IT
: Where assessee paid to its employee every month certain amount in
advance towards leave travel concession and medical reimbursement, it
was not obliged to deduct tax at source under section 192 on such amount
at time of making payment
IT
: Where assessee as part of its plan
provided to its employees meal vouchers/coupons, which were useable at
centres within campus and also at certain eating joints, disbursement of
meal coupons by assessee to employees did not require tax to be
deducted thereon under section 192
■■■
[2013] 38 taxmann.com 37 (Bangalore - Trib.)
IN THE ITAT BANGALORE BENCH 'C'
Income -tax Officer, Ward -16(2), Bangalore
v.
Goodrich Aerospace Services (P.) Ltd.*
N.V. VASUDEVAN, JUDICIAL MEMBER
AND JASON P. BOAZ, ACCOUNTANT MEMBER
AND JASON P. BOAZ, ACCOUNTANT MEMBER
IT APPEAL NOS. 1347 TO 1350 (BANG.) OF 2012
[ASSESSMENT YEARS 2007-08 TO 2010-11]
[ASSESSMENT YEARS 2007-08 TO 2010-11]
JULY 26, 2013
I.
Section 192, read with sections 10(5), 17 and 201, of the
Income-tax Act, 1961 and rule 2B of the Income-tax Rules, 1962 -
Deduction of tax at source - Salary [Advance payment towards medical
reimbursement and leave travel concession] - Assessment years 2007-08 to
2010-11 - Assessee paid to its employee every month certain amount in
advance towards leave travel concession [LTC] - Once employee completed
his travel, he had to submit evidence for having incurred expenditure
and it was on basis of such evidence exemption was worked out by
assessee in accordance with provisions of section 10(5) read with rule
2B - Similarly assessee paid to its employee every month an amount of
Rs. 1250 [Rs. 15,000 per annum] in advance towards medical reimbursement
- Said amount was treated as exempt only if supported by bills and
whenever bills were not submitted amount was treated as taxable salary -
Assessee as employer deducted tax at source under section 192
accordingly at end of financial year - Whether in peculiar facts of
case assessee was not obliged to deduct tax at source on amount paid in
advance towards LTC and medical reimbursement at time of making payment
- Held, yes [Para 10.7] [In favour of assessee]
II.
Section 17, read with section 192, of the Income-tax Act, 1961 and rule
3 of the Income-tax Rules, 1962 - Salary - Perquisite [Meal
vouchers/coupons provided to employees] - Assessment years 2009-10 and
2010-11 - Assessee as part of its plan provided to its
employees meal vouchers/coupons, which were useable at centres within
campus and also at certain eating joints - Whether disbursement of meal
coupons by assessee to employees did not require tax to be deducted
thereon under section 192 - Held, yes [Para 11.3.2] [In favour of
assessee]
FACTS I
| ■ | The assessee-company was engaged in the business of manufacture and design of aircraft components. It paid to its employee every month certain amount in advance towards leave travel concession [LTC]. Once the employee completed his travel, he had to submit evidence for having incurred the expenditure and it was on the basis of such evidence submitted that the exemption was worked out by the assessee in accordance with the provisions of section 10(5) read with rule 2B. Similarly the assessee paid to its employees every month an amount of Rs. 1250 [Rs. 15000 per annum] in advance towards medical reimbursement. The said amount was treated as exempt only if supported by bills. Whenever bills were not submitted, the amount was treated as taxable salary. The assessee as employer deducted tax at source under section 192 accordingly at the end of the financial year. | |
| ■ | The Assessing Officer held that the allowance so given every month was not earmarked for any particular purpose leaving the employee freedom to use the allowance in any manner and later claimed that allowance was used for LTC or medical reimbursement. The LTC and medical reimbursement should be paid at the time the expenditure was incurred or after the expenditure was incurred and not at an earlier point in time. If it was 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 had 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' found in section 10(5) and proviso (v) to section 17(2). He further held that there was a difference between 'allowance' and 'LTC and medical reimbursement'. An allowance could be given in advance, whereas LTC and medical reimbursement were not in the nature of allowance and, therefore, could not be given like an allowance unless they were incurred. Therefore, at the time of disbursement by the employer, the same assumed the character of salary and its later application for purposes which were exempt would only be application of income. Therefore, accrual of income in the form of salary took place on which tax had to be deducted at source. In this view of the matter, the Assessing Officer treated the assessee as an assessee in default under section 201(1) and also charged interest under section 201(1A) on tax not deducted. | |
| ■ | On appeal, the Commissioner (Appeals) cancelled the order of the Assessing Officer. | |
| ■ | On second appeal: |
HELD I
| ■ | 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 at the time of making payment of salary has to make honest estimate of the income under the head 'salaries'. He has to take into consideration various deductions permitted under Chapter VI as also exempt income under section 10. Rebate available under sections 88 and 88B can be considered by the employer. The employer should obtain proof of investment made by the employee and not rely on simple declaration or oral assurance. Employee entitled for relief under section 89(1) 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). In sum and substance, it is for the employer to prove that the allowances and perquisites given to employee are tax free and not to be included in the salary. [para 10.4] | |
| ■ | No doubt TDS is to be made at the time of payment of salary and not on the basis of salary accrued. Section 192(3) permits the employer to increase or reduce the amount of TDS for any excess or deficiency. The bills/evidence furnished by the employee to substantiate incurring of medical treatment up to Rs. 15,000 and the fulfilment of the conditions contemplated by section 10(5) for availing of LTC exemption have not been disputed by the Assessing Officer. Even assuming 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 (v) to section 17(2) or exemption under section 10(5) 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 LTC and medical reimbursement should be paid at the time the expenditure is incurred or after the expenditure incurred 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). The reliance placed by the Assessing Officer on the expression 'actually incurred' found in section 10(5) and proviso (v) to section 17(2) 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. 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. [Para 10.5] | |
| ■ | 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 sum. 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 employee. No exemption is granted in the absence of details and/or evidence. This exemption in respect of medical expenditure is restricted to the expenditure actually incurred by the employee or Rs. 15,000, whichever is lower. The exemption is granted even if the payment precedes the incurrence of expenditure. The requirements/conditions of section 10(5) and proviso (v) to section 17(2) 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, if a bona fide estimate of salary taxable in the hands of the employee is made by the employer. [Para 10.6] | |
| ■ | In the instant case, the exemption in respect of medical expenditure and leave travel is considered after collecting and verifying the details and evidences furnished by the employee. 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 section 10(5) and proviso (v) 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 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 thereunder. By allowing the employee to claim exemption, the assessee is not benefited. In this view of the matter, the order passed by the Assessing Officer under sections 201(1) and 201(1A) is unsustainable in law and has rightly been cancelled by the Commissioner (Appeals). [Para 10.7] | |
| ■ | In the light of the admitted position that the conditions for grant of exemption under section 10(5) to the employee in respect of LTC are satisfied and also the fact that up to Rs. 15,000 per employee medical reimbursement paid by the assessee satisfies the conditions contemplated by the proviso (v) to section 17(2), would it be correct for the Assessing Officer to deny the employee in his assessment exemption under section 10(5) or relief under the proviso (v) to section 17(2). The answer is admittedly 'No', because the Assessing Officer does not dispute the fulfilment of conditions for allowing exemption under section 10(5) or proviso (v) 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 has ignored this aspect and has proceeded to pass the order under section 201(1) and (1A). In this view of the matter, the Assessing Officer's order was rightly held to be unsustainable by the Commissioner (Appeals). [Para 10.8] |
FACTS II
| ■ | The assessee-company as part of its plan provided to its employees meal vouchers/coupons, which were usable at the centres within the campus and also at certain eating joints. | |
| ■ | The Assessing Officer held that the assessee had paid to its employees food allowance and had taken the amount out of the purview of the provisions of tax deducted at source. He further held that the actual use of coupons by each employee was not recorded. Some of the centres where the coupons could be used were departmental stores, which could not be termed as centres or eating joints. Therefore, the assessee was required to deduct tax at source on the amount of coupons. As the assessee had not deducted tax at source on the amount of coupons, the Assessing Officer treated the assessee as an assessee in default under section 201(1) and also charged interest under section 201(1A) on tax not deducted. | |
| ■ | On appeal, the Commissioner (Appeals) held that the disbursement of meal coupons by the assessee to the employees did not require tax to be deducted thereon under section 192. He, therefore, deleted the demand raised under section 201(1) and charging of interest under section 201(1A). | |
| ■ | On second appeal: |
HELD II
| ■ | The assessee as part of its plan provided to its employees meal vouchers/coupons, which were useable at the canteens within the workplace and also at certain eating joints. The coupon issued per meal per employee is within the present rates as per rule 3(7)(iii). The coupons are not transferable and valid only for ready to eat items. The Commissioner (Appeals) observed that if used by the employees at departmental stores, the coupons were to be used for food products. No specific instance of misuse of such coupons has been brought on record by the Assessing Officer. These benefits of meal vouchers are given by the employers to sometimes hundreds or thousands of employees and, therefore, what is relevant is to see whether sufficient checks and balances are put in place by the employer to ensure that the benefit provided is as per rule 3(7)(iii) or not. In the instant case, no breach or misuse has been detected by the Assessing Officer, nor has any such instance of misuse been brought on record by the revenue. [Para 11.3.1] | |
| ■ | In view of the decision of the Ahmedabad Bench of the Tribunal in the case of ITO (TDS) v. Cadila Healthcare Ltd. IT Apppeal Nos. 3239 & 3240 (Ahd.) of 2009, dated 29-7-2011, in which facts were similar to the instant case, and the fact that the Assessing Officer has not detected even a single case of misuse nor has any such instance of misuse been brought to notice by revenue to controvert the finding of the Commissioner (Appeals), the order of the Commissioner (Appeals) on the issue of meal coupons/vouchers deserved to upheld. [Para 11.3.2] |
CASE REVIEW-II
ITO (TDS) v. Cadila Healthcare Ltd. [IT Appeal Nos. 3239 & 3240 (Ahd.) of 2009, dated 29-7-2011] [Para 11.3.2] followed.
CASES REFERRED TO
CIT v. Nicholas Piramal India Ltd. [2008] 299 ITR 356/169 Taxman 233 (Bom.) (para 10.6), CIT v. HCL Info Systems Ltd. [2006] 282 ITR 263/[2005] 146 Taxman 227 (Delhi) (para 10.6), CIT v. Semiconductor Complex Ltd. [2007] 292 ITR 636/160 Taxman 384 (Punj. & Har.) (para 10.6), ITO v. ONGC Ltd. [2002] 254 ITR 121/125 Taxman 698 (Guj.) (para 10.6), Gwalior Rayon Silk Co. Ltd. v. CIT [1983] 140 ITR 832/14 Taxman 99 (MP) (para 10.6), ITO v. G.D. Goenka Public School (No.2) [2008] 23 SOT 77 (Delhi) (para 10.6), Usha Martin Industries Ltd. v.Asstt. CIT [2004] 86 TTJ 574 (Kol) (para 10.6), Indian Airlines Ltd. v. Asstt. CIT [1996] 59 ITD 353 (Mum) (para 10.6), Nestle India Ltd. v.Asstt. CIT [1997] 61 ITD 444 (Delhi) (para 10.6), CIT v. Reliance Industries Ltd. [2008] 175 Taxman 367 (Guj.) (para 11.3.2) and ITO (TDS) v.Cadila Healthcare Ltd. [IT Appeal Nos. 3239 & 3240 (Ahd.) of 2009, dated 29-7-2011] (para 11.3.2).
A. Sundararajan for the Appellant. Krishnan Narayanan 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.3.9.2012 for
Assessment Years 2007-08 to
2010-11.
2. The facts of the case, in brief, are as under :
2.1 The
assessee is a company engaged in the business of manufacture and design
of aircraft components. 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 9.2.2011 whereby it came to light
that the assessee has been remunerating its employees with a
pre-determined salary consisting of Basic pay, House Rent Allowance and
other allowances. 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 Reimbursement, Leave Travel Concession
and Meal Vouchers collectively called by the assessee as "Goodrich
Benefit Plan", in addition to other
benefits but coming under the concept of 'perquisites' under the Act,
the assessee was found 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 aggregate 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 four Assessment Years
2007-08 to 2010-11.
2.2 Aggrieved
by the orders under section 201(1) and 201(1A) of the Act dt.24.3.2011
for Assessment Years 2007-08 and 2008-09 and dt.25.3.2011 for Assessment
Years 2009-10 and 2010-11, the assessee preferred appeals for all four
years before the CIT (Appeals) II, Bangalore. The learned CIT (Appeals)
in her order dt.3.9.2012 allowed the assessee's appeals for all the four
years cancelling the demand raised under section 201(1) of the Act in
respect of benefits of Leave Travel Concession, Medical reimbursement
and Meal Vouchers provided by the assessee to its employees, holding
them to be in accordance with provisions of the Act.
3. Aggrieved
with the common order of the learned CIT (Appeals) II, Bangalore for
Assessment Years 2007-08 to 2010-11, revenue is now in appeal before us
raising almost similar grounds for all four years, which are as under :
| "(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 not considering the letters dt.15.9.2011, 21.11.2011, 23.2.2012, 4.6.2012, 13.7.2012 of the Commissioner, for affording the Assessing Officer an opportunity of being heard. | |
| (3) | 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. | |
| (4) | The CIT (Appeals) has erred in not appreciating the fact that the nature of income is to be determined at its source. | |
| (5) | The CIT (Appeals) has erred in not appreciating the fact that the application of funds cannot determine the nature of income. | |
| (6) | The CIT (Appeals) has erred in not appreciating the fact that an exemption granted on the application of funds cannot determine a type of income which is to be determined at source. | |
| (7) | The CIT (Appeals) has erred in holding that the perquisite also being a taxable income could constitute a part of cost to the company. | |
| (8) | The CIT (Appeals) has erred in not appreciating the fact that the same has not been considered as a perquisite by the employer in the remuneration package. | |
| (9) | The CIT (Appeals) has erred in holding that the order was based on narrow and technical interpretation in respect of a welfare measure. | |
| (10) | 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 section 10(5). | |
| (11) | The CIT (Appeals) has erred in accepting the contention that a subsequent event of travel could determine an exemption. | |
| (12) | The CIT (Appeals) 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 (Appeals) has erred in not reasoning out the basis of the acceptance of the assessee's contentions despite her observation of an elaborate assessment order passed. | |
| (14) | The CIT (Appeals) has erred in placing reliance on the decision of the Hon'ble ITAT Bench 'A' Ahmedabad in case of ITO, TDS-I, Ahmedabad against M/s. Cadila Healthcare Ltd. | |
| (15) | The CIT (Appeals) has erred in not considering the distinction drawn by the Assessing Officer on the issue of Sodexo coupons as against the facts in the said case. | |
| (16) | The CIT (Appeals) has erred in providing weightage to the administrative convenience of the employer against the cost to the exchequer. | |
| (17) | The CIT (Appeals) has erred in not appreciating the fact that all employees would then be entitled for exemption in respect of food expenses as they are applied from the salary income of the employee. | |
| (18) | 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. | |
| (19) | The CIT (Appeals) has erred in not taking congnizance 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. | |
| (20) | The CIT (Appeals) has erred in not considering the facts and circumstances that every contention of the deductor has been addressed elaborately while the Assessing Officer's contentions and findings have not been reasoned against. | |
| (21) | The CIT (Appeals) has erred in passing an order which allows employees who enjoy unintended benefits as per the existing provisions of law. | |
| (22) | The CIT (Appeals) has erred in not considering the distinctions drawn in respect of the judicial decisions relied upon by the deductor. | |
| (23) | 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. | |
| (24) | 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. | |
| (25) | The CIT (Appeals) has erred in not considering the fact that the provisions of section 191 also have not been adhered to due to such issue of erroneous certificates in Form 16 and 12BA. | |
| (26) | The CIT (Appeals) has erred in not considering the term "actually incurred" in the proviso to section 17(2) of the IT Act. | |
| (27) | The CIT (Appeals) has erred in not considering the fact that the expenses incurred by the employees towards telephone, vehicle maintenance, fuel cost and/or conveyance is offset against on income already drawn. | |
| (28) | The CIT (Appeals) has erred in not appreciating the fact that such application of funds is not contemplated in law to exempt any portion of such income from tax or TDS. | |
| (29) | The CIT (Appeals) has erred in not appreciating that the income did not reduce from F.Y. 2009-10 and a rearrangement under heads of disbursement was resorted to grant unintended tax exemptions. | |
| (30) | For these and other grounds that may be urged during the course of appeal, the order of the Assessing Officer may be restored." |
4. From
the details on record, we find that the nature of
perquisites/allowances claimed as exempt under the Act by the
employer-assessee in disbursing salaries to its employees for the
relevant four years under consideration are as under :
| No. | Benefits paid to Employees | Assessment Years | |||
| 2007-08 | 2008-09 | 2009-10 | 2010-11 | ||
| 1. | Leave Travel Assistance. | _/ | _/ | _/ | _/ |
| 2. | Food Allowance | ||||
| 3. | Meal Vouchers | _/ | _/ | ||
| 4. | Fringe Benefits | ||||
| (a) | Medical reimbursement | _/ | _/ | _/ | _/ |
| (b) | Vehicle Maintenance Reimbursement | _/ | _/ | ||
| (c) | Driver wages/reimbursement | _/ | _/ | ||
| (d) | Professional development reimbursement | _/ | |||
| (e) | Books & periodicals | _/ | |||
5. The
issues of dispute as emerge from the grounds raised by revenue pertain
to the obligation of the assessee to deduct tax at source on -
| (i) | Leave Travel Concession … for A.Ys 2007-08 to 2010-11 | |
| (ii) | Medical Reimbursemnet …. for A.Ys 2007-08 to 2010-11 | |
| (iii) | Meal Vouchers … for A.Ys.2009-10 and 2010-11. |
6. The
salary structure of the employees of the assessee was examined by the
officials carrying out the survey under section 133A on 9.2.2011, 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
major dispute n the appeals for Assessment Years 2007-08 to 2010-11,
are regarding the obligation of the assessee to deduct tax at source on
"Leave Travel Concession" (LTC) and "Medical Reimbursement". It is not
in dispute that LTC and Medical Reimbursement are in the nature of
perquisite falling within the definition of perquisites as per the
provisions of section 17(2)(iv) and (v) of the Act respectively.
7.2.1 As
regards LTC, Section 10(5) of the Act stipulates that any LTC granted
to an employee by the employer to the following extent shall not be
included in the total income :
"10(5) in the case of an individual, the value of any travel concession or assistance received by, or due to, him,—
| (a) | from his employer for himself and 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;" |
7.2.2 Rule
2B of the Income Tax Rules ('the Rules') lays down the conditions to be
satisfied for the purpose of availing exemption under section 10(5) of
the Act. Rule 2B reads as under :
"2B. Conditions for the purpose of section 10(5).—(1)
The amount exempted under clause (5) of section 10 in respect of the
value of travel concession or assistance received by or due to the
individual from his employer or former employer for himself and his
family, 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 subject to the following conditions, namely :-
| (i) | where the journey is performed on or after the 1st day of October, 1997, by air, an amount not exceeding the air economy fare of the national carrier by the shortest route to the place of destination; | |
| (ii) | where places of origin of journey and destination are connected by rail and the journey is performed on or after the 1st day of October, 1997, by any mode of transport other than by air, an amount not exceeding the air-conditioned first class rail fare by the shortest route to the place of destination; and | |
| (iii) | where the places of origin of journey and destination or part thereof are not connected by rail and the journey is performed on or after the 1st day of October, 1997, between such places, the amount eligible for exemption shall be :— |
| (A) | where a recognised public transport system exists, an amount not exceeding the 1st class or deluxe class fare, as the case may be, on such transport by the shortest route to the place of destination; and | |
| (B) | where no recognised public transport system exists, an amount equivalent to the air-conditioned first class rail fare, for the distance of the journey by the shortest route, as if the journey had been performed by rail. |
(2)
The exemption referred to in sub-rule (1) shall be available to an
individual in respect of two journeys performed in a block of four
calendar years commencing from the calendar year 1986 :
Provided
that nothing
contained in this sub-rule shall apply to the benefit already availed
of by the assessee in respect of any number of journeys performed before
the 1st day of April, 1989 except to the extent that the journey or
journeys so performed shall be taken into account for computing the
limit of two journeys specified in this sub-rule.
(3)
Where such travel concession or assistance is not availed of by the
individual during any such block of four calendar years, an amount in
respect of the value of the travel concession or assistance, if any,
first availed of by the individual during first calendar year of the
immediately succeeding block of four calendar years shall be eligible
for exemption.
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
deter-mining
the eligibility of the amount in respect of the value of the travel
con-cession or assistance in relation to the number of journeys under
sub-rule (2).
(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."
To
the extent LTC is exempt as laid down in section 10(5) of the Act, the
same need not be included as income under the head "Salary" for the
purpose of deducting tax at source.
7.3 In
respect of "Medical Reimbursement", 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.
7.4 The
assessee, in the case on hand, remunerates its employees with a
pre-determined salary consisting of basic pay, house rent allowance and
other allowances. In addition to this, the assessee also makes
available to its employees medical reimbursement, Sodexo Meal Voucher
and LTC along with other benefits that is collectively called 'Goodrich
Benefit Plan.' We will now consider and adjudicate on the issues of LTC
and Medical Reimbursement in seriatum hereunder :
8. Leave Travel Concession (LTC)
8.1 According
to the facts on record as put forth by the assessee, the scheme is that
the employees seeking this benefit opt for the same at the beginning of
the year. Once the employees completes his travel, he/she has to submit
evidence for having incurred the expenditure and it is on the basis of
such evidence submitted that the exemption is worked out
in accordance with the provisions of section 10(5) r.w. Rule 2B of the
Rules. The Assessing Officer was of the view that in the case on hand
the LTC was paid to employees irrespective of whether or not they had
intention to proceed on leave. According to the Assessing Officer, the
benefit is allowable only in case of 'Concession or Assistance' and not
to an 'allowance as in the case on hand and that too only if the travel
is undertaken within the approved block of years or at the time of
retirement or termination from service. In this view of the matter, the
Assessing Officer disallowed the assessee's claim for exemption of LTC
for all four assessment years holding the assessee to be an 'assessee in
default' under section 201(1) of the Act and also charged interest
under section 201(1A) of the Act on tax not deducted.
8.2 On
appeal by the assessee, the learned CIT(Appeals) cancelled the order of
the Assessing Officer treating the assessee as an assessee in default
under section 201(1) and also in respect of interest charged under
section 201(1A) of the Act. The relevant/operative portion of the order
of the learned CIT(Appeals) is at paras 3.3 to 3.6 on pages 4 to 6 of
her order and her finding is as under :
"I
have carefully considered the facts, the appellant's submission and
perused the elaborate order. The Assessing Officer has denied the claim
of the employer appellant under section 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 taxable
salary.
3.4
The fact remains 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
Assessing Officer 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 IT Act. The only case of the Assessing Officer is that the
intention of employer is to disburse the said sum irrespective of
whether an exemption will be allowed to an employee or not and,
therefore, it is simply an allowance and not a 'concession' or
'assistance' as envisaged in the IT Act.
3.5
In my view, the basic requirements of the IT Act read with the relevant
rules are met i.e. (i) No disbursement not backed by bills/proof is
treated is not taxable for the
year involved. (ii) 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).
3.6
The interpretation of the Assessing Officer is too narrow and technical
as held at para 4.6 above and 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. In my
opinion, the Assessing Officer was not justified in treating the
appellant as an 'assessee-in-default.' Hence, the demand raised and
interest charged under section 201(1) and 201(1A) are uncalled for and
they are, therefore, cancelled."
9.1 Medical Reimbursement
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.
9.2 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 4.3 to 4.7 at pages 6 to 9 of her order as
under :
"4.3
I have carefully considered the appellant's submission and perused the
Assessing Officer's order. The employees are paid up to Rs.15,000 per
annum split into monthly disbursements. This amount is treated as exempt
under the provisions of IT Act only if
supported by bills. Wherever bills are provided the amount is treated
as a taxable salary and tax is deducted during the financial year end.
4.4 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 (all reproduced earlier), and all other instructions on the subject, the CBDT have decided that the value of the perquisites 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 purpose 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 ub 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 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 Act without considering the amount paid or reimbursed for expenditure in connection with medical treatment abroad, exceeds Rs.1,00,000-. |
| (d) | Moreover, in the present case, the amount of Rs.15,000 per employee is too small for any other interpretation. |
4.5
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 to 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.
4.6
Therefore, in my view, the view of the Assessing Officer 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.
4.7
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."
10.1 We
have heard both parties and carefully perused and considered the
material on record. From the details on record, as observed by the
learned CIT(Appeals), the fact that bills/evidence to substantiate
incurring of expenditure on medical treatment upto Rs.15,000 and the
availing of LTC by the employees in fulfilment of the conditions
stipulated by the provisions of section 10(5) of the Act for availing
exemption by the employees, have not been disputed by the Assessing
Officer. The Assessing Officer's view is that the allowances so given
every month is not earmarked for any particular purpose leaving the
employee freedom to use the allowance in any manner and later claim that
allowance was used for LTC or medical reimbursement. The
Assessing Officer was of the view 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 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. As
regards LTC, the Assessing Officer relied 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 termination of his service, shall be the amount "actually incurred" on the performance of such travel" as appearing in section 10(5) of the Act. |
10.2 The
Assessing Officer is also of the view that there is a difference
between "Allowance" and "LTC & Medical Reimbursement." According to
the Assessing Officer, an Allowance can be given in advance whereas LTC
and Medical Reimbursement are
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.
10.3 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 therefrom
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 therefrom 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.
(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."
10.4 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.
10.5 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 and the availing of LTC by employees and the
fulfilment of the conditions contemplated by section 10(5) of the Act
for exemption by the employees so availing LTC, 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) or exemption under section 10(5) 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 LTC and 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 section 10(5) and 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.
10.6 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 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
section 10(5) and 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 (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). |
10.7 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
fulfilled. 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 section 10(5) and 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).
10.8 In
the light of the admitted position that the conditions for grant of
exemption under section 10(5) of the
Act to the employees in respect of LTC and also the fact that 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 under section 10(5) or
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 section 10(5) of
the Act or 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 2007-08 to 2010-11 were rightly held to
be unsustainable by the learned CIT(Appeals).
11. Meal Vouchers (A.Ys 2009-10 & 2010-11)
11.1 In
the period relevant to Assessment Years 2009-10 and 2010-11, the
assessee as part of its 'Goodrich Benefit Plan', provided to its
employees with Sodexo Meal Vouchers which were exchangeable at the
centres within the campus and also at certain eating joints. In this
regard, Rule 3(7)(iii) of the Rules provide that expenditure incurred by
an employer for employees towards provision of free food and
non-alcoholic beverages to the extent of Rs.1,000 i. e. Rs.50 per meal
for each working day of the month is deductible but such payments are
reducible by the amounts paid or recovered from the employees. As per
the Assessing
Officer, the assessee had paid its employees food allowance during the
relevant previous years and had taken the amount out of the purview of
the provisions of TDS. According to the Assessing Officer, the actual
use by each employee is not recorded; some of the centres where the
coupons can be used are departmental stores, etc which could not be
termed as centres or eating joints.
11.2 On
appeal,
the learned CIT (Appeals) has elaborately discussed this issue of Meal
Vouchers/Coupons at length before observing at para 5.7 of her order
that the disbursement of meal coupons by the employer to the employees
in the case on hand did not require tax to be deducted thereon under
section 192 of the Act. Holding that the action of the Assessing Officer
in the case was uncalled for, she deleted the demand raised under
section 201(1A) and charging of interest under section 201(1A) of the
Act. The operative portion of this order at paras 5.5 to 5.7 on pages 10
to 12 of her order is as under :
'5.5 I have considered the issues. The fact is that :
| (i) | Food vouchers issued per meal per employee is within the present rates as per IT Rules read with the IT Act. | |
| (ii) | The employer has ensured that the coupons are non-transferable and valid for ready to eat items. | |
| (iii) | If used at departmental stores, it is for food products. No instance has been brought on record otherwise. | |
| (iv) | No specific instance of misuse has been brought on record by the Assessing Officer. |
5.6 It is also to be seen that these benefits are provided to employees allacross
salaried start a in the private sector in this manner and employers are
dealing with a large number of employees (numbering tens of thousands)
and not merely a few hundreds or thousands to monitor each meal coupon
usage. On the whole, whether sufficient checks and balances have been
provided by the employer to ensure that in sum and substance the benefit
provided is as per Rule 3(7)(iii) or not, is what would be relevant. I
do not feel that, from the amount involved per employee in the present
case, any other inference can be drawn, but the administrative
convenience of the employer in disbursing the said
benefit, which is also a welfare measure aimed at ensuring better
productivity from the employees and well within the ambit of the
provisions of the IT Act. The interpretation of the Assessing Officer is
too narrow and technical and in respect of a welfare measure cannot be
the correct interpretation. In this connection, I derive support from
the order of the Hon'ble ITAT, Bench A, Ahmedabad in case of ITO, TDS-1, Ahmedabad v. M/s. Cadila Healthcare Ltd reported in 2011-TIOL-582-ITAT-AHM, where the Hon'ble Tribunal has held as under :
"the
assessee distributed 'sodexo' meal coupons pursuant to an agreement
with 'sodexo' and such coupons were to be used by the employees only at
the specified eating joints or outlets. With the introduction of
provisions relating to FBT by the Finance Act, 2005 with effect from
1.4.2005, the relevant provisions of Rule 3(7)(iii) of the IT Rules,
1962 relating to valuation of any perquisite in the nature of provision
of food provided by the employer were amended. As per clause (ii) of
section 115WB(2)(B)of the Act, even FBT was not payable by the employer
on the expenditure incurred through paid food vouchers which were not
transferable and usable only at eating joints or outlets. Sodexo
Lunch coupons were misused by the employees, the learned CIT (Appeals)
while relying upon the decision of the Hon'ble jurisdictional High Court
in the case of CIT V. Reliance Industries Ltd., concluded that the
assessee was not liable to deduct tax at source on expenditure incurred
on Sodexo Lunch Coupons given to the employees of the company. Revenue
having not placed any material so as to enable to take a different view
in the matter, the order of the CIT (Appeals) is upheld."
5.7
In view of the discussions made in the preceding paragraphs, I hold
that the disbursement of the meal coupons made by the appellant employer
in the present case to its employees did not attract TDS under section
192 and the action of the Assessing Officer in raising demand under
section 201(1) and charging interest under section 201(1A) is uncalled
for and delete the same.'
11.3.1 We
have heard both parties and carefully perused and considered the
material on record including the judicial decisions cited and relied
upon. Admittedly, in the period under consideration, the assessee as
part of its 'Goodrich Benefit Plan' for its employees, inter alia
provided its employees with Sodexo Meal Vouchers/Coupons which were
useable at the canteens within the workplace and also at certain eating
joints. As observed by the learned CIT(Appeals), the Meal Vouchers
issued per meal per employee is within the present rates as per the IT
Rules, 1962 r.w. IT Act, 1961. The learned CIT(Appeals) on examination
of relevant details found that the coupons are not transferable and
valid only for ready to eat items. The learned CIT(Appeals) also
observed that if used by the employees at departmental stores, the
coupons were to be used for food products. We find that no specific
instance of misuse of such Meal coupons has been brought on
record by the Assessing Officer. We concur with the view of the learned
CIT(Appeals), that these benefits of Meal Vouchers are given by the
employers to sometimes hundreds or thousands of employees and therefore
what is relevant is to see is whether sufficient checks and balances are
put in place by the employer to ensure that the benefit provided is as
per Rule 3(7)(iii) or not. We find that in the instant case, no breach
or misuse has been detected by the Assessing Officer nor has any such
instance of misuse been brought on record by revenue before us to
controvert the finding of the learned CIT(Appeals).
11.3.2 It
is seen that a similar issue of "Sodexo Meal Coupons" was considered
and adjudicated upon in the following judicial decisions relied on by
the learned Authorised Representative:
| (i) | CIT v. Reliance Industries Ltd. [2008] 175 Taxman 367 (Guj.) | |
| (ii) | ITO (TDS) v. Cadila Healthcare Ltd. [IT Appeal Nos. 3259 & 3240 (Ahd.) of 2009, dated 29-7-2011]. We also find that the learned CIT(Appeals) in coming to her finding on this issue of Meal coupons drew support from the decision of the ITAT, Ahmedabad in the case ofCadila Healthcare Ltd. (supra) wherein at paras 5 to 5.2, the Tribunal held as under : | |
| '5. We have heard both the parties and gone through the facts of the case as also the decisions relied upon. Indisputably, the assessee distributed 'sodexo' meal coupons pursuant to an agreement with 'Sodexo' and such coupons were to be used by the employees only at the specified eating joints or outlets. With the introduction of provisions relating to FBT by the Finance Act, 2005 with effect from 1.4.2005, the relevant provisions of Rule 3(7)(iii) of the IT Rules, relating to valuation of any perquisite in the nature of provision of food provided by the employer were amended. The said rule now reads as under : | ||
| "3(7)(iii) The value of free food and non-alcoholic beverages provided by the employer, who is not liable to pay fringe benefit tax under Chapter XII-H of the Act, to an employee shall be the amount of expenditure incurred by such employer. The amount so determined shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity : Provided that nothing contained in this sub-rule shall apply to free food and non-alcoholic beverages provided by such employer during working hours at office or business premises or through paid vouchers which are not transferable and usable only at eating joints, to the extent the value thereof in either case does not exceed Rs.50 per meal or to tea or snacks provided during working hours or to free food and non0-alcoholic beverages during working hours provided in a remote area or an off-shore installation." | ||
| 5.1 Moreover, as per clause (ii) of section 115WB(2)(B) of the Act, even FBT was not payable by the employer on the expenditure incurred through paid food vouchers which were not transferable and usable only at eating joints or outlets, inter alia, since the Assessing Officer did not bring any material on record that Sodexo Lunch Coupons were misused by the employees, the learned CIT (Appeals) while relying upon the decision of the Hon'ble jurisdictional High Court in the case of CIT V. Reliance Industries Ltd., (2008-TIOL-485-HC- AHM-IT), concluded that the assessee was not liable to deduct tax at source on expenditure incurred on Sodexo Lunch Coupons given to the employees of the company. In the cited decision, the assessee company claimed that amount paid to "Accor" food meal coupons provided to the employees was not taxable perquisite within the meaning of Rule 3 (7)(iii) of the Income Tax Rules and therefore, did not deduct the tax at source on this amount. However, the Assessing Officer held otherwise. On appeal, the ITAT accepted the plea of the assessee. On further appeal, Hon'ble High Court observed that— | ||
| "the primary liability to offer the amount for tax is that of the employee concerned and it is only by a prescribed mode of recovery that the employer is required to deduct tax at source. Needless to state that such deduction has to be specifically employee-wise and the employer cannot be called upon to presume that a particular percentage of employees, out of the total workforce, shall misuse the facility so as to warrant deduction of tax at source. Furthermore, correspondingly such tax deducted at source has to be given credit of to the employee concerned in the assessment of the employee and unless and until the tax deduction certificate specifies the employee concerned there can be no corresponding credit given to the employee. | ||
| 5.2 In the light of view taken in the aforecited decision by the Hon'ble jurisdictional High Court and the Revenue having not placed any material before us so as to enable us to take a different view in the matter, nor cited any contrary decision, we have no alternative but to uphold the findings of the learned CIT (Appeals).' |
In
view of the factual matrix of the cited case i.e. Cadila Healthcare
Ltd. (supra) being similar to that of the case on hand, and the fact
that the Assessing Officer has not detected even a single case of misuse
nor has any such instance of misuse been brought to our notice by
revenue to controvert the finding of the learned CIT(Appeals), we,
respectfully following the aforesaid decision of the ITAT, Ahmedabad
(supra) uphold the finding of the learned CIT(Appeals) on the issue of
Sodexo Meal Coupon/Vouchers.
12. 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 under section 10(5) as well as 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
and LTC 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 under section 10(5) as
well as 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.
13. For
the reasons given above, we do not find it necessary to interfere with
the findings of the learned CIT (Appeals) in respect of Medical
Reimbursement, LTC and Sodexo Meal Vouchers and consequently revenue's
appeals on these issues are dismissed.
14. In the result, revenue's appeals for Assessment Years 2007-08 to 2010-11 are dismissed.
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