TaxTMI 
TaxTMI 
TaxTMI 
2013 (9) TMI 205
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the Act reads as under:- "192. Salary.-(1) Any person responsible for paying any income chargeable under the head "Salaries" shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made on the estimated income of the assessee under this head for that financial year." 4. A perusal of section 192 of the Act clearly indicates that the person responsible for paying any income chargeable under the head "Salaries" shall be liable to deduct income-tax at source at the time of payment of such salary. The items of income that are chargeable to tax under the head income from "Salaries" is laid down in Sec.15 to 17 of the Act. Sec. 15 of the Act provides that income described therein shall be chargeable to tax under the head "Salaries". The income described therein consists of salary from the employer or former employer falling in three categories. Sec.16 of the Act contains deductions to be made from salaries. Section 17 of the Act contains an inclusive definition of "salary" for purposes of Section 15, Section 16 and Section 17 of the Act which, alo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... his family, in connection with his proceeding on leave to any place in India; (b) from his employer or former employer for himself and his family, in connection with his proceeding to any place in India after retirement from service or after the termination of his service, subject to such conditions as may be prescribed (including conditions as to number of journeys and the amount which shall be exempt per head) having regard to the travel concession or assistance granted to the employees of the Central Government; Provided that the amount exempt under this clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel. Explanation : For the purposes of this clause, "family", in relation to an individual, means- (i) the spouse and children of the individual; and (ii) the parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual;" 8. Rule 2B of the Income Tax Rules, 1962 (the 'Rules') lays down the conditions to be satisfied for the for the purpose of availing exemption under section 10(5) of the Act. It reads thus: "(1) The amount exempted under clause (5) of section 10 in respect of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the individual during first calendar year of the immediately succeeding block of four calendar years shall be eligible for exemption. (4) The exemption referred to in sub-rule (1) shall not be available to more than two surviving children of an individual after 1st October, 1998 : Provided that this sub-rule shall not apply in respect of children born before 1st October, 1998, and also in case of multiple births after one child. Explanation : The amount in respect of the value of the travel concession or assistance referred to in this sub-rule shall not be taken into account in determining the eligibility of the amount in respect of the value of the travel concession or assistance in relation to the number of journeys under sub-rule (2)." 9. To the extent LTC is exempt as laid down in sec.10(15) of the Act, the same need not be included as income under the head "Salary" for the purpose of deducting tax at source. 10. The Assessee in the present case recruits employees under a contract of employment. The contract of employment details the consideration for employment. The total 'cost to company' or (CTC) as a result of the employment is agreed upon. CTC is the expenditure bor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....x at source. We have culled out the reasons for the AO to come to the above conclusion, which can be summarised as follows: 1. As far as LTC is concerned, Sec.10(5) of the Act refers to "Concession or Assistance" for leave travel. According to the AO, the Assessee was including in payments made every month a component towards leave travel. In other words, the payment was made irrespective of the status of the utilisation for the purpose of leave travel, which is not in the nature of a reimbursement. The point of time at which the payment to qualify to be called LTC should be at the time of incurring of the expenditure by the employee or after such expenditure is incurred, by way of reimbursement. Since the Assessee was paying LTC as a component of salary every month, without the employee having incurred expenditure, the same had to be considered as salary disbursement which is sought to be set off against expenditure incurred for leave travel and exemption claimed u/s.10(5) of the Act. 2. As far as medical reimbursement is concerned, the AO was of the similar view that what is contemplated by proviso (iv) to Sec.17(2) of the Act was any sum paid by the employer in respect of any ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....allowance and not a 'concession' or 'assistance' as envisaged in the I.T. Act. 3.7 In my view, the basic requirements of the I.T. Act read with the relevant rules are met i.e. i) No disbursement not backed by bills/proof is treated is not taxable. ii) No disbursement in excess of I.T. Rules has been treated as exempt during the financial year. iii) Any excess/shortfall in TDS deducted month to month has been made good by the employer at the end of the financial year as per section 192(3). 3.8 The interpretation of the AO is too narrow and technical and in terms of a welfare measure allowed to employees across the salaried strata cannot be the correct interpretation. The appellant, an employer of tens of thousands of employees, has stated that it is taking into account 'salary' in terms of 'cost to company' as is the norm in the private sector and this merely does not mean that it is an allowance and not a reimbursement. The said benefit would clearly fit into the meaning of 'assistance' in sum and substance. As can be seen from the submissions made by the appellant, care has been taken by the employer to see that there is no irregularity in making payments under the LTA Scheme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent is availed at hospitals maintained by the Government or local authorities or hospitals approved for the purposes of the Central Government Health Schedule or Central Medical Scheme (a list of such hospitals furnished by the Ministry of Health and family welfare on 11th April, 1991 is annexed). (iii) Where the expenditure is on medical insurance premia; (iv) Where the medical treatment is availed of from any doctor outside the institutions/schemes mentioned in (i) to (iii) above, an expenditure of upto Rs. 10,000 in a year, in the aggregate; and (v) Where the medical treatment is availed of in a hospital outside India and the expenditure is incurred for treatment (including on travel and stay abroad in connection with such treatment) as also on travel and stay abroad of one attendant, to the extent permitted by the Reserve Bank of India, subject to the condition that the amount qualifying for such tax exemption would not include expenditure incurred on travel in the case of employees whose gross total income, as computed under the IT Act without considering the amount paid or reimbursed for expenditure in connection with medical treatment abroad, exceeds Rs. 1,00,000. 2. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... exempt under proviso to section 17(2). 9) The CIT(A) has erred in being guided by the quantum of exemption granted per employee rather than the entitlement as per law. 10) The CIT(A) has erred in holding that a component of the salary paid on month to month basis could form part of salary which would be exempt under section 10(5). 11) The CIT(A) has erred in accepting the contention that a subsequent event of travel could determine an exemption. 12) The CIT(A) has erred in holding that an amount paid irrespective of whether employee had availed travel or not would not have any bearing on the exemption accorded by the employer. 13) The CIT(A) has erred in not appreciating the fact that the employer has itself not considered these amounts as perquisite in the Form 12BA issued to the employees. 14) The CIT(A) has erred in not taking cognizance of the fact that an employer cannot consider a disbursement as a perquisite only for the purpose of exemption, and not for the purposes of Form 12BA. 15) The CIT(A) has erred in not considering the fact that every contention of the deductor has been addressed elaborately while the AO's contentions and findings have not been reasoned agai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t was noticed that the employees were in receipt of pay and other allowances. It was explained that 40% of the pay constituted allowances, the break-up of which was as per the option exercised by the employee. It was explained that the basket of allowances could be changed at any point of time by the employee. Evidently a fixed amount was entered by the employee against each of the allowances irrespective of the fact as to whether such expenditure was incurred by him or not. Such allowances admittedly, would constitute part of taxable salary and the employee ought to have been subjected to provision of section 192 on this entire amount. However, it has been explained that any bills produced subsequently has been accepted to be a reimbursement and has been excluded from the purview of section 192. Verification of the returns of income filed by the employee as well as the TDS certificate issued by you do not quantify this to be taxable income resulting in taxes not being deducted at source nor being offered for taxation by the employee. As per the provisions of Income-tax Act, any allowance forms part of salary u/s 17 and such a component of salary is liable for taxation. The provis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ered as part of salary for the purpose of deduction of tax at source. In other words, according to the AO, LTC and Medical reimbursement should be paid at the time the expenditure is incurred or after the expenditure is incurred by way of reimbursement and not at an earlier point of time. If it is so paid, then, according to the AO, even though the payment would not form part of taxable salary of an employee, the employer has to deduct tax at source treating it as part of salary. In support of the stand taken by the AO, she relies on the expression "actually incurred" in proviso (iv) to Sec.17(2) which allows exemption of medical reimbursement up to Rs.15000/- to an Assessee. As far as LTC is concerned, the AO relies on the expression "value of travel concession or assistance received by an employee in connection with his proceeding, - (a) on leave to any place in India; (b) to any place in India after retirement from service or after the termination of his service, shall be the amount "actually incurred" on the performance of such travel", found in Sec.10(5) of the Act. 22. The Assessee in this regard, among other things, relied on CBDT Circular No.603 dated 6.6.1991 extracted....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t by the employer the same assumes the character of salary and its later application for purposes which are exempt will only be application of income and therefore accrual of income in the form of salary takes place on which tax had to be deducted at source. 24. To appreciate the stand taken by the AO, we have to look at the relevant provisions of Sec.192 of the Act in so far as the same is relevant for the present case. "192. Salary.-(1) Any person responsible for paying any income chargeable under the head "Salaries" shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made on the estimated income of the assessee under this head for that financial year (2)...... (3) The person responsible for making the payment referred to in sub-section (1) or sub-section (1A) or sub-section (2) or subsection (2A) or sub-section (2B)] may, at the time of making any deduction, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ugh the payment would not form part of taxable salary of an employee, the employer has to deduct tax at source treating it as part of salary, is contrary to the provisions of Sec.192(3) of the Act and cannot be sustained. The reliance placed by the AO on the expression "actually incurred" found in Sec.10(5) of the Act and proviso (iv) to Sec.17(2) of the Act, in our view cannot be sustained. In any event, the interpretation of the word "actually paid" is not relevant while ascertaining the quantum of tax that has to be deducted at source u/s.192 of the Act. As far as the Assessee is concerned, his obligation is only to make an "estimate" of the income under the head "salaries" and such estimate has to be a bonafide estimate. 27. The primary liability of the payee to pay tax remains. Section 191 confirms this. In a situation of honest difference of opinion, it is not the deductor that is to be proceeded against but the payees of the sums. To reiterate, the payment towards medical expenditure and leave travel is made keeping in view the employee welfare. The exclusion in respect of payment towards medical expenditure and leave travel is considered after verifying the details and evi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n law and rightly quashed by the CIT(A). 29. In the light of the admitted position that the conditions for grant of exemption u/s.10(5) of the Act to the employees in respect of LTC and also the fact that up to Rs.15,000 per employee medical reimbursement paid by the Assessee satisfies conditions contemplated by the proviso (iv) to Sec.17(2) of the Act, can the AO deny to the employee in their assessment, exemption u/s.10(5) or relief under the proviso to (iv) to Sec.17(2) of the Act? The answer admittedly is 'no', because the AO does not dispute nonITA fulfilment 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). 30. In the grounds of appeal raised by the revenue, we find that among other grounds there are grievances regarding lack of opportunity to the AO before CIT(A) and grounds challenging the finding that there is no dispu....