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TMI Blog2013 (9) TMI 205X X X X Extracts X X X X X X X X Extracts X X X X ..... proviso (iv) to Sec.17(2) of the Act. The liability of the person deducting tax at source cannot be greater than the liability of the person on whose behalf tax at source is deducted. The AO has ignored this aspect and has proceeded to pass the order u/s.201(1) and 201(1A) of the Act. His order was rightly held to be unsustainable by the CIT(A) - Decided against Revenue. - ITA Nos.1390 & 1391/Bang/2012 - - - Dated:- 28-6-2013 - Shri N. Barathvaja Sankar And Shri N. V. Vasudevan,JJ. For the Appellant : Shri Etwa Munda, CIT-III(DR) For the Respondent : Shri H. Padamchand Khincha, C.A. ORDER Per Bench These are appeals by the Revenue against the common order dated 23.8.2012 of CIT(A)-II, Bangalore, relating to A.Y. 07-08 08-09. 2. The Assessee is a company. It is engaged in the Business of Process Outsourcing (BPO). A survey u/s.133A of the Income Tax Act, 1961 (the Act ) was conducted at the business premises of the Assessee. The salary structure of the employees of the Assessee was examined by the Officers carrying out Survey in the light of the obligations of the Assessee as employer to deduct tax at source at the time of making payment of salarie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and (ii); so, however, that such sum does not exceed fifteen thousand rupees in the previous year. (vi) . 5. The dispute in these appeals are regarding the obligation of the Assessee to deduct tax at source on Leave Travel Concession (LTC) and Medical reimbursement . It is not in dispute that the amounts paid as LTC and Medical Reimbursements are in the nature of perquisite falling with the definition of perquisites as given in sec.17(2) (iv) and (v) of the Act, respectively. 6. As far as Medical reimbursement is concerned, if the amount paid by an employer to the employee for medical treatment of the employee or his family is Rs.15,000 or less per annum, then the same will not be perquisite as laid down in Sec.17(2)(v) of the Act and therefore need not be considered as part of salary for the purpose of deducting tax at source at the time of payment by the employer to the employee. In other words, expenditure actually incurred on medical treatment to the extent of Rs.15,000/- is exempt and the remaining is taxable. 7. As far as Leave Travel Concession is concerned, Section 10(5) of the Act lays down that any leave travel concession granted to an employee by the emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the places of origin of journey and destination or part thereof are not connected by rail and the journey is performed on or after the 1st day of October, 1997, between such places, the amount eligible for exemption shall be (A) where a recognised public transport system exists, an amount not exceeding the 1st class or deluxe class fare, as the case may be, on such transport by the shortest route to the place of destination; and (B) where no recognised public transport system exists, an amount equivalent to the air-conditioned first class rail fare, for the distance of the journey by the shortest route, as if the journey had been performed by rail. (2) The exemption referred to in sub-rule (1) shall be available to an individual in respect of two journeys performed in a block of four calendar years commencing from the calendar year 1986 : Provided that nothing contained in this sub-rule shall apply to the benefit already availed of by the assessee in respect of any number of journeys performed before the 1st day of April, 1989 except to the extent that the journey or journeys so performed shall be taken into account for computing the limit of two journeys specified i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. Effectively, the excess amount spent continues to remain taxable. If no proof of having incurred the expenditure towards the medical treatment is produced by the employee, the entire sum paid is considered as a perquisite. Tax under section 192 of the Act is deducted accordingly. 12. As far as LTC is concerned, the payment of salary by the Assessee to its employees every month includes a component towards leave travel. If the employee submits proof regarding utilization of the component towards leave travel and subject to the conditions laid down in Sec.10(5) of the Act read with Rule 2B of the Rules, the Assessee does not consider the leave travel to the extent exempt as salary for the purpose of deduction of tax at source. 13. Annexure-I to this order is a statement giving month wise details of amount paid towards medical expenditure and leave travel, amount for which bills were submitted by the employees and the amount considered as salary for the purpose of deduction of tax at source. 14. The AO has in a very elaborate order running about 68 pages discussed various aspects and case laws relating to the relevant statutory provisions and ultimately concluded that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over to the credit of the Government. 16. On appeal by the Assessee, the CIT(A) cancelled the order of the AO treating the Assessee as an Assessee in default u/s.201(1) of the Act and also levying interest u/s.201(1A) of the Act, holding that amount paid even as reimbursement ought to be considered as perquisite. In coming to the above conclusion, the CIT(A) relied on the Circular of the CBDT, viz., Circular No.603 dated 6.6.1991, wherein the CBDT has opined that the value of the perquisite arising by way of payment or reimbursement by an employer of expenditure on medical treated will not be included in the taxable salary of the employee. The following were the relevant observations of the CIT(A):- 3.6 The fact remains that, whenever an amount is paid, where either the employer has not availed of actual travel or has availed of the allowance over and above the allowable exemption in the financial year and, therefore, is disentitled to the benefit of exemption, tax has been deducted at source. No instance has been brought on record by the AO that the employer has disbursed the amount without deduction of tax within the financial year in cases where the benefit is not backed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided clearly fits into the ambit of the exemption provided in the proviso to section 17(2) which says: (v) 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 other than the treatment referred to in clauses (1) and (ii); so, however, that such sum does not exceed *fifteen thousand rupees, in the previous year; [increased from ten thousand rupees with effect from 1/4/1999] c) The Board s Circular No.603 dated 6/6/1991 reads as follows: CIRCULAR No.603 dated 6.6.1991 (CLARI.) Non-inclusion of value of perquisite arising from expenditure on medical treatment incurred by employee on himself or on his spouse, children, etc. in certain cases In suppression of Circular No. 376 dt. 6th Jan., 1984, Circular No. 445 dt. 31st Dec., 1985, Circular No. 481 dt. 20th Feb., 1987 and all other instructions on the subject, the Board have decided that the value of the perquisite arising by way of payment or reimbursement by an employer of expenditure on medical treatment incurred by his employee on himself or on his spouse, children or parents, including the provision of free m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery narrow and technical interpretation and in respect of a welfare measure to the employees across the salaried strata it cannot be the correct interpretation. 17. Aggrieved by the order of the CIT(A), the revenue is in appeal before the Tribunal. The following are the grounds of appeal raised by the revenue (which is common for both the A.Y.):- 1) The CIT(A) has erred in not according the AO an opportunity of being heard as envisaged u/s 250(1) and 250(2) of the I.T.Act. 2) The CIT(A) has erred in holding that no instance has been brought on record that an employee was conferred the benefit without TDS if it is not backed by actual expenditure. 3) The CIT(A) has erred in not appreciating the fact that the nature of income is to be determined at its source. 4) The CIT(A) has erred in not appreciating the fact that the application of funds cannot determine the nature of income. 5) The CIT(A) has erred in not appreciating the fact that an exemption granted or the application of funds cannot determine a type of income which is to be determined at source. 6) The CIT(A) has erred in holding that the perquisite also being a taxable income could constitute a part of cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese and other grounds that may be urged during the course of appeal, the order of the AO may be restored. 18. The learned DR reiterated the stand of the revenue as reflected in the grounds of appeal and relied on the order of the AO. 19. The learned counsel for the Assessee reiterated the stand of the Assessee as put forth before AO and CIT(A) and relied on the order of the CIT(A). 20. We have considered the rival submissions. We shall first see the sequence of events that lead to the passing of the order u/s.201(1) and 201(1A) of the Act. There was a Survey u/s.133A of the Act at the business premises of the Assessee on 5.10.2010. Based on the findings in the course of survey show cause notice dated 3.2.2011 was issued by the AO. The contents of this show cause notice throws light on the exact grievance of the AO and therefore the same is being reproduced. To The Principal Officer, M/s Infosys BPO Ltd., Electronics City, Hosur Road, Bangalore-560 100 Sir, Sub: Show cause notice u/s 201(1) in your case F.Y 2006-07 to 2010-11 reg. ******** A survey u/s 133A of the Income-tax Act was conducted at the premises of M/s Infosys Technologies, Hosur Road, Banga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,29,55,799.77* * Amount on which tax is to be deducted. Further the company is extending the benefit of Medical allowance, which forms 25% of basket of allowance and allowed exemption u/s 17(2) of IT Act on medical bills submitted by your employees upto a maximum of Rs.15000/- as perquisite exempt u/s 17(2). The employees are in receipt of medical allowance u/s 17(1) of IT Act and out of which they have considered the medical bills presented by employees as exemption u/s 17(2). Since any amount received u/s 17(1) do not constitute for exemption u/s 17(2), the claim of the employees had to be disallowed. This would not come under the purview of medical reimbursement as per the terms and conditions laid down in the Act. It is proposed to bring these amounts also to tax. 21. A perusal of the show cause notice clearly shows that the fact that bills/evidence to substantiate incurring of expenditure on medical treatment up to Rs.15,000/- and the availing of the LTC by the employees and the fulfilment of the conditions contemplated by Sec.10(5) of the Act for availing exemption by the employees so availing LTC, have not been disputed by the AO. The grievance of the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come let alone salary. Therefore, the Circular is in fact in support of the view taken and doesn t lend any credence to the arguments of the deductor. 6.2.2.3 In the instant case, the leave travel allowance is disbursed to an employee irrespective of the fact as to whether: a) the employee has any intention to proceed on leave or not b) the employee has any intention to travel or not c) the employee has already availed the benefit in the previous calendar year or financial year Therefore, undisputedly and admittedly the disbursement of leave travel allowance is a lump sum monetary benefit provided to the employee without any nexus to any of the statutory or prescribed conditions. The only precondition is that the employee ought to have opted for this allowance at the beginning of the Financial Year. The subsequent occurrence of an event of travel which may or may not occur and even if it occurs, may or may not fulfil the conditions such as once in two calendar years etc., would in no way alter the nature of payment that has been effected. Therefore, an allowance such as the one granted in the instant case would not be a concession or assistance. Therefore, the reliance pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ief under section 89(1) can furnish the information in prescribed form to the employer, and in such cases employer can adjust the amount of TDS by allowing relief available under section 89. It is for the employer to prove the allowances and perquisites given to the employee are tax-free and not to be included in the salary. 26. It is no doubt true that TDS is to be made at the time of payment of salary and not on the basis of salary accrued. Sec.192(3) of the Act permits the employer to increase or reduce the amount of TDS for any excess or deficiency. We have already noticed that the fact that bills/evidence to substantiate incurring of expenditure on medical treatment up to Rs.15,000/- and the availing of the LTC by the employees and the fulfilment of the conditions contemplated by Sec.10(5) of the Act for availing exemption by the employees so availing LTC, have not been disputed by the AO. Even assuming the case of the AO, that at the time of payment the Assessee ought to have deducted tax at source, is sustainable; the Assessee on a review of the taxes deducted during the earlier months of the previous year is entitled to give effect to the deductions permissible under prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns. CIT vs. Nicholas Piramal India Ltd (2008) 299 ITR 0356 (BOMBAY); CIT v. Semiconductor Complex Ltd [2007] 292 ITR 636 (P H) CIT vs. HCL Info System Ltd. [2006] 282 ITR 263 (Del) CIT v Oil and Natural Gas Corporation Ltd [2002] 254 ITR 121 (Guj) ITO v Gujarat Narmada Valley Fertilizers Co. Ltd [2001] 247 ITR 305 (Guj) CIT v Nestle India Ltd (2000) 243 ITR 0435 (DEL) Gwalior Rayon Silk Co. Ltd. v. CIT [1983] 140 ITR 832 (MP) ITO v G. D. Goenka Public School (No. 2) [2008] 306 ITR (AT) 78 (Del) Usha Martin Industries Ltd. V. ACIT (2004) 086 TTJ 0574 (KOL) Nestle India Ltd. v. ACIT (1997) 61 ITD 444 (Del) Indian Airlines Ltd. v ACIT (1996) 59 ITD 353 (Mum) 28. In the present case, as already detailed, the exemption in respect of medical expenditure and leave travel is considered after collecting and verifying the details and evidence furnished by the employees. Policies and controls are in force to ensure that the requirements of rule 2B are fulfilled. The details filed before the TDS officer explains the policies adopted to fulfill the requirements of rule 2B and the process adopted in considering the exemption under section 10(5) and proviso to section 17(2). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es were entitled to exemption u/s.10(5) as well as relief under proviso (iv) to Sec.17(2) of the Act, we have already reproduced the show cause notice issued by the AO u/s.201(1) 201(1A) of the Act, in which the AO has not disputed these facts. In our view the relevant grounds have no basis and cannot be factually sustained. 31. Arguments were advanced that employees have filed their returns of income and offered to tax income under the head salaries received from the Assessee and therefore no order u/s.201(1) 201(1A) of the Act can be passed against the Assessee. In this regard our attention was drawn to the following decisions: Hindustan Coco Cola Beverage Pvt.Ltd. Vs. CIT 293 ITR 226 (SC) CIT Vs. Eli Lilly Co. 312 ITR 225 (SC) Decision of Hon ble Karnataka High Court in the case of CIT Vs. Tata Elxsi ITA No.82 of 2003 dated 23.1.2008. We have not examined the above argument for the reason that the assertion of the assessee in this regard has not been examined either by the AO or CIT(A). 32. For the reasons given above, we do not find any grounds to interfere with the order of the CIT(A). Consequently, these appeals by the Revenue are dismissed. 33. In the resul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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