Directors under FBT

FBT is a tax levied based on pre-existence of employer-employee relationship. However, benefits enjoyed exclusively by employees individually i.e. the perquisites, as we normally know, are taxable in the hands of the employee. But FBT is a tax levied on benefits collectively enjoyed by employees i.e. benefits that are not provided/ paid by way of salary but are disguised as collective fringe-benefits by companies. So two matters have to be considered here :–

1. Whether the director is an employee (managing director or whole-time director) of the company i.e. is there existence of employer-employee relationship by virtue of a valid contract of service or by virtue of the articles expressly appointing him as an employee?

2. If he is an employee, whether the benefit is enjoyed by him exclusively or is a part of benefits enjoyed collectively by all employees of the company? If enjoyed individually as perquisite, it will be taxed as salary under S. 17(2) in the director’s hands and not liable to FBT provided it does not fall within the provisions of S. 115WB(1) otherwise, if it is enjoyed collectively, it could well be taxed as fringe benefit, provided it falls within the heads of presumptive taxation (or deemed fringe benefit) given under S. 115WB(2) i.e it merely has to be of the nature prescribed therein and regardless of anything else will be taxed in company’s hands as fringe benefit.