The Hindu Business Line : No escaping the FBT

I am a partner in a pharmaceutical firm. Will expenses on conveyance, travelling, telephone and entertainment of partners be subject to the fringe benefit tax (FBT)? The firm has medical representatives who are not on the pay roll. They are paid conveyance and outstation allowance. Will these allowances be subject to FBT? Anonymous

Though the intention of charge in respect of the FBT was only to tax the benefit derived by employees in respect of expenses incurred by the employer, it is rather unfortunate that the language used in Section 115WB(2) seems to provide that even the expenses incurred by partners or other persons and which fall within the classifications in this provision will be subject to the FBT. While it is argued in some quarters that it will be attracted only in respect of expenses incurred on employees, this argument appears to be far-fetched. This view is being taken because: For example, in sales promotion one of the exclusions provided is in respect of samples given to doctors and if only employee expenses were covered, there would have been no need to provide for such an exclusion. Given this background, it may be stated that even expenses incurred by partners or on partners will be subject to FBT.

As regards the issue on the allowances given to medical representatives who are not on the rolls of the firm, the first aspect that needs to be appreciated is that a person will still be regarded as an employee even though he is not on the rolls of the employer if the employer exercises direct supervisory control over the person concerned. This view is supported by the decision of the Supreme Court in Ram Prashad vs CIT [1972] 86 ITR 122 (SC). It is possible that these representatives could be treated as employees even though they may not be on the rolls of the firm.

In any case, given that a view has been expressed that even non-employee related expenses would be subject to the FBT, the issue that needs to be seen is whether conveyance and outstation allowances will be subject to the levy. If the conveyance allowance is for performance of official duties, it would be subject to FBT since it is in the nature of conveyance expenses. Similarly outstation allowance will be subject to it since it will be in the nature of expenditure for boarding and lodging.

If, however, the conveyance allowance is given for commuting from residence to office and back, it will not attract FBT. It may be noted that the CBDT has, through Circular No.8 of 2005 dated August 29 while clarifying the provisions in their answer to Question No.79, stated that per diem allowance is paid for use of hotel boarding and lodging facilities and would therefore be subject to FBT.

I intend to buy a house, which I propose to lease out. Under what Sections can I claim deduction on the principal and interest on money borrowed for the purpose of purchase of the house. Venkat

If the house is let out you can claim the entire interest as a deduction under Section 24 in computing the income from house property. The principal repayment of the housing loan will qualify for deduction under Section 80C. The deduction under Section 80C is a maximum of Rs 1,00,000 and this Section allows a deduction in respect of various payments and investments including principal repayment of housing loan.

(Talk 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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