2014 (4) TMI 1203 - AT - Income Tax

Levy of fringe benefit tax - salary paid to employees in the form of medical reimbursement - Held that - The Hon ble Finance Minister in its budget speech at the time of introduction of FBT provision has stated that perquisites/benefits which are fully/directly attributable to the employees would continue to be taxed under the existing provisions of Sec. 17(2) of the Act. However, in cases where the benefits are enjoyed collectively by the employees and cannot be attributed to an individual employee, they shall be taxed in the hands of the employer. It is not in dispute that the medical expenses are directly attributable to each employee distinctly and it is not in the nature of collective benefit enjoyed by the employees. The medical reimbursement is definitely a perquisite as per Sec. 17(2) of the Act , though a threshold limit of exemption is provided under clause (v) at ₹ 15,000/-, nevertheless medical reimbursement expenditures are taxable as perquisites. The Circular No. 8 issued by CBDT appears to be in contradiction to the legislative intent on this specific issue. The Coordinate Bench in the case of Bosch Ltd. 2011 (10) TMI 383 - ITAT BANGALORE has considering a similar issue, has held that such payments do not attract Fringe benefit tax in the light of the budget speech of the Hon ble Finance Minister on the floor of Parliament. Thus reimbursement of medical expenditure does not constitute Fringe Benefit as defined in Sec. 115WB - Decided in favour of assessee.

Summary

Issues:
Interpretation of Fringe Benefit Tax on medical reimbursement exceeding exempt threshold.

Analysis:
The case involved a dispute over the levy of Fringe Benefit Tax (FBT) on medical reimbursement exceeding the exempt threshold. The Assessing Officer added a portion of the medical reimbursement to the value of Fringe Benefit, which was contested by the assessee. The assessee argued that FBT was not intended to tax items specifically exempt under other provisions of the Act, such as medical reimbursements up to a certain limit. The CBDT Circular No. 8/2005 was relied upon by the AO to support the addition. The Ld. CIT(A) upheld the AO's decision, stating that since medical reimbursement was not treated as salary in the hands of employees, it was taxable as FBT.

The assessee further contended that specific perquisites taxable in the hands of individual employees, like medical reimbursement, should not be subject to FBT solely because they are exempt in the hands of employees. Reference was made to the legislative intent behind FBT and decisions of the Tribunal in similar cases. The Departmental Representative supported the lower authorities' findings and suggested referring the matter to a Special Bench due to varied Tribunal decisions on the issue.

Upon careful consideration of the arguments, the Tribunal analyzed the objectives behind the introduction of FBT as explained by the CBDT. The Tribunal noted that benefits not individually attributable to employees and disguised as reimbursements to reduce tax liability were intended to be taxed under FBT. However, medical expenses, being directly attributable to each employee, were held to be perquisites under Sec. 17(2) of the Act, subject to exemption limits. The Tribunal found the CBDT Circular contradictory to legislative intent and referred to previous Tribunal decisions supporting the non-taxability of such reimbursements under FBT. In light of the legislative intent and totality of facts, the Tribunal concluded that medical reimbursement did not constitute a Fringe Benefit as defined in the Act, reversing the Ld. CIT(A)'s decision and allowing the appeal.

In conclusion, the Tribunal allowed the appeal filed by the assessee, ruling that reimbursement of medical expenditure exceeding the exempt threshold did not attract Fringe Benefit Tax as defined in the Act.