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Applicability of FBT, where no Employee

suresh (M-F&A) (69 Points)

30 August 2008

Private Limited company is not having any employee so no salary exp.and director are not drawing any remuneration, in such case benefit to employee does not arise, but there are telephone and vehicle exp.are debited in P & L A/c incurred for keeping to company live. Can anybody tell whether FBT Applicable in Such case. Pls.authenticate with necessary section pls.

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madhur gupta (student/article ) (1022 Points)
Replied 30 August 2008

Originally posted by :suresh
"	Private Limited company is not having any employee so no salary exp.and director are not drawing any remuneration, in such case benefit to employee does not arise, but there are telephone and vehicle exp.are debited in P & L A/c incurred for keeping to company live. Can anybody tell whether FBT Applicable in Such case. Pls.authenticate with necessary section pls.	"

yes ithink it will b applicable

bcoz there is no such provision in f.b.t regarding employees

but plz confirm it also n do reply to me(u may post this to expert column)

thankx

Jitender (Chartered Accountant) (8724 Points)
Replied 30 August 2008

directors are employees of the co.

therefore ,fbt is applicable.

it doesn't matter whether they are drawing remuneration or not.

CA Hemant T Dewani (Chartered Accountant) (3356 Points)
Replied 31 August 2008

jitendras answer is right answer

NIKUNJ RATHI (C.A) (56 Points)
Replied 01 September 2008

My answer is a bit different.....

A director of a company as such is not a servant of the company and the fees he receives are by way of gratuity. As director simpliciter, he is not a servant. But he may enter into a contract of employment to serve as a managing director or as a manager or to enter any special service to company apart from his duty as a director. In such as event he will also be an employee.

How ever mere passing a resolution allotting work and payment of remuneration is not sufficient without providing and establishing on record that services were rendered by the director as an employee. In any case, where the person holds the office of a director of a company, remuneration by virtue of that office does not bring about the relationship of master and servant. [ CIT V Shanti Devi (1993) 199 ITR 800 (Ori)]

Hence the fees paid to a director, independent of the contract of service would be taxable under the head " Income from other sources".

As per Q. No. 2 of circular 8/2005 dated 29/08/2005 :-

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

THe answer is Yes.

So it can be concluded that the mere presence of a director in a company will not make the company liable for FBT. Other conditions as mentioned above are also necessary. You will have to prove that the director has entered into contract for employment with the company by entering into a service agreement or the aricles of association of the company authorizes the same.

Nikunj Rathi