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TMI Blog2013 (8) TMI 1106X X X X Extracts X X X X X X X X Extracts X X X X ..... bursements of up to ₹ 15,000/- each paid to its employees and also on meal vouchers (SODEXHO COUPONS). The aggregate income attributable to these allowances, demand raised u/s.201(1) and interest charged u/s.201(1A) are as follows : A.Y Perquisites 201(1) Rs. 201(1A) Rs. Total Rs. 2008-09 46,86,892 15,77,608 8,28,241 24,05,849 2009-10 1,30,65,862 43,97,969 23,08,906 67,06,875 03. Section 192(1) of the Act casts an obligation on the part of person responsible for paying income chargeable under the head "salaries" to deduct tax at source, at the time of payment. Section 192 (1) of the Act reads as under:- "192. Salary.-(1) Any person responsible for paying any income chargeable under the head "Salaries" shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the 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." 04. A perusal of section 192 of the Act clearly indicates that the person responsible for paying any income chargeable under the head "Salaries" shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 or less per annum, then the same will not be perquisite as laid down in Sec.17(2) proviso (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 ₹ 15,000/- is exempt and the remaining is taxable. 07. The payments to employees of the assessee include a component towards medical expenditure. Towards this, employees are paid a sum every month. This sum, when paid is considered as part of taxable salary. If the employee submits proof of having incurred the expenditure towards medical treatment, the sum spent towards medical treatment or ₹ 15,000/-, whichever is less, is excluded from salary. The exclusion is on the basis of the proviso (v) to section 17(2) of the Act. If the amount spent towards medical treatment is in excess of ₹ 15,000/- the excess (beyond ₹ 15,000) is considered not considered as a deduction. Effectively, the excess amount spent continues to remain taxable. If no proof of having incurred the expenditure towards the medical treatment is prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble salary of the employee. The following were the relevant observations of the CIT(A):- "3. MEDICAL REIMBURSEMENT ……. 3.3 I have carefully considered the appellant's submissions and perused the AO's order. The employees are paid up to ₹ 15,000/- per annum which is paid as advance at ₹ 1,250/- every month for the sake of administrative convenience. This amount is treated as exempt under the provisions of I.T.Act only if supported by bills. Wherever bills are (not) provided the amount is treated as a taxable salary and tax is deducted during the financial year end. 3.4 On the facts of the case, I find that: a) No instance has been brought on record to suggest that, in the case of any employee, the benefit or allowance has been allowed without TDS during the financial year if it is not backed by actual expenditure. b) In such a case, the benefit provided 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied) 2. The contents of this circular will be applicable in relation to the assessment year 1991-92 and the subsequent years" d) Moreover, in the present case, the amount of ₹ 15,000/- per employee per annum is too small draw any other inference. 4.6 It is clear, therefore, that in effect there is no infringement of the tax provisions allowable to the employees by the employer appellant. Merely because the same is taken into account at the beginning of the year or at the time of deciding his/her salary, which itself is in terms of cost to company, it cannot be said that it ceases to be a perquisite and, therefore, not entitled to exemption u/s 17(2). Perquisite in any case also forms part of taxable salary. The employer has clarified that, wherever the said disbursement is not backed by bills, it is liable to TDS and this liability is not denied or infringed. 4.7 Therefore, in my view, the view of the AO is a very narrow and technical interpretation and in respect of a welfare measure to the employees across the salaried strata it cannot be the correct interpretation." 11. Aggrieved by the order of the CIT(A), the revenue is in appeals before the Tribunal. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) has erred in not appreciating the fact that the employer has itself not considered these amounts as perquisites in the Form 12BA issued to the employees. 15) The CIT(A) has erred in not taking cognizance of the fact that the employer cannot consider a disbursement as a perquisite only for the purpose of exemption, and not for the purposes of Form 12BA. 16) The CIT(A) has erred in not considering the fact that every contention of the deductor has been addressed elaborately while the AO's contentions and findings have not been reasoned against. 17) The CIT(A) has erred in passing an order which allows employees who enjoy unintended benefits as per the existing provisions of law. 18) The CIT(A) has erred in not considering the distinctions drawn in respect of the judicial decisions relied upon by the deductor. 19) The CIT(A) has erred in not considering the fact that the AO has studied the Board's Circulars and their applicability as evident from the order passed. 20) The CIT(A) has erred in not considering the fact that such exempted income was not admitted by the employee on the basis of the Form 16 and 12BA issued. 21) The CIT(A) has erred in not considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 16. 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 ₹ 15,000/- for availing exemption by the employees, 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 proviso (v) to Sec.17(2) of the Act in the later months of the previous year. What has to be seen is the taxes to be deducted on income under the head 'salaries' as on the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) 18. In the present case, as already detailed, the exemption in respect of medical expenditure 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 the provision are fulfilled. The details filed before the TDS officer explains the policies adopted to fulfill the process adopted in considering the exemption proviso to section 17(2). The assessee is a law abiding Company. Internal controls are in place to discharge the statutory obligation under section 192. Honest and bona fide estimate of taxable salary is made in the process of deducting tax at source under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Income-tax (Appeals) in his order has dealt with this issue also at length. While doing so, he has considered the provisions of Rule 3(7)(iii) of the IT Rules, 1962 which has been reproduced in his order. In para 4.6, the Commissioner of Income-tax (Appeals) has observed as under : "4.6. It is also to be seen that these benefits are provided to employees all across salaried strata in the private sector in this manner and employers are dealing with a large number of employees (numbering tens of thousands) and not merely a few hundreds or thousands to monitor each meal coupon usage. On the whole, whether sufficient checks and balances have been provided by the employer to ensure that in sum and substance the benefit provided is as per Rule 3(7)(iii) or not, is what would be relevant. I do not feel that from the amount involved per employee in the present case, any other inference can be drawn, but the administrative convenience of the employer in disbursing the said benefit, which is also a welfare measure aimed at ensuring better productivity from the employees and well within the ambit of the provisions of the I. T. Act. The interpretation of the Assessing Officer is t ..... 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