Medical reimbursement taxability: small reimbursements for unapproved hospital treatment fall outside fringe benefit tax and defeat Section 263 revision.

Medical reimbursement paid by an employer for treatment in an unapproved hospital is not liable to fringe benefit tax under Section 115WB(3) where the reimbursed amount does not exceed the threshold taxable in the employee's hands under Section 17(2). The statutory scheme prevails over a contrary Board Circular, which cannot expand taxability beyond the Act. On the same non-taxability basis, a revisionary order under Section 263 cannot be sustained because the assessment is neither erroneous nor prejudicial to the interests of the Revenue. The article thus states the governing tax treatment of such reimbursements and the limits of revisionary jurisdiction.

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Issues: (i) Whether medical reimbursement below Rs. 15,000 paid by an employer for treatment in an unapproved hospital is liable to fringe benefit tax under Section 115WB(3) of the Income-tax Act, 1961. (ii) Whether the order under Section 263 of the Income-tax Act, 1961 could be sustained when the assessment order was not erroneous and prejudicial to the interests of the Revenue in view of the same taxability question.

Issue (i): Whether medical reimbursement below Rs. 15,000 paid by an employer for treatment in an unapproved hospital is liable to fringe benefit tax under Section 115WB(3) of the Income-tax Act, 1961.

Analysis: Section 115WB(3) excludes from fringe benefit tax those perquisites for which tax is payable by the employee, and the exemption under Section 17(2) operates only according to the amount reimbursed. Reimbursement for medical treatment in an unapproved hospital remains within the employee's perquisite framework, but where the amount does not exceed Rs. 15,000, it is not taxable in the employee's hands. The Board Circular reading such reimbursement as liable to fringe benefit tax was held not to prevail over the clear statutory scheme.

Conclusion: The reimbursement below Rs. 15,000 was not liable to fringe benefit tax, and the finding is in favour of the assessee.

Issue (ii): Whether the order under Section 263 of the Income-tax Act, 1961 could be sustained when the assessment order was not erroneous and prejudicial to the interests of the Revenue in view of the same taxability question.

Analysis: Once the medical reimbursement in question was held not chargeable to fringe benefit tax because every reimbursement was below Rs. 15,000, the basis for treating the assessment order as erroneous and prejudicial to the interests of the Revenue disappeared. The revisionary foundation therefore could not survive on the same issue.

Conclusion: The order under Section 263 was not sustainable, and the finding is in favour of the assessee.

Final Conclusion: The appeal failed on both questions, and the assessee's treatment of the medical reimbursement was upheld.

Ratio Decidendi: Medical reimbursement to employees for unapproved hospital treatment is not subject to fringe benefit tax where the reimbursed amount does not exceed Rs. 15,000, and a revision under Section 263 cannot stand on that same non-taxability premise.

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