+ All Categories
Home > Documents > The Law The Procedure Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

The Law The Procedure Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

Date post: 24-Dec-2015
Category:
Upload: cody-wade
View: 217 times
Download: 2 times
Share this document with a friend
Popular Tags:
32
The Law The Procedure Issues over Cross Border Transaction PRESENTED BY CA. HARIRAM GILDA
Transcript
Page 1: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

The Law The Procedure Issues over Cross Border Transaction

PRESENTED BY – CA. HARIRAM GILDA

Page 2: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

Introduction Pre- requisites for FBT FBT Provisions- Direct & Deemed

Benefits FBT on Cross Border Transaction Tax Compliance Binding Nature of Circulars

ROAD MAP

Page 3: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

Tax on Expenses and Not on Income

Tax on Employer and Not on Employee

Additional Tax on Employer

Presumptive Taxation

Not a Deductible Expenditure

No Threshold Exemptions

Chargeable even if no Income-tax is payable by an employer on his total income

Rate is 30% on the Value of fringe benefit as increased by Surcharge & Cess

INTRODUCTION

Page 4: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

Must be an Employer being a Company or a Firm or an AOP or a BOI or a Local authority or an Artificial Juridical Person

Employees based in India

Employer – Employee Relationship

Employer income is not exempt u/s 10 (23C) or is not registered u/s 12AA

Fringe benefits of clause (a) to (d) of sub section (1) of section 115WB have been provided by the Employer

During the course of his business or profession, incurred any expense on or made payment of clauses (A) to (Q) of sub section (2) of Section 115WB

PRE-REQUISITE FOR FBT

Page 5: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

FBT – THE CONCEPT

Any privilege, service, facility or amenity whether provided directly or indirectly, or whether by way of reimbursement or otherwise to employees No basis of valuation provided

Free / concessional ticket for private journey of employees or their family members

Employer’s contribution to approved Superannuation Fund Exempt upto the limit of 1,00,000

Any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer free of cost or at concessional rate to employees

Fringe Benefit

Fringe Benefit

Direct BenefitsDirect Benefits

Deemed Benefits

Deemed Benefits

100% of the Expenditure

50% / 20% / 5% of the Expenditure

DIRECT BENEFITS –COVERED U/S 115WB(1)

Page 6: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

FBT ON ESOP : MEANING OF SPECIFIED SECURITY/SWEAT EQUITY

“Specified Security” means the securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) [and, where the employees’ stock option has been granted under any plan or scheme thereof, includes the securities offered under such plan or scheme]

“Sweat Equity Shares” means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.

Page 7: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

OptionRight but not an obligation given to the Employee to purchase the shares offered by the Company at a future date and a predetermined price.

Grant DateDate on which the benefits under the scheme are extended to the Employee

Vesting DateDate on which the Employee gets control to exercise his option

Exercise DateDate on which the employee exercises his options

Grant / Exercise / Strike PricePrice communicated to the Employees at the time of Granting the Option

FBT ON ESOP – TERMINOLOGY

Page 8: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

FBT ON ESOP – ON WHOM CHARGABLE

Indian Co.

Employee based

in India

Employee based

in India for part

of the year

Chargeable

to FBT

Charge proportional

to stay in India

during grant period

Foreign Co.

Employee based

in India for

Part or whole of

grant period

Employee based

outside India

Charge proportional

to stay in India

during grant period

No Charge

If no stay in India

during grant period

Qs. 5 of Circular 9/2007, contrary to Qs. 31 of Circular 8/2005

Page 9: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

DEEMED BENEFITS – COVERED U/S 115WB(2)

Nature of ExpenseValue of Fringe Benefit

Effective FBT rate

Entertainment/ Conference/Sales Promotion including Publicity/ Employees’ Welfare

20% 6.798%

Provision of hospitality 20% / 5% 6.798% / 1.6995%

Conveyance 20% / 5% 6.798% / 1.6995%

Use of hotel, boarding and lodging facilities 20% / 5% 6.798% / 1.6995%

Repair, running & maintenance of motor cars (Including Depreciation & fuel)

20% / 5% 6.798% / 1.6995%

Repair, running & maintenance of aircrafts (Including depreciation & fuel)

20% 6.798%

Use of telephone including mobile phones 20% 6.798%

Festival Celebration 20% 6.798%

Use of health club & similar facilities 50% 16.995%

Use of any other club facilities 50% 16.995%

Gifts 50% 16.995%

Scholarships 50% 16.995%

Tour & travel (Including foreign travel) 5% 1.6995%

Page 10: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

Meaning & Scope of Entertainment: “Expenses in connection with Exhibition, performance,

amusement, game or Sport, for affording some sort of amusement or gratification”

------- Q No. 49 of CBDT Circular No. 8/2005

Some Issues on Entertainment - Company incurs capital exp. for staff/guest ie. Coffee machine,

refrigerator, is this entertainment exp.? ------- Q. No. 89 of CBDT Circular No. 8

ENTERTAINMENT

Page 11: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

Scope: Provision of hospitality of every kind by the employer to any

person is covered Food & beverages provided to customers, clients, agents ,

distributors shall be covered by Hospitality Reimbursement of food Expenses to Employees (Qs.No. 52)

Specific Exclusion: Food & beverages to employees at office or factory Any expenditure or payment through non-transferable paid

vouchers, used at eating joints or outlets.( No limit on amounts of vouchers)

Some Issues: Purposes refers to proximate purpose and not the distant

purpose. (Q.No.11) The words ‘or in any other manner whatsoever’ is of very wide

important. Exp. of Food or beverages at training centre is exempt

from FBT – (Qs.No. 50)

HOSPITALITY

Page 12: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

Scope:

Any expenditure on or payment for conference or any expenditure on conveyance, tour and travel (including foreign travel), on hotel, or boarding and lodging in connection with any conference

Specific exclusion - Participation Fee paid for the employees – (Qs .No. 55) Press conference Business convention

Some Issues - Expenses in respect of conferences organized by trade body

or institutions internally attract fringe benefit tax. (Qs. No. 54) AGM - Statutory requirement

CONFERENCE

Page 13: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

Meaning :“sales promotion is an activity which will promote the sales of the assessee by reason of the advertisement and publicity that will be attendant on it or by reason of the incentives or other attractions offered to attract customers for the assessee products.”

.....CIT v. Popular Automobiles Ltd. [1995] 212 ITR 611 (Ker.)

Scope:Any expenditure incurred on or payment for sales promotion including publicity.

Specific exclusion Advertisement in any print mode /electronic media / transport system Holding or participating in any press conference / business convention

/ fair / exhibition Sponsorship of sports / other events organized by govt. agency /

trade association/body Publication in any print or electronic media of any statutory notice Advertising by way of signs / banners / hoarding/ artwork etc Payments made to any advertisement agency for the above

mentioned purposes Distribution of samples (free/concessional) Payment to any person of repute for prompting sales

SALES PROMOTION & PUBLICITY

Page 14: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

Selling expenses are not ‘Sales Promotion Expenses Commission to selling Agents ...

(Q.No.58) Incentive for quantity targets to distributors …

(Q.No.61) Some Issues :

Does a gift to customer fall under ‘sales promotion’ or ‘gift’? …(Q.No.98)

Free offer with freebies with product is for sales promotion & liable for FBT (Qs. No. 66)

Distribution of T-shirts & Cap with company’s logo Calendar, Panchage & Diary with details of company’s product.

SALES PROMOTION & PUBLICITY …

Page 15: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

Dictionary Meaning : “Employee’s Welfare means the health, happiness and fortunes of a person or a group”.

Scope : Books & Periodical …(Q. No.75) Uniform / safety shoes …(Q. No.74) Prize / Reward …(Q. No.76) Medical reimbursement …(Q. No.69)

o Upto Rs.15,000 - coveredo Exceeding Rs.15,000 – not covered

Approved Gratuity fund and Provident Fund …(Q.No. 38) Group Personal Accident / Group Health Insurance …(Q.No.68 & 70)

Workman’s Compensation Insurance and Group Personal Accident Insurance, to protect the employee company’s interest & not to protect the employee, therefore not tantamount to

‘Employee Welfare’……CIT v. Lala Shri Dhar [1972] 84 ITR 192 (Delhi)

Exp on meeting get together of employees & their family on non festival occasion (Qs. No. 95)

EMPLOYEES’ WELFARE

Page 16: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

Specific exclusion : Fulfill any statutory obligation Mitigate occupational hazards Provide first aid facilities in the hospital run by the employer

(Q. No.71) Provide crèche facility for the children of employee Organise sports events for employees

Specific Expenses like Food & Beverages, Festival celebration, Use of Health club, Gift, Scholarship to be considered in relevant head

EMPLOYEES’ WELFARE …

Page 17: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

Dictionary Meaning: Conveyance means “ means of transport” Transport means “carry people or goods from one place to

another by means of a vehicle, aircraft or ship” Scope:

Rent on hiring of motor car …(Q.No.82) Transport facility to children of employee …(Q. No.77) Reimbursement of car expenses & driver’s salary …(Q. NO. 78) Reimbursement of expenses from client – who has to pay FBT ?

…(Q. No. 12& 13)

Exclusions: Free or Subsidized transport for journey to employees from

their residence to place of work or vice-versa Conveyance allowance to employees …(Q. No.47) LTA …(Q. No. 44)

CONVEYANCE

Page 18: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

Meaning: Hotel means “ an establishment providing accommodation and

meals for travellers and tourists ” Boarding means “ receive meals and accommodation in return for

payment ” Lodging means “temporary accommodation”

Scope: Hotel stay expense etc. in relation to customer/client (Q.No. 67) Daily allowance to employees (Q.No.79) Reimbursement of Hotel, Boarding & Lodging exp. to professional

like lawyer or auditor, who will pay FBT? (Q. No. 13)

HOTEL, BOARDING & LODGING FACILITIES

Page 19: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

Meaning of Motor Car : “Motor-car’ means any motor vehicle other than a transport

vehicle, omnibus, road-roller, tractor, motor cycle or invalid carriage”

……Motor Vehicles Act, 1988

Distinction between Motor Car & Motor Vehicles? Motor car includes:

o Jeep [EID Parry India Ltd V. CIT 243 ITR 116 (Mad.)]o Metadore [Panchmahal steel ltd. V. CIT 81 Taxman 58 (Ahd.)]

Motor Car Excludes:o Delivery van , truck, ambulance, tractor (Q. No.85)

Scope: Repairs Running (including fuel) Maintenance of motor car/Aircraft Amount of depreciation thereon. Rent for garage (Q. No.88) Interest on Loan (Q. No.84)

REPAIRS, RUNNING, MAINTENANCE OF MOTOR CAR

Page 20: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

Some Issues - Rent paid or payable for hiring or leasing of a motor car (Q. No.

82) Operating lease Finance lease

Brown Boveri Ltd. V. IFCI Ltd. [2004] 56 SCL 21 (SC) “…Finance lease has been defined by International

Accounting Standards Committee as ‘ a lease that transfers substantially all the risks and rewards incident to ownership of an asset. Title may or may not eventually be transferred.’ Lessor is only a financier and is not interested in the assets.

Contrary to scheme of FBT (Includible in sec.17 & Contrary to Q. No. 44,47, 69 & 82)

Salary to driver of motor car (Q. No. 87) If employer engaged in the business of carriage of passenger or

goods by motor car, but give some motor car on lease then concessional rate will be applicable?

Perquisite value of car provided by employer (Q. No.81)

REPAIRS, RUNNING, MAINTENANCE OF MOTOR CAR …

Page 21: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

Scope : Telephone installed in the office in name of the company.

Exclusion : Expenditure on leased telephone line

The term leased line is a general description of a point to point circuit from a data carrier supplier. A leased line is not connected to a telephone exchange & does not provide DC power, dial tone, busy tone or ring signal.

Location of telephone installed &mode of payment is irrelevant. (Q.No.90)

Some Issues - Fixed telephone allowance per month paid to Employees

TELEPHONE (INCL MOBILE)

Page 22: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

Meaning: Not defined u/s 115 WB (2)(K) Whether all guest house are liable for FBT? (Q.No. 93)

Scope: Maintenance of any accommodation in the nature of guest

house other than accommodation used for training purposes Normal maintenance expenses

o Provision of foodo Contract charges paid in respect of services at guest

house, cable charges /Internet charges etc. Capital expenses like refrigerator, T.V.(Q.No.91) Rent for guest house (Q.No. 92) Depreciation on guest house building (Q.No. 94)

GUEST HOUSE

Note : This clause is omitted w.e.f. 1/04/2009

Page 23: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

Meaning: Section 65(52) of Finance Act,1994

“Health club and fitness centre” means any establishment, including a hotel or resort, providing health and fitness services.

Section 65(51) of Finance Act,1994“Health & fitness service” means service for physical well being such as sauna and steam bath, Turkish bath, solarium , spas, reducing or slimming saloons, gymnasium, yoga, meditation, massage (excluding therapeutic massage ) or any like service”

Similar facilities includes - Fitness centre, Health saloons , Gymnasium, Massage centre, Slimming centre, Aerobics centre

Scope: Payment made to whom is not relevant

Exclusion: Depreciation of health club building

HEALTH CLUB & SIMILAR FACILITIES

Page 24: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

Some Issues: ‘Sports facilities’ can be covered under the ambit of ‘& similar

facilities’? Reimbursement of health club expenses of employees (bills

are issued in the name of employees), liable to FBT? Employer incurred expenses on the maintenance of health

club & similar facilities, will be covered under this clause? Entrance & Memberships fees of the club (Q.No.96)

HEALTH CLUB & SIMILAR FACILITIES …

Page 25: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

Meaning of ‘Gift’:Section 2(xii) of the Gift –tax Act, 1958

‘Gift’ means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money’s worth, and includes the transfer or conversion of any property referred to in section 4, deemed to be a gift under that section.

Issues: Gift V. Advertisement Articles presented or gifted carry the company’s name or logo, it

would be ‘advertisement’ rather than ‘gifts’.CIT v. Allana Sons (P.) Ltd. [1995] 216 ITR 690 (Bom.)CIT v. West Coast Paper Mills Ltd. [2001] 250 ITR 506

(Bom.) Gift to distributors/retailers under trade schemes (Q.No. 97) Gift to customer for the purpose of sales promotion (Q. No. 98) Gift on the occasion of marriage of employees (Q. No. 99) Lucky draw

GIFTS

Page 26: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

FESTIVAL CELEBRATION

Includes – meeting/get-together of employees and their family members on the occasion of any festival (eg. Christmas new year)

Excludes - Expenses on Independence Day & Republic Day (Q. No.95)

w.e.f 1/4/2009, rate is reduced to 20% from 50%

SCHOLARSHIPS

TOUR & TRAVEL (INCL. FOREIGN TRAVEL)

REPAIRS, RUNNING, MAINTENANCE OF AIRCRAFT

Includes – education of employees sent to an educational institution

Includes – Expenses incurred on outstation travel Excludes – Expense incurred by a professional like a lawyer or auditor and reimbursed as out-of-

pocket expenses

Page 27: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

FBT ON CROSS BORDER TRANSACTIONS Scope:

Applicability of FBT to Foreign Companies …(Qs. No. 22) Liaison Office in India …(Qs. No. 26) Foreign company has Permanent Establishment in India incurs expenses

outside India attributable to operations in India

…(Qs. No. 27) If Foreign Company deputs personnel to India for Short duration

….(Qs. No. 30) FBT payable by foreign company if employee are not taxable in terms of

dependent personnel service ….(Qs. No. 31) Issues:

Meaning of employees based in India Employees taxable in India Employees staying in India for long duration Employees resident in India Employees rendering services in India

“A man base is the place where he should be regarded as ordinarily working, even though he may spend days, weeks or months working overseas”

– Todd v. British Midland Airway

Page 28: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

No segregation of expenses incurred on employees or others Capital or Revenue Expenditure Pre-operative Expense Net expenses to be considered in case of recovery from

employees Cost Sharing agreement with group companies (Qs.No.33) Disallowance u/s-37 (Qs.No.35) Bogus Expenditure Accounting Records FBT deductible for computing Book Profits-[115JB](Qs. No. 103) The employer can recover the FBT paid on ESOP from the

employee u/s 115WKA

OTHER IMPORTANT INFORMATION

Page 29: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

Meaning of the term business of construction – “ All activities refereed to in section 115WC- covered”- Qs. No. 106

Meaning of the term Computer Software – “ Assume its natural meaning i.e., recording of programmes on any disc, tape or perforated media or other information storage device” – ITES Excluded – Qs. No. 105

Basis of allocating common expenditure in case of an employer having multiple businesses – FBT payable Qua Employer – Expenditure attributed to various businesses on the basis of share of expenditure on wages & salaries in the total Expenditure in all businesses. Qs. No. 41

OTHER IMPORTANT INFORMATION …

Page 30: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

TAX COMPLIANCE

Advance Tax:DUE DATE AMOUNT OF FRINGE BENEFIT TAX PAYABLE

(ON OR BEFORE) NON CORPORATE ASSESSEE CORPORATE ASSESSEE

15th June - Not less than 15%15th September Not less than 30% of tax due Not less than 45%15th December Not less than 60% Not less than 75%15th March Whole of the amount Whole of the amount

Filing of Return: Similar to that of tax on incomeDUE DATE AMOUNT OF FRINGE BENEFIT TAX PAYABLE(ON OR

BEFORE) 30th September -

Companies / Other Employers who are required to get their accounts audited under I.T. Act or under any other Law

31st July Other Employers not included in above category

Page 31: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

BINDING NATURE OF CIRCULARS ISSUED BY CBDT

The legal and binding nature of the circulars issued by the CBDT under section 119 of the Income-tax Act has been examined by the supreme court in the case of UCO Bank v. CIT [237 ITR 889] Such circulars even though granting benefit beyond the

provisions of the law are binding on the Officer of the Tax Dept.

Circulars, which are adverse to the assessee, are not binding on the assessee and he can take a view as per the provisions of the law.

Circulars though can be used as aid to interpretation of statue or to understand the intent of the Government, it cannot interpret the law and therefore, are not required to be followed by the tribunal or the courts while interpreting the law.

The Circulars cannot override judicial decisions rendered on the statute

Page 32: The Law  The Procedure  Issues over Cross Border Transaction PRESENTED BY – CA. HARIRAM GILDA.

Recommended