2016 (9) TMI 963 - HC - Income Tax

TDS u/s 192 - pro-rate medical allowances given by the Employer to the employees - whether is taxable as perquisite in their hands under the head Salary as per sub clause (iiia) and (iiib) of section 2(24) r.w.s. 17 ? - Held that - Section 17(2) of the Act refers to term perquisite as to include range of benefits to be paid by the employer to the employees. Proviso to said sub section, however, provides that nothing in this clause shall apply to in clause (v) where any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or the treatment of any member of his family, so, however that such sum does not exceed ₹ 15,000/- in the previous year. Thus, reimbursement of medical expenditure actually incurred by the employee on himself or his family or upto a ceiling of ₹ 15,000/- would not be included in the term perquisite . This is precisely what are the facts in the present case. The Revenue does not contend that the ceiling of ₹ 15,000/- was breached. Prime objection of the Revenue appears to be the fixed reimbursement commensurate with the level of the employee irrespective of the demand for medical reimbursement. The company, however, when ensured that such reimbursement was not in excess of actual expenditure incurred by the employees, this objection of the Revenue also cannot survive. - Decided in favour of assessee

Summary

Issues:
1. Whether pro-rate medical allowances given by the employer to employees are taxable as perquisite under the Income Tax Act and liable for TDS.

Analysis:
The High Court judgment involved an appeal by the Revenue against a decision of the Income Tax Appellate Tribunal regarding the taxability of pro-rate medical allowances provided by an employer to employees. The primary issue was whether such allowances should be considered as part of the employees' salary and subject to tax deduction at source (TDS) under the Income Tax Act. The Revenue argued that the fixed monthly medical allowances paid by the employer constituted a perquisite under Section 17(2) of the Act, necessitating TDS. However, the Tribunal overturned this view, noting that the reimbursements were not excessive and were based on actual medical expenditure incurred by the employees, as confirmed by declarations obtained by the company.

The Court examined Section 17(2) of the Income Tax Act, which defines "perquisite" to include various benefits provided by employers to employees. The provision includes an exception in clause (v) exempting sums paid by the employer for medical treatment actually incurred by the employee or their family, up to a limit of ?15,000 in a year. In the case at hand, the reimbursements were within this ceiling, and the Revenue did not allege any breach of this limit. The core contention of the Revenue was the fixed nature of the reimbursements, irrespective of actual medical expenses. However, the Court emphasized that as long as the reimbursements did not exceed the actual expenditure incurred by the employees, the objection of the Revenue was untenable.

Ultimately, the Court dismissed the tax appeal, affirming the Tribunal's decision. The judgment clarified that the employer's reimbursement of medical expenses, as long as it did not surpass the actual costs incurred by the employees, did not constitute a taxable perquisite under the Income Tax Act. The case underscored the importance of ensuring that such reimbursements align with the actual medical expenditure to avoid tax implications.