2014 (1) TMI 1428 - AT - Income Tax

Demand u/s 201(1) of the Act - Leviability of Interest u/s 201(1A) of the Act - Liability to deduct TDS on medical allowance Scope of definition of perquisites u/s 17(2)(v) of the Act Held that - Exemption in respect of medical expenditure and leave travel is considered after collecting and verifying the details and evidences furnished by the employees in this regard as per the policies and controls put in place to ensure that the requirement of Rule 2B are fulfilled - The details filed before the Assessing Officer for TDS explains the policies adopted to ensure fulfilment of the requirement of Rule 2B and the process adopted in considering the exemption / deduction under the proviso (iv) to section 17(2) of the Act - the assessee has put in place internal controls to discharge the statutory obligation under section 192 of the Act and it would appear that every effort is made to comply with the requirements of section 192 by making a bona fide estimate of taxable salary in the process of making TDS there under - By allowing the employee to claim exemption, the assessee is not benefited - the orders passed by the Assessing Officer under section 201(1) and 201(1A) is unsustainable in law and has rightly been cancelled by the learned CIT(Appeals). 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 Assessing Officer has ignored this aspect and has proceeded to pass the orders under section 201(1) and 201(1A) of the Act. Opportunity of being heard u/s 250(1) and 250(2) of the Act - Held that - The learned CIT (Appeals) had only called for the break-up of the figures relating to medical reimbursement which was actually paid to employees and that which was considered not forming part of salary by the employees on production of evidence by the employee - These figures are the same figures on the basis of which the Assessing Officer passed orders under sections 201(1) and 201(1A) of the Act Decided against Revenue. Exemption u/s 17(2) of the Act As regards the grievance regarding finding that there was no dispute that the assessee has satisfied itself that the employees were entitled to exemption / relief under proviso (iv) to section 17(2) of the Act, nothing has been brought on record before us to demonstrate that the Assessing Officer disputed these facts Decided against Revenue.

Issues Involved:
1. Whether the Commissioner of Income Tax (Appeals) erred in not according the Assessing Officer an opportunity of being heard.
2. Whether the Commissioner of Income Tax (Appeals) erred in holding that no instance was brought on record that an employee was conferred the benefit without TDS if it is not backed by actual expenditure.
3. Whether the Commissioner of Income Tax (Appeals) erred in appreciating the nature and application of income.
4. Whether the Commissioner of Income Tax (Appeals) erred in holding that perquisites also being taxable income could constitute a part of the cost to the company.
5. Whether the Commissioner of Income Tax (Appeals) erred in holding that the order was based on a narrow and technical interpretation in respect of a welfare measure.
6. Whether the Commissioner of Income Tax (Appeals) erred in holding that a component of the salary paid on a month-to-month basis could form part of the salary which would be exempt under the proviso to section 17(2).
7. Whether the Commissioner of Income Tax (Appeals) erred in being guided by the quantum of exemption granted per employee rather than the entitlement as per law.
8. Whether the Commissioner of Income Tax (Appeals) erred in not appreciating the fact that the employer has itself not considered these amounts as perquisite in the Form 12BA issued to the employees.
9. Whether the Commissioner of Income Tax (Appeals) erred in not considering the term "actually incurred" in the proviso to section 17(2) of the IT Act.
10. Whether the Commissioner of Income Tax (Appeals) erred in holding that interest under section 201(1A) is not leviable in the present case.

Detailed Analysis:

Issue 1: Opportunity of Being Heard
The revenue contended that the CIT (Appeals) did not provide the Assessing Officer an opportunity to be heard, as envisaged under sections 250(1) and 250(2) of the IT Act. However, the CIT (Appeals) had called for a break-up of figures relating to medical reimbursement, which were the same figures used by the Assessing Officer to pass orders under sections 201(1) and 201(1A). Thus, the Tribunal found no basis for this grievance, deeming it factually unsustainable.

Issue 2: Actual Expenditure and TDS
The CIT (Appeals) held that no instance was brought on record to suggest that any employee received the benefit without TDS if it was not backed by actual expenditure. The Tribunal supported this finding, noting that the employer had clarified that wherever the disbursement was not backed by bills, it was treated as taxable salary, and TDS was deducted accordingly.

Issue 3: Nature and Application of Income
The revenue argued that the CIT (Appeals) did not appreciate that the nature of income should be determined at its source, not by its application. The Tribunal found that the CIT (Appeals) correctly interpreted the provisions, stating that the employer's scheme of paying medical allowance up to Rs. 15,000 per annum, split into monthly disbursements, was in line with the Act's provisions.

Issue 4: Perquisites as Part of Cost to Company
The CIT (Appeals) held that perquisites, being a taxable income, could form part of the cost to the company. The Tribunal agreed, noting that the employer had internal controls to ensure compliance with section 192 of the Act and made a bona fide estimate of taxable salary.

Issue 5: Narrow and Technical Interpretation
The CIT (Appeals) found the Assessing Officer's view to be a narrow and technical interpretation, especially concerning a welfare measure for employees. The Tribunal upheld this view, emphasizing the employer's scheme and internal controls to ensure compliance with tax provisions.

Issue 6: Monthly Salary Component and Exemption
The CIT (Appeals) held that a component of the salary paid monthly could form part of the salary exempt under proviso to section 17(2). The Tribunal supported this, noting that the employer's scheme complied with the Act's provisions, and any disbursement not backed by bills was treated as taxable salary with TDS deducted.

Issue 7: Quantum of Exemption vs. Entitlement
The revenue contended that the CIT (Appeals) was guided by the quantum of exemption granted per employee rather than the entitlement as per law. The Tribunal found that the CIT (Appeals) correctly interpreted the provisions, ensuring that the exemption was granted only after verifying the details and evidence furnished by the employees.

Issue 8: Form 12BA and Perquisites
The revenue argued that the employer did not consider these amounts as perquisites in Form 12BA issued to employees. The Tribunal found that the employer had internal controls to ensure compliance with section 192 and that the exemption was granted only after verifying the details and evidence furnished by the employees.

Issue 9: "Actually Incurred" in Proviso to Section 17(2)
The revenue contended that the CIT (Appeals) did not consider the term "actually incurred" in the proviso to section 17(2). The Tribunal found that the employer's scheme complied with the Act's provisions and that the exemption was granted only after verifying the details and evidence furnished by the employees.

Issue 10: Interest under Section 201(1A)
The CIT (Appeals) held that interest under section 201(1A) was not leviable in the present case, noting that the charging of interest under this section is compensatory, not penal. The Tribunal upheld this view, citing judicial decisions that supported the mandatory and compensatory nature of interest under section 201(1A).

Conclusion
The Tribunal dismissed the revenue's appeals for Assessment Years 2008-09 to 2010-11, upholding the CIT (Appeals) findings and confirming that the employer's scheme and internal controls complied with the Act's provisions. The orders passed by the Assessing Officer under sections 201(1) and 201(1A) were deemed unsustainable in law.

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