The recent Circular No. 8/2005 of the Central Board of Direct Taxes as it reads is an attempt, “to provide a harmonious, purposive and contextual interpretation of the provisions of the Finance Act, 2005 relating to the FBT so as to further the objective of this levy." The H P High Court in Himachal Pradesh State Forest Corporation Ltd. vs. Deputy CIT (231ITR556) held that the courts are not bound by any interpretation given by the CBDT. Even the A O is to be careful in following such interpretation especially for the reason that the assessment proceedings are quasi-judicial in nature and while making assessments, Income-tax Officer is solely to be guided by the provisions of the statute vide Andhra Pradesh High Court in Raja V.V.V.R.K. Yachendra Kumara Rajah of Venkatagiri vs. Income-tax Officer (70ITR772). Thus the Circular issued by the CBDT containing clarificatory replies on as many as 107 FAQs has a mere persuasive value under the law and it cannot have binding effect. But certainly if the employer chooses to follow an interpretation other than the one as per the Circular it must suo motu disclose such fact in the first return falling due in October, 2006.
The Supreme Court in State Bank of Travancore vs. Commissioner of Income-tax (158ITR102) held that the circulars issued by the board cannot detract from the provisions of the Act. As per the Circular answer to FAQ No. 2 'employer-employee relationship is a pre-requisite in the levy of FBT'. If that be so then how would one justify it being charged even in relation to expenditure incurred on persons who are not employees such as vendors, customers, agents etc. The Circular place importance to the words' any expenses' in sub-section (2) of section 115WB while it omits to look upon the previous insertion' if the employer' implying thereby that the expenditure projected in the section is that incurred as an employer qua the employee(s) and not in any other capacity.
Legal Fiction- not to cause injustice
It is well settled by the Supreme Court in Bengal Immunity company Limited v. State of Bihar  2 SCR 603, 606 ; 6 STC 446, that the legal fictions are created only for some definite purpose and these must be limited to that purpose and