2020 (11) TMI 911 - HC - Income Tax

Fringe benefit tax in respect of reimbursement of medical expenses to the employees - revenue submitted that the tribunal has set aside the disallowance in respect of reimbursement of medical expenses granted by the assessee to its employees by ignoring the fact that the same is excluded as per proviso to viii of Section 17(2) of the Act read with Rule 3 - HELD THAT - Effect of Proviso (v) to Section 17(2) is that reimbursement of the amount in excess of ₹ 15,000/- would be taxable as part of the salary in the hands of the employee, whereas, amount less than ₹ 15,000/- would not be taxable in the hands of the employee. However, such reimbursement nevertheless would perquisite as defined under the Act but would remain untaxed in the hands of the employees and therefore, untaxed amount is taxed as fringed benefits in the hands of the employer. Thus, if the medical reimbursement exceeds ₹ 15,000/- relating to unapproved hospital, then under Section 17(1) of the Act the employees are taxed beyond ₹ 15,000/- and if ₹ 15,000/- which is exempt in the hands of the employees is not liable for fringe benefit tax but over and above the aforesaid amount is liable for fringe benefit tax. Expenses incurred by the assessee on bundling of product - HELD THAT - Effectively the bundling is not done free of cost as customer pays for the bundled project indirectly. The Delhi High court while considering the aforesaid issue in the case of T T Motors Ltd. 2012 (1) TMI 96 - DELHI HIGH COURT has held that expenses incurred in bundling of products are not exigible to levy of fringe benefit tax. Expenditure for the purpose of business not connected to employees cannot be brought to tax under the fringe benefit tax. Therefore, we hold that the expenses incurred by the assessee on bundling of the product is not exigible to fringe benefit tax. Assessee has also incurred expenses for sponsoring Science Graduates to Post Graduate courses. From perusal of the document placed on record, it is evident that the assessee has enrolled the student in computer applications in the academy of the assessee viz., Wipro Academy of Software Excellence. The student is not an employee of the company and the payment was made to the Birla Institute of Technology for expenses, thus, the expenses incurred by the assessee in respect of payment made to Birla Institute of Technology for imparting training to the students cannot be subjected to fringe benefit tax.

Summary

Issues:
1. Fringe benefit tax liability on medical expenses reimbursement.
2. Applicability of fringe benefit tax on sales promotion and publicity expenses.
3. Fringe benefit tax on expenses related to trainees and scholarships.
4. Applicability of Chapter XII-H provisions.
5. Disallowance of addition based on tribunal's decision.
6. Expenses incurred on motor cars.

Analysis:

Issue 1:
The tribunal held that medical expenses reimbursement to employees does not attract fringe benefit tax, except for the amount exceeding ?15,000. The proviso to Section 17(2) clarifies that amounts below ?15,000 are not taxable in employees' hands but are considered fringe benefits for the employer.

Issue 2:
Regarding sales promotion expenses, the tribunal ruled that expenses on bundling of products are not subject to fringe benefit tax as they are indirectly paid by customers. The Delhi High Court precedent supports this decision.

Issue 3:
Expenses on trainees and scholarships were contested. The tribunal found that payments made to Birla Institute of Technology for training non-employee students do not fall under fringe benefit tax. The Bombay High Court's ruling in a similar case was cited to support this decision.

Issue 4:
The tribunal's decision on the non-applicability of Chapter XII-H provisions was upheld, emphasizing that fringe benefit tax applies to expenses specified in Section 115WB(2) regardless of an employer-employee relationship.

Issue 5:
The tribunal's deletion of additions based on its own decisions was challenged. The court upheld the tribunal's decision, citing the lack of acceptance by the revenue and pending appeals as reasons for the tribunal's validity.

Issue 6:
Regarding expenses on motor cars, the tribunal remitted the matter to the Assessing Officer due to insufficient evidence on personal or professional use. The issue of depreciation was also remitted for reconsideration.

In conclusion, the court disposed of the appeal based on the analysis of each issue, upholding the tribunal's decisions on medical expenses, sales promotion, trainees, scholarships, and Chapter XII-H provisions. The court also supported the tribunal's deletion of additions and remittance of the motor car expenses issue for further consideration.