FINANCE ACT (No.26), 2009 AND FINANCE ACT (No.2), 2009
The Finance Bill (No.2), 2009 could be presented on Sixth of July, 2009 due to formation of new government but by that time many corporate assessees had already paid the first instalment under the belief that the Finance Bill has yet to be accorded consent by the President and is not final. The advance tax in respect of FBT which was payable for the quarter ending 30th of June, 2009 by 15th of July, 2009 was paid erroneously by many of them. It is not surprising to see that due to the passing of the budget taking its normal course though expedited this time as it received the consent of the President, the Act is dated 19th of August, 2009, yet there were many non company assessees too who had paid their FBT instalment for September, 2009 in the following month. The effect of budget provisions takes its time to percolate amongst the assessees. In fact there was the Finance Act (No.26), 2009 which had been passed on 20th of March, 2009 to continue to levy rates that were existing rates of income tax for the financial year 2009-2010. It further provided under S.2 shall come in to force with effect from April 1st, 2009 and with very few changes continued to apply the rates of F.A (No.18), 2008. The actual Finance Act (No.2), 2009 came later on which abolished the regime of Fringe Benefit Tax with effect from first of April, 2009. Many assessees had ignorantly paid the advance instalment based on the taxable value of fringe benefit which unlike advance tax does not set a threshold limit of Rs.5000. FBT is required to be paid regardless of this, uniquely very excruciating, though nobody ever objected to this harshness imposed on the small taxpayers!
S.294 of the Income Tax also states that where on first day of April in any assessment year if provision has not been made in any Central act for charging of income tax for that assessment year, this Act shall nevertheless have effect until such provision is so made as if the provision in force in the preceding assessment year or the provision proposed in the bill then before the Parliament, whichever is more favourable to the assessee will be applicable. But this does not come in aid as the Finance Act (No.26) was already there so old provisions continued to hold their sway.
ABOLISHING FRINGE BENEFIT TAX S.115WM INSERTED:
S.115WM of the Finance Act (No.2), 2009 was inserted to abolish Fringe Benefit Tax from assessment year 2010-2011 relevant to financial year 2009-2010. FBT was initially brought by adding Chapter XII-H by the Finance Act, 2005 effective from the assessment year 2006-07 by having S.115W to S.115WL contained in Part-A to C.
REPEAL OF FINANCE ACT (No.26), 2009 BY SECTION 117
Chapter VI of the Finance Act, 2009 has a repeal section S.117 repeals stating, “the Finance Act, 2009 (26 of 2009) is hereby repealed and shall be deemed never to have been enacted.” This was indeed enacted to obliterate the aforesaid Act which too was operative since First of April, 2009 so that it does not militate with the Finance Act (No.2), 2009 and its amending provisions.
FRINGE BENEFIT MAKES BACKDOOR ENTRY IN SECTION 17(2) AS SUBSITUTED WITH SUB CLUSES: A GIMMICK!
Though the Fringe Benefit Tax is abolished there is already an incursion made in to the sections dealing with the perquisites. The result is fringe benefit shall be taxable perquisite in the hands of all employees. Old S. 17(2) (vi) stood substituted and after amendment under Finance Act (No.2), 2009 inserted clause (vii) and (viii) to S.17 (2) further read with new rule 3 which notified on 18th December, 2009 vide notification 94/2009 brought under rule making power of the CBDT in S.295 of the Income Tax Act, 1961. The notification has provided the basis of valuation of certain perquisite in respect of residential accommodation and motor car etc. Rule 40F in the above notification has made the provision of Chapter-VIIC of Income Tax Rules relating to FBT non applicable with effect from the said date of abolishing of fringe benefit tax as stated above.
REFUND UNDER SECTION 237 READ WITH SECTION 239 BUT WHAT ABOUT INTEREST UNDER S.244A:
There is no circular to clarify the position whether the FBT paid by such assessees shall be refunded or adjusted. Should the assessee file their refund claim under section 237 read with section 239(2) (d) which becomes applicable to the Fringe Benefit Tax.
One thing that is to borne in mind is the fact that the Finance (No.26) Act, 2009 was in force at the time of the payment of first instalment by corporate on 15th of July, 2009 though the proposal to abolish was there in the Finance (No.2) Act, 2009 which did not have the force of law having not been passed and become an Act till 19th August, 2009. Therefore the benefit of refund under section 237 is squarely available as the assessees have paid though not liable to pay by virtue of latter amendment. The amount of tax paid exceeds the amount that is properly chargeable from him under the I. Tax Act for that year. In this case normal procedure of filing return under claim for refund is not available to them. The claim may be filed in Form-30 forthwith as there is no assessment year for such financial year due to abolishing of the FBT by latter Act. Interest may be payable in this case as it has been tendered in the manner an advance tax is paid but then there is an embargo there that no interest shall be payable if amount of refund is less than 10% of the tax determined under section 143 (1) which eventuality in unlikely in the present case when the tax got abolished by latter amendment. But it can be argued that at the stage of payment the situation contemplated by the earlier statute prevailed. It would have been better for the legislators to deal with such a situation which was unthinkable though while repealing an Act and seeing its ramification so as to adequately address the same than to leave scope for litigation.
But going further it may be argued that such non corporate assessee paid the same after the Finance (No.2) Act, 2009 had been in force and the tax was abolished due to mistake on their part in not knowing the provisions which they were supposed to be in know of. In their case the amount deposited is not legally due from them under the constitution of India by virtue of Article 265 and therefore to be remitted back or else it shall be unauthorised collection of tax. The interest may not be payable to them for they have paid under mistake of law and no advance tax was ever due to help their case under section 244A.
SOME CASE LAWS ON DUTY UNLAWFULLY COLLECTED:
The following judgement by the Apex Court in the matter of excise duty is very elaborate and exhaustive as it dealt with various other judgements on the said matter which have not been touched upon here though the readers may go through the text to widen the base of their knowledge and wisdom.
Supreme Court in their judgement in Mafatlal Industries Ltd V. UOI 1997 (89) ELT 247 (S.C.) had the occasion to deal with S.11B and S.11D amended by Amendment Act 40 of 1991 where they held as under in respective para:
299. In conclusion, I hold that the Government is permitted to levy and retain only that much of excise duty which can be lawfully levied and collected under the Central Excise Act read with the Central Excise Tariff Act, 1985 and the Central Excise Rules and various notifications issued from time to time. Anything collected beyond this is unlawful and cannot be retained by the Government under any pretext. The illegal levy and collection of duty violate not only the Central Excise Act and the Rules but also offends Article 265 of the Constitution of India.
300. I am of the view that the provision of Section 11B is a device for denying the claim for refund of duty to a tax-payer and must be struck down as violative of Article 265 of the Constitution. It in effect tries to perpetuate an illegal levy without altering the basis of the law under which the levy was made in any way. It is also a colourable piece of legislation and must be struck down.
301. Section 11D imposes unreasonable restriction on the right to carry trade and violates Article 19(1) (g). Excise authority cannot deny the manufacturer the freedom to commerce and trade and take away a portion of the contract price even without raising any demand or giving any hearing. The Excise Officer cannot under any circumstance give the balance to the ultimate consumer or credit the amount to the Fund. Section 11D is arbitrary and is a colourable piece of legislation and is hereby struck down.
302. Sections 12C and 12D are parts of a device to withhold refunds of unlawfully gathered tax. These provisions are also violative of Article 265 of the Constitution.
2008 TMI – 5006 – SUPREME Court
In SAL Narayana Row, CIT-Bombay City & Anr. V. Model Mills Nagpur Ltd. (SC) decided as under:
Refund- Tax illegally collected- additional tax levied on the excess dividend declared by the company-High Court was right in directing the Commissioner to refund the amount of tax-department appeal dismissed.
AUTHOR: CA.VIJAY K KALIA
COMMENT FROM AUTHOR ON 30.01.2010 AFTER PUBLICATION OF ABOVE ARTICLE
DEAR READERS
THE CIRCULAR NOW IS OUT 2/2010 AS IN TAXGURU SITE ITSELF ALLOWING ADJUSTMENT OR REFUND OF FBT PAID TOWARDS ADVANCE TAX FOR ASSESSMENT YEAR2010-2011.
DEAR READERS
THE CIRCULAR NOW IS OUT 2/2010 AS IN TAXGURU SITE ITSELF ALLOWING ADJUSTMENT OR REFUND OF FBT PAID TOWARDS ADVANCE TAX FOR ASSESSMENT YEAR2010-2011.
FROM CA. VIJAY K KALIA