2013 (7) TMI 1026 - AT - Income Tax

Summary

Issues Involved:
1. Obligation to deduct tax at source on Leave Travel Allowance (LTA).
2. Obligation to deduct tax at source on Medical Reimbursement.

Summary:

1. Obligation to Deduct Tax at Source on Leave Travel Allowance (LTA):
The Assessing Officer (AO) considered the assessee company as an "assessee in default" u/s 201(1) for not deducting tax on LTA payments. The AO argued that LTA should be taxable if paid irrespective of the employee's intention to travel. The CIT (A) canceled the demand, stating that no disbursement without bills was treated as non-taxable and that the employer made good any shortfall in TDS by the end of the financial year as per section 192(3). The Tribunal upheld the CIT (A)'s view, noting that the employer's estimate was bona fide and consistent with section 192(3), and that the AO's interpretation was narrow and technical.

2. Obligation to Deduct Tax at Source on Medical Reimbursement:
The AO also considered the assessee as an "assessee in default" u/s 201(1) for not deducting tax on medical reimbursements. The CIT (A) canceled the demand, emphasizing that the medical reimbursement up to Rs. 15,000 per employee per annum is exempt u/s 17(2) proviso, and that the employer had clarified that TDS liability is not denied where disbursements are not backed by bills. The Tribunal agreed with the CIT (A), highlighting that the employer's estimate was bona fide and in line with section 192(3), and that the AO's interpretation was narrow and technical.

Tribunal's Decision:
The Tribunal dismissed the Revenue's appeals, affirming the CIT (A)'s order and ruling that the employer's actions were in compliance with the law. The Tribunal referenced its previous decision in ITA Nos.1390 & 1391/Bang/2012, which dealt with similar issues, and reiterated that the employer's bona fide estimate of taxable salary, including exemptions for LTA and medical reimbursement, was lawful and justified. The Tribunal also noted that the primary liability to pay tax remains with the employee, and in cases of honest differences of opinion, the employer should not be penalized. The appeals were dismissed, and the CIT (A)'s order was upheld as correct and in accordance with the law.