Question

The Disco Biscuit Company is a resident company that owns and operates a car dealership. During the year, the company has provided the use of a car to a number of people. The details are shown below. For each of the below transactions, explain by referencing to legislation and case laws applicable whether the provision of the vehicle represents a fringe benefit. a. Mary, the wife of Damon who is a salesperson of the company, received a car to use. b. Gabby operates the business of providing an advertising consulting services to clients. The Disco Biscuit Company gives Gabby the use of a Mercedes for her services provided to it instead of paying a fee for her service upon their mutual agreement. c. Nigel, a salesperson, receives the use of a Lexus, a luxury car. d. Tristan, the managing director, is given the use of a Jaguar (car) instead of receiving a director’s fee

Answer 1

Fringe benefit can be defined as form of payment usually made from employers to employees, and is considered as compensation for services beyond the employee's normal rate of pay. They can be made in the any form, for e.g. property, services, cash or cash equivalents.

Following provision of Income Tax Act,1961 will apply-

As per section 17(2)(V) of Income tax act, 1961. If the automobile/car provided by employer to employee or his family is used for own purpose and if the expenditure is borne by employer utterly then whole amount will be taxable as fringe benefit in employee's salary. No benefit can be availed by worker in this behalf.

Taxable amount will be as below.-

• If car engine capacity ≤ 1600cc, perquisite is 1,800 p.m. + 900 p.m. (if driver is provided)
• If car engine capacity > 1600cc, perquisite is 2,400 p.m. + 900 p.m. (if driver is provided)

In the above question Disco built company is a resident company that owns and operates a car dealership. However, some services are provided to its employees in the year. Let us see in which case it can be termed as fringe benefit.

a) Mary, the wife of Damon who is a salesperson of the company, received a car to use.

Ans. As per provision quoted above. It can be referred to as the Fringe benefit. As employees wife used it for personal purpose. However, if Mary paid for the use than it won't be termed as fringe benefit and won't be clubbed in Damon's salary. If it is free of cost, then the amount of service used will be treated as fringe benefit and will be taxed in Damon's salary.

b) Gabby operates the business of providing an advertising consulting services to clients. The Disco Biscuit Company gives Gabby the use of a Mercedes for her services provided to it instead of paying a fee for her service upon their mutual agreement.

Ans. As per provision quoted above. It cannot be referred to as the Fringe benefit. As here there is no employee-employer relationship. It is just the exchange of services between two parties i.e. Gabby and Disco Buiscit Company.

c) Nigel, a salesperson, receives the use of a Lexus, a luxury car.

Ans. As per provision quoted above. It can be referred to as the Fringe benefit. As employee used it for personal purpose. The same will be taxable as per the value calculation parameters given above.

d) Tristan, the managing director, is given the use of a Jaguar (car) instead of receiving a director’s fee

Ans. As per provision quoted above. It can be referred to as the Fringe benefit. As Director is treated as employee of the organization and instead of Director's remuneration (which is like salary only) he has been provided with car which can be term.

Respective case law-
Commissioner of Income-tax v. Rajesh Textile Mills Ltd
(High Court Of Gujarat At Ahmedabad)
Income Tax Reference No. 54 Of 1979 | 30-04-1988