TaxTMI 
TaxTMI 
2013 (9) TMI 305
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....678 3. The assessee is a 100% export oriented unit (EOU) under the scheme of STPI and is engaged in the business of providing software development and related services to SAP AG, Germany. There was a survey u/s. 133A of the Act by the DCIT (TDS), Circle 18(2), Bangalore [hereinafter referred to as the "Assessing Officer / AO"] on 26.10.2010 in the premises of the assessee. In the course of survey, a question arose as to whether the appellant herein as an employer was justified in not deducting tax at source on medical reimbursements upto Rs.15,000 paid to its employees. 4. Section 192(1) of the Act casts an obligation on the part of person responsible for paying income chargeable under the head "salaries" to deduct tax at source, at the time of payment. Section 192 (1) of 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 f....
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.... employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family other than the treatment referred to in clauses (i) and (ii); so, however, that such sum does not exceed fifteen thousand rupees in the previous year. (vi) ......................................" 6. The dispute in these appeals are regarding the obligation of the assessee to deduct tax at source on "medical reimbursement". It is not in dispute that the amounts paid as medical reimbursements is in the nature of perquisite falling with the definition of perquisites as given in sec.17(2) (iv) proviso (v) of the Act. 7. As far as Medical reimbursement is concerned, if the amount paid by an employer to the employee for medical treatment of the employee or his family is Rs.15,000 or less per annum, then the same will not be perquisite as laid down in Sec.17(2) proviso (v) of the Act and therefore need not be considered as part of "salary" for the purpose of deducting tax at source at the time of payment by the employer to the employee....
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....1) of the Act, in respect of the portion of exemption claimed towards medical reimbursement for the AYs 2008-09 to 2010-11. The AO also levied interest u/s.201(1A) of the Act, on tax not deducted, from the date on which tax ought to have been deducted till the date on which the tax not deducted is paid over to the credit of the Government. 11. On appeal by the Assessee, the CIT(A) cancelled the order of the AO treating the Assessee as an "Assessee in default" u/s.201(1) of the Act and also levying interest u/s.201(1A) of the Act, holding that amount paid even as reimbursement ought to be considered as perquisite. In coming to the above conclusion, the CIT(A) relied on the Circular of the CBDT, viz., Circular No.603 dated 6.6.1991, wherein the CBDT has opined that the value of the perquisite arising by way of payment or reimbursement by an employer of expenditure on medical treatment will not be included in the taxable salary of the employee. The following were the relevant observations of the CIT(A):- "3. MEDICAL REIMBURSEMENT ........................ &nbs....
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....e salary of the employee in the following cases: (i) Where the medical treatment is availed at hospitals, clinics, etc., maintained by the employer; (ii) Where the medical treatment 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....
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....hout TDS if it is not backed by actual expenditure. (4) The CIT(A) has erred in not appreciating the fact that the nature of income is to be determined at its source. (5) The CIT(A) has erred in not appreciating the fact that the application of funds cannot determine the nature of income. (6) The CIT(A) has erred in not appreciating the fact that an exemption granted or the application of funds cannot determine a type of income which is to be determined at source. (7) The CIT(A) has erred in holding that the perquisite also being a taxable income could constitute a part of cost to the company. (8) The CIT(A) has erred in holding that the order was based on narrow and technical interpretation in respect of a welfare measure. (9) 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 proviso to section 17(2). (10) The CIT(A) has erred in being guided by the quantum of exemption granted per employee rat....
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....ponsible 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 sub-section (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 during the financial year." 16. Section 192(1) of the Act, requires tax to be deducted at average rate of income-tax in force on estimated income under the head salaries. The person making payment has to make an honest of income under the head salary payable by him to his employee at the time of payment. The person making the payme....
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.... 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. 18. 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 is considered after verifying the details and evidence furnished by the employees. No exemption is granted in the absence of details and/or evidence. The exemption in respect of medical expenditure is restricted to expenditure actually incurred by the employees, or Rs. 15,000/- whichever is lower. The exemption is granted even if the payment precedes the incurrence of expenditure. The requirements/conditions of proviso to section 17(2) are meticulously followed before extending the deduction/ exemption to an employee. No tax can be recovered from the employer on account of short de....
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....(v) to Sec.17(2) of the Act? The answer admittedly is 'no', because the AO does not dispute non-fulfilment of conditions for allowing exemption under proviso (v) 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). 21. 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 dispute that the Assessee has satisfied itself that the employees were entitled to exemption under proviso (v) to Sec.17(2) of the Act. As far as lack of opportunity is concerned, we find that the CIT(A) has only called for break up of the figures regarding medical reimbursement which was actually paid to employees and that which was considered not forming part of salary by the employee on production of evidence by the employee. In fact, the figures so given are the same figures on ....