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TMI Blog2012 (7) TMI 1093X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee company on 19.11.2010. During the survey it was revealed that the assessee had not deducted tax at source on medical reimbursements of up to ₹ 15,000/- each paid to its employees 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 2,24,37,933 75,52,608 29,83,280 1,05,35,888 2009-10* 79,92,924 26,90,418 10,08,967 36,99,385 2009-10 2,50,86,180 84,44,007 23,22,102 1,07,66,109 2010-11 5,20,65,489 1,75,25,244 27,16,412 2,02,41,656 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s given in sec.17(2) (iv) proviso (v) of the Act. 06. 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 ₹ 15,000 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 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcular 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 treatment will not be included in the taxable 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ployees whose gross total income, as computed under the IT Act without considering the amount paid or reimbursed for expenditure in connection with medical treatment abroad, exceeds ₹ 1,00,000. (emphasis supplied) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in passing an order which allows employees who enjoy unintended benefits as per the existing provisions of law. 15) The CIT(A) has erred in not considering the distinctions drawn in respect of the judicial decisions relied upon by the deductor. 16) 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. 17) 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. 18) The CIT(A) has erred in not considering the fact that the provisions of Sec.191 also are not been followed due to such issue of erroneous certificates in Form 16 and 12BA. 19) The CIT(A) has erred in not considering the term "actually incurred" in the proviso to Sec.17(2) of the I.T. Act. 20) For these and other grounds that may be urged during the course of appeal, the order of the AO may be restored." 12. The learned DR reiterated the stand of the revenue as reflected in the grounds of appeal and relied on the order of the AO. 13. The learned counsel for the Assessee reiterated the stand of the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce 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 last date of the previous year. The case of the AO is that medical reimbursement should be paid at the time the expenditure is incurred or after the expenditure is incurred by way of reimbursement and not at an earlier point of time. If it is so paid, then, even though the payment would not form part of taxable salary of an employee, the employer has to deduct tax at source treating it as part of salary, is contrary to the provisions of Sec.192(3) of the Act and cannot be sustained. The reliance placed by the AO on the expression "actually incurred" found in proviso (iv) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 section 192. Every effort is made by the assessee to comply with the requirements of section 192. The assessee is not benefited by allowing employees to claim exemption. The order passed by the AO under section 201(1) & 201(1A) is therefore bad in law and rightly quashed by the CIT(A). 19. In the light of the admitted position that the conditions for grant of exemption up to ₹ 15,000 per employee towards medical reimbursement paid by the Assessee satisfies conditions contemplated by the proviso (v) to Sec.17(2) of the Act, can the AO deny the relief under the provi ..... 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