Case of Authority for Advance Rulings, December 13, 2006 (case In Re: R and B Falcon (A) Pty Ltd. Vs)

PresidentSyed Shah Mohammed Quadri, J. (Chairman), A.S. Narang and A. Sinha, Members
Resolution DateDecember 13, 2006


Syed Shah Mohammed Quadri, J. (Chairman)

1. This application by a non-resident - R & B Falcon (A) Pty Ltd. - is filed under Section 245Q(1) of the IT Act, 1961 (for short "the Act"). The applicant is incorporated under the laws of the Commonwealth of Australia. It is engaged in the business of providing mobile offshore drilling rig (MODR) along with crew on a day rate charter hire basis to drill offshore wells. On 10th Oct., 2003 the applicant entered into a contract with ONGC for supplying MODR along with equipment and offshore crew. The employees of the applicant work on the MODR on commuter basis. Under this system an employee works on MODR for 28 days (called on days) which is then alternated by a 28 days field break (called off days) when he stays at the place of his residence. The members of the crew are residents of various countries like Australia, USA, UK, etc. They are transported from their home country to the MODR in two laps - the first is from the nearest designated base city at the place of residence in the home country to a designated city in India for which the applicant provides free air tickets of economy class and the second is from that city in India to MODR through helicopter especially hired by the applicant for this purpose. On completion of 28 days they are transported back from MODR to the designated base city in their home country in the same manner. They are not paid any conveyance/transportation allowance.

The fringe benefit tax (for short 'FBT') was introduced by the Finance Act, 2005. To clarify the provisions relating to FBT, the CBDT issued Circular No. 8 of 2005 on 29th Aug., 2005 [(2005) 197 CTR (St) 85]. The applicant claims that the answer to question No. 104 in the said circular shows that it is not liable to FBT and that subsequently Section 115WB(3) of the Act was amended by Finance Act, 2006 to exclude from the operation of FBT any free or subsidized transportation facility provided by the employer to his employees for journeys by the employees from their residence to the place of work or such place of work to the place of residence. On these facts, the applicant seeks advance ruling of the Authority on the following question:

Whether transportation cost incurred by R & B Falcon (A) Pty Ltd. (hereinafter referred to as the "applicant") in providing transportation facility for movement of offshore employees from their residence in home country to the place of work and back is liable to fringe benefit tax ("FBT")?

2. The jurisdictional Commissioner (for short 'the CIT') submitted his comments to the application. It is stated that the employees of the applicant had to work and sleep on the rig for 28 days and there is no element of transportation of these employees from the place of work to their residence on day-to-day basis during that period. The expenses incurred on transportation of the employees from the home country to the place of work in India is covered under Section 115WB(1)(a) and also under Section 115WB(2)(F) as deemed fringe benefits. No tax is being paid by employees for the transportation, therefore the expenses incurred by the applicant have to be treated as fringe benefits under the Act. The CBDT issued Circular No. 8 of 2005, dt. 29th Aug., 2005 to explain the operation of the FBT in the form of questions and answers. The applicant has incorrectly placed reliance on question No. 104 and the answer thereto. As per the clarification given in the answer to the question No. 7 in the circular such benefits as are provided by the applicant to its employees are covered under FBT and it is only when they cannot be guantified, they will not be brought under FBT. Answers to question Nos. 34 and 78 would show that the applicant falls within the ambit of Clause (F) to Sub-section (2) of Section 115WB of the Act. It is added that the applicant has a PE in India and has been filing returns of its income under Section 44BB of the Act. Since its employees have been working on the rig in India, the applicant would be the employer in India and as such is liable to FBT on the travel cost.

3. Mr. Mukesh Bhutani, learned Counsel appearing for the applicant, submits that three categories of employees are working under the applicant (1) employees based on land who attend to the administration, etc. (ii) Indian employees working on the rig and (iii) foreign nationals (employees) who are transported to the rig from outside India; and this application relates to the third category of employees. Having regard to the nature of duties to be performed by the offshore employees on the rig, namely, staying during on days (for 28 days) on the rig and staying off days (for 28 days) at the place of their residence, they are being transported by the applicant from their home country to a designated airport in India by airplane and from there to the rig by helicopter; such transportation of offshore employees does not fall within the charge of FBT under Section 115WA of the Act. According to him the position is made clear by the CBDT Circular No. 8 of 2005 which clearly excludes such transportation of employees from the ambit of the charge of FBT; further, the same position is also made clear by Section 115WB(3). The plea of the CIT, contends the learned counsel, that as the residence of the offshore employees is rig, no transportation is involved during on days and the transportation of the employees from their home country to the rig is not covered by Sub-section (3) of Section 115WB and that it is liable to FBT in view of the provisions of Sections 115WB(1)(a) and 115WB(2)(F), is untenable in law. Mr. Y.S. Rawat, the CIT, Dehradun, on the other hand, has argued that the employees are carried in batches to the rig and they are alternated after each period of 28 days; the employees live on the rig for 28 days while they are on work there, therefore, the place of residence of the employees is the rig and as such no transportation of offshore employees is involved during the period when they work on rig. Mr. Rawat submits that the...

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