2014 (2) TMI 230 - AT - Income Tax

Liability for deducting TDS u/s 192 of the Act - Payment made to employees Medical reimbursement, leave travel allowance and meal vouchers - Survey u/s 133A of the Act Held that - There is no substance in the plea of the DR - These are not the cases in which the assessment of perquisite in the hands of the employees is being made - the provisions for deducting tax at source are all machinery provisions - The obligation of the person making payment, in the context of these provisions, is only to make a bonafide estimate of the income of the person to whom the payment is made thus, the estimation made by the assessee is bona fide. Relying upon The Assistant Commissioner of Income Tax (TDS) Versus M/s. Infosys BPO 2013 (9) TMI 205 - ITAT BANGALORE - The primary liability of the payee to pay tax remains - In a situation of honest difference of opinion, it is not the deductor that is to be proceeded against but the payees of the sums - To reiterate, the payment towards medical expenditure and leave travel is made keeping in view the employee welfare - The exclusion in respect of payment towards medical expenditure and leave travel is considered after verifying the details and evidence furnished by the employees - No exemption is granted in the absence of details and/or evidence - The exemption in respect of medical expenditure is restricted to expenditure actually incurred by the employees - The exemption is granted even if the payment precedes the incurrence of expenditure - The requirements/conditions of section 10(5) and proviso to section 17(2) are meticulously followed before extending the deduction/ exemption to an employee - No tax can be recovered from the employer on account of short deduction of tax at source under section 192 if a bona fide estimate of salary taxable in the hands of the employee is made by the employer Decided against Revenue.

Summary

Issues Involved:
1. Obligation to deduct tax at source on medical reimbursement.
2. Obligation to deduct tax at source on leave travel allowance (LTA).
3. Obligation to deduct tax at source on meal vouchers.

Detailed Analysis:

1. Obligation to Deduct Tax at Source on Medical Reimbursement:

The core issue was whether the employer was required to deduct tax at source on medical reimbursements exceeding Rs. 15,000 per annum. According to Section 17(2) proviso (v) of the Income Tax Act, 1961, medical reimbursement up to Rs. 15,000 is exempt from tax. The Assessing Officer (AO) argued that since the employer paid medical reimbursement as a component of monthly salary without prior proof of expenditure, it should be considered taxable salary. However, the CIT(A) held that the employer's practice of reimbursing medical expenses upon submission of bills, and treating amounts not supported by bills as taxable, complied with the Act. The CIT(A) relied on CBDT Circular No. 603 dated 6.6.1991, which clarified that medical reimbursements up to Rs. 15,000 are not taxable. The Tribunal upheld the CIT(A)'s decision, noting that the employer made a bona fide estimate of salary and deductions.

2. Obligation to Deduct Tax at Source on Leave Travel Allowance (LTA):

The AO contended that LTA payments were made monthly irrespective of actual travel, thus should be treated as salary and taxed accordingly. Section 10(5) of the Act exempts LTA if the employee provides proof of travel. The CIT(A) found that the employer deducted tax when LTA was not backed by bills or exceeded the allowable exemption. The Tribunal supported the CIT(A), stating that the employer's practice of reimbursing LTA based on actual travel expenses and deducting tax on unutilized LTA was in line with the Act. The Tribunal emphasized that the employer's obligation is to make a bona fide estimate of the employee's taxable income.

3. Obligation to Deduct Tax at Source on Meal Vouchers:

The AO argued that meal vouchers used outside office premises should be considered taxable perquisites. According to Rule 3(7)(iii) of the Income Tax Rules, meal vouchers are exempt if provided during working hours at office premises or through non-transferable vouchers usable only at specified eating joints. The CIT(A) held that the employer ensured meal vouchers were non-transferable and used for food products, thus complying with the Rules. The Tribunal cited the ITAT Ahmedabad Bench decision in ITO v. Cadila Healthcare Ltd., which held that meal vouchers used outside office premises do not constitute taxable perquisites. The Tribunal upheld the CIT(A)'s decision, noting that the employer's practice was consistent with the Rules and aimed at employee welfare.

Conclusion:

The Tribunal dismissed the revenue's appeals, affirming the CIT(A)'s decisions that the employer was not in default for not deducting tax at source on medical reimbursements, LTA, and meal vouchers, as the employer's practices were bona fide and complied with the relevant provisions of the Income Tax Act and Rules.