Expenses towards Medical Reimbursement to Employees would not attract Fringe Benefits Tax: ITAT [Read Order]

The Kolkata bench of ITAT in the case of Tata Global Beverages Ltd. versus A.C.I.T held that expenditure incurred by the employer towards medical reimbursement to his employees would not constitute fringe benefits under section 115WB of the Income Tax Act.

Assessee-company engaged in the business of cultivating, manufacturing and sale of tea filed its return of income along with the fringe benefit. For levy of tax on fringe benefit, AO assessed the returned income by finding that the assessee incurred a sum of Rs.68,42,608/- towards medical reimbursement of its employees.

According to the assessee, it had not considered the said amount for fringe benefit tax on the ground that basic exemption of Rs.15,000/- per employee allowed under the Act in the hands of the employee and is not taxed likewise medical expenses so reimbursed falls within the meaning of salary as defined u/s 17 of the Act and hence is not liable to fringe benefit tax.

However, AO rejected the submissions and held that 20% of the aforesaid expenses as the value of the fringe benefit for the purpose of levying of fringe benefits tax.

Before the CIT(A), assessee submitted that even though the said expense are exempted from the tax under the relevant provision but under the provisions of Section 115WB(3), the said amount being liable to tax in hands of employees and the assessee also brought to the notice of CIT(A) the Circular No.8 of 2005 issued by CBDT dated 28.09.2005 clarifying on various aspects of FBT.

The Assessee pressed the decision of Mumbai ITAT in the case of Grindwell Norton Ltd. vs ACIT [ITA No. 6551/Mum/2011 it was held that medical expenses were directly attributable to each employee distinctly and were not in the nature of collective benefit enjoyed by the employees.

The CIT(A) relied on the question answer in the CBDT Circular No.8/2005 and concluded that because the exempt portion of Rs.15,000/- of medical reimbursement is exempt in the hands of the assessee the same has to be considered as the fringe benefit and chargeable to fringe benefits tax.

Thereafter, the assessee approached the Tribunal and reiterated his part made before CIT (A).

The bench comprising N.V.Vasudevan, Judicial member & Dr.Arjun Lal Saini, Accountant member  noticed the decision of Mumbai ITAT in the case of Grindwell Norton Ltd. vs ACIT [ITA No. 6551/Mum/2011 whether a sum of Rs.15,000/- wherein it was held that the prerequisite in the hands of the employee should be considered as expenditure towards fringe benefit for levying of fringe benefit tax.

In that case, the Tribunal observed that it was not a case where the attribution of personal benefits directly to an employee poses problem or a case where it is not feasible to tax the benefit in question in the hands of the employee. It is only a case where a benefit above a certain specified amount only is liable to be taxed in the hands of the employee. The tribunal held that such case does not constitute fringe benefit as defined in section 115WB of the Act”.

The bench observed that “Only in the case where the benefits are usually enjoyed collectively by the employees and cannot be attributed to an individual employee, they shall be taxed in the hands of the employer.”

Accordingly, the bench held that the said sum cannot be considered as the value of the fringe benefit for the purpose of determining the value of the fringe benefit for levying of fringe benefits tax.