FBT & Presumptive tax

Nilesh Shah Writes:

Cell : 92246-59941

Sub: FBT & Presumptive tax.

How will FBT be levied when the assessee has availed the scheme of presumptive tax ?.

_In order to answer this question it is necessary to understand the
scheme of charging Income tax & Fringe benefit tax.

For e.g u/s 44AF a retail trader need not maintain books of account
& can pay presumptive income tax @ 5% of his turnover. The aforesaid
immunity from maintaining books of accounts is not absolute.
1. The assessee has to maintain some record of his turnover; the AO
not only has a right but is also an obligation to scrutinize his
turnover.
2. Section 44AF overrides section 28 to sec 43C. For e.g it does not
override section 68. If there are fresh cash credits during the year
then AO is duty bound to scrutinize that.
3. Sec 44AF does not apply once the turnover reaches 40 lakhs.
4. Even though one need not maintain books of account since he
satisfies all the conditions u/s 44AF, yet under the Indian
Partnership Act, 1932 one has to maintain books of account because
each & every partner has to give a correct account to the other
partners of the expenses incurred or the profits made or the losses
suffered and shall maintain or cause to maintain a correct account
thereof.
5. The scheme of presumptive tax was introduced to widen the tax base
as many retailers were not filing their income tax returns as they
had difficulty in estimating their income & in maintaining stock
records.
6. The scheme of presumptive tax u/s 44AF was not to get over the
fringe benefit tax.
7. Section 44AA regarding maintenance of books of account shall
apply only in so far as presumptive tax u/s 44AF is concerned.
8. If an assessee whose turnover is less than 40 lakhs desire to pay
an amount which is less than 5% of his turnover, not only he will be
under an obligation to maintain his accounts but will also be under a
further obligation to get it tax audited.

Having understood this how will then the fringe benefit tax be levied.
1. There is no such scheme of presumptive tax under the fringe
benefit tax.
2.under section 115WL all provisions of the Income tax Act shall
apply to the assessee under fringe benefit tax unless the same are
expressly excluded. Therefore the provision of section 44AA regarding
maintenance of books of accounts do apply since there is no exclusion
under FBT as u/s 44AF.
3.Under section 115WF a best judgment assessment of fringe benefit
tax can take place if the return is not substantiated by evidence.
4. Under fringe benefit tax the value of fringe benefit is different
for different types of expenses & this all the more complicates the
matter.
5. Under section 115WD fringe benefit not only includes the
expenditure incurred but also the provision made for such expenses.
6. Under section 115WJ adavance tax in respect of fringe benefit tax
is payable.

Having understood both the types of taxes what can be the answer to
the question.
1. The AO will hold that he accepts 5% of the turnover as income tax
since the assessee satisfies all the conditions u/s 44AF, but he has
to substantiate the return of fringe benefit since the immunity i.e
5% of the turnover is only confined to section 44AF & does not
extend to Fringe Benefit Tax.

In case if the assessee has not maintain any books of accounts the AO
will make a best judgment assessment of the fringe benefit tax.

At such stage the assessee's argument will be that effectively there
is no immunity from maintaining books of account because such books
of accounts though not required to be maintain for the purpose of
assessment of income tax but is required to be maintain for the
purpose of FBT.

The above argument of the assessee will hold no water becuase even
when he is compelled to maintain books of accounts & where his
profits as per books is more than 5% of the turnover he can still
return a profit of 5% us 44AF if he otherwise fulfills all the
conditions u/s 44AF.

If an assessee does not want to maintain books of account, a better
solution would be he should maintain vouchers for all the types of
expenditure incurred. Even in such cases external voucher will
inspire more confidence than self prepared vouchers for e.g for
conveyance expenses. Even in such cases there is a scope for best
judgment assessment but this exercise will be restricted only to a
few item of expenditure for e.g conveyance expenses & his discretion
to levy FBT on items of expenditure for which external vouchers are
available will be drastically reduced.

Sincerely,

Nilesh Shah