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September 25, 2006
Foreign
NGOs liable to pay Fringe Benefits Tax in India
The Indian
Authority for Advance Rulings ("AAR") has
recently held that a
foreign non
governmental organization ("NGO") is
liable to pay Fringe Benefit Tax (“FBT”)
in India even if no income-tax is payable on its total income
computed in accordance with the provisions of the Income Tax Act, 1961
(“ITA”).
Chapter XII-H of the
ITA, with sections 115W to 115WL, contains the definition section,
the charging section, assessment, etc in relation to FBT. Section
115WA, the charging section, provides that FBT shall be levied in
addition to income tax charged under the ITA and shall be levied
on the fringe benefits provided or deemed to be provided by an
employer to his employee. Clause (2) of section 115W clarifies
that FBT shall be payable by an employer even if he is not
otherwise liable to pay income tax. According to section 115 WB
(1), fringe benefits are any privilege, service, facility or
amenity directly or indirectly provided by an employer to an
employee by reason of his employment, or any reimbursement made by
an employer directly or indirectly for any purpose, or any free or
concessional travel ticket for private journeys, or any
contribution by an employer towards an approved superannuation
fund.
In
the instant ruling, the applicant, 'The Population Council,
Inc. U.S.A. ("Population Council"), a resident of
USA is an international not for profit, NGO
that is primarily engaged in bio-medical research in reproduction
and family planning. The applicant enjoys tax exemption in the
U.S. under the Internal Revenue Code of the U.S. and its
activities in India fall within the approved objects for the
purpose of granting exemption in the U.S. Its presence in India is
comprised of a regional office and a country office. Notably
however, it does not enjoy exemption from tax in India under
sections 10(23C) or section 12AA of the ITA. It sought a ruling
from the AAR
on whether it is required to pay FBT in India.
Population
Council's case was that it does not generate any income in
India, it is not subject to tax in India on income, and also its
expenses are met by foreign inward remittances. Hence, it should
not be liable to pay FBT. While FBT is chargeable in addition to
income tax and is a measure to compute additional tax liability, Population
Council argued that if a person is not liable to pay
income tax in India in the
first instance, there can be no additional tax liability
calculated on it on account
of fringe benefits. The applicant further contended
that clause (2 )
of Section 115WA of the ITA does not apply to it,
as it has no income in
India, which is required to be computed in accordance with
the provisions of the ITA.
On
an interpretation of the said sub-section, the AAR held that the
sub-section is
clarificatory in that ,
even when no income tax is payable by an employer on his total
income, the tax on fringe benefits shall be payable by such
employer. The AAR further held that it would be futile to contend
that if there is no total income which can be computed in
accordance with the provisions of the ITA, no FBT would be payable
by the employer and that such an interpretation would be contrary
not only to the intention of the Parliament but also to
the plain language of the provision and the basic
principles of interpretation.
It is to be noted that
under the provisions of section 115W of the ITA, any person,
eligible for exemption under section 10(23C) or registered under
section 12AA of the ITA or a registered political party is deemed
not to be an “employer” and hence not liable to pay FBT under
the provisions of FBT.
Impact:
A
non-resident, whose income is not taxable under the ITA is liable
to FBT in India. Any
NGO, which has not obtained tax exempt status in India would be
liable to pay FBT, irrespective of whether it is set up as a
liaison office or a branch or a chapter in India
and is tax exempt in its home country.
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You
can direct your queries or comments to the authors
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Source:
AAR No 677 of 2006
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