Income Tax Appellate Tribunal - Bangalore
M/S Oracle India Pvt. Ltd.,, Bangalore vs Department Of Income Tax on 25 July, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH : BANGALORE
BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER
AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER
ITA NOs. A.Y. APPELLANT VS. RESPONDENT
1215 to 2008-09 The Assistant M/s. Oracle India Pvt.
1217/Bang/2012 to Commissioner of Ltd.,
2010-11 Income Tax (TDS), Oracle Technology
579 to 580/Bang 2008-09 Circle 18(1), Park,
/2013 Bangalore. No.3, Bannerghatta
581 to 582/Bang 2009-10 Road,
/2013 Bangalore - 560 029.
583 to 584/Bang 2010-11
/ 2013 TAN: BLRO 00194 F
ITA NOs. A.Y. APPELLANT VS. RESPONDENT
1218 to 2008-09 The Assistant M/s. Oracle Solution
1220/Bang/2012 to Commissioner of Services (India) Pvt.
2010-11 Income Tax (TDS), Ltd.
573 to 574/Bang 2008-09 Circle 18(1), Prestige Tech Park,
/2013 Bangalore. Marthahalli Main Road,
575 to 576/Bang 2009-10 Bangalore - 560 087.
/2013
577 to 578/Bang 2010-11 TAN: BLRE 00419 G
/ 2013
Appellant by : Shri Sadananda Sondarsa, CIT-II(DR)
Respondents by : Shri Kaushik Mukherjee, C.A.
Date of hearing : 25.07.2013
Date of Pronouncement : 31.07.2013
ITA Nos.1215 to 1220/B/12 &
573 to 584/B/13
Page 2 of 27
ORDER
Per Bench ITA Nos. 1215 to 1217/Bang/2012 are appeals filed by the revenue against the common order dated 17.07.2012 of the CIT(Appeals)-II, Bangalore relating to assessment years 2008-09 to 2010-11 in the case of M/s. Oracle India Pvt. Ltd., wherein the CIT(Appeals) cancelled the order of the Assessing Officer treating the respondent as assessee in default u/s.
201(1) of the Act and also levying interest u/s. 201(1A) of the Act.
2. The registry had raised an objection that two separate appeals have to be filed for each of the assessment year for order u/s. 201(1) & 201(1A) of the Act respectively. Consequent to the objections raised by the registry, the revenue has filed six appeals in ITA Nos. 579 to 584/Bang/2013 by filing two separate appeals in each of the assessment years in respect of treating the respondent as an assessee in default u/s. 201(1) & also levying interest u/s. 201(1A) of the Act respectively.
3. Similarly, ITA Nos. 1218 to 1220/Bang/2012 are appeals filed by the revenue against the common order dated 17.07.2012 of the CIT(Appeals)-
II, Bangalore relating to assessment years 2008-09 to 2010-11 in the case of M/s. Oracle Solution Services (India) Pvt. Ltd., wherein the CIT(Appeals) cancelled the order of the Assessing Officer treating the respondent as assessee in default u/s. 201(1) of the Act and also levying interest u/s.
201(1A) of the Act. Consequent to the objections raised by the registry, the revenue has filed six appeals in ITA Nos. 579 to 584/Bang/2013 by filing two separate appeals in each of the assessment years in respect of ITA Nos.1215 to 1220/B/12 & 573 to 584/B/13 Page 3 of 27 treating the respondent as an assessee in default u/s. 201(1) & also levying interest u/s. 201(1A) of the Act respectively.
4. Since identical issues are involved in case of both the assessees, all these appeals were heard together and disposed of by this common order for the sake of convenience and brevity.
5. In all these appeals, the question that arises for consideration is as to whether the CIT(Appeals) was justified in canceling the order of the AO treating the respondents as assessees in default for not deducting tax at source in respect of payments made to its employees towards medical reimbursement, leave travel allowance (LTA) and providing meal vouchers.
6. Oracle India Pvt. Ltd. is a wholly owned subsidiary of Oracle Systems Corporation, USA. It is engaged in sale of Oracle Corporation's products and service offerings in India and also renders software development services and information technology enabled services to the Oracle group. Oracle Solution Services (India) Pvt. Ltd. is an Indian company incorporated on 18th July, 1995 and is engaged in the business of computer software consulting and implementation. It also provides software consulting services to Oracle group of companies.
7. A survey u/s.133A of the Income Tax Act, 1961 (the "Act") was conducted at the business premises of the Assessees. The salary structure of the employees of the Assessee was examined by the Officers carrying out Survey in the light of the obligations of the Assessee as employer to deduct tax at source at the time of making payment of salaries to its employees.
ITA Nos.1215 to 1220/B/12 & 573 to 584/B/13 Page 4 of 27
8. Section 192(1) of the Act casts an obligation on the part of person responsible for paying income chargeable under the head "salaries" to deduct tax at source, at the time of payment. Section 192 (1) of the Act reads as under:-
"192. Salary.-(1) Any person responsible for paying any income chargeable under the head "Salaries" shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made on the estimated income of the assessee under this head for that financial year."
9. A perusal of section 192 of the Act clearly 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 that are chargeable to tax under the head income from "Salaries" is laid down in Sec.15 to 17 of the Act. Sec. 15 of the Act provides that income described therein shall be chargeable to tax under the head "Salaries". The income described therein consists of salary from the employer or former employer falling in three categories. Sec.16 of the Act contains deductions to be made from salaries. Section 17 of the Act contains an inclusive definition of "salary" for purposes of Section 15, Section 16 and Section 17 of the Act which, along with other items, includes "perquisite" and these terms are also separately defined therein.
Sec.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 thus:
ITA Nos.1215 to 1220/B/12 & 573 to 584/B/13 Page 5 of 27 "For the purposes of sections 15 and 16 and of this section -
(1) "Salary" includes-
(i) to (iii)......
(iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;
(v) to (viii).......
(2) "perquisite" includes-
(i) to (ii)......
(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 rupees in the previous year.
(vi)...."
10. The dispute in these appeals are regarding the obligation of the Assessee to deduct tax at source on "LTA", "Medical reimbursement" and "Meal Vouchers". It is not in dispute that the amounts paid as LTA, Medical Reimbursements and Meal Vouchers are in the nature of ITA Nos.1215 to 1220/B/12 & 573 to 584/B/13 Page 6 of 27 perquisite falling with the definition of perquisites as given in sec.17(2) (iv) and (v) of the Act, respectively.
11. As far as Medical reimbursement is concerned, if the amount paid by an employer to the employee for medical treatment of the employee or his family is Rs.15,000 or less per annum, then the same will not be perquisite as laid down in Sec.17(2) proviso (v) of the Act and therefore need not be considered as part of "salary" for the purpose of deducting tax at source at the time of payment by the employer to the employee. In other words, expenditure actually incurred on medical treatment to the extent of Rs.15,000/- is exempt and the remaining is taxable.
12. As far as Leave Travel Concession is concerned, Section 10(5) of the Act lays down that any leave travel concession granted to an employee by the employer to the following extent shall not be included in the total income.
"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.
ITA Nos.1215 to 1220/B/12 & 573 to 584/B/13 Page 7 of 27 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;"
13. Rule 2B of the Income Tax Rules, 1962 (the 'Rules') lays down the conditions to be satisfied for the for the purpose of availing exemption under section 10(5) of the Act. It reads thus:
"(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 ITA Nos.1215 to 1220/B/12 & 573 to 584/B/13 Page 8 of 27 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 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.
(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.
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 determining the eligibility of the amount in respect of the value of the travel concession or assistance in relation to the number of journeys under sub-rule (2)."
14. To the extent LTA is exempt as laid down in sec.10(15) of the Act, the same need not be included as income under the head "Salary" for the purpose of deducting tax at source.
ITA Nos.1215 to 1220/B/12 & 573 to 584/B/13 Page 9 of 27
15. As far as provision of Meal Vouchers is concerned, the assessee provides Sodexo food coupons amounting to Rs.1,700 to each of the employees. This food coupons can be used for payment towards food and non-alcoholic beverages procured/consumed by employees from the caterers within the precincts of the respondent premises or at various outlet of vendors (even outside the office premises) subject to certain terms and conditions. According to the revenue, the food and non-alcoholic beverages were being provided outside the office premises and therefore was taxable. The case of the revenue is that as per the proviso to Rule 3(7)(iii) of the Rules, free food and non-alcoholic beverages provided by employer during working hours at office or business premises or through paid vouchers which are not transferred and usable only at different eating joints shall not form part of perquisites to the extent of the value thereof in either case does not exceed Rs.50 per meal. The case of the revenue is that paid vouchers are used even outside the office premises and therefore was not exempt perquisite and therefore the respondent as an employee ought to have included the value of the meal vouchers as part of perquisites and salary and deduct tax thereon at source.
16. The respondent however submits that meal vouchers and food coupons are to be used only for employees and this need not be in the business premises and can be used by the employees when they go out to meet the clients.
17. As per the employee compensation structure of the respondents, the employee's annual gross salary consists of a fixed component and a variable component like LTA, medical reimbursement providing meal ITA Nos.1215 to 1220/B/12 & 573 to 584/B/13 Page 10 of 27 vouchers etc. LTA amount is reimbursed against actual bills within the specified limits, subject to prevailing income tax regulations. The onus is on the employee to prove that he/she has undertaken the journey. LTA is reimbursed only for one round trip and it is expected that route to the final destination is shortest. In cases, where the LTA claimed against actual is less than the entitlement, then the unutilized portion is carried over to the subsequent year within the two year block. However, if the employee opts for payment of unutilized portion of the LTA amount, the same is then paid as an allowance subject to tax deduction at source. The respondent does not pay the LTA amount as upfront monthly allowance.
18. The payments to employees of the assessee include a component towards medical expenditure. If the employee submits proof of having incurred the expenditure towards medical treatment, the sum spent towards medical treatment or Rs. 15,000/-, whichever is less, is excluded from salary. The exclusion is on the basis of the proviso (iv) to section 17(2) of the Act. If the amount spent towards medical treatment is in excess of Rs.
15,000/- the excess (beyond Rs. 15,000) is considered not considered as a deduction. Effectively, the excess amount spent continues to remain taxable. If no proof of having incurred the expenditure towards the medical treatment is produced by the employee, the entire sum paid is considered as a perquisite. Tax under section 192 of the Act is deducted accordingly.
19. As far as LTC is concerned, if the employee submits proof regarding utilization of the component towards leave travel and subject to the conditions laid down in Sec.10(5) of the Act read with Rule 2B of the ITA Nos.1215 to 1220/B/12 & 573 to 584/B/13 Page 11 of 27 Rules, the Assessee does not consider the leave travel to the extent exempt as salary for the purpose of deduction of tax at source.
20. The AO has in a very elaborate order discussed various aspects and case laws relating to the relevant statutory provisions and ultimately concluded that the Assessee was an "Assessee in default" in respect of that portion of LTC and Medical Reimbursement paid to its employees which were considered as exempt and hence not treated as part of income under the head "Salaries" for the purpose of deducting tax at source. We have culled out the reasons for the AO to come to the above conclusion, which can be summarised as follows:
1. As far as LTC is concerned, Sec.10(5) of the Act refers to "Concession or Assistance" for leave travel. According to the AO, the Assessee was including in payments made every month a component towards leave travel. In other words, the payment was made irrespective of the status of the utilisation for the purpose of leave travel, which is not in the nature of a reimbursement. The point of time at which the payment to qualify to be called LTC should be at the time of incurring of the expenditure by the employee or after such expenditure is incurred, by way of reimbursement. Since the Assessee was paying LTC as a component of salary every month, without the employee having incurred expenditure, the same had to be considered as salary disbursement which is sought to be set off against expenditure incurred for leave travel and exemption claimed u/s.10(5) of the Act.
2. As far as medical reimbursement is concerned, the AO was of the similar view that what is contemplated by proviso (iv) to Sec.17(2) of the Act was 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. Since the Assessee was paying medical reimbursement as a component of the monthly payment to the employee and later claiming that it was not perquisite to the extent of Rs.15,000, the same had to be considered as salary and not exempt perquisite. The reasoning is the same that ITA Nos.1215 to 1220/B/12 & 573 to 584/B/13 Page 12 of 27 the payment should not precede the actually incurring of the expenses and it should be only by way of reimbursement.
3. As far as "Meal Vouchers" are concerned, the AO held that the food and non-alcoholic beverages were being provided outside the office premises and therefore was taxable. The case of the revenue was that as per the proviso to Rule 3(7)(iii) of the Rules, free food and non-alcoholic beverages provided by employer during working hours at office or business premises or through paid vouchers which are not transferred and usable only at different eating joints shall not form part of perquisites to the extent of the value thereof in either case does not exceed Rs.50 per meal. The case of the revenue was that paid vouchers are used even outside the office premises and therefore was not exempt perquisite and therefore the respondent as an employee ought to have included the value of the meal vouchers as part of perquisites and salary and deduct tax thereon at source.
21. The AO accordingly considered the Respondents as an "Assessee in default" u/s.201(1) of the Act, in respect of the portion of exemption claimed in the statement annexed to the order towards LTC and Medical reimbursement as well as providing meal vouchers for the AYs 2008-09 to 2010-11. The AO also levied interest u/s.201(1A) of the Act, on tax not deducted, from the date on which tax ought to have been deducted till the date on which the tax not deducted is paid over to the credit of the Government.
22. On appeal by the Assessee, the CIT(A) cancelled the order of the AO treating the Assessee as an "Assessee in default" u/s.201(1) of the Act and also levying interest u/s.201(1A) of the Act, holding that amount paid even as reimbursement ought to be considered as perquisite. In coming to the above conclusion, the CIT(A) relied on the Circular of the CBDT, viz., Circular No.603 dated 6.6.1991, wherein the CBDT has opined that the ITA Nos.1215 to 1220/B/12 & 573 to 584/B/13 Page 13 of 27 value of the perquisite arising by way of payment or reimbursement by an employer of expenditure on medical treated will not be included in the taxable salary of the employee. The following were the relevant observations of the CIT(A):-
"3.5 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 allowable 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 within the financial year in cases where the benefit is not backed by bills or in excess of amount allowable under the I.T. Act. The only case of the AO 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 I.T. Act.
3.6 In my view, the basic requirements of the I.T. Act read with the relevant rules are met i.e.
i) No disbursement not backed by bills/proof is treated is not taxable.
ii) No disbursement in excess of I.T. Rules has been treated as exempt during the financial year.
3.7 The interpretation of the AO is too narrow and technical and in terms of a welfare measure allowed to employees across the salaried strata cannot be the correct interpretation. The appellant, an employer of tens of thousands of employees, has stated that it is taking into account 'salary' in terms of 'cost to company' as is the norm in the private sector and this merely does not mean that it is an allowance and not a reimbursement. 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 AO was not justified in treating the appellant as an 'assessee-in-default'. Hence, the demand raised and interest charged u/s 201(1) and 201(1A) are uncalled for and they are, therefore, cancelled."
ITA Nos.1215 to 1220/B/12 & 573 to 584/B/13 Page 14 of 27
4. MEDICAL REIMBURSEMENT .......
4.3 I have carefully considered the facts and the submissions made by the appellant. The appellant has claimed that the same is disbursed as a pure reimbursement as and when the medical bills are submitted for Rs.15,000/- per annum per employee. The amount not supported by bills is paid as a taxable allowance at the end of the year.
........
4.5 I have considered the appellant's submissions and the AO's observations. 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 (1) 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 suppression of Circular No. 376 dt. 6th Jan., 1984, Circular No. 445 dt. 31st Dec., 1985, Circular No. 481 dt. 20th Feb., 1987 and all other instructions on the ITA Nos.1215 to 1220/B/12 & 573 to 584/B/13 Page 15 of 27 subject, the Board 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 Government or local authorities or hospitals approved for the purposes of the Central Government Health Schedule or Central Medical Scheme (a list of such hospitals furnished by the Ministry of Health and family welfare on 11th April, 1991 is annexed).
(iii) Where the expenditure is on medical insurance premia;
(iv) Where the medical treatment is availed of from any doctor outside the institutions/schemes mentioned in (i) to
(iii) above, an expenditure of upto Rs. 10,000 in a year, in the aggregate; and
(v) Where the medical treatment is availed of in a hospital outside India and the expenditure is incurred for treatment (including on travel and stay abroad in connection with such treatment) as 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 IT 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 employee is too small to attribute any other motive or to imagine a situation as envisaged in para 5.2 (page 29) of the assessment order.
ITA Nos.1215 to 1220/B/12 & 573 to 584/B/13 Page 16 of 27 4.6 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 u/s 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.
4.7 Therefore, in my view, the view of the AO 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."
23. As far as providing meal vouchers is concerned, the CIT(A) took the following view:-
"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 I.T. Rules read with the I.T. 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 AO.
5.6 It is also to be seen that these benefits are provided all across salaried strata 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 ITA Nos.1215 to 1220/B/12 & 573 to 584/B/13 Page 17 of 27 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 I.T. Act. The interpretation of the AO is too narrow and technical and in respect of a welfare measure cannot be the correct interpretation. In this context, I derive support from the order of the Hon'ble ITAT, Bench 'A', Ahmedabad in the 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 01-04-2005, 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. Since the AO did not bring any material on record that Sodexo Lunch coupons were misused by the employees, the CIT(A) while relying upon the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. 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(A) 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 u/s 192 and the action of the AO in raising demand u/s 201(1) and charging interest u/s 201(1A) is uncalled for and delete the same."
24. Aggrieved by the orders of the CIT(A) in the case of both the respondents, the revenue is in appeal before the Tribunal. The common ITA Nos.1215 to 1220/B/12 & 573 to 584/B/13 Page 18 of 27 concise grounds of appeal raised by the revenue for all the assessment years are as follows:-
"1. Leave Travel Allowance a. The CIT(A) has erred in saying that "No instance has brought on record by the AO that employer has disbursed the amount without deduction of taxes in cases where the benefit is not backed by bills or in excess of amount allowable under IT act".
CIT(A) has not taken into consideration the fact that employer was paying LTA to the employee irrespective of the fact as to whether the employee has performed the journey or not.
b. The CIT(A) 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.
However, the employer has not checked the conditions under section 10(5) of the act read with Rule 23 of IT rules are
2. Medical Reimbursement a. The CIT(A) has erred in not appreciating the fact that employer has disbursed allowance towards medical reimbursement rs 15,000/- per annum even without the production of bills by the employees.
b. The CIT(A) has erred in holding that the order was based on narrow and technical interpretation in respect of a welfare measure.
3. Meal Vouchers a. The CIT(A) has erred in not considering the conclusion drawn by the AO on the issue of Sodexo coupons in the said case.
b. The CIT(A) 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.
4. The CIT(A) has erred in not considering the distinctions drawn in respect of the judicial decisions relied upon by the deductor.
ITA Nos.1215 to 1220/B/12 & 573 to 584/B/13 Page 19 of 27
5. The CIT(A) has erred in not considering the facts that every contention of the deductor has been addressed elaborately while the AO's contentions and findings have not been reasoned against.
6. For these and other grounds that may be urged during the course of appeal, the order of the AO may be restored."
25. The ld. DR submitted before us that the approach of the CIT(A) was not correct. His submission was that there is a distinction between an incentive provision and a concession provision which has been overlooked by the CIT(A). He drew our attention to page 35 of the commentary by Rajaratnam in the book titled 'Landmark Cases 2007", wherein the ld.
author after referring to the decision of the Hon'ble Supreme Court in the case of CIT v. Taj Traders (121 ITR 533), opined that charging penalty provision should be strictly construed while machinery provision has to be construed in a manner that it subserves the objective of the statute. According to the ld. DR, the provisions of section 17 which defines 'perquisites' have to be strictly construed, as they are charging provisions.
It was also submitted that even concession provisions have to be interpreted rigidly as concession is not a matter of right. He therefore supported the order of the AO.
26. The ld. counsel for the assessee on the other hand submitted that the issues have been considered by this Tribunal in the case of M/s.
Infosys BPO in ITA Nos.1390 & 1391/Bang/2012 dated 28.06.2013. It was submitted by him that his case stands on a better footing than that of Infosys BPO since medical reimbursement and LTA ITA Nos.1215 to 1220/B/12 & 573 to 584/B/13 Page 20 of 27 are given only on production of bills by the employees. It was also submitted that in the present day context, there is no fixed office hours and it is not proper to view the proviso to Rule 3(7)(ii) of the Rules in a nerve manner. It was his submission that the expression "through paid vouchers"
which are not transferable and usable only at "eating joints" used in Rule 3(7)(iii) of the Rules clearly envisage that use of food coupons is not restricted either to business premises or particular day time in which it is used.
27. We are of the view that there is no substance in the plea put forth by the ld. DR. In the present appeals, we are concerned with the obligation of the assessee to deduct tax at source. These are not cases in which the assessment of perquisite in the hands of the employees is being made.
We are of the view that the provisions for deducting tax at source are all machinery provisions. The obligation of the person making payment, in the context of these provisions, is only to make a bonafide estimate of the income of the person to whom the payment is made. We are of the view that in the facts and circumstances of the present case, the estimation made by the assessee is bonafide.
28. This Tribunal in the case of Infosys BPO (supra) has dealt with identical orders passed u/s.201(1) & 201(1A) of the Act, as follows:
"21. A perusal of the show cause notice clearly shows 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. The grievance of the AO appears to be that 40% of the pay ITA Nos.1215 to 1220/B/12 & 573 to 584/B/13 Page 21 of 27 to the employees constitutes allowance and that the allowance so given every month is not earmarked for any particular purpose but the employee was free to use the allowance in any manner and later claim that the allowance was used for LTC or medical reimbursement. Therefore, according to the AO, at the time of payment the allowances would constitute part of salary and therefore even the allowances should be considered as part of salary for the purpose of deduction of tax at source. In other words, according to the AO, 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, according to the AO, 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. In support of the stand taken by the AO, she relies on the expression "actually incurred" in proviso (iv) to Sec.17(2) which allows exemption of medical reimbursement up to Rs.15000/- to an Assessee. As far as LTC is concerned, the AO relies 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 the termination of his service, shall be the amount "actually incurred" on the performance of such travel", found in Sec.10(5) of the Act.
22. The Assessee in this regard, among other things, relied on CBDT Circular No.603 dated 6.6.1991 extracted in the order of the CIT(A). The AO has however held that the said circular does not help the case of the Assessee for the following reason:-
"6.2.2.2 The circular evidently makes it clear that payment or reimbursement of expenses actually incurred for medical treatment is alone exempted from the purview of taxation. The circular at no point even remotely suggest that an allowance could be granted which if adequately evidence with medical bills could be reduced from the taxable salary of an employee. In fact the Board Circular concisely puts across the provisions of the statute which have been articulated at length in this order to drive home the fact that no application of fund could determine the taxability or exemption of any income let alone salary. Therefore, the Circular is in fact in support of the view taken and ITA Nos.1215 to 1220/B/12 & 573 to 584/B/13 Page 22 of 27 doesn't lend any credence to the arguments of the deductor.
6.2.2.3 In the instant case, the leave travel allowance is disbursed to an employee irrespective of the fact as to whether:
a) the employee has any intention to proceed on leave or not
b) the employee has any intention to travel or not
c) the employee has already availed the benefit in the previous calendar year or financial year Therefore, undisputedly and admittedly the disbursement of leave travel allowance is a lump sum monetary benefit provided to the employee without any nexus to any of the statutory or prescribed conditions. The only precondition is that the employee ought to have opted for this allowance at the beginning of the Financial Year. The subsequent occurrence of an event of travel which may or may not occur and even if it occurs, may or may not fulfill the conditions such as once in two calendar years etc., would in no way alter the nature of payment that has been effected. Therefore, an allowance such as the one granted in the instant case would not be a concession or assistance. Therefore, the reliance placed on the Circular is misplaced and is in fact against the case of the deductor."
23. The AO has also taken a stand that there is a difference between "Allowance" and "LTC and Medical Reimbursement". An allowance according to the AO 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 before they are incurred. The AO'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 accrual of income in the form of salary takes place on which tax had to be deducted at source.
24. To appreciate the stand taken by the AO, we have to look at the relevant provisions of Sec.192 of the Act in so far as the same is relevant for the present case.
"192. Salary.-(1) Any person responsible for paying any income chargeable under the head "Salaries"
ITA Nos.1215 to 1220/B/12 & 573 to 584/B/13 Page 23 of 27 shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made on the estimated income of the assessee under this head for that financial year (2)......
(3) The person responsible for making the payment referred to in sub-section (1) or sub-section (1A) or sub-section (2) or sub-section (2A) or sub-section (2B)] may, at the time of making any deduction, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year."
25. Section 192(1) of the Act, requires tax to be deducted at average rate of income-tax in force on estimated income under the head salaries. The person making payment has to make an honest of income under the head salary payable by him to his employee at the time of payment. The person making the payment has to take into consideration various deductions permitted under the Act under Chapter VIA of the Act, as also exempt income under Sec.10 of the Act. Rebate available under sections 88 and 88B can be considered by the employer. Employer should obtain the proof of investment made by the employee and should not rely on simple declaration or oral assurance. Certain employees who are entitled to relief under section 89(1) can furnish the information in prescribed form to the employer, and in such cases employer can adjust the amount of TDS by allowing relief available under section 89. It is for the employer to prove the allowances and perquisites given to the employee are tax-free and not to be included in the salary.
26. It is no doubt true that TDS is to be made at the time of payment of salary and not on the basis of salary accrued. Sec.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 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. Even assuming the case of the AO, that at the time of payment the Assessee ought to have deducted ITA Nos.1215 to 1220/B/12 & 573 to 584/B/13 Page 24 of 27 tax at source, is sustainable; the Assessee on a review of the taxes deducted during the earlier months of the previous year is entitled to give effect to the deductions permissible under proviso (iv) to Sec.17(2) or exemption u/s.10(5) of the Act in the later months of the previous year. 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 reliance placed by the AO on the expression "actually incurred" found in Sec.10(5) of the Act and proviso (iv) to Sec.17(2) of the Act, in our view cannot be sustained. In any event, 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 of the Act. As far as the Assessee is concerned, his obligation is only to make an "estimate" of the income under the head "salaries" and such estimate has to be a bonafide estimate.
27. The primary liability of the payee to pay tax remains. Section 191 confirms this. In a situation of honest difference of opinion, it is not the deductor that is to be proceeded against but the payees of the sums. To reiterate, the payment towards medical expenditure and leave travel is made keeping in view the employee welfare. The exclusion in respect of payment towards medical expenditure and leave travel is considered after verifying the details and evidence furnished by the employees. No exemption is granted in the absence of details and/or evidence. The exemption in respect of medical expenditure is restricted to expenditure actually incurred by the employees, or Rs. 15,000/- whichever is lower. The exemption is granted even if the payment precedes the incurrence of expenditure. The requirements/conditions of section 10(5) and proviso to section 17(2) are meticulously followed before extending the deduction/ exemption to an employee. No tax can be recovered from the employer on account of short 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, is the ratio of the following decisions.
ITA Nos.1215 to 1220/B/12 & 573 to 584/B/13 Page 25 of 27 CIT vs. Nicholas Piramal India Ltd (2008) 299 ITR 0356 (BOMBAY);
CIT v. Semiconductor Complex Ltd [2007] 292 ITR 636 (P&H) CIT vs. HCL Info System Ltd. [2006] 282 ITR 263 (Del) CIT v Oil and Natural Gas Corporation Ltd [2002] 254 ITR 121 (Guj) ITO v Gujarat Narmada Valley Fertilizers Co. Ltd [2001] 247 ITR 305 (Guj) CIT v Nestle India Ltd (2000) 243 ITR 0435 (DEL) Gwalior Rayon Silk Co. Ltd. v. CIT [1983] 140 ITR 832 (MP) ITO v G. D. Goenka Public School (No. 2) [2008] 306 ITR (AT) 78 (Del) Usha Martin Industries Ltd. V. ACIT (2004) 086 TTJ 0574 (KOL) Nestle India Ltd. v. ACIT (1997) 61 ITD 444 (Del) Indian Airlines Ltd. v ACIT (1996) 59 ITD 353 (Mum)
28. In the present case, as already detailed, the exemption in respect of medical expenditure and leave travel is considered after collecting and verifying the details and evidence furnished by the employees. Policies and controls are in force to ensure that the requirements of rule 2B are fulfilled. The details filed before the TDS officer explains the policies adopted to fulfill the requirements of rule 2B and the process adopted in considering the exemption under section 10(5) and proviso to section 17(2). The assessee is a law abiding Company. Internal controls are in place to discharge the statutory obligation under section 192. Honest and bona fide estimate of taxable salary is made in the process of deducting tax at source under section 192. Every effort is made by the assessee to comply with the requirements of section 192. The assessee is not benefited by allowing employees to claim exemption. The order passed by the AO under section 201(1) & 201(1A) is therefore bad in law and rightly quashed by the CIT(A).
29. In the light of the admitted position that the conditions for grant of exemption u/s.10(5) of the Act to the employees in respect of LTC and also the fact that up to Rs.15,000 per employee medical reimbursement paid by the Assessee satisfies ITA Nos.1215 to 1220/B/12 & 573 to 584/B/13 Page 26 of 27 conditions contemplated by the proviso (iv) to Sec.17(2) of the Act, can the AO deny to the employee in their assessment, exemption u/s.10(5) or relief under the proviso to (iv) to Sec.17(2) of the Act? The answer admittedly is 'no', because the AO does not dispute non-fulfillment of conditions for allowing exemption u/s.10(5) of the Act or proviso (iv) to Sec.17(2) of the Act. The liability of the person deducting tax at source cannot be greater than the liability of the person on whose behalf tax at source is deducted. The AO has ignored this aspect and has proceeded to pass the order u/s.201(1) and 201(1A) of the Act. His order was rightly held to be unsustainable by the CIT(A)."
29. As far as food coupons are concerned, we find that the ITAT Ahmedabad Bench in the case of Cadila Healthcare Pvt. Ltd., ITA No.3239 & 3240/Ahd/09 dated 29.7.2011 has taken a view that providing meal coupons to be used outside the office premises will not give rise to taxable perquisites. The Hon'ble Gujarat High Court in the case of CIT v. Reliance Industries (308 ITR 82) (Guj) has also taken an identical view.
30. In the light of the judicial precedents on the issue, we are of the view that the CIT(Appeals) was justified in canceling the order u/s. 201(1) and 201(1A) of the Act in respect of LTA, medical reimbursement as well as meal coupons.
31. Arguments were advanced that employees have filed their returns of income and offered to tax income under the head salaries received from the Assessee and therefore no order u/s.201(1) & 201(1A) of the Act can be passed against the Assessee. In this regard our attention was drawn to the following decisions:
ITA Nos.1215 to 1220/B/12 & 573 to 584/B/13 Page 27 of 27 Hindustan Coco Cola Beverage Pvt.Ltd. Vs. CIT 293 ITR 226 (SC) CIT Vs. Eli Lilly & Co. 312 ITR 225 (SC) Decision of Hon'ble Karnataka High Court in the case of CIT Vs. Tata Elxsi, ITA No.82 of 2003 dated 23.1.2008.
We have not examined the above argument for the reason that the assertion of the assessee in this regard has not been examined either by the AO or CIT(A).
32. In the result, all the appeals filed by the revenue are without any merit and are accordingly dismissed.
Pronounced in the open court on this 31st day of July, 2013.
Sd/- Sd/-
( JASON P. BOAZ ) ( N.V. VASUDEVAN )
Accountant Member Judicial Member
Bangalore,
Dated, the 31st July, 2013.
/D S/
Copy to:
1. Appellant
2. Respondents
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file
By order
Senior Private Secretary
ITAT, Bangalore.