2020 (4) TMI 658 - AT - Income Tax

Short-deduction of TDS - interest u/s 201(1) OR 201(1A) - non-deduction of TDS u/s 194A OR 192 - salary payments of the employees of the assessee that cash medical benefit was allowed exemption u/s.10 - AO was of the view that what is contemplated by proviso (iv) to Sec.17(2) was any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family - HELD THAT - Assessee was paying medical reimbursement as a component of the monthly payment to the employee and later claiming that it was not perquisite to the extent of ₹ 15,000, the same had to be considered as salary and not exempt perquisite. The reasoning is the same that the payment should not precede the actually incurring of the expenses and it should be only by way of reimbursement. The grievance of the assessee is that there should not be any deduction of TDS on reimbursement of medical allowance and charging of interest thereon. On perusal of the impugned order CIT(A) observed that the assessee has paid fixed medical allowance and as per the CBDT letter issued to LIC, the exemption of ₹ 15000/- is allowed to reimbursement of actual expenditure. We find that medical allowance is a fixed allowance paid to the employees of a company on a monthly basis irrespective of whether they submit the bills to substantiate the expenditure or not. Medical reimbursement is a payment made to employees against specific medical bills submitted by them, subject to entitlement. If employees want to claim tax benefit, they should submit bills for the corresponding amount under medical reimbursement. As per the provisions of Income Tax Act, 1961, medical allowance is not categorised as an allowance which bears entire exemption - medical allowance is a fixed pay provided by an employer, and is fully taxable. Employees can claim a tax benefit up to ₹ 15,000/- under medical reimbursement on production of bills and supporting document as per Section 17 (2) of the IT Act, 1961. Employer has provided fixed medical allowance to his employees - employees have not submitted any bills/vouchers regarding their medical expenses incurred by them. The allowance is exempt to the extent of expenditure incurred by the employees. In the impugned case, there is no any proof of medical expenditure incurred by the employees which is clear from the orders of authorities below. Assessee also could not substantiate that the employees have spent the allowances received by them for the intended purpose. Therefore, the fixed medical allowance given by the employer is taxable as salary income. The employer has not been deducted TDS on the fixed medical allowance. CBDT letter relied on by the ld. AR of the assessee has no application on the issue under consideration as the CIT(A) has already dealt the same in the appellate order. The authorities below have decided the issue in detail and accordingly, we uphold the same. - Decided against assessee.

Summary

Issues:
Appeals against order of CIT(A) regarding short deduction of TDS and interest u/s.201(1) & 201(1A) of the Act for assessment years 2011-2012 & 2012-2013.

Analysis:
The appeals were filed by the assessee against the order of CIT(A) confirming the addition made by the AO for short deduction of TDS and interest u/s.201(1) & 201(1A) of the Act. The case involved a cooperative society assessed for TDS verification where the ITO(TDS) found that 'cash medical benefit' was allowed exemption u/s.10 of the Act by the deductor, but it was taxable u/s.15 of the Act. The AO calculated TDS liability and interest for the respective assessment years. The CIT(A) dismissed the appeals, leading to the assessee appealing before the ITAT.

The assessee argued that the lump sum cash medical benefit is not chargeable to tax under Section 17(2) of the Act, citing a CBDT letter. However, the DR contended that the assessee should be treated as assessee-in-default for non-deduction of TDS. The ITAT observed that the medical allowance was fully taxable as it was a fixed pay provided by the employer, unlike medical reimbursement. As employees did not submit bills for medical expenses, the fixed medical allowance was considered taxable salary income. The CBDT letter did not apply to the issue, as per the CIT(A)'s order.

The ITAT upheld the orders of the authorities below, dismissing the appeals of the assessee. The fixed medical allowance was found taxable as salary income due to lack of proof of medical expenditure by employees. As TDS was not deducted on the fixed medical allowance, the CIT(A)'s decision was upheld. The appeals were thus dismissed, and the order was pronounced on 17/02/2020.