IT : Nothing wrong if medical allowance is paid before incurrence of expenditure and tax deducted on non-production of bills
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[2013] 37 taxmann.com 275 (Bangalore - Trib.)
IN THE ITAT BANGALORE BENCH 'B'
Income-tax Officer, Ward (TDS)-18(2), Bangalore
v.
Tata Elxsi Ltd.*
GEORGE GEORGE K., JUDICIAL MEMBER
AND JASON P. BOAZ, ACCOUNTANT MEMBER
AND JASON P. BOAZ, ACCOUNTANT MEMBER
IT APPEAL NOS. 1407 TO 1409 (BANG.) OF 2012 & 744 TO 749 (BANG.) OF 2013
[ASSESSMENT YEARS 2008-09 TO 2010-11]
[ASSESSMENT YEARS 2008-09 TO 2010-11]
AUGUST 8, 2013
Section 192, read with section 17(2), of the Income-tax Act, 1961 - Deduction of tax at source - Salary [TDS made at year end] - Assessment years 2008-09 to 2010-11 - Assessee-company paid medical allowance to its employees of Rs. 15,000 per annum, split into monthly disbursements, and tax was deducted at source only at end of financial year, if bills for same were not submitted by employees - Whether, where exemption in respect of medical expenditure was given only after verifying details at year end, and assessee-company had internal controls in place to discharge obligation under section 192, assessee could not be held to be in default for short deduction of tax on such amount, as assessee made bona fide estimate of taxable salary in process of determining tax to be deducted thereunder - Held, yes [Para 7.5.9] [In favour of assessee]
FACTS
| ■ | The assessee-company paid its employees medical allowance of Rs. 15,000 per annum, split into monthly disbursement. This amount was treated as exempt only if supported by bills. Whenever bills were not submitted, the amount was treated as taxable salary and tax was deducted at the end of the financial year. The Assessing Officer was of the view that in addition to reimbursement of medical expenses supported by medical bills, the assessee paid its employees a cash allowance; the total payment/reimbursement being limited to Rs. 15,000 per annum and that production of bills for claiming reimbursement was not a pre-condition for reimbursement. In this view of the matter, the Assessing Officer disallowed the assessee's claim for exemption. | |
| ■ | On appeal, the Commissioner (Appeals) allowed the assessee's appeal. | |
| ■ | On revenue's appeal: |
HELD
| ■ | Section 192(1) 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 estimate of the income under the head 'Salaries' payable by him to his employee at the time of payment. The person making the payment has to take into consideration various deductions permitted under the Act under Chapter VI, as also exempt income under section 10. The employer should obtain proof of investment made by the employer and not rely on simple declaration or oral assurance. In sum and substance, it is for the employer to prove that the allowances and perquisites given to employees are tax free and are not to be included in the salary. [Para 7.5.5] | |
| ■ | TDS is to be made at the time of payment of salary and not on the basis of salary accrued, and section 192(3) permits the employer to increase or reduce the amount of TDS for any excess or deficiency. The bills/evidence to substantiate incurring of medical treatment up to Rs. 15,000 by employees have not been disputed by the Assessing Officer. Even assuming the case of the Assessing Officer, that at the time of payment, the assessee ought to have deducted tax at source, the assessee on a review of taxes deducted in the earlier months of previous year is entitled to give effect to the deductions permissible, under proviso (iv) to section 17(2), in the later months of the year. What has to be seen is the taxes to be deducted on income under the head 'Salaries' on the last day of the previous year. The case of the Assessing Officer is that medical reimbursement should be paid at the time the expenditure is incurred or after the expenditure incurred is reimbursed and not at an earlier point in time. If this proposition put forth by the Assessing Officer is allowed, then even though the payment would not form part of taxable salary of an employee, the employer would have to deduct tax at source treating it as a part of salary, which is unsustainable, as it is contrary to the provision of section 192(3). [Para 7.5.6] | |
| ■ | The primary liability of the payee to pay tax remains and section 191 confirms this. In a situation of an honest difference of opinion, it is not the deductor that has to be proceeded against but the payee of the sums. The payment by the employer towards medical expenditure and leave travel was made keeping in view employee welfare. No tax can be recovered from the employer on account of short deduction of tax at source under section 192 if a bona fide estimate of salary taxable in the hands of the employee is made by the employee. [Para 7.5.7] | |
| ■ | The exemption in respect of medical expenditure and leave travel was considered after collecting and verifying the details and evidences furnished by the employees in this regard as per the policies and controls put in place to ensure that the requirement of rule 2B were fulfiled. The details filed before the Assessing Officer for TDS explains the policies adopted to ensure fulfilment of the requirement of rule 2B and the process adopted in considering the exemption/deduction under the proviso (iv) to section 17(2). The assessee has put in place internal controls to discharge the statutory obligation under section 192 and it would appear that every effort was made to comply with the requirements of section 192 by making abona fide estimate of taxable salary in the process of making TDS thereunder. By allowing the employee to claim exemption, the assessee was not benefited. [Para 7.5.8] | |
| ■ | In the light of the admitted position that the conditions for grant of exemption up to Rs. 15,000 per employee medical reimbursement paid by the assessee satisfied the conditions contemplated by the proviso (iv) to section 17(2), it would not be correct for the Assessing Officer to deny the employees in their assessment, exemption/relief under the proviso (iv) to section 17(2), since the Assessing Officer does not dispute the fulfilment of conditions for allowing exemption under the proviso (iv) to section 17(2). It is true that 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 Assessing Officer ignored this aspect. In this view of the matter, the Assessing Officer's orders for all assessment years 2008-09 to 2010-11 were rightly held to be unsustainable by the Commissioner (Appeals). [Para 7.5.9] | |
| ■ | In the result, revenue's appeals for assessment years 2008-09 to 2010-11 are dismissed. [Para 9] |
CASES REFERRED TO
CIT v. Nicholas Piramal India Ltd. [2008] 299 ITR 356/169 Taxman 233 (Bom.) (para 7.5.7), CIT v. HCL Info Systems Ltd. [2006] 282 ITR 263/[2005] 146 Taxman 227 (Delhi) (para 7.5.7), CIT v. Semiconductor Complex Ltd. [2007] 292 ITR 636/160 Taxman 384 (Punj & Har.) (para 7.5.7), ITO v. ONGC Ltd. [2002] 254 ITR 121/125 Taxman 698 (Guj.) (para 7.5.7), Gwalior Rayon Silk Co. Ltd. v. CIT [1983] 140 ITR 832/14 Taxman 99 (MP) (para 7.5.7), ITO v. G.D. Goenka Public School (No. 2) [2008] 23 SOT 77/[2009] 117 ITD 101 (Delhi) (para 7.5.7), Usha Martin Industries Ltd. v. Asstt. CIT [2004] 86 TTJ 574 (Kol.) (para 7.5.7), Indian Airlines Ltd. v. Asstt. CIT [1996] 59 ITD 353 (Mum.) (para 7.5.7) and Nestle India Ltd. v. Asstt. CIT [1997] 61 ITD 444 (Delhi) (para 7.5.7).
Ganesh Rao for the Appellant. Sudheendra B.R. for the Respondent.
ORDER
1. These appeals by revenue are directed against the common order of the Commissioner of Income Tax (Appeals)-II, Bangalore dt.22.8.2012 for Assessment Years 2008-09 to 2010-11.
2. Originally revenue filed the appeals in ITA Nos.1407 to 1409/Bang/2012 in respect of the afore mentioned Assessment Years 2008-09 to 2010-11 challenging both the demands raise under section 201(1) an 201(1A) of the Income Tax Act, 1961 (herein after referred to as 'the Act') in the same appeals. Subsequently, on the directions of the Bench, revenue has filed separate appeals in respect of demands raised under section 201(1) and interest charged under section 201(1A) of the Act in ITA Nos.744 to 749/Bang/13. In this view of the matter, the appeals originally filed by Revenue in ITA Nos.1402 to 1409/Bang/2012 are rendered infructuous and are accordingly dismissed.
3. What is, therefore, left for adjudication before us are the appeals in ITA Nos.744 to 749/Bang/2013 pertaining to Assessment Year 2008-09 and 2010-11. In view of the fact that the original appeals by revenue in ITA Nos.1407 to 1409/Bang/2012 were filed in time, no delay can be attributable to the revenue for the subsequent in filing of the appeals in ITA Nos.744 to749/Bang/2013 as they were done at the behest of the Bench. These appeals in ITA Nos.744 to 749/Bang/2013 were heard together and since common issues are involved, they are being disposed off by way of a common order.
4. The facts of the case, in brief, are as under :
4.1 The assessee is a company engaged in the design and development of computer software, engineering services, visual computing labs and systems integration. A survey under section 133A of the Income Tax Act, 1961 (herein after referred to as 'the Act') was conducted at the business premises of the assessee on 15.12.2010 whereby it came to light that the assessee has been remunerating its employees with a pre-determined salary consisting of Basic pay and Medical Allowance, etc. The assessee follows the cost to company (CTC) approach to monitor and control cost relating to employees. It was also found that, in respect of Medical Allowance, the Assessing Officer considered the assessee to be an 'assessee in default' since it had failed to deduct tax at source from such perquisites paid to its employees. In this view of the matter, the Assessing Officer initiated action and determined the value of perquisites paid to its employees and accordingly raised tax demand by holding the assessee to be assessee in default under section 201(1) of the Act and charged interest under section 201(1A) of the Act for the tree Assessment Years 2008-09 to 2010-11.
4.2 Aggrieved by the orders under section 201(1) and 201(1A) of the Act dt.28.3.2011 for Assessment Years 2008-09 to 2010-11, the assessee preferred appeals for all three years before the CIT (Appeals) II, Bangalore. The learned CIT (Appeals) vide her order dt.22.8.2012, allowed the assessee's appeals for all the three years in respect of Medical Allowance provided by the assessee to its employees, holding them to be in accordance with provisions of the Act.
5. Aggrieved with the common order of the learned CIT (Appeals) II, Bangalore for Assessment Years 2008-09 to 2010-11 dt.22.8.2012, revenue is now in appeal before us raising common grounds for the demand raised under section 201(1) of the Act for all three years :—
| "1. | The CIT (Appeals) has erred in not according the Assessing Officer an opportunity of being heard as envisaged under section 250(1) and 250(2) of the IT Act. | |
| 2. | The CIT (Appeals) has erred in holding that no instance has been brought on record that an employee was conferred the benefit without TDS if it is not backed by actual expenditure. | |
| 3. | The CIT (Appeals) has erred in not appreciating the fact that the nature of income is to be determined at its source. | |
| 4. | The CIT (Appeals) has erred in not appreciating the fact that the application of funds cannot determine the nature of income. | |
| 5. | The CIT (Appeals) has erred in not appreciating the fact that an exemption granted or the application of funds cannot determined a type of income which is to be determined at source. | |
| 6. | The CIT (Appeals) has erred in holding that the perquisite also being a taxable income could constitute a part of cost to the company. | |
| 7. | The CIT (Appeals) has erred in holding that the order was based on narrow and technical interpretation in respect of a welfare measure. | |
| 8. | The CIT (Appeals) 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). | |
| 9. | The CIT (Appeals) has erred in being guided by the quantum of exemption granted per employee rather than the entitlement as per law. | |
| 10. | The CIT (Appeals) 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. | |
| 11. | The CIT (Appeals) 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. | |
| 12. | The CIT (Appeals) has erred in not considering the fact that every contention of the deductor has been addressed elaborately while the Assessing Officer's contentions and findings have not been reasoned against. | |
| 13. | The CIT (Appeals) has erred in passing an order which allows employees who enjoy unintended benefits as per the existing provisions of law. | |
| 14. | The CIT (Appeals) has erred in not considering the distinctions drawn in respect of the judicial decisions relied upon by the deductor. | |
| 15. | The CIT (Appeals) has erred in not considering the fact that the Assessing Officer has studied the Board's Circulars and their applicability as evident from the order passed. | |
| 16. | The CIT (Appeals) has erred in not considering the fact that such exempted income was not admitted by the employee on the basis of the Form 16 and 12BA issued. | |
| 17. | The CIT (Appeals) has erred in not considering the fact that the provisions of section 191 also are not been followed due to such issue of erroneous certificates in Form 16 and 12BA. | |
| 18. | The CIT (Appeals) has erred in not considering the term "actually incurred" in the proviso to section 17(2) of the IT Act. | |
| 19. | For these and other grounds that may be urged during the course of appeal, the order of the Assessing Officer may be restored." |
In respect of the interest charged under section 201(1A) of the Act revenue has raised the following common grounds of demand for all three years :—
"1. CIT (Appeals) has erred in holding that interest under section 201(1A) is not leviable in the present case. CIT (Appeals) has not appreciated the fact that charging of interest under section 201(1A) is not penal in nature but it is compensatory in nature. This is a mandatory obligation of the Assessing Officer to levy interest under this section in case of default. This position is substantiated by the following case laws :
| (a) | Pentagon Engineering (P) Ltd. v. ITO (1983) 5 ITR 87 (Bom); ITO v. Khusi Ram & Sons (1989) 31 ITD (ASR). | |
| Section 201(1A) imposes a mandatory obligation on the ITO to levy interest as there is no choice. Appellate authority cannot go into the reasonableness of the causes. The appellate authority can look into the matter to see whether the circumstances prerequisite for the levy existed and the quantum is in order. | ||
| (b) | Kanoi Industries (P) Ltd. v. CIT, 261 ITR 488 (Cal) 2003. |
Unlike S 201(1), S 201(1A) does not contain any restriction, such as reasonable cause for non-deduction or non-payment. Therefore, interest under section 201(1A) is automatic and mandatory. This means, it continues until it is either paid or recovered through any other mode.
Liability under section 201(1) arises immediately upon each default and can be computed with reference to the law as it then stood. The payment of simple interest under section 201(1A) is mandatory and is not a penal provision. There is therefore no question of waiver of such interest on the basis the default is not intentional or on any other basis.
2. For the above and other grounds that may be raised during the course of appeal."
6. From the details on record, it is seen that the salary structure of the employees of the assessee was examined by the officials carrying out the survey under section 133A on 15.12.2010, in the light of the obligations of the assessee as an employer to deduct tax at source at the time of making payment of salaries to its employees in accordance with the provisions of section 192 of the Act. A perusal of section 192 of the Act 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 chargeable to tax under the head income form "Salaries" is laid down in sections 15 to 17 of the Act.
| - | Section 15 of the Act provides that income described therein shall be chargeable to tax under the head "Salaries." | |
| - | Section 16 of the Act contains the deductions to be made from salaries. | |
| - | Section 17 of the Act contains an inclusive definition of 'Salary' for the purposes of sections 15, 16 and 17 of the Act which, along with other items are also separately defined therein. Section 17 of the Act which defines "Salary", "Perquisite" and "Profits in lieu of salary" in so far as it is relevant to the present appeal reads as under : |
'For the purpose of sections 15 and 16 and of this section -
(1) "Salary" includes—
(i) to (iii) ……………….
(iv) any fees, commission, perquisites or profits in lieu of or in addition to any salary or wages ;
(v) to (viii) ………
(2) "Perquisite" includes -
(i) to (iii) …… .
(iv) any sum paid by the employer in respect of any obligation which but for such payment, would have been payable by the assessee; and
(v) to (vii) …….
Provided that nothing in this clause shall apply to,
(i) to (iv) ……….
(v) any sum paid by the 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 drupes in the previous year.
(vi) ....'
7.1 The only dispute in these appeals for Assessment Years 2008-09 to 2010-11, are in respect of the obligation of the assessee to deduct tax at source on "Medical Allowance." It is not in dispute that Medical Allowance is in the nature of perquisite falling within the definition of perquisites as per the provisions of section 17(2) (v) of the Act.
7.2 In respect of "Medical Allowance", 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 a perquisite as laid down in section 17(2)(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. In other words, expenditure incurred on medical treatment to the extent of Rs.15,000 is exempt and the remaining is taxable. In the case on hand, the assessee remunerates its employees with a predetermined salary consisting of basic pay and other allowances including Medical Allowances.
7.3 As per the facts on record, the scheme of the assessee was that its employees was paid upto Rs.15,000 per annum, split into monthly disbursements. This amount was treated as exempt under the provisions of the Act, only if supported by bills. Whenever bills are not submitted, the amount is treated as taxable salary and tax is deducted at the end of the financial year. The Assessing Officer was of the view that in addition to reimbursement of medical expenses supported by medical bills, the assessee pays its employees a cash allowance; the total payment / reimbursement being limited to Rs.15,000 per annum and that production of bills for claiming reimbursement is not a pre condition for reimbursement. In this view of the matter, the Assessing Officer disallowed the assessee's claim for exemption in this regard.
7.4 On appeal, the learned CIT(Appeals) held that the Assessing Officer had no case for taking action under section 201(1) and 201(1A) of the Act and therefore cancelled the demand raised under section 201(1) and interest charged under section 201(1A) of the Act holding as under at paras 3.3 to 3.7 at pages 3 to 6 of her order :
'3.3 I have carefully considered the appellant's submissions and perused the Assessing Officer's order. The employees are paid up to Rs.15,000 per annum split into monthly disbursements at Rs.1,250 per month. This amount is treated as exempt under the provisions of IT Act only if supported by bills. Wherever no bills are provided, the amount is treated as a taxable salary and tax is deducted during the financial year end.
3.4 On the facts of the case, I find that :
| (a) | No instance has been brought on record to suggest that, in the case of any employee, the benefit or allowance has been allowed without TDS during the financial year if it is not backed by actual expenditure. | |
| (b) | In such a case, the benefit provided clearly fits into the ambit of the exemption provided in the proviso to section 17(2) which says : |
"(v) any sum paid by the 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;" (increased from "ten thousand rupees" with effect from 1.4.1999).
(c) The Board's Circular No.603 dated 6.6.1991 reads as follows :
CIRCULAR NO.603 DATED 6.6.1991 (CLARI.)
"Non inclusion of value of perquisite arising from expenditure on medical treatment incurred by employee on himself or on his spouse, children, etc. in certain cases
In supersession of Circular no.376, dated 6.1.1984, Circular no.445, dated 31.12.1985, Circular No.481 dated 20.2.1987 (a l reproduced earlier), and all other instructions on the subject, the CBDT have decided that the value of the perquisite arising by way of payment or reimbursement by an employer of expenditure on medical treatment incurred by his employee on himself or on his spouse, children or parents, including the provision of Free medical treatment or treatment at a concessional rate, will not be included in the taxable 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 govt. or local authorities or hospitals approved for the purose of the Central Government Health Scheme or Central Medical Scheme; ( a list of such hospitals furnished by the Ministry of Health and Family Welfare on 11.4.1991 in assessed). | |
| (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 up to 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 Act without considering the amount paid or reimbursed for expenditure in connection with medical treatment abroad, exceeds Rs.1,00,000. |
2. The contents of this circular will be applicable in relation to the assessment year 1991-92 and the subsequent years."
(d) Moreover, in the present case, the amount of Rs.15,000 per employee per annum is to small for any other interpretation.
3.5 It is clear, therefore, that in effect there is no infringement of the tax provisions allowable to the employees by the employer appellant. Merely because the same is taken into account at the beginning of the year or at the time of deciding his / her salary, which itself is in terms of cost of company, it cannot be said that it ceases to be a perquisite and, therefore, not entitled to exemption under section 17(2). Perquisite in any case also forms part of taxable salary. The employer has clarified that, wherever the said disbursement is not backed by bills, it is liable to TDS and this liability is not denied or infringed.
3.6 Therefore, in my view, the view of the A. O. is a very narrow and technical interpretation and in respect of a welfare measure to the employees across the salaried strata it cannot be the correct interpretation.
3.7 There is, therefore, no case for taking action under section 201(1) and 201(1A) of the Act. Hence, the demand raised and interest charged under section 201(1) and 201(1A) are uncalled for and they are, therefore, cancelled.'
7.5.1 We have heard both parties and carefully perused and considered the material on record. It is seen that the A.O. noted that in respect of Medical Allowance, in addition to the reimbursement of medical expenses supported by medical bills furnished by an assessee, he/she is paid a cash allowance, the entire payment being limited to Rs.15,000 per annum and that production of bills for claiming reimbursement is not a pre-condition for disbursement. The total amounts of Medical Allowance observed by the Assessing Officer on this count, year-wise are as under :
| (1) Assessment Year 2008-09 | Rs. 82,41,824 |
| (2) Assessment Year 2009-10 | Rs. 76,69,788 |
| (3) Assessment Year 2010-11 | Rs. 74,52,186. |
7.5.2 From the details on record, as observed by the learned CIT(Appeals), the fact that bills / vouchers to substantiate incurring of expenditure on medical treatment upto Rs. 15,000 by the employees in fulfilment of the conditions stipulated for availing exemption, has not been disputed by the Assessing Officer. The Assessing Officer's view is that the allowances so given is not earmarked for any particular purpose leaving the employee freedom to use this allowance in any manner and later claim that the allowance was used for medical reimbursement. The Assessing Officer was of the view that 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 in time. According to the Assessing Officer, if it is paid at an earlier point in time from the actual incurring of the expenditure, then even though such payment would not form part of the taxable salary of an employee, the employer has to deduct tax at source (TDS) thereon treating it as a part of salary. In support of this proposition, the Assessing Officer relied on the expression "actually incurred" in proviso (iv) to section 17(2) of the Act which allows exemption of Medical Reimbursement upto Rs.15,000 per annum to an assessee.
7.5.3 The Assessing Officer is also of the view that there is a difference between "Allowance" and "Medical Reimbursement." According to the Assessing Officer, an Allowance can be given in advance whereas Medical Reimbursement is not in the nature of allowance and therefore cannot be given like an allowance unless they are incurred. In this view of the matter, the Assessing Officer's further case is that at the time of disbursement 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 since accrual of income in the form of salary taken place, tax has to be deducted at source thereon.
7.5.4 In order to appreciate the view taken by the Assessing Officer, we would require to look at the relevant provisions of section as are 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.
(1A) Without prejudice to the provisions contained in sub-section (1), the person responsible for paying any income in the nature of a perquisite which is not provided for by way of monetary payment, referred to in clause (2) of section 17, may pay, at his option, tax on the whole or part of such income without making any deduction there from at the time when such tax was otherwise deductible under the provisions of sub-section (1).
(1B) For the purpose of paying tax under sub-section (1A), tax shall be determined at the average of income-tax computed on the basis of the rates in force for the financial year, on the income chargeable under the head "Salaries" including the income referred to in sub-section (1A), and the tax so payable shall be construed as if it were, a tax deductible at source, from the income under the head "Salaries" as per the provisions of sub-section (1), and shall be subject to the provisions of this Chapter.
(2) Where, during the financial year, an assessee is employed simultaneously under more than one employer, or where he has held successively employment under more than one employer, he may furnish to the person responsible for making the payment referred to in sub-section (1) (being one of the said employers as the assessee may, having regard to the circumstances of his case, choose), such details of the income under the head "Salaries" due or received by him from the other employer or employers, the tax deducted at source there from and such other particulars, in such form and verified in such manner as may be prescribed, and thereupon the person responsible for making the payment referred to above shall take into account the details so furnished for the purposes of making the deduction under sub-section (1).
(2A) Where the assessee, being a Government servant or an employee in a company, co-operative society, local authority, university, institution, association or body is entitled to the relief under sub-section (1) of section 89, he may furnish to the person responsible for making the payment referred to in sub-section (1), such particulars, in such form and verified in such manner as may be prescribed, and thereupon the person responsible as aforesaid shall compute the relief on the basis of such particulars and take it into account in making the deduction under sub-section (1).
Explanation.—For the purposes of this sub-section, "University" means a University established or incorporated by or under a Central, State or Provincial Act, and includes an institution declared under section 3 of the University Grants Commission Act, 1956 (3 of 1956), to be a University for the purposes of that Act.
(2B) Where an assessee who receives any income chargeable under the head "Salaries" has, in addition, any income chargeable under any other head of income (not being a loss under any such head other than the loss under the head "Income from house property") for the same financial year, he may send to the person responsible for making the payment referred to in sub-section (1) the particulars of—
| (a) | such other income and of any tax deducted thereon under any other provision of this Chapter; | |
| (b) | the loss, if any, under the head "Income from house property", in such form and verified in such manner as may be prescribed, and thereupon the person responsible as aforesaid shall take— |
| (i) | such other income and tax, if any, deducted thereon; and | |
| (ii) | the loss, if any, under the head "Income from house property", also into account for the purposes of making the deduction under sub-section (1) : |
Provided that this sub-section shall not in any case have the effect of reducing the tax deductible except where the loss under the head "Income from house property" has been taken into account, from income under the head "Salaries" below the amount that would be so deductible if the other income and the tax deducted thereon had not been taken into account.
(2C) A person responsible for paying any income chargeable under the head "Salaries" shall furnish to the person to whom such payment is made a statement giving correct and complete particulars of perquisites or profits in lieu of salary provided to him and the value thereof in such form and manner as may be prescribed.
(2) 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.'
7.5.5 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 estimate of the income under the head 'salaries' payable by him to his employee at the time of payment. The person making the payment has to take into consideration various deductions permitted under the Act under Chapter VI of the Act, as also exempt income under section 10 of the Act. Rebate available under section 88 and u/s. 88B can be considered by the employer. The employer should obtain proof of investment made by the employer and not rely on simple declaration or oral assurance. Employees entitled for relief under section 89(1) of the Act can furnish information in the prescribed proforma to the employer and in such case the employer can adjust the amount of TDS by allowing the relief available under section 89(1) of the Act. In sum and substance, it is for the employer to prove that the allowances and perquisites given to employers are tax free and not to be included in the salary.
7.5.6 No doubt TDS is to be made at the time of payment of salary and not on the basis of salary accrued and section 192(3) of the Act permits the employer to increase or reduce the amount of TDS for any excess or deficiency. We have already noticed that the fact that bills / evidence to substantiate incurring of medical treatment upto Rs.15,000 by employees have not been disputed by the Assessing Officer. Even assuming the case of the Assessing Officer, that at the time of payment the assessee ought to have deducted tax at source, is sustainable, the assessee on a review of taxes deducted in the earlier months of previous year is entitled to give effect to the deductions permissible, under proviso (iv) to section 17(2) of the Act, in the later months of the year. What has to be seen in the taxes to be deducted on income under the head 'Salaries' on the last day of the previous year. The case of the Assessing Officer is that Medical Reimbursement should be paid at the time the expenditure is incurred or after the expenditure incurred is reimbursed and not at an earlier point in time. If this proposition put forth by the Assessing Officer is followed, then even though the payment would not form part of taxable salary of an employee, the employer would have to deduct tax at source treating it as a part of salary, which is unsustainable as it is contrary to the provisions of section 192(3) of the Act. The reliance placed by the Assessing Officer on the expression "actually incurred" found in proviso (iv) to section 17(2) of the Act, in our considered view, is unsustainable. In any case, the interpretation of the word "actually paid" is not relevant while ascertaining the quantum of tax that has to be deducted under section 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 bona fide estimate.
7.5.7 The primary liability of the payee to pay tax remains and section 191 confirms this. In a situation of an honest difference of opinion, it is not the deductor that has to be proceeded against but the payee of the sums. The payment by the employer towards medical expenditure and leave travel is made keeping in view employee welfare. The exclusion in respect of payment towards medical expenditure and leave travel is considered only 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 the 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 the proviso (iv) to section 17(2) of the Act are followed before granting exemption / deduction to an employee. No tax can be recovered from the employer on account of short deduction of tax at source under section 192 of the Act if a bona fide estimate of salary taxable in the hands of the employee is made by the employee, as is the ratio in the following judicial decisions :-
| (i) | CIT v. Nicholas Piramal India Ltd. [2008] 299 ITR 356/169 Taxman 233 (Bom.) | |
| (ii) | CIT v. HCL Info Systems Ltd. [2006] 282 ITR 263/[2005] 146 Taxman 227 (Delhi) | |
| (iii) | CIT v. Semiconductor Complex Ltd. [2007] 292 ITR 636/160 Taxman 384 (Punj & Har.) | |
| (iv) | ITO v. ONGC Ltd. [2002] 254 ITR 121/125 Taxman 698 (Guj.) | |
| (v) | Gwalior Rayon Silk Co. Ltd. v. CIT [1983] 140 ITR 832/14 Taxman 99 (MP) | |
| (vi) | ITO v. G.D. Goenka Public School (No. 2) [2008] 23 SOT 77/[2009] 117 ITD 101 (Delhi) | |
| (vii) | Usha Martin Industries Ltd. v. Asstt. CIT [2004] 86 TTJ 574 (Kol.) | |
| (viii) | Indian Airlines Ltd. v. Asstt. CIT [1996] 59 ITD 353 (Mum.) | |
| (ix) | Nestle India Ltd. v. Asstt. CIT [1997] 61 ITD 444 (Delhi). |
7.5.8 In the case on hand, as already discussed in detail, the facts on record as observed by the learned CIT(Appeals) are that exemption in respect of medical expenditure and leave travel is considered after collecting and verifying the details and evidences furnished by the employees in this regard as per the policies and controls put in place to ensure that the requirement of Rule 2B are fulfiled. The details filed before the Assessing Officer for TDS explains the policies adopted to ensure fulfilment of the requirement of Rule 2B and the process adopted in considering the exemption / deduction under the proviso (iv) to section 17(2) of the Act. As can be seen from the details on record, the assessee has put in place internal controls to discharge the statutory obligation under section 192 of the Act and it would appear that every effort is made to comply with the requirements of section 192 by making a bona fide estimate of taxable salary in the process of making TDS there under. By allowing the employee to claim exemption, the assessee is not benefited. In this view of the matter, we are of the considered opinion that the orders passed by the Assessing Officer under section 201(1) and 201(1A) is unsustainable in law and has rightly been cancelled by the learned CIT(Appeals).
7.5.9 In the light of the admitted position that the conditions for grant of exemption upto Rs.15,000 per employee medical reimbursement paid by the assessee satisfies the conditions contemplated by the proviso (iv) to section 17(2) of the Act, would it be correct for the Assessing Officer to deny the employees in their assessment exemption / relief under the proviso (iv) to section 17(2) of the Act ? The answer is admittedly 'No', since the Assessing Officer does not dispute the fulfilment of conditions for allowing exemption under the proviso (iv) to section 17(2) of the Act. It is true that 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 Assessing Officer has ignored this aspect and has proceeded to pass the orders under section 201(1) and 201(1A) of the Act. In this view of the matter, we hold that the Assessing Officer's orders for all from Assessment Years 2008-09 to 2010-11 were rightly held to be unsustainable by the learned CIT(Appeals).
8. In the grounds of appeal raised by revenue, we find that among the other grounds, there are inter alia grievances raised regarding lack of opportunity afforded to the Assessing Officer to appear before the learned CIT (Appeals) and grounds challenging the finding that there is no dispute that the assessee has satisfied itself that the employees were entitled to exemption / relief under proviso (iv) to section 17(2) of the Act. As far as lack of opportunity being afforded to the Assessing Officer to appear before the CIT (Appeals), we find that the learned CIT (Appeals) had only called for the break-up of the figures relating to medical reimbursement which was actually paid to employees and that which was considered not forming part of salary by the employees on production of evidence by the employee. These figures, we find, are the same figures on the basis of which the Assessing Officer passed orders under sections 201(1) and 201(1A) of the Act. As regards the grievance regarding finding that there was no dispute that the assessee has satisfied itself that the employees were entitled to exemption / relief under proviso (iv) to section 17(2) of the Act, nothing has been brought on record before us to demonstrate that the Assessing Officer disputed these facts. In our considered view, the grounds raised on the aforesaid issues have no basis and are factually unsustainable.
9. In the result, revenue's appeals in ITA Nos.744 to 749/Bang/2013 for Assessment Years 2008-09 to 2010-11 are dismissed.
Regards
Prarthana Jalan
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