2010 (12) TMI 605 - AT - Income Tax

Addition - value of fringe benefit - medical reimbursements - The undisputed fact in this case is that the assessee, w.e.f. 1st April, 2002 is paying a flat amount by way of a medical advance through the salary every month - it is clear that where perquisites/benefits which are fully attributable to the employee and are taxed in their hands, would be continued to be taxed under the existing provisions of s. 17(2) of the Act - Only where bills have been produced by the employee to the employer it was a case of reimbursement and to the extent of the benefit given in s. 17(2) proviso (v) the employee need not pay tax - It is only a case where a benefit above a certain specified amount only is liable to be taxed in the hands of the employee - Decided in favour of the assessee

Summary

Issues:
Appeal against CIT(A) order confirming fringe benefit tax on medical reimbursements.

Analysis:
1. The appeal was filed against the CIT(A) order confirming the assessment of fringe benefit tax on medical reimbursements for the assessment year 2006-07. The AO had assessed the value of fringe benefit by considering medical reimbursement as part of the perquisite in the hands of the employees, which was subject to fringe benefit tax.

2. The first appellate authority differentiated between medical reimbursements forming part of the total remuneration and those reimbursed separately. It was held that the amounts under consideration were not part of the total remuneration and were treated as perquisites liable to fringe benefit tax.

3. The appellant argued that the medical reimbursement qualified as a perquisite under s. 17(2) proviso (v) of the IT Act, and the value of the perquisite for employees was zero. Referring to relevant provisions and budget speeches, the appellant sought relief from the tax liability on medical reimbursements.

4. The Departmental Representative contended that medical expenses reimbursed to employees constituted a perquisite and were thus subject to fringe benefit tax. Reimbursements were made upon production of medical bills, and any unreimbursed amount was included in the total remuneration of employees.

5. The Tribunal considered the facts and contentions presented. It was established that the medical advance paid by the employer was subject to conditions where employees could avail benefits under specific provisions. The Tribunal analyzed the exemption under s. 17(2) proviso (v) regarding medical treatment expenses exceeding a specified limit.

6. The Tribunal referred to s. 115WB(3) and related provisions to determine the tax treatment of fringe benefits. It was emphasized that benefits directly attributable to employees would continue to be taxed in their hands, while collective benefits not attributable to individuals would be taxed in the hands of the employer.

7. Based on the analysis, the Tribunal concluded that the case did not constitute a fringe benefit as defined in s. 115WB of the Act. It was clarified that where tax was paid or payable by employees on medical advances or reimbursements, only amounts exceeding specified limits were liable to be taxed in the hands of employees.

8. Consequently, the Tribunal agreed with the appellant's arguments and allowed the appeal, ruling in favor of the assessee.