Fixed medical allowance to employees taxable without proof that medical expenditure actually incurred. ITAT upheld addition u/s 201(1) for short deduction of TDS
ABCAUS Case Law Citation:
ABCAUS 3273 (2020) (02) ITAT
In the instant case, the appeal was filed by the Branch Manager of LIC (the assessee) against the order of CIT(A) in confirming the addition made by the Assessing Officer (AO) u/s 201(1) of the Income Tax Act, 1961 (the Act) for short-deduction of TDS and interest u/s 201(1A) of the Act.
The assessee was a cooperative society created by the Special Act of the Legislature. A TDS verification was conducted by the ITO(TDS)/AO who found from the pay bills register, form No.16 and other relevant documents relating to salary payments of the employees of the assessee that exemption u/s 10 of the Act was allowed for ‘cash medical benefit’ by the deductor.
The ITO(TDS) noted that under the provisions of Income Tax Act, the cash medical benefit which is paid as an allowance is taxable u/s 15 of Act irrespective of the fact that it is paid in addition to, or in lieu of salary.
He was of the view that what is contemplated by proviso (iv) to Section 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.
Accordingly, the ITO(TDS) calculated the TDS liability for short deduction of tax u/s 201(1) and interest payable u/s 201(1A) of the Act for the respective assessment years.
The CIT(A) dismissed all the appeals of the assessee.
Before the Tribunal the assessee submitted that the CIT(A) had wrongly confirmed the order of AO for non-deduction of TDS u/s 194A of the Act. It was further submitted that both the authorities below failed to appreciate that CBDT had clarified the matter relating to the income tax on lump sum cash medical benefit to officer and employees of LIC of India and had allowed exemption up to Rs.15,000/- as per the proviso (v) of Section 17(2) of the Act in respect of any expenditure incurred by the officer/employee on his medical treatment or treatment of any member of his family reimbursed by the employer.
Therefore, the assessee submitted that the lump sum cash medical benefit to officers and employees upto Rs. 15000/- was not chargeable to tax in view of the proviso (v) of Section 17(2) of the Act and also the interest cannot be leviable.
The Tribunal noted that medical allowance was a fixed allowance paid to the employees of a company on a monthly basis irrespective of whether they submit the bills to substantiate expenditure or not. However, medical reimbursement was a payment made to employees against specific medical bills submitted by them, subject to entitlement.
The Tribunal opined that if employees wanted to claim tax benefit, they should submit bills for the corresponding amount under medical reimbursement. As per the provisions of the Act, medical allowance is not categorised as an allowance which bears entire exemption. Therefore, the medical allowance is afixed pay provided by an employer, and is fully taxable.
The Tribunal stated that employees can claim a tax benefit up to Rs.15,000/- under medical reimbursement on production of bills and supporting document as per Section 17 (2) of the IT Act, 1961.
The Tribunal found that the employer had provided fixed medical allowance to his employees. The employees had not submitted any bills/vouchers regarding their medical expenses incurred by them. The allowance is exempt to the extent of expenditure incurred by the employees but there was no any proof of medical expenditure incurred by the employees. Further, the assessee also could not substantiate that the employees actually spent the allowances received by them for the intended purpose. Therefore, the fixed medical allowance given by the employer is taxable as salary income.
The Tribunal stated that the CBDT letter relied on by the assessee had no application to the case as the CIT(A) had already dealt the same in the appellate order.
The Tribunal held that the employer ought to have deducted TDS on the fixed medical allowance.
And dismissed the appeals of the assessee.
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