2011 (10) TMI 383 - AT - Income Tax

Fringe Benefit Tax - amount paid to approved hospitals on behalf of the employees and the reimbursements given to employees against the payments made by them to the approved hospitals Held that - In sub-section (3) of s.115WB of the Act, it is made crystal clear that s.115WB(1)(a) does not include such perquisite in respect of which tax is paid or payable by the employees. In the present case, the medical reimbursement is taxable but for the exemption provided in the proviso (ii) to s.17(2) of the Act. It cannot be said, merely because of grant of exemption, that the tax is not payable. Therefore, a specific item of perquisite which is normally taxable in the hands of individual employee cannot be subjected to FBT, only for the reason that the same is exempt in the hands of the employees. - Decided in favor of assessee.

Issues Involved:
1. Inclusion of payments made to approved hospitals in the value of fringe benefits.
2. Interpretation of Section 115WB and its applicability to medical reimbursements.
3. Taxability of medical reimbursements as perquisites under Section 17(2).

Detailed Analysis:

1. Inclusion of Payments Made to Approved Hospitals in the Value of Fringe Benefits:
The primary issue raised by the appellant is the inclusion of Rs. 1,46,36,685/- paid to approved hospitals on behalf of employees and reimbursements given to employees in the value of fringe benefits. The appellant contended that these payments should not be considered fringe benefits as they are perquisites under Section 17(2) of the Act. The AO, however, included these payments in the value of fringe benefits, resulting in additional tax.

2. Interpretation of Section 115WB and its Applicability to Medical Reimbursements:
The appellant argued that medical reimbursements fall under the proviso to Section 17(2) and are thus not taxable as perquisites. They claimed that Section 115WB(3) clearly states that "privileges, service facilities or amenities" do not include perquisites in respect of which tax is payable by the employee. The AO, however, interpreted that since the employee did not pay any tax on these perquisites, they should be subjected to fringe benefits tax. The AO relied on CBDT Circular No. 8 of 2005 to support this view.

3. Taxability of Medical Reimbursements as Perquisites Under Section 17(2):
The appellant emphasized that the medical reimbursements are perquisites within the meaning of Section 17(2) but are exempt from tax due to the proviso to Section 17(2). They argued that these should not be treated as fringe benefits because they are specifically excluded from the definition of perquisites by the proviso. The appellant cited the Supreme Court decision in Union of India v. Azadi Bachao Andolan to support their argument that exemption from tax does not negate the liability of tax.

Judgment Analysis:

Inclusion of Payments as Fringe Benefits:
The Tribunal analyzed whether the payments made to approved hospitals and reimbursements fall within the scope of Section 115WB(1)(a). The AO's stance was that these payments are privileges or amenities provided by the employer and thus attract fringe benefits tax. However, the Tribunal noted that Section 115WB(3) excludes perquisites where tax is payable by the employee, even if exempt under the proviso to Section 17(2).

Interpretation of Section 115WB:
The Tribunal reiterated that the core issue is whether these payments fall under Section 115WB(1)(a). They noted that the AO's interpretation was flawed as it did not consider the exclusion provided in Section 115WB(3). The Tribunal emphasized that the medical reimbursements, though exempt under the proviso to Section 17(2), are still perquisites and should not attract fringe benefits tax.

Taxability of Medical Reimbursements:
The Tribunal concluded that the medical reimbursements are perquisites exempt under the proviso to Section 17(2) and should not be subjected to fringe benefits tax. They highlighted that the legislative intent, as explained in the Finance Minister's budget speech and the Memorandum to the Finance Bill, was to tax benefits that cannot be attributed to individual employees in the hands of the employer. Since the medical reimbursements can be attributed to individual employees, they should not be taxed as fringe benefits.

Conclusion:
The Tribunal allowed the appeal, ruling that the payments made to approved hospitals and reimbursements do not attract fringe benefits tax. They emphasized that these payments are exempt perquisites under Section 17(2) and should not be included in the value of fringe benefits under Section 115WB. The decision aligns with the earlier ruling in the case of Vijaya Bank v. Jt. CIT, reinforcing the interpretation that such payments are not subject to fringe benefits tax.

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