Life Insurance Corporation of India Vs ITO (ITAT Bangalore)
Conclusion: Assesse was under a bonafide belief that cash medical benefit were only reimbursement of the expenditure incurred by the employees, and as such they could not form part of their income, therefore, no tax could be recovered from the employer on account of short deduction of tax at source under section 192(1), if a bona fide estimate of salary taxable in the hands of the employee was made by the employer.
Held: In present appeals, medical reimbursement was paid by assessee to its employee for medical treatment of the employee or his family members. It was stated that, the payments to employees by assessee include a component towards medical expenditure that were paid every month. This sum, when paid was considered as part of taxable salary by assessee. As per section 192(1), the person making payment had to make an honest estimation of income under the head ‘salary’, payable by him to his employee at the time of payment.AO held that medical reimbursement should be paid at the time the expenditure was incurred or after the expenditure was incurred by way of reimbursement and not at an earlier point of time. If it was so paid, then, even though the payment would not form part of taxable salary of an employee, the employer had to deduct tax at source treating it as part of salary. AO also held that, there was no provision to allow the same under section 10 and the amount received as fixed allowance was fully taxable in the hands of employee as perquisite. AO thus, held assessee to be “assessee in default” and passed orders under section 201(1). It was held that though section 192(2D) was inserted by Finance Act 2015, Rule 26 does not specify requirement to deduct TDS in case of Cash Medical Benefit. In this situation, the stand of assessee that the Cash medical benefit were only reimbursement of the expenditure incurred by the employees, and as such they could not form part of their income, could not be said to be without any basis. Therefore, the belief of the assessee on that point was bona fide. No tax could be recovered from the employer on account of short deduction of tax at source under section 192(1), if a bona fide estimate of salary taxable in the hands of the employee was made by the employer.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
The assessee has filed sixty appeals challenging demand raised under section 201(1) ad interest levied under section 201(1A) of the Act, levied by Ld.AO, confirmed by Ld.CIT(A), Davangere, by order dated 29/01/2020 for assessment years 2011-12 to 2016-17 in respect of all branches. Grounds raised by assessee have been encapsulated by way of a chart reproduced in the paragraph hereunder.
Brief Facts of the Case are as under:
2. Ld.Counsel submitted that assessee M/s Life Insurance Corporation of India has branches at Theerathahalli, Chitradurga, Davangee, Sivamogga and Harveri. He submitted that the head office of assessee is in Mumbai. Ld.AO, in order to verify compliance to TDS provisions, conducted survey under section 133A of the Act, for the years under consideration at branch offices mentioned hereinabove. On verification, Ld.AO observed that, the assessee has not deducted TDS under section192, in respect of cash medical benefit paid to its employees, payment made to Chinnu Graphics, payment to Kulkarni Services, payments to Sodexo SVC India Pvt.Ltd., payment made to HP India Sales Pvt.Ltd., and EMDC Projects. Ld.AO also observed that the cash medical benefit paid to employees was considered as exempt under section 10 of the Act in respect of cash Medical Benefit.
2.1. Ld.AO after considering submissions of assessee, in respect of Cash Medical Benefit held that, under the Act, any allowance received by an employee is fully taxable, unless it is specifically exempted by provisions of the Act. Ld.AO held that the deductor(assessee) is giving fixed medical benefits to its employees to meet medical expenditure irrespective of actual expenditure incurred by the employee. He noted that, employees get such benefit without furnishing any proof of having utilised the amount for medical treatment/expenditure either for the employee or any of the family members and therefore, fixed medical benefit paid to the employees are not against the expenditure, and not in the nature of reimbursement. Ld.AO also held that, there is no provision to allow the same under section 10 of the Act, and the amount received as fixed allowance is fully taxable in the hands of employee as perquisite. Ld.AO also noted that, the assessee discontinued the practice in financial year 2009-10. Ld.AO, thus in all appeals under consideration, held the assessee to be “assessee in default” and passed orders under section 201(1) of the Act for years under consideration.
2.2. At the outset, both sides admit that, common issues are involved in all 60 appeals. Ld.Counsel summarized the demand raised under section 201(1) and interest levied under section 201(1A) of the Act, by Ld.AO, branch wise, qua assessment year, in paper book at page 3-6 as under:
Theerthahalli Branch
