MRF Ltd. Vs DCIT (Madras High Court)
The Madras High Court held that medical reimbursements up to ₹15,000 per employee per annum are not liable to Fringe Benefit Tax (FBT) in the hands of the employer. The case arose after the Assessing Officer levied FBT on medical reimbursements paid by the assessee to its employees during Assessment Years 2006-07, 2007-08, and 2008-09, relying on CBDT Circular No. 8/2005. The reimbursements, being below ₹15,000 per employee, had been excluded from taxation in the hands of employees.
The assessee contended that under the proviso (v) to Section 17(2) of the Income Tax Act, medical reimbursement up to ₹15,000 is excluded from the definition of “perquisite” and therefore cannot be subjected to FBT. It argued that the CBDT circular could not override the statutory provisions or the object of the FBT regime. The Assessing Officer, CIT(A), and the Income Tax Appellate Tribunal rejected the contention and upheld the levy.
The principal question before the High Court was whether medical reimbursement up to ₹15,000 per employee is chargeable to FBT under Section 115WB(2) of the Act. The Revenue argued that although such reimbursement is exempt in the hands of employees, it remains taxable as a fringe benefit in the hands of the employer.
