Variable pay and employee reimbursements- Delhi High Court Teaser

The salary packages are flexible and often designed keeping in account interest of individual employees or section of employees and variable component assume a sizeable sum. The variable component assumes various forms of reimbursements and payments. in a sequel to yesterday’s report viz a viz Delhi High Court ruling in CIT (TDS) v. American Express Bank Ltd. in ITA No. 75/2003 dated 21.12.2011 under heading ‘’employee reimbursements’’ it may be advisable to have a built in softer mechanism either in the employee contract or some kind of employer liability insurance cover (if its exists or even if not it should be fought for) which would provide a safeguard for possible recovery of any sum from the employee as arrears of TDS or otherwise from the insurance company for any liability arising in future upon the employer or company by invoke of s.201 provisions for short deduction viz a viz reimbursements/variable pay.


      The Court in their order has gone straight in writing that in case the employees of the assessee have paid the taxes as per their individual returns/assessments, then no amount towards tax would be payable to that extent by the assessee. In the rarest of the rare cases an employee would go against the estimate made by the employer in which case the liability would only fall on the employer. In this case the year of default is as old as financial year 1992-93 and it would be now impossible for the employer and even almost difficult for the AO to gather employee record of taxes paid in which case the liability will remain that of the employer only.