Page 249 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes

Notes Constitutionality of Fringe Benefi t Tax

FBT is constitutionally valid as it has come into force by the powers conferred by Indian
Constitution through the below Articles:
1. Article 39: Principles of policy to be followed by the state for securing economic
justice © to ensure, the economic system should not result in concentration of wealth
and means of production to the common detriment. Whereby, it’s the duty of Centre
to take steps for securing economic justice. This new measure is nothing but a step
taken by the government as a functional form highlighted under the Article 39 of the
constitution.
2. Article 265: No tax can be levied or collected except by authority of law. The
Authority of law means the legislative competence of the legislature imposing
the tax. In this case, the Finance Ministry as passed this legislation which has the
absolute legislative competence to pass the law.
3. Article 14: The principle of classification is applied somewhat liberally in case of

taxing statutes. “where the power to tax exists, the extent of the burden is a matter
for discretion of the law makers”. The evident indent and general operations the tax
legislation is to adjust the burden with the fair and reasonable degree of equality.
4. Article 270: All taxes and duties referred to in the Union List except the duties and

taxes referred to in Article 271 and any tax levied for the specific purposes under any
law made by Parliament shall be distributed between the Union and the states.
5. Article 271: Centre could levy a surcharge on Income tax on non-agricultural income
for its exclusive use without sharing with States. Hence, Central Government -can
levy Tax + Surcharge which is similar to levying Fringe Benefit tax , thereby, it is

validated by the constitutional provision (i.e.) through Article 270 and 271
6. FBT is also constitutionally validated by applying the Schedule VII of Indian
Constitution.
Entry 82: Taxes on income other than agricultural income can be levied by Central
Government. Therefore, FBT is nothing but a tax on income.
Entry 97: Any other matter not enumerated in List II or III including any tax not mentioned
in either of those lists. “If however, no entry in any of these lists covers it, then it must be
regarded as a matter not enumerated in any of the three lists. Then, it belongs exclusively
to parliament under Entry 97 of the Union List as a topic of legislation”. Wherefore, the
Expenditure tax also falls in the Residuary Entry as there is no entry in any list under
which it can fall. Hence, it is very clear from above constitutional provisions that FBT is a
valid one.

Self Assessment

State whether the following statements are true or false:

9. Fringe Benefit Tax was introduced in India in the year 2000-2001.

10. Non-taxable (excludable) is not excluded from wages by a specific IRC section.
11. The fair market value of the stock is taxable to employee.
12. 2% owner/shareholders of Sub Chapter S Corporation cannot get full tax-free/tax-deferred
status in disability insurance, and cafeteria plans.

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