2013 (9) TMI 205 - AT - Income Tax

Tribunal Upholds CIT(A) Decision on Taxable Salary Estimate, Emphasizes Primary Liability

The Assistant Commissioner of Income Tax (TDS) Versus M/s. Infosys BPO

The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeals. It found that the Assessee had made a bona fide estimate of taxable salary, ... Disallowance of LTA and medical reimbursement - TDS on LTA and medical reimbursement - Survey u/s.133A - Held that:- exemption in respect of medical expenditure and leave travel 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 rule 2B are fulfilled. The details filed before the TDS officer explains the policies adopted to fulfill the requirements of rule 2B and the process adopted in considering the exemption under section 10(5) and 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 AO does not dispute non-fulfillment of conditions for allowing exemption u/s.10(5) of the Act or proviso (iv) to Sec.17(2) of the Act. The liability of the person deducting tax at source cannot be greater than the liability of the person on whose behalf tax at source is deducted. The AO has ignored this aspect and has proceeded to pass the order u/s.201(1) and 201(1A) of the Act. His order was rightly held to be unsustainable by the CIT(A) - Decided against Revenue. Issues Involved:1. Obligation of the Assessee to deduct tax at source on Leave Travel Concession (LTC) and Medical Reimbursement.2. Interpretation of Section 192(1) and Section 17 of the Income Tax Act, 1961.3. Compliance with Section 10(5) of the Income Tax Act and Rule 2B of the Income Tax Rules, 1962.4. Validity of the Assessing Officer's (AO) order treating the Assessee as 'Assessee in default' under Section 201(1) and levying interest under Section 201(1A) of the Act.5. Consideration of CBDT Circular No. 603 dated 6.6.1991.6. Whether the CIT(A) provided adequate opportunity to the AO for being heard.7. The impact of the employees' tax returns on the Assessee's liability.Detailed Analysis:1. Obligation to Deduct Tax at Source on LTC and Medical Reimbursement:The Assessee, a BPO company, was found by the AO to be in default for not deducting tax at source on LTC and Medical Reimbursement paid to its employees. The AO argued that these payments should be considered part of the salary and subjected to TDS at the time of payment, irrespective of whether the expenditure was actually incurred by the employees.2. Interpretation of Section 192(1) and Section 17 of the Income Tax Act, 1961:Section 192(1) mandates the deduction of tax at source on income chargeable under the head 'salaries' at the time of payment. Section 17 defines 'salary' and includes perquisites such as LTC and Medical Reimbursement. The AO contended that since the Assessee paid these amounts monthly, they should be treated as salary and taxed accordingly.3. Compliance with Section 10(5) and Rule 2B:Section 10(5) exempts LTC from tax under certain conditions, and Rule 2B specifies the conditions for this exemption. The AO argued that the payments made by the Assessee did not qualify for exemption as they were not made at the time of incurring the expenditure but were paid monthly. However, the Assessee contended that the payments were exempt as they complied with the conditions laid down in Section 10(5) and Rule 2B.4. Validity of AO's Order under Section 201(1) and 201(1A):The AO treated the Assessee as 'Assessee in default' under Section 201(1) for not deducting tax at source on LTC and Medical Reimbursement and levied interest under Section 201(1A). The CIT(A) overturned this order, stating that the Assessee had complied with the provisions of the Act and that the AO's interpretation was too narrow and technical.5. Consideration of CBDT Circular No. 603:The CIT(A) relied on CBDT Circular No. 603, which clarified that the value of perquisites arising from medical reimbursement up to Rs. 15,000 per annum would not be included in taxable salary if supported by bills. The AO, however, argued that the Circular did not support the Assessee's case as it only applied to reimbursement of actual expenses, not allowances paid in advance.6. Adequate Opportunity for AO to be Heard:The Revenue argued that the CIT(A) did not provide the AO with an adequate opportunity to be heard. However, the Tribunal found that the CIT(A) had only sought a break-up of figures regarding medical reimbursement and LTC, which were already available to the AO and did not require a fresh hearing.7. Impact of Employees' Tax Returns:The Assessee argued that since the employees had filed their tax returns and offered the income received from the Assessee for taxation, the Assessee should not be held liable under Section 201(1) and 201(1A). The Tribunal did not examine this argument as it was not addressed by the AO or CIT(A).Conclusion:The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeals. The Tribunal found that the Assessee had made a bona fide estimate of taxable salary, complied with the provisions of the Act, and that the AO's interpretation was too narrow and technical. The Tribunal also noted that the primary liability to pay tax remains with the payee, and in cases of honest differences of opinion, the deductor should not be proceeded against. The appeals were dismissed, and the CIT(A)'s order was affirmed.