Swaraj Engines Ltd., Mohali V. DCIT, Mohali

ITA 1123/CHANDI/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5380 (ITAT-CHANDIGARH)
• Duration Of Justice: 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 01-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: NITESH ARORA
• Keywords: Set aside
• Section: 250; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES ACHANDIGARH BEFORE SHRI D.K.SRIVASTAVA,ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 1123/CHD/2010 ASSESSMENT YEAR: 2006-07 M/S SWARAJ ENGINES LTD., V DCIT, CIRCLE 6(1), PLOT NO.2, INDUSTRIAL FOCAL POINT, MOHALI. PHASE IX, MOHALI. PAN NO. AACCS-2990-N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NITESH ARORA RESPONDENT BY: SHRI N.K.SAINI ORDER PER SUSHMA CHOWLA, JM THE APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORD ER OF CIT(A) DATED 31.05.2010 RELATING TO ASSESSMENT YEAR 2006-0 7 UNDER SECTION 250 OF THE I.T. ACT, 1961. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL : 1. THAT LD. CIT(A) HAS ERRED IN LAW AND ON FACTS O F THE CASE IN HOLDING THAT THE EXPENSES ON MEDICAL REIMBURSEMENT UPTO RS.15000/- WHERE THE TOTAL REIMBURSEMENT EXCEEDS RS.15000/- IN EACH CASE, ARE LIABLE TO FBT AMOUNTING TO RS.1,42,298/- @ 20% OF RS.7,11,488/-. 2. THAT LD. CIT(A) HAS FAILED TO APPRECIATE THE FAC T THAT MEDICAL REIMBURSEMENT EXCEEDING RS.15000/- IN EACH CASE ARE A PART OF SALARY U/S 17 OF THE INCOME-TAX 2 ACT,1961 AND TAXABLE IN THE HANDS OF AN EMPLOYEE U/ S 15 OF THE INCOME-TAX ACT,1961. THEREBY LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN HOLDIN G THAT FBT IS PAYABLE ON SUCH REIMBURSEMENTS UPTO RS.15000/- IN EACH CASE. 3. THE ISSUE RAISED IN THE PRESENT APPEAL IS IN RES PECT OF THE EXPENSES ON REIMBURSEMENT OF MEDICAL EXPENSES, WHET HER FALL WITHIN THE PURVIEW OF FRINGE BENEFIT TAX. THE ASSESSEE DU RING THE YEAR UNDER CONSIDERATION HAD INCURRED TOTAL EXPENDITURE OF RS. 38,69,033/- ON ACCOUNT OF MEDICAL REIMBURSEMENT TO ITS EMPLOYEES. FOR THE PURPOSE OF DETERMINATION, THE PURVIEW OF FRINGE BENEFIT TAX , WHICH IS APPLICABLE WHERE THE TOTAL MEDICAL REIMBURSEMENT TO THE EMPLOYEES IS LESS THAN RS.15,000/-, THE TOTAL EXPENDITURE HEAD-W ISE WAS AS UNDER : 1. MEDICAL REIMBURSEMENTS PER EMPLOYEE RS.13,37,53 5/- EXCEEDING RS.15000/- 2. MEDICAL REIMBURSEMENT PER EMPLOYEE RS.22,65,527 /- LESS THAN RS.15000/- 3. AMOUNT PAID AGAINST HOSPITALIZATION RS. 2,65,961 /- IN GOVT./APPROVED HOSPITALS TOTAL RS.38,69,033/- 4. THE ASSESSEE IN VIEW OF THE DEPARTMENT CIRCULAR NO.8/2005 DATED 29.08.2005 SUBMITTED THAT WHERE EACH EMPLOYEE IS GETTING MORE THAN RS.15000/- ON ACCOUNT OF MEDICAL REIMBURSEMENT , THE AMOUNT IN EXCESS OF RS.15000/- IS TAXABLE IN THE HANDS OF THE RESPECTIVE EMPLOYEES AND THE FBT IS NOT APPLICABLE ON SUCH AMO UNT PAID. ACCORDING TO THE ASSESSEE, AMOUNT UPTO RS.15000/- E MPLOYEE-WISE WAS RS.711,488/- AND ABOVE RS.15000/- WAS RS.626,047/-, BOTH TOTALING RS.13,37,535/-. THE ASSESSEE HAD ALSO INCURRED A S UM OF RS.265,961/- ON ACCOUNT OF AMOUNT PAID AGAINST HOSPITALIZATION I N GOVT./APPROVED HOSPITAL. THE AO IN VIEW OF THE AFORESAID CIRCULAR WAS OF THE VIEW 3 THAT THE SUM OF RS.711,488/- BEING EQUIVALENT TO TH E AMOUNT OF MEDICAL REIMBURSEMENT UPTO RS.15000/- WHERE TOTAL R EIMBURSEMENT EXCEEDED RS.15000/- WAS LIABLE TO BE CONSIDERED FOR FBT AND ALSO THE AMOUNT REIMBURSED FOR HOSPITALIZATION IN GOVT./APPR OVED HOSPITAL WAS LIABLE FOR FBT. ACCORDINGLY THE ASSESSEE WAS HELD LIABLE TO PAY FBT ON THE AFORESAID AMOUNTS REIMBURSED BY THE ASSESSEE TO ITS EMPLOYEES. THE CIT(A) OBSERVED THAT IN VIEW OF THE DEPARTMENT CIRCULAR NO.8/2005 DATED 29.08.2005, REIMBURSEMENT NOT EXCEE DING RS.15000/- IS TO BE INCLUDED IN THE SALARY BUT ENTIRE REIMBURS EMENT IS NOT TAXABLE IN THE HANDS OF THE EMPLOYEE. THE CIT(A) FURTHER H ELD THAT FBT WAS BROUGHT IN TO PLUG THESE LEAKAGES, SO ANY MEDICAL R EIMBURSEMENT WHICH DOES NOT EXCEED RS.15000/- DURING THE YEAR, D OES NOT FALL WITHIN THE MEANING OF SALARY AS DEFINED IN SECTION 17(1) O F THE INCOME-TAX ACT,1961 AND IS THEREFORE NOT LIABLE TO INCOME TAX IN THE HANDS OF THE EMPLOYEE, BUT THE SAME IS DEFINITELY LIABLE TO FBT. THE CIT(A) FURTHER CONCLUDED BY OBSERVING THAT THE PERQUISITE NOT WITHIN THE MEANING OF SALARY AUTOMATICALLY FALLS WITHIN THE PU RVIEW OF FBT UNLESS SPECIFICALLY EXEMPTED. THE ORDER OF THE AO WAS UPHELD BY THE CIT(A). THE ASSESSEE IS IN APPEAL AGAINST THE ORDE R OF THE CIT(A). 5. SHRI NITESH ARORA APPEARED FOR THE ASSESSEE AND SHRI N.K.SAINI APPEARED FOR THE RESPONDENT AND PUT FORWARD THEIR C ONTENTIONS. 6. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. UNDER CHAPTER XII-H OF THE INCOME-TAX ACT, VIDE SECTION 1 15WA IT HAS BEEN PROVIDED THAT IN ADDITION TO THE INCOME TAX CHARGED UNDER THE ACT, FOR EVERY ASSESSMENT YEAR COMMENCING ON OR AFTER 1.4.20 06 ADDITIONAL INCOME TAX, REFERRED TO AS FBT IN RESPECT OF FRINGE BENEFITS PROVIDED OR DEEMED TO HAVE BEEN PROVIDED BY AN EMPLOYER TO H IS EMPLOYEES, DURING THE PREVIOUS YEAR, IS TO BE CHARGED TO TAX @ 30% ON THE VALUE 4 OF SUCH FRINGE BENEFITS. THE SAID FRINGE BENEFIT T AX IS TO BE PAID BY THE EMPLOYER IRRESPECTIVE OF THE FACT WHETHER ANY I NCOME TAX IS PAYABLE BY AN EMPLOYER ON HIS TOTAL INCOME. UNDER S ECTION 115WB OF THE ACT FRINGE BENEFITS IS DEFINED. UNDER SECTIO N 115WB(2)(E), THE EXPENDITURE INCURRED ON EMPLOYEES WELFARE IS A FRI NGE BENEFIT. AS PER THE EXPLANATION, ANY EXPENDITURE INCURRED OR PAYMEN T MADE, TO FULFILL ANY STATUTORY OBLIGATION OR MITIGATE OCCUPATIONAL H AZARDS OR PROVIDE FIRST AID FACILITIES IN THE HOSPITAL OR DISPENSARY RUN BY THE EMPLOYER, SHALL NOT BE CONSIDERED AS AN EXPENDITURE FOR EMPLO YEES WELFARE. SECTION 115WB(3) OF THE ACT PRESCRIBES THAT PERQUIS ITE IN RESPECT OF WHICH TAX IS PAYABLE OR PAID BY EMPLOYEE WOULD NOT BE FRINGE BENEFIT UNDER SUB-SECTION (1) TO SECTION 115WB OF THE ACT. 7. UNDER SECTION 17 OF THE ACT, SALARY, PERQUISITE AND PROFITS IN LIEU OF SALARY ARE DEFINED. AS PER SECTION 17(1) O F THE ACT, SALARY INCLUDES WAGES, ANNUITY, PENSION, GRATUITY, ANY FEE S, COMMISSION, PERQUISITES OR PROFITS IN LIEU OF OR IN ADDITION TO ANY SALARY OR WAGES, ETC. UNDER SECTION 17(2), PERQUISITE IS DEFINED. O NE SUCH PERQUISITE IS THE AMOUNT PAID BY THE EMPLOYEE IN RESPECT OF EXPEN DITURE ON MEDICAL EXPENSES. THE FRINGE BENEFIT TAX IS NOT APPLICABLE WHERE, AMOUNT GIVEN BY THE EMPLOYER TO THE EMPLOYEE IS INCLUDIBLE WITHIN THE MEANING OF SALARY AS DEFINED U/S 17(1) OF THE ACT. PROVISO TO SECTION 17(2) OF THE ACT PROVIDES THAT CERTAIN SUMS SHALL N OT BE INCLUDED AS PERQUISITE IN THE HANDS OF THE EMPLOYEES. AS PER CL AUSE (V) OF THE PROVISO TO SECTION 17(2) OF THE ACT, ANY SUM PAID B Y THE EMPLOYER IN RESPECT OF ANY EXPENDITURE INCURRED BY THE EMPLOYEE ON HIS MEDICAL TREATMENT OR OF HIS FAMILY, WHERE SUCH SUM DOES NOT EXCEED RS.15000/- IN THE PREVIOUS YEAR, IS NOT A PERQUISITE. IN VIEW OF THE PROVISO (V) TO SECTION 17(2) OF THE ACT, THE MEDICAL REIMBURSEMENT BY EMPLOYER TO 5 HIS EMPLOYEES TO THE EXTENT OF RS.15,000/- IS NOT T O BE INCLUDED IN THE HANDS OF THE EMPLOYEES AS PART OF ITS SALARY. HOWEV ER, ANY EXPENDITURE INCURRED ABOVE RS.15000/- REIMBURSED TO ANY EMPLOYE E, IS TO BE INCLUDED IN THE HANDS OF THE EMPLOYEE AS PART OF HI S SALARY. THE SAID POSITION HAS BEEN CLARIFIED BY THE CBDT CIRCULAR NO .8 OF 2005 DATED 29.08.2005 IN ANSWER TO QUESTION NO.47, 48 AND 69. THE SAID QUESTIONS AND ANSWERS TO THE SAME ARE INCORPORATED AT PAGES 8 & 9 OF THE APPELLATE ORDER. IN REPLY TO QUESTION NO.47, I T HAS BEEN CLARIFIED THAT THE ALLOWANCES FALLING WITHIN THE MEANING OF S ALARY AS DEFINED IN SECTION 17(1) OF THE INCOME-TAX ACT AND ANY EXPENDI TURE INCURRED FOR THE PURPOSE OF SALARY, DOES NOT FALL WITHIN THE SCO PE OF SECTION 115WB(2) OF THE ACT. IN RESPONSE TO QUESTION NO.69 WHICH RELATED TO THE MEDICAL REIMBURSEMENT UPTO RS.15000/- AND MEDIC AL REIMBURSEMENT OVER RS.15000/-, WHETHER BEING LIABLE TO FBT, IT IS OBSERVED THAT WHERE ANY SUM IS PAID BY THE EMPLOYER FOR EXPENDITURE INCURRED BY THE EMPLOYEE FOR MEDICAL TREATMENT IN A N UNAPPROVED HOSPITAL, WHICH EXCEEDS RS.15000/- DURING THE YEAR, SUCH SUM IS SALARY AS PER SECTION 17(1) OF THE ACT AND LIABLE TO INCOM E TAX IN THE HANDS OF THE EMPLOYEE. SUCH SUM ONCE TAXABLE IN THE HAND S OF THE EMPLOYEE, THE SAME WAS NOT LIABLE TO FBT. HOWEVER, THE SUM P AID BY THE EMPLOYER FOR EXPENDITURE ACTUALLY INCURRED BY THE E MPLOYEE FOR MEDICAL TREATMENT IN AN UNAPPROVED HOSPITAL, NOT EX CEEDING RS.15000/- DURING THE YEAR, DOES NOT FALL WITHIN TH E MEANING OF PERQUISITE U/S 17(1) OF THE ACT AND NOT LIABLE TO I NCOME TAX IN THE HANDS OF THE EMPLOYEES, IS LIABLE TO FBT AS IT IS N OT TAXABLE IN THE HANDS OF THE EMPLOYEES. 8. UNDER THE PROVISIONS OF SECTION 17(2) OF THE ACT , REIMBURSEMENT OF EXPENDITURE INCURRED BY EMPLOYEE ON MEDICAL TREA TMENT OF SELF OR 6 FAMILY EXCEEDING RS.15000/- IS TO BE INCLUDED IN HI S HANDS AS PERQUISITE, WHICH IN TURN IS PART OF SALARY OF THE EMPLOYEE FOR THE FINANCIAL YEAR. THE EMPLOYEE IS ENTITLED TO DEDUCTI ON UPTO RS.15000/- AND THE BALANCE IS INCLUDIBLE IN THE SALARY. THE C OMPUTATION OF THE PERQUISITE VALUE IN THE HANDS OF THE EMPLOYEE IS DE TERMINED BY THE EXTENT OF EXPENDITURE I.E. WHERE THE TOTAL EXPENDIT URE EXCEEDS RS.15000/- IN THE PREVIOUS YEAR. MERELY BECAUSE PA RT OF SUCH MEDICAL EXPENDITURE I.E. UPTO RS.15000/- IS NOT EXIGIBLE TO TAX IN THE HANDS OF THE EMPLOYEE, BECAUSE OF THE PROVISIONS OF THE ACT, DOES NOT CHANGE ITS NATURE I.E. PERQUISITE PAID TO THE EMPLOYEE. I N VIEW OF THE PROVISIONS OF SECTION 115WB(3), SUCH SUMS PAID BY E MPLOYER, WHICH ARE INCLUDIBLE IN THE HANDS OF EMPLOYEE AS ITS INCO ME ARE NOT COVERED BY THE DEFINITION OF FRINGE BENEFIT AND NO FBT IS C HARGEABLE ON THE SAME. WE, THUS SET ASIDE THE ORDER OF CIT(A) AND D IRECT THE AO TO EXCLUDE THE SUM OF RS.711,488/- FROM THE PURVIEW OF FBT TAX. THE GROUND OF APPEAL 1 & 2 IS ALLOWED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF JUNE, 2011 SD/- SD/- ( D.K.SRIVASTAVA) (SUSHMA CHOWLA) JUDICIAL MEMBER JUDICIAL MEMBER DATED : 21 ST JUNE,2011 POONAM COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH