2012 (7) TMI 1093 - AT - Income Tax

Summary

Issues Involved:
1. Obligation to deduct tax at source on medical reimbursements.
2. Validity of treating the assessee as "Assessee in default" u/s 201(1) and levying interest u/s 201(1A).
3. Opportunity of being heard for the Assessing Officer (AO) before the Commissioner of Income-tax (Appeals) [CIT(A)].
4. Consideration of employee returns and tax compliance.

Summary:

1. Obligation to Deduct Tax at Source on Medical Reimbursements:
The primary issue was whether the assessee was obligated to deduct tax at source on medical reimbursements up to Rs. 15,000 paid to its employees. Section 192(1) of the Act mandates that any person responsible for paying income chargeable under the head "salaries" must deduct tax at source at the time of payment. The AO argued that the assessee should have deducted tax on the medical reimbursements as they were paid monthly and not as actual reimbursements. However, the CIT(A) and the Tribunal held that medical reimbursements up to Rs. 15,000 per annum, if supported by bills, are exempt u/s 17(2) proviso (v) and need not be considered as part of "salary" for TDS purposes.

2. Validity of Treating the Assessee as "Assessee in Default" u/s 201(1) and Levying Interest u/s 201(1A):
The AO treated the assessee as an "Assessee in default" u/s 201(1) for not deducting tax on the medical reimbursements and levied interest u/s 201(1A). The CIT(A) canceled this order, relying on CBDT Circular No. 603 dated 6.6.1991, which states that medical reimbursements up to Rs. 15,000 are not to be included in taxable salary if supported by bills. The Tribunal upheld the CIT(A)'s decision, stating that the assessee made a bona fide estimate of the taxable salary and complied with the statutory obligations under section 192.

3. Opportunity of Being Heard for the AO Before CIT(A):
The revenue contended that the CIT(A) did not provide the AO an opportunity of being heard as required u/s 250(1) and 250(2). The Tribunal found that the CIT(A) had only called for a breakup of figures regarding medical reimbursements, which were the same figures used by the AO in his order. Therefore, the Tribunal dismissed this ground of appeal.

4. Consideration of Employee Returns and Tax Compliance:
Arguments were made that employees had filed their returns and offered the income under the head salaries, thus no order u/s 201(1) & 201(1A) should be passed against the assessee. The Tribunal noted that this assertion had not been examined by the AO or CIT(A) and did not delve into this argument further.

Conclusion:
The Tribunal dismissed all the appeals filed by the Revenue, upholding the CIT(A)'s order that the assessee was not an "Assessee in default" for not deducting tax on medical reimbursements up to Rs. 15,000, provided they were supported by bills. The appeal for the assessment year 2009-10 on the order u/s 154 was also dismissed as it became infructuous. The order was pronounced in the open court on 16.07.2013.