question on employer-employee relationship in FBT

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Tharangini (Querist)

19 July 2008 Hello Sir,

In CIRCULAR NO. 8/2005, DATED 29-8-2005 issued by CBDT as Explanatory Notes on the Provisions relating to Fringe Benefit Tax There are few FAQs. One question is

Whether employer-employee relationship is a pre-requisite for the levy of FBT?

The answer is 'Yes'.

My question here is whether a Managing Director of a private limited Company who is owning 60% of the shareholding is considered as an employee of that company for the purposes of FBT.

Thanks and Regards,
CA.R.Tharangini

CA RAMESH KUMAR AHUJA

CA RAMESH KUMAR AHUJA (Expert)

19 July 2008 Yes, the relationship of MD and company is like employee-employer relationship

Tharangini

Tharangini (Querist)

19 July 2008 so, what about a partner in partnership firm?

CA.R.Tharangini

CA RAMESH KUMAR AHUJA

CA RAMESH KUMAR AHUJA (Expert)

21 July 2008 The law intended to charge the FBT only on the benefit derived by employees in respect of expenses incurred by the employer. However, 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.

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