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Court stays levy of FBT on Chennai firm

Special Correspondent

`New provision did not even exempt charitable institutions'

CHENNAI: The Madras High Court has stayed the levy of the Fringe Benefit Tax (FBT) on a Chennai-based audit firm, which challenged the tax on the ground that it was unreasonable and irrational.

Justice K. Ravirajapandian granted the interim injunction in so far as it relates to Kumbhat & Co, on a petition filed by the Tamil Nadu chapter president of All India Tax Payers Association, Ashok Kumbhat. He also ordered notices to the Union Ministries of Finance and Law, Justice and Company Affairs.

The petitioner challenged the constitutional validity of Sec. 115WA to 115WL of the Income-tax Act as introduced by the Finance Act 2005. The new measure sought to tax "privileges, services, facilities and amenities directly or indirectly provided by an employer to an employee or reimbursements made directly or indirectly for any purpose.''

Under the impugned provision, payments of certain expenses by the employer are deemed as fringe benefit and certain percentage of such expenses is deemed as value of the fringe benefit.

However, assailing the "notional and presumptive'' FBT, Mr. Kumbhat said the new provision did not even exempt charitable institutions, which had no profit motive behind their activity. He further said, "if this levy is allowed to continue, the influence of foreign taxation formula will be injected into the Indian income tax law, completely shaking the confidence in the taxation policy in India." He said taxing depreciation on motor cars and aircraft would "amount to exaction of tax in an indirect manner and will work as a disincentive.''

He prayed for the declaration of the impugned provisions as ultra vires Articles 14 and 19(1)(g) of the Constitution in so far as the petitioners were concerned. Mr. Justice Ravirajapandian, admitting the plea, granted the interim plea as prayed for.

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