TMI Blog2014 (2) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... eping in view the employee welfare - The exclusion in respect of payment towards medical expenditure and leave travel is considered after verifying the details and evidence furnished by the employees - No exemption is granted in the absence of details and/or evidence - The exemption in respect of medical expenditure is restricted to expenditure actually incurred by the employees - The exemption is granted even if the payment precedes the incurrence of expenditure - The requirements/conditions of section 10(5) and proviso to section 17(2) are meticulously followed before extending the deduction/ exemption to an employee - No tax can be recovered from the employer on account of short deduction of tax at source under section 192 if a bona fide estimate of salary taxable in the hands of the employee is made by the employer – Decided against Revenue. - IT Appeal Nos.1215 to1220 Bang/2012 & 573 to 584 Bang/ 2013 - - - Dated:- 31-7-2013 - N.V. VASUDEVAN AND SHRI JASON P. BOAZ , JJ. For the Appellant : Sadananda Sondarsa. For the Respondent : Kaushik Mukherjee. ORDER:- Per Bench : ITA Nos. 1215 to 1217/Bang/2012 are appeals filed by the revenue against the common ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormation technology enabled services to the Oracle group. Oracle Solution Services (India) Pvt. Ltd. is an Indian company incorporated on 18th July, 1995 and is engaged in the business of computer software consulting and implementation. It also provides software consulting services to Oracle group of companies. 7. A survey u/s.133A of the Income Tax Act, 1961 (the "Act") was conducted at the business premises of the Assessees. The salary structure of the employees of the Assessee was examined by the Officers carrying out Survey in the light of the obligations of the Assessee as employer to deduct tax at source at the time of making payment of salaries to its employees. 8. Section 192(1) of the Act casts an obligation on the part of person responsible for paying income chargeable under the head "salaries" to deduct tax at source, at the time of payment. Section 192 (1) of the Act reads as under:- "192. Salary.-(1) Any person responsible for paying any income chargeable under the head "Salaries" shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ite falling with the definition of perquisites as given in sec.17(2) (iv) and (v) of the Act, respectively. 11. As far as Medical reimbursement is concerned, if the amount paid by an employer to the employee for medical treatment of the employee or his family is Rs.15,000 or less per annum, then the same will not be perquisite as laid down in Sec.17(2) proviso (v) of the Act and therefore need not be considered as part of "salary" for the purpose of deducting tax at source at the time of payment by the employer to the employee. In other words, expenditure actually incurred on medical treatment to the extent of Rs.15,000/- is exempt and the remaining is taxable. 12. As far as Leave Travel Concession is concerned, Section 10(5) of the Act lays down that any leave travel concession granted to an employee by the employer to the following extent shall not be included in the total income. "In the case of an individual, the value of any travel concession or assistance received by, or due to, him,- (a) from his employer for himself and his family, in connection with his proceeding on leave to any place in India; (b) from his employer or former employer for himself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, an amount not exceeding the 1st class or deluxe class fare, as the case may be, on such transport by the shortest route to the place of destination; and (B) where no recognised public transport system exists, an amount equivalent to the air-conditioned first class rail fare, for the distance of the journey by the shortest route, as if the journey had been performed by rail. (2) The exemption referred to in sub-rule (1) shall be available to an individual in respect of two journeys performed in a block of four calendar years commencing from the calendar year 1986 : Provided that nothing contained in this sub-rule shall apply to the benefit already availed of by the assessee in respect of any number of journeys performed before the 1st day of April, 1989 except to the extent that the journey or journeys so performed shall be taken into account for computing the limit of two journeys specified in this sub-rule. (3) Where such travel concession or assistance is not availed of by the individual during any block of four calendar years, an amount in respect of the value of the travel concession or assistance, if any, first availed of by the individual durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o out to meet the clients. 17. As per the employee compensation structure of the respondents, the employee's annual gross salary consists of a fixed component and a variable component like LTA, medical reimbursement providing meal vouchers etc. LTA amount is reimbursed against actual bills within the specified limits, subject to prevailing income tax regulations. The onus is on the employee to prove that he/she has undertaken the journey. LTA is reimbursed only for one round trip and it is expected that route to the final destination is shortest. In cases, where the LTA claimed against actual is less than the entitlement, then the unutilized portion is carried over to the subsequent year within the two year block. However, if the employee opts for payment of unutilized portion of the LTA amount, the same is then paid as an allowance subject to tax deduction at source. The respondent does not pay the LTA amount as upfront monthly allowance. 18. The payments to employees of the assessee include a component towards medical expenditure. If the employee submits proof of having incurred the expenditure towards medical treatment, the sum spent towards medical treatment or Rs. 15,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilar view that what is contemplated by proviso (iv) to Sec.17(2) of the Act was any sum paid by the employer in respect of any expenditure "actually incurred" by the employee on his medical treatment or treatment of any member of his family. Since the Assessee was paying medical reimbursement as a component of the monthly payment to the employee and later claiming that it was not perquisite to the extent of Rs.15,000, the same had to be considered as salary and not exempt perquisite. The reasoning is the same that the payment should not precede the actually incurring of the expenses and it should be only by way of reimbursement. 3. As far as "Meal Vouchers" are concerned, the AO held that the food and non-alcoholic beverages were being provided outside the office premises and therefore was taxable. The case of the revenue was that as per the proviso to Rule 3(7)(iii) of the Rules, free food and non-alcoholic beverages provided by employer during working hours at office or business premises or through paid vouchers which are not transferred and usable only at different eating joints shall not form part of perquisites to the extent of the value thereof in either case does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the relevant rules are met i.e. (i) No disbursement not backed by bills/proof is treated is not taxable. (ii) No disbursement in excess of I.T. Rules has been treated as exempt during the financial year. 3.7 The interpretation of the AO is too narrow and technical and in terms of a welfare measure allowed to employees across the salaried strata cannot be the correct interpretation. The appellant, an employer of tens of thousands of employees, has stated that it is taking into account 'salary' in terms of 'cost to company' as is the norm in the private sector and this merely does not mean that it is an allowance and not a reimbursement. The said benefit would clearly fit into the meaning of 'assistance' in sum and substance. As can be seen from the submissions made by the appellant, care has been taken by the employer to see that there is no irregularity in making payments under the LTA Scheme. In my opinion, the AO was not justified in treating the appellant as an 'assessee-in-default'. Hence, the demand raised and interest charged u/s 201(1) and 201(1A) are uncalled for and they are, therefore, cancelled." 4. MEDICAL REIMBURSEMENT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment Health Schedule or Central Medical Scheme (a list of such hospitals furnished by the Ministry of Health and family welfare on 11th April, 1991 is annexed). (iii) Where the expenditure is on medical insurance premia; (iv) Where the medical treatment is availed of from any doctor outside the institutions/schemes mentioned in (i) to (iii) above, an expenditure of upto Rs. 10,000 in a year, in the aggregate; and (v) Where the medical treatment is availed of in a hospital outside India and the expenditure is incurred for treatment (including on travel and stay abroad in connection with such treatment) as also on travel and stay abroad of one attendant, to the extent permitted by the Reserve Bank of India, subject to the condition that the amount qualifying for such tax exemption would not include expenditure incurred on travel in the case of employees whose gross total income, as computed under the IT Act without considering the amount paid or reimbursed for expenditure in connection with medical treatment abroad, exceeds Rs. 1,00,000. 2. The contents of this circular will be applicable in relation to the assessment year 1991-92 and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is also a welfare measure aimed at ensuring better productivity from the employees and well within the ambit of the provisions of the I.T. Act. The interpretation of the AO is too narrow and technical and in respect of a welfare measure cannot be the correct interpretation. In this context, I derive support from the order of the Hon'ble ITAT, Bench 'A', Ahmedabad in the case of ITO, TDS-1, Ahmedabad v. M/s Cadila Healthcare Ltd. reported in 2011-TIOL-582-ITAT-AHM, where the Hon'ble Tribunal has held as under: ".. the assessee distributed 'sodexo' meal coupons pursuant to an agreement with 'Sodexo' and such coupons were to be used by the employees only at the specified eating joints or outlets. With the introduction of provisions relating to FBT by the Finance Act, 2005 with effect from 01-04-2005, the relevant provisions of Rule 3(7)(iii) of the IT Rules, 1962 relating to valuation of any perquisite in the nature of provision of food provided by the employer were amended. As per clause (ii) of section 115WB(2)(B) of the Act, even FBT was not payable by the employer on the expenditure incurred through paid food vouchers which were not transferable and usable only at eating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of Sodexo coupons in the said case. b. The CIT(A) has erred in not appreciating the fact that all employees would then be entitled for exemption in respect of food expenses as they are applied from the salary income of the employee. 4. The CIT(A) has erred in not considering the distinctions drawn in respect of the judicial decisions relied upon by the deductor. 5. The CIT(A) has erred in not considering the facts that every contention of the deductor has been addressed elaborately while the AO's contentions and findings have not been reasoned against. 6. For these and other grounds that may be urged during the course of appeal, the order of the AO may be restored." 25. The ld. DR submitted before us that the approach of the CIT(A) was not correct. His submission was that there is a distinction between an incentive provision and a concession provision which has been overlooked by the CIT(A). He drew our attention to page 35 of the commentary by Rajaratnam in the book titled 'Landmark Cases 2007", wherein the ld. author after referring to the decision of the Hon'ble Supreme Court in the case of CIT v. National Taj Traders (121 ITR 533), opined tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loyees and the fulfillment of the conditions contemplated by Sec.10(5) of the Act for availing exemption by the employees so availing LTC, have not been disputed by the AO. The grievance of the AO appears to be that 40% of the pay to the employees constitutes allowance and that the allowance so given every month is not earmarked for any particular purpose but the employee was free to use the allowance in any manner and later claim that the allowance was used for LTC or medical reimbursement. Therefore, according to the AO, at the time of payment the allowances would constitute part of salary and therefore even the allowances should be considered as part of salary for the purpose of deduction of tax at source. In other words, according to the AO, LTC and Medical reimbursement should be paid at the time the expenditure is incurred or after the expenditure is incurred by way of reimbursement and not at an earlier point of time. If it is so paid, then, according to the AO, even though the payment would not form part of taxable salary of an employee, the employer has to deduct tax at source treating it as part of salary. In support of the stand taken by the AO, she relies on the express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions such as once in two calendar years etc., would in no way alter the nature of payment that has been effected. Therefore, an allowance such as the one granted in the instant case would not be a concession or assistance. Therefore, the reliance placed on the Circular is misplaced and is in fact against the case of the deductor." 23. The AO has also taken a stand that there is a difference between "Allowance" and "LTC and Medical Reimbursement". An allowance according to the AO can be given in advance whereas LTC and medical reimbursement are not in the nature of allowance and therefore cannot be given like an allowance before they are incurred. The AO's further case is that at the time of disbursement by the employer the same assumes the character of salary and its later application for purposes which are exempt will only be application of income and therefore accrual of income in the form of salary takes place on which tax had to be deducted at source. 24. To appreciate the stand taken by the AO, we have to look at the relevant provisions of Sec.192 of the Act in so far as the same is relevant for the present case. "192. Salary.-(1) Any person respons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puted by the AO. Even assuming the case of the AO, that at the time of payment the Assessee ought to have deducted tax at source, is sustainable; the Assessee on a review of the taxes deducted during the earlier months of the previous year is entitled to give effect to the deductions permissible under proviso (iv) to Sec.17(2) or exemption u/s.10(5) of the Act in the later months of the previous year. What has to be seen is the taxes to be deducted on income under the head 'salaries' as on the last date of the previous year. The case of the AO is that LTC and Medical reimbursement should be paid at the time the expenditure is incurred or after the expenditure is incurred by way of reimbursement and not at an earlier point of time. If it is so paid, then, even though the payment would not form part of taxable salary of an employee, the employer has to deduct tax at source treating it as part of salary, is contrary to the provisions of Sec.192(3) of the Act and cannot be sustained. The reliance placed by the AO on the expression "actually incurred" found in Sec.10(5) of the Act and proviso (iv) to Sec.17(2) of the Act, in our view cannot be sustained. In any event, the interpretation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd verifying the details and evidence furnished by the employees. Policies and controls are in force to ensure that the requirements of rule 2B are fulfilled. The details filed before the TDS officer explains the policies adopted to fulfill the requirements of rule 2B and the process adopted in considering the exemption under section 10(5) and proviso to section 17(2). The assessee is a law abiding Company. Internal controls are in place to discharge the statutory obligation under section 192. Honest and bona fide estimate of taxable salary is made in the process of deducting tax at source under section 192. Every effort is made by the assessee to comply with the requirements of section 192. The assessee is not benefited by allowing employees to claim exemption. The order passed by the AO under section 201(1) 201(1A) is therefore bad in law and rightly quashed by the CIT(A). 29. In the light of the admitted position that the conditions for grant of exemption u/s.10(5) of the Act to the employees in respect of LTC and also the fact that up to Rs.15,000 per employee medical reimbursement paid by the Assessee satisfies conditions contemplated by the proviso (iv) to Sec.17(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
