Assessee bank wins appeal on Medical Aid & Entertainment expenses, Conference fees under scrutiny

The Tribunal partially allowed the appeal in favor of the assessee bank. The addition of Medical Aid and Entertainment expenses inside the office premises were ruled in favor of the assessee, exempting them from fringe benefit tax. However, the issue of Conference fees was remitted for further verification by the Assessing Officer to determine if they should be included as fringe benefits.

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Issues Involved:
1. Addition of Medical Aid
2. Entertainment expenses inside the office premises
3. Conference fees

Detailed Analysis of the Judgment:

(i) Addition of Medical Aid - Rs. 45,00,000

The assessee bank contested the addition of Rs. 45,00,000 made by the Assessing Officer (AO) under fringe benefits for medical aid expenses. The bank argued that these expenses were medical reimbursements treated as perquisites under section 17 of the Income-tax Act, 1961, and thus should not be taxed as fringe benefits. The AO rejected this explanation, stating the bank did not specify if reimbursements exceeded Rs. 15,000 per employee, which would be treated as perquisites under section 17 and fringe benefits under section 115WB(2)(E) if less than Rs. 15,000.

The CIT(A) upheld the AO's decision, referencing Board's Instruction No. 8 of 2005. The assessee's counsel cited the Mumbai Tribunal's decision in Godrej Properties Ltd. v Addl. CIT and the Finance Minister's budget speech, arguing that perquisites directly attributed to employees should be taxed in their hands, not as fringe benefits.

The Tribunal agreed with the assessee, noting that section 17(2) proviso (v) exempts medical reimbursements up to Rs. 15,000 from being taxed as perquisites. Section 115WB(3) excludes perquisites taxed in employees' hands from fringe benefits. The Tribunal concluded that exempt perquisites should not be subjected to fringe benefit tax (FBT), citing the Mumbai Tribunal's decision in Godrej Properties Ltd. The appeal on this ground was allowed.

(ii) Entertainment expenses inside the office premises - Rs. 49,04,111

The assessee bank argued that Rs. 49,04,111 spent on snacks/refreshments for customers within office premises should be excluded from fringe benefits under section 115WB(2)(B)(i). The AO and CIT(A) rejected this, stating the exemption applies only to employees, not customers.

The Tribunal examined section 115WB(2)(B), which extends the term "fringe benefits" to specific expenses. It noted that expenses for providing snacks/refreshments to employees are excluded from fringe benefits. The Tribunal reasoned that if such expenses are excluded for employees, they should also be excluded for other persons. The appeal on this ground was allowed.

(iii) Conference fees - Rs. 3,14,438

The assessee bank claimed Rs. 3,14,438 as conference fees for employee participation, which should be exempt under section 115WB(2)(C). The AO and CIT(A) included this in fringe benefits, arguing that the assessee did not provide evidence that the fees did not include other expenses like travel or lodging.

The Tribunal noted the assessee provided receipts for Rs. 17,000 and Rs. 23,597 as conference fees but lacked comprehensive evidence. The Tribunal remitted the issue to the AO to verify the genuineness of the claim. If verified as participation fees, these should not be included as fringe benefits.

Conclusion:

The appeal was partly allowed, with the Tribunal ruling in favor of the assessee on medical aid and entertainment expenses but remitting the conference fees issue for further verification.

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