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TMI Blog2013 (9) TMI 305X X X X Extracts X X X X X X X X Extracts X X X X ..... here are grievances regarding lack of opportunity to the AO before CIT(A) and grounds challenging the finding that there is no dispute that the Assessee has satisfied itself that the employees were entitled to exemption under proviso (v) to Sec.17(2) of the Act. As far as lack of opportunity is concerned, we find that the CIT(A) has only called for break up of the figures regarding medical reimbursement which was actually paid to employees and that which was considered not forming part of salary by the employee on production of evidence by the employee. In fact, the figures so given are the same figures on the basis of which the AO has passed order u/s.201(1) and 201(1A) of the Act - Decided against Revenue. - ITA Nos.1414 to 1416/Bang/2012 - - - Dated:- 15-7-2013 - N. BARATHVAJA SANKAR AND N.V. VASUDEVAN, JJ. For the Appellant : Bijoy Kumar Panda. For the Respondent : Chavali S. Narayan. ORDER:- These are appeals by the Revenue against the common order dated 23.8.2012 of CIT(A)-II, Bangalore, relating to A.Ys. 2808-09 to 2010-11. 2. In these three appeals, the revenue has challenged the order of the CIT(Appeals) whereby the CIT(Appeals) cancelled the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act contains deductions to be made from salaries. Section 17 of the Act contains an inclusive definition of "salary" for purposes of Section 15, Section 16 and Section 17 of the Act which, along with other items, includes "perquisite" and these terms are also separately defined therein. Sec.17 of the Act, which defines "Salary", "perquisite" and "profits in lieu of salary" in so far as it is relevant to the present appeal reads thus: "For the purposes of sections 15 and 16 and of this section -(1) "Salary" includes- (i) to (iii) .. (iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages; (i) to (viii) (2) "perquisite" includes- (i) to (iii) . (iv) any sum paid by the employer in respect of any obligation which but for such payment, would have been payable by the assessee; and (v) to (vii) .. Provided that nothing in this clause shall apply to,- (v) to (iv) .. (v) any sum paid by the employer in respect of any expenditure actually incurred by the emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income under the head "Salaries" for the purpose of deducting tax at source. We have culled out the reasons for the AO to come to the above conclusion, which can be summarised as follows: 1. As far as medical reimbursement is concerned, the AO was of the similar view that what is contemplated by proviso (iv) to Sec.17(2) of the Act 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. Since the 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 Rs.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. 10. The AO accordingly considered the Assessee as an "Assessee in default" u/s.201(1) of the Act, in respect of the portion of exemption claimed towards medical reimbursement for the AYs 2008-09 to 2010-11. The AO also levied interest u/s.201(1A) of the Act, on tax not deducted, from the dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 medical treatment or treatment at a concessional rate, will not be included in the taxable salary of the employee in the following cases: (i) Where the medical treatment is availed at hospitals, clinics, etc., maintained by the employer; (ii) Where the medical treatment is availed at hospitals maintained by the Government or local authorities or hospitals approved for the purposes of the Central Government Health Schedule or Central Medical Scheme (a list of such hospitals furnished by the Ministry of Health and family welfare on 11th April, 1991 is annexed). (iii) Where the expenditure is on medical insurance premia; (iv) Where the medical treatment is avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner, for affording the AO an opportunity of being heard. (3) 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. (4) The CIT(A) has erred in not appreciating the fact that the nature of income is to be determined at its source. (5) The CIT(A) has erred in not appreciating the fact that the application of funds cannot determine the nature of income. (6) 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. (7) The CIT(A) has erred in holding that the perquisite also being a taxable income could constitute a part of cost to the company. (8) The CIT(A) has erred in holding that the order was based on narrow and technical interpretation in respect of a welfare measure. (9) The CIT(A) has erred in holding that a component of the salary paid on month to month basis could form part of salary which would be exempt under proviso to section 17(2). (10) The CIT(A) has erred in being guided by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of the rates in force for the financial year in which the payment is made on the estimated income of the assessee under this head for that financial year (2) .. (3) The person responsible for making the payment referred to in sub-section (1) or sub-section (1A) or sub-section (2) or sub-section (2A) or sub-section (2B)] may, at the time of making any deduction, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year." 16. Section 192(1) of the Act, requires tax to be deducted at average rate of income-tax in force on estimated income under the head salaries. The person making payment has to make an honest of income under the head salary payable by him to his employee at the time of payment. The person making the payment has to take into consideration various deductions permitted under the Act under Chapter VIA of the Act, as also exempt income under Sec.10 of the Act. Rebate available under sections 88 and 88B can be considered by the employer. Employer should obtain the proof of investment made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irms this. 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 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, or Rs. 15,000/- whichever is lower. The exemption is granted even if the payment precedes the incurrence of expenditure. The requirements/conditions of 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, is the ratio of the following decisions. CIT v. Nicholas Piramal India Ltd [2008] 299 ITR 356 (Bombay); CIT v. Semiconductor Complex Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounds of appeal raised by the revenue, we find that among other grounds there are grievances regarding lack of opportunity to the AO before CIT(A) and grounds challenging the finding that there is no dispute that the Assessee has satisfied itself that the employees were entitled to exemption under proviso (v) to Sec.17(2) of the Act. As far as lack of opportunity is concerned, we find that the CIT(A) has only called for break up of the figures regarding medical reimbursement which was actually paid to employees and that which was considered not forming part of salary by the employee on production of evidence by the employee. In fact, the figures so given are the same figures on the basis of which the AO has passed order u/s.201(1) and 201(1A) of the Act. 22. 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 (P.) Ltd. v. CIT 293 ITR 226 (SC) CIT v. Eli Lilly Co. 312 ITR 225 (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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