In a significant ruling granting relief to the Life Insurance Corporation of India (LIC), the Income Tax Appellate Tribunal (ITAT), Bangalore bench has held that the corporation does not required to deduct tax towards the payment of cash medical benefits to its employees as the same is in the nature of mere reimbursement outside the ambit of section 192 of the Income Tax Act, 1961.
According to the two-member bench, the law does not specify requirement to deduct TDS in case of Cash Medical Benefit and therefore, allowed the plea of LIC.
Earlier, the Assessing Officer 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. According to him, the cash medical benefit paid to employees was considered as exempt under section 10 of the Act in respect of cash Medical Benefit. It was observed that the amount received as fixed allowance is fully taxable in the hands of employee as perquisite.
The Tribunal noted that the amounts paid as medical benefits in the nature of perquisite falling within the definition given under section 17 (2) (iv) Proviso (v) of the Act. Section 192(1) of the Act casts obligation on the part of person responsible for paying income chargeable under the head “salaries” to deduct tax at source, at the time of payment.
A perusal of section 192 of the Act, indicates that the person responsible for paying any income chargeable under the head “Salaries” shall be liable to deduct tax at source at the time of payment on an estimate basis. Items of income that are chargeable to tax under the head income from “Salaries” are laid down in section15 to 17 of the Act.
Considering the arguments from both sides, the Tribunal also noted that the payments in question for which the assessee has been treated as, “assessee in default” for non-deduction of tax at source was not in the nature of income within the meaning of Section 17(v) of the act, and therefore there was no obligation on the part of the assessee to deduct tax at source.
“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,” the Tribunal said.
“In this situation, the stand of the 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. Since the estimate made by the assessee has been held to be honest and bona fide, the assessee could not be treated as “assessee in default,” the Tribunal added.
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