2014 (4) TMI 1203 - AT - Income Tax

Appeal allowed: Medical expense reimbursement exceeding threshold not subject to Fringe Benefit Tax

The Tribunal allowed the appeal, ruling that reimbursement of medical expenditure exceeding the exempt threshold did not attract Fringe Benefit Tax as ... Fringe Benefit Tax - perquisites - medical reimbursement - exemption under proviso (v) to Sec. 17(2) - attribution of benefits - taxation in the hands of employer versus employee - legislative intentFringe Benefit Tax - medical reimbursement - exemption under proviso (v) to Sec. 17(2) - attribution of benefits - taxation in the hands of employer versus employee - Whether medical reimbursement paid to employees (to the extent exempt under proviso (v) to Sec. 17(2)) constitutes a Fringe Benefit liable to Fringe Benefit Tax in the hands of the employer - HELD THAT: - The Tribunal examined the legislative purpose of FBT and the Finance Minister's statement that perquisites which are fully and directly attributable to individual employees continue to be taxed under Sec. 17(2), whereas collectively enjoyed benefits not attributable to individuals are to be taxed as FBT. Medical reimbursement is directly attributable to individual employees and is a perquisite under Sec. 17(2), albeit subject to an exemption under proviso (v). The CBDT Circular relied upon by the Revenue, which treats such exempt medical reimbursements as attractable to FBT, is inconsistent with the legislative intent as explained in the budget speech. Coordinate decisions of the Tribunal were noted to support the view that medical reimbursements which can be attributed to specific employees do not constitute fringe benefits under Sec. 115WB. Applying this principle to the facts, reimbursement of medical expenditure cannot be characterised as a collective fringe benefit liable to FBT and therefore the additions made by the Assessing Officer and confirmed by the CIT(A) were reversed. [Paras 9, 10]Reimbursement of medical expenditure does not constitute a Fringe Benefit under Sec. 115WB and the additions for FBT are reversed; the appeal is allowed.Final Conclusion: The Tribunal allowed the assessee's appeal for A.Y. 2007-08, holding that medical reimbursement-being directly attributable to individual employees and exempt under proviso (v) to Sec. 17(2)-does not constitute a Fringe Benefit liable to FBT, and accordingly reversed the additions confirmed by the CIT(A). Issues:Interpretation of Fringe Benefit Tax on medical reimbursement exceeding exempt threshold.Analysis:The case involved a dispute over the levy of Fringe Benefit Tax (FBT) on medical reimbursement exceeding the exempt threshold. The Assessing Officer added a portion of the medical reimbursement to the value of Fringe Benefit, which was contested by the assessee. The assessee argued that FBT was not intended to tax items specifically exempt under other provisions of the Act, such as medical reimbursements up to a certain limit. The CBDT Circular No. 8/2005 was relied upon by the AO to support the addition. The Ld. CIT(A) upheld the AO's decision, stating that since medical reimbursement was not treated as salary in the hands of employees, it was taxable as FBT.The assessee further contended that specific perquisites taxable in the hands of individual employees, like medical reimbursement, should not be subject to FBT solely because they are exempt in the hands of employees. Reference was made to the legislative intent behind FBT and decisions of the Tribunal in similar cases. The Departmental Representative supported the lower authorities' findings and suggested referring the matter to a Special Bench due to varied Tribunal decisions on the issue.Upon careful consideration of the arguments, the Tribunal analyzed the objectives behind the introduction of FBT as explained by the CBDT. The Tribunal noted that benefits not individually attributable to employees and disguised as reimbursements to reduce tax liability were intended to be taxed under FBT. However, medical expenses, being directly attributable to each employee, were held to be perquisites under Sec. 17(2) of the Act, subject to exemption limits. The Tribunal found the CBDT Circular contradictory to legislative intent and referred to previous Tribunal decisions supporting the non-taxability of such reimbursements under FBT. In light of the legislative intent and totality of facts, the Tribunal concluded that medical reimbursement did not constitute a Fringe Benefit as defined in the Act, reversing the Ld. CIT(A)'s decision and allowing the appeal.In conclusion, the Tribunal allowed the appeal filed by the assessee, ruling that reimbursement of medical expenditure exceeding the exempt threshold did not attract Fringe Benefit Tax as defined in the Act.