THE issue before the Bench is - Whether when the employees are
paid LTA and medical allowance as advance even before bills are submitted for
reimbursement, any TDS obligation arises for the employer, and the answer goes
against the Revenue.
In respect of non deduction of tax for payments made on account of LTA, CIT (A) observed that AO had denied the claim of the employer assessee u/s 10(5) read with rule 2B on the ground that the amount was paid whether or not the employee had the intention of proceeding on leave or not and, even in cases where employees had already availed of the benefit in the previous year, thereby disentitling him from the benefit of income-tax in the year in question and, therefore, it could not be an allowance, but, merely a taxable salary. CIT (A) observed that whenever an amount is paid, where either the employer has not availed of actual travel or has availed of the allowance over and above the exemption in the financial year and, therefore, is disentitled to the benefit of exemption, tax has been deducted at source. No instance has been brought on record by the AO that the employer has disbursed the amount without deduction of tax in cases where the benefit is not backed by bills or in excess of amount allowable under the I.T. Act. The interpretation of the AO is too narrow and technical and the said benefit would clearly fit into the meaning of ‘assistance’ in sum and substance.
Regarding meal vouchers, CIT (A) observed that food vouchers issued to employees were within the rates as per IT Rules. The coupons were non transferable. No specific instance of misuse was found. If used at departmental stores, it was for foods products. These benefits were provided to a large number of employees and not merely a few hundreds or thousands to monitor each meal coupon usage. Payment is made as per the administrative convenience of the employer, which is also a welfare measure aimed at ensuring better productivity from the employees and well within the ambit of the provisions of the I.T. Act. Thus, no TDS is required u/s 192 of the Act. In respect of telephone bill reimbursements, vehicle maintenance, fuel consumption, conveyance allowance, the reimbursements were supported by actual expenditure and were within the limits provided under relevant provisions of Act.
Moreover, wherever the amounts are paid without any supporting evidence of having been incurred by the employee concerned, these were treated as taxable allowance and tax was deducted at source on the same at the end of the same financial year. Thus, there is no case to hold that the TDS provisions had been violated.
After hearing both the parties, the ITAT held that,
++ issues regarding TDS on LTA and medical reimbursement are identical to the issues considered by the earlier Bench in the case of M/s. Infosys BPO wherein it was held that the fact that bills/evidence to substantiate incurring of expenditure on medical treatment up to Rs.15,000/- and the availing of the LTC by the employees and the fulfillment of the conditions contemplated by Sec.10(5) of the Act for availing exemption by the employees so availing LTC, have not been disputed by the AO. What has to be seen is the taxes to be deducted on income under the head ‘salaries’ as on the last date of the previous year. The case of the AO is that 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, 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, is contrary to the provisions of Sec.192(3) of the Act and cannot be sustained. 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. Assessee's obligation is only to make an ”estimate” of the income under the head “salaries” and such estimate has to be a bonafide estimate. No exemption is granted in the absence of details and/or evidence. The requirements/conditions of section 10(5) and proviso to section 17(2) are meticulously followed before extending the deduction/ exemption to an employee. 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. Thus the issue is decided for LTC and Medical Reimbursement in favour of the assessee;
++ in view of the decision of the Cedilla Healthcare, the TDS is not applicable on food coupons/meal vouchers. CIT (A) was justified in holding that the expenditure incurred on disbursement of meal coupons by the employer to the employees did not attract the provisions of s. 192 of the Act;
++ in respect of telephone bills reimbursements, vehicle maintenance, fuel consumption, conveyance allowance etc., CIT (A) observed that “the fact remains that only the amount allowable u/s 17(2) of the Act read with rule 3(7)(ix) proviso of IT Rules and supported by vouchers is treated as a non-taxable perquisite. No instance is brought on record by the AO to suggest that there is any violation in this regard.” Even at the time of hearing before us, no documentary evidence has been brought on record by the Revenue to contradict the CIT (A)’s version on the above issues. Thus, order of CIT (A) is confirmed.
Facts of the
case
In survey proceedings, AO observed assessee as assessee in
default u/s 201(1) in respect of medical allowance, LTA, Fuel reimbursement,
conveyance, telephone, car maintenance and meal vouchers item of ‘salary’
payments made to its employees. The CIT (A) deleted the demand observing that in
respect of non-deduction of tax for medical reimbursement the employees are paid
up-to Rs.15000/- per annum split into monthly disbursements. This amount is
treated as exempt under the provisions of I.T. Act only if supported by bills.
No instance had 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. 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 to company’, it
cannot be said that it ceases to be a perquisite and, therefore, not entitled to
exemption u/s 17(2).In respect of non deduction of tax for payments made on account of LTA, CIT (A) observed that AO had denied the claim of the employer assessee u/s 10(5) read with rule 2B on the ground that the amount was paid whether or not the employee had the intention of proceeding on leave or not and, even in cases where employees had already availed of the benefit in the previous year, thereby disentitling him from the benefit of income-tax in the year in question and, therefore, it could not be an allowance, but, merely a taxable salary. CIT (A) observed that whenever an amount is paid, where either the employer has not availed of actual travel or has availed of the allowance over and above the exemption in the financial year and, therefore, is disentitled to the benefit of exemption, tax has been deducted at source. No instance has been brought on record by the AO that the employer has disbursed the amount without deduction of tax in cases where the benefit is not backed by bills or in excess of amount allowable under the I.T. Act. The interpretation of the AO is too narrow and technical and the said benefit would clearly fit into the meaning of ‘assistance’ in sum and substance.
Regarding meal vouchers, CIT (A) observed that food vouchers issued to employees were within the rates as per IT Rules. The coupons were non transferable. No specific instance of misuse was found. If used at departmental stores, it was for foods products. These benefits were provided to a large number of employees and not merely a few hundreds or thousands to monitor each meal coupon usage. Payment is made as per the administrative convenience of the employer, which is also a welfare measure aimed at ensuring better productivity from the employees and well within the ambit of the provisions of the I.T. Act. Thus, no TDS is required u/s 192 of the Act. In respect of telephone bill reimbursements, vehicle maintenance, fuel consumption, conveyance allowance, the reimbursements were supported by actual expenditure and were within the limits provided under relevant provisions of Act.
Moreover, wherever the amounts are paid without any supporting evidence of having been incurred by the employee concerned, these were treated as taxable allowance and tax was deducted at source on the same at the end of the same financial year. Thus, there is no case to hold that the TDS provisions had been violated.
After hearing both the parties, the ITAT held that,
++ issues regarding TDS on LTA and medical reimbursement are identical to the issues considered by the earlier Bench in the case of M/s. Infosys BPO wherein it was held that the fact that bills/evidence to substantiate incurring of expenditure on medical treatment up to Rs.15,000/- and the availing of the LTC by the employees and the fulfillment of the conditions contemplated by Sec.10(5) of the Act for availing exemption by the employees so availing LTC, have not been disputed by the AO. What has to be seen is the taxes to be deducted on income under the head ‘salaries’ as on the last date of the previous year. The case of the AO is that 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, 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, is contrary to the provisions of Sec.192(3) of the Act and cannot be sustained. 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. Assessee's obligation is only to make an ”estimate” of the income under the head “salaries” and such estimate has to be a bonafide estimate. No exemption is granted in the absence of details and/or evidence. The requirements/conditions of section 10(5) and proviso to section 17(2) are meticulously followed before extending the deduction/ exemption to an employee. 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. Thus the issue is decided for LTC and Medical Reimbursement in favour of the assessee;
++ in view of the decision of the Cedilla Healthcare, the TDS is not applicable on food coupons/meal vouchers. CIT (A) was justified in holding that the expenditure incurred on disbursement of meal coupons by the employer to the employees did not attract the provisions of s. 192 of the Act;
++ in respect of telephone bills reimbursements, vehicle maintenance, fuel consumption, conveyance allowance etc., CIT (A) observed that “the fact remains that only the amount allowable u/s 17(2) of the Act read with rule 3(7)(ix) proviso of IT Rules and supported by vouchers is treated as a non-taxable perquisite. No instance is brought on record by the AO to suggest that there is any violation in this regard.” Even at the time of hearing before us, no documentary evidence has been brought on record by the Revenue to contradict the CIT (A)’s version on the above issues. Thus, order of CIT (A) is confirmed.
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