is critical when one takes a position where two views or possible. FBT provisions stand on the crutches of a detailed circular in a Q&A format issued by the CBDT on August 29, 2005. In the instructions for filing up the form in 10(1)(e), it is stated that in case of any doubt, the assessees may refer to the said circular. Lawyers may argue that the instruction is only to "refer" and not necessarily to "abide" by the circular. But that would be too risky a stand to take.

What if an assessee company is to take a view contrary to the circular? To protect against interest and penalty, it would be advisable to mention by way of a note the stand taken on the matter and the plank on which the circular is not being followed. Notwithstanding Instruction No 5, which stipulates that no other statement is to be enclosed with the return of FBT, it is important to insert protective disclaimer notes as part of the return.

Capturing of information at source in the required format is crucial for successful completion of FBT assessments. Linking it with income-tax assessments will help and speed up the process. Disputes in classification of account heads are bound to arise as we go along. A good beginning is a prerequisite for a successful sojourn. In the matter of designing the FBT form, we have started on the right note. The real test is the quality of assessments which will happen a couple of years down the line.

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

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