Tax Tribunal rules on taxable benefits from insurance policies under Income Tax Act.

The Tribunal partially allowed the Department's appeal, directing the taxation of amounts received under health insurance policies while confirming that other contributions, including those towards welfare pension insurance, employment insurance, and employment pension insurance, were not taxable as perquisites under section 17(2)(v) of the Income Tax Act. The Tribunal emphasized the absence of vested rights for the employee over the contributions and clarified that contributions to contingent insurance plans do not constitute perquisites unless benefits are received during the relevant year.

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Issues:
1. Taxability of employer's contributions to social security plan as perquisite under section 17(2)(v) of the Income Tax Act.

Analysis:
The case involved an individual, a foreign national employed by a Japanese company deputed to India, where the Assessing Officer (AO) added the employer's contributions to the social security plan as perquisite under section 17(2)(v) of the Income Tax Act for the assessment year 1996-97. The employer's contributions included health insurance, welfare pension insurance, employment insurance, and employment pension insurance, collectively known as the "Social Security Plan" as per Japanese laws. The AO contended that these contributions were taxable as perquisites, despite the employee not having any vested right to receive the amount during employment.

On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] held that contributions made by the employer towards funds established outside India should be regarded as contributions to unrecognized or unapproved funds, taxable in the hands of the employee only upon receipt under section 17(3)(ii) of the Act. The CIT(A) referenced judgments to support that an employee does not acquire a vested right at the time of contribution by the employer, and contributions made towards welfare funds are not considered perquisites. The CIT(A) distinguished a judgment where contributions were deemed accrued to the employee, emphasizing the lack of vested rights in the present case.

Regarding the insurance plans, the CIT(A) noted that the employer's contributions were not to secure insurance on the employee's life or ensure annuity payments, but rather to cover contingencies like loss of employment, sickness, or death. The CIT(A) relied on previous court decisions to support that benefits under contingent policies do not constitute perquisites. Consequently, the CIT(A) deleted the entire addition made by the AO under section 17(2)(v) of the Act.

The Tribunal, after reviewing similar cases, upheld the CIT(A)'s decision, emphasizing that the employee did not possess a vested right over the contributions at the time of payment. The Tribunal also clarified that contributions to contingent insurance plans did not amount to perquisites unless benefits were received during the relevant year. The Tribunal directed the AO to tax amounts actually received by the employee under health insurance policies while affirming that other contributions were not taxable as perquisites.

In conclusion, the Tribunal partially allowed the Department's appeal, directing the taxation of amounts received under health insurance policies while confirming that other contributions were not taxable as perquisites.

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