2013 (9) TMI 239 - AT - Income Tax

TDS u/s 192 - TDS on LTA and Medical reimbursement - Exemption u/s 10(5) - fulfillment of conditions of section 17(2) - - Held that - exemption in respect of medical expenditure and leave travel is considered after collecting and 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). 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 AO does not dispute non-fulfillment of conditions for allowing exemption u/s. 10(5) of the Act or proviso (iv) to Sec.17(2) of the Act. The liability of the person deducting tax at source cannot be greater than the liability of the person on whose behalf tax at source is deducted. The AO has ignored this aspect and has proceeded to pass the order u/s.201(1) and 201(1A) of the Act. His order was rightly held to be unsustainable by the CIT(A) - Following decision of Infosys BPO (2013 (9) TMI 205 - ITAT BANGALORE), Decided against Revenue. Salaries - TDS on Free meal coupons u/s 192 taxability as perquisite within the rule 3(7) (iii) deduction of tax at source - coupons were not utilized by employee for purchasing meals at an eating joints but were mis-used to purchase grocery items, cosmetics items, etc., from shops/super stores Held that employer is not expected to presume misuse of coupons to warrant deduction of tax at source further, conveyance allowance in respect of vehicles owned by employees cannot be treated as perquisite - expenditure incurred on disbursement of meal coupons by the employer to the employees did not attract the provisions of s. 192 - Decided against Revenue.

Summary

Issues Involved:
1. Obligation to deduct tax at source (TDS) on Leave Travel Allowance (LTA).
2. Obligation to deduct TDS on medical reimbursement.
3. Obligation to deduct TDS on reimbursements for telephone bills, vehicle maintenance, fuel costs, and conveyance.
4. Obligation to deduct TDS on meal vouchers/food coupons (AY 2010-11).

Detailed Analysis:

1. Obligation to Deduct TDS on Leave Travel Allowance (LTA):
The main contention was whether the employer was required to deduct TDS on LTA payments to employees. The AO argued that LTA was paid irrespective of whether the employee intended to travel or had already availed the benefit, thus should be treated as taxable salary. The CIT (A) found that the employer had ensured compliance with conditions for LTA exemption, such as travel costs being backed by original documents and availing at least one earned leave. The Tribunal upheld the CIT (A)'s decision, stating that the employer had made a bona fide estimate of taxable salary and had not violated TDS provisions.

2. Obligation to Deduct TDS on Medical Reimbursement:
The AO considered the employer in default for not deducting TDS on medical reimbursements, arguing that the allowance should be treated as taxable salary. The CIT (A) noted that medical reimbursements up to Rs. 15,000 per annum, supported by bills, were exempt under Section 17(2) of the Act. The Tribunal agreed with the CIT (A), emphasizing that the employer had complied with the tax provisions and had made a bona fide estimate, thus no action under Sections 201(1) and 201(1A) was warranted.

3. Obligation to Deduct TDS on Reimbursements for Telephone Bills, Vehicle Maintenance, Fuel Costs, and Conveyance:
The AO treated these reimbursements as taxable allowances, arguing that they were part of a pre-determined salary component. The CIT (A) found that these reimbursements were supported by actual expenditure and were within the limits provided under the relevant provisions of the IT Act. The Tribunal upheld the CIT (A)'s decision, noting that the employer had treated any unsupported amounts as taxable and had deducted TDS accordingly.

4. Obligation to Deduct TDS on Meal Vouchers/Food Coupons (AY 2010-11):
The AO argued that meal vouchers should be treated as taxable perquisites. The CIT (A) found that the meal vouchers were within the prescribed limits and were non-transferable, used for ready-to-eat items, and no misuse was recorded. The Tribunal upheld the CIT (A)'s decision, referencing the Ahmedabad Tribunal's decision in the case of Cedilla Healthcare, which held that TDS was not applicable on such meal vouchers.

Conclusion:
The Tribunal dismissed the Revenue's appeals for the assessment years 2007-08 to 2010-11, upholding the CIT (A)'s orders that the employer was not in default under Sections 201(1) and 201(1A) for not deducting TDS on LTA, medical reimbursements, telephone bills, vehicle maintenance, fuel costs, conveyance, and meal vouchers. The Tribunal found that the employer had made a bona fide estimate of taxable salary and had complied with the relevant provisions of the IT Act.