R. Anand

R. Anand on the delay in intimating the extension of FBT payment

EVEN as employers were busy finalising the first instalment of fringe benefit tax (FBT), a host of issues were raised seeking clarification by the Central Board of Direct Taxes (CBDT). As per Section 115WJ of the Income-tax Act, advance tax is payable every quarter, the first falling due on July 15, 2005.

Though press reports indicated that the CBDT would issue a circular making clear the various components exigible to FBT, no such circular was issued and various companies remitted the first instalment of FBT on July 15 based on their understanding of the legal provisions. The Institute of Chartered Accountants of India (ICAI), it is learnt, had written to the CBDT seeking extension of the date for payment of the first instalment till the issues were clarified. However, no such intimation confirming any extension of the deadline was received and law-abiding assessees paid the first instalment on July 15.

Some of the bank branches refused to accept the instalment stating that the Code Nos for collecting FBT were not received by them.

Deadline extended

On July 18, the CBDT issued Notification No. 142/24/2005-TPLextending the deadline for payment of first instalment by one month to August 15, 2005:

"It has been brought to the notice of Central Board of Direct Taxes that Fringe Benefit Tax, being a new levy and taxpayers not being familiar with the practices and procedure for payment of this tax, are facing difficulty in payment of the first instalment of the advance Fringe Benefit Tax due on or before July 15,2005.

"It has accordingly been decided that interest shall not be charged on delayed payment of the first instalment of advance Fringe Benefit Tax up to August 15, 2005. It may also be clarified that in any case, penalty is not leviable for delayed payment of advance Fringe Benefit Tax."

The key issue here is that the notification was issued well after a number of law-abiding employers had paid the first instalment on July 15. The notification also highlights that for the one-month delay no interest will be levied which, under the law, is exigible at 1 per cent per month for the shortfall.

It is a matter of concern that employers struggled during the first 15 days of July in order to remit the tax before the deadline. On the other hand, employers who did not bother to pay up by July 15 have got an unfair reprieve.

It is unfortunate that the system often puts law-abiding citizens to hardship and allows those who circumvent it derive maximum advantage.

This is not the first time notifications on matters requiring urgent attention have been delayed.

In the instant case, if there were genuine reasons for the delay in issuing a circular, the least that the authorities could have done was inform in advance that the first instalment would need to be paid only by August 15. By delaying the process, the only assessees standing to benefit are those who assumed that the system would offer relief through an extension of time.

The employers who forked out huge sums of money on July 15 stand to lose interest on the funds parked with the Government, which legitimately should have been deployed in business till August 15. Who will compensate them for complying with the law both in letter and spirit?

The FBT dispensation is fraught with legal and procedural problems. It may be a good revenue-raising tool and administrative hiccups, it would be argued, are expected in the first year. But this is no reason for not initiating a public debate to ensure smoother implementation. As matters stand, the appellate authorities and courts are likely to be kept busy on the FBT front.

(The author is a Chennai-based chartered accountant.)

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