Case Law Details
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.
Rejecting this contention, the High Court observed that taxation must be based on a clear charging provision and cannot be imposed by implication or inference. The Court held that tax cannot be levied merely by drawing a corollary from the exemption available to employees.
The Court relied on the Karnataka High Court’s decision in Wipro Ltd. and the subsequent decision in Bosch Ltd., which had already addressed the issue. Following those rulings, the Court concluded that the exempt portion of medical reimbursement up to ₹15,000 per employee is not liable to FBT. Consequently, the assessment orders imposing FBT on such reimbursements were set aside, and the appeals were allowed in favour of the assessee. There was no order as to costs.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
The appellant is a company engaged in the business of manufacturing and sale of automobile tyres, tubes, flaps and other rubber products. The Assessing Officer, who scrutinised the Fringe Benefit Tax returns filed by the assessee, disallowed certain claims which includes the medical reimbursement upto Rs.15,000/- to the employees of the assessee, which had not been included for the Fringe Benefit Tax. Relying on the clarification issued by the C.B.D.T in its Circular No:08/2005, the Assessing Officer added tax on the amount of medical reimbursement given to the employees, which was excluded from tax at the hands of the employees.
2. The claim of the assessee Company is that, as per Section 17 of the Income Tax Act, medical reimbursement by the company to its employees is a taxable perquisite only if the amount exceeds Rs.15,000/- per annum. The proviso (v) to Section 17(2) of the Act exempts medical reimbursement of the employee upto Rs.15,000/- from the Page Nos. 2/9 definition of ‘perquisite. The assessee contended that CBDT Circular No:8 of 2005, states that the said sum is not taxable at the hands of the employees, so same to be taxed on the employer under the head ‘Fringe Benefit.’ This clarification is contrary to the spirit and intention of introducing the Fringe Benefit Tax (FBT). However, the said contention of the assessee not found favour with the Assessing Officers. Hence, assessment orders were passed levying:
i) 20% tax on Rs.4,13,77,208/-, being the total medical reimbursements below Rs.15,000/- made to the employees for the assessment year 2006-2007.
ii) 20% tax on Rs.4,71,11,806/-, being the total medical reimbursements below Rs.15,000/- made to the employees for the assessment year 2007-2008; and
iii) 20% tax on Rs.3,34,00,000/-, being the total medical reimbursements below Rs.15,000/- made to the employees for the assessment year 2008-2009.
3. For each of the assessment years, separate assessment orders were passed on different dates. All those assessment orders were challenged before the Appellate Authority separately pleading that the levy of FBT on the amount excluded from the definition of ‘perquisite’ is bad in law and contrary to the decisions of ITAT at Bangalore and Mumbai. The assessee contended that the benefit enjoyed by the employees not being taxed, the same cannot be taxed on the employer.
4. The appeals filed by the assessee were dismissed by the CIT (A). Further, appeals before the Tribunal by the assessee also got dismissed. Hence, being aggrieved by the orders of the ITAT, which has upheld the levy of Fringe Benefit Tax (FBT) upon the employer on the medical reimbursement to the employees upto Rs.15,000/-p.a., during the assessment years 2006-2007, 2007-2008 and 2008-2009, is under challenge.
5. The substantial question of law in all these three appeals are one and the same. It reads as below:-
“Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Medical reimbursement upto Rs 15,000/- per employee is chargeable to Fringe Benefit Tax under Section 115 WB (2) of the Act”?
6. The Learned Counsel for the appellant Company/assessee contended that, the reading of Section 115 WB (1) (a) and (3) of the Act, along with proviso (V) to Section 17(2), makes it clear without any ambiguity, that any medical reimbursement to the employee below Rs.15,000/- per annum will not be taxable as a Fringe Benefit. The CBDT Circular No.8 of 2005 which was issued to clarify the provisions of the Act cannot override the object of the Act.
7. In support of his argument, the learned counsel for the appellant/assessee refer the Judgment of Karnataka High Court rendered in Commissioner of Income Tax-III, Bangalore vs. WIPRO Ltd., [(2021) 430 ITR 34 (Kar) and the judgment in Commissioner of Income Tax, Bangalore vs. M/s. BOSCH Ltd (2025 KHC 40762-DB), which has followed the WIPRO judgment.
8. Per contra, the Learned Counsel for the Revenue/respondents submitted that the Medical Reimbursement to an employee upto Rs.15,000/- is not taxable at the hands of the employee. However, it is taxable at the hands of the employer, for it being a fringe benefit given by the employer to the employee. The exclusion upto Rs.15,000/- from the definition of ‘perquisite’ at the hands of the employee for the purpose of taxing the employee. Whereas, the benefit extended to the employee, by deeming fiction taxable at the end of the employer as a fringe benefit. The clarificatory circular issued by the CBDT is not contrary to the provisions of law but it is tune with the spirit and object of the law.
9. The Learned Standing Counsel for the Revenue, in support of the impugned order submitted that, Section 115 WB deals ‘Fringe Benefit’ and what are all the privileges, services, facilities or amenity fall within the scope of Fringe Benefit. Sub-section (1) of Section 115 WB(3) excludes ‘perquisite’ paid or payable by the employee for computing Fringe Benefit Tax in the hands of employer. The term ‘perquisite’ is explained as an inclusive definition in Section 17(2). The proviso (v) to sub-section (2) to Section 17 of the Act, excludes, the value of any medical treatment provided to an employee or any member of his family upto Rs.15,000/- per annum. Therefore, according to the learned Counsel for the Revenue, since tax on medical reimbursement upto Rs.15,000/- is not payable by the employee, the corollary should be same is payable by the employer.
10. We find the above submission is not legally tenable. The universally accepted trite principle under law of taxation in any democratic nation is that “there shall be no taxation without valid legislation.” Therefore, for taxing a person, the charging section in the statute must be clear and without any ambiguity. By corollary or by reading between the lines, the tax cannot be levied.
11. In this regard, we find that the question of levying Fringe Benefit Tax on the medical reimbursement given to the employees upto Rs.15,000/- per annum has already been settled by the Karnataka High Court in Wipro Ltd., case cited supra, and quietus given by following words:-
“5. We have considered the submissions made on both sides and have perused the record. Proviso (v) to section 17(2) of the Act defines the expression “perquisite” and provides that perquisite would not include any sum paid by an employer in respect of any expenditure actually incurred by an employee on his medical treatment or treatment of any member of his family if such sum was not in excess of Rs. 15,000. The effect of the proviso is that reimbursement of the amount in excess of Rs. 15,000 would be taxable as part of the salary in the hands of the employee, whereas, the amount less than Rs. 15,000 would not be taxable in the hands of the employee. However, such reimbursement nevertheless would be perquisite as defined under the Act but would remain untaxed in the hands of the employees and therefore, untaxed amount is taxed as fringe benefits in the hands of the employer. Thus, if the medical reimbursement exceeds Rs.15,000 relating to unapproved hospital, then under section 17(1) of the Act the employees are taxed beyond Rs. 15,000 and if Rs. 15,000 which is exempt in the hands of the employees is not liable for fringe benefit tax but over and above the aforesaid amount is liable for fringe benefit tax.”
12. We find no different reason except to concur with the above view expressed by the Learned Judges of the Karnataka High Court.
13. As a consequence, the assessment orders in respect of levy of Fringe Benefit Tax on medical reimbursements to the employee upto Rs.15,000/-per annum are set aside. In the result, the Tax Case Appeals are allowed in favour of the assessee/appellant. There shall be no order as to costs.
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