ITAT grants relief to LIC: No TDS required against Cash Medical Benefit to employees

ITAT grants relief to LIC: No TDS required against Cash Medical Benefit to employees

The Income Tax Appellate Tribunal (ITAT), Bangalore Bench by two- member bench, Beena Pillai (Judicial Member) and B.R. Baskaran (Accountant Member) granted relief to the appellant/assessee-Life Insurance Corporation of India (LIC) and held that the corporation is 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(IT Act) while allowing the appeals.

Primarily the main issue raised was that the assessee was treated to be in default for short deduction of TDS (Tax Deductible at Source) on payments made to employees towards Cash Medical Benefits and payments made to Sodexo SVC Ltd.

The appellant contended that, assessee cannot be treated as 'assessee in default' for the reason that amendment brought in by Finance Act 2015 by inserting sub section (2D) to section 192 of the Act, with effect from 1st June, 2015 was not applicable for the relevant period for which appeals have been filed before the Tribunal. It was reiterated that assessee estimated the salary of its employees based on the approval granted by Central Board of Direct Taxes (CBDT) dated 20th May, 2002. It was further submitted that assessee has been deducting tax on the basis of employee's declaration since 1991. To conclude assessee asserted that,being a statutory corporation, it cannot be presumed to act in a malafide manner.

Earlier, the Assessing Officer (AO) had observed that the assessee has not deducted TDS under section192, in respect of cash medical benefit paid to its employees, payment 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 AO, the cash medical benefit paid to employees was considered as an exemption under section 10 of the IT 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 ITAT observed 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 IT Act. Section 192(1) of the IT Act casts an obligation on the part of the person responsible for paying income chargeable under the head 'salaries' to deduct tax at source, at the time of payment.

The Tribunal further highlighted, "a perusal of section 192 of the IT 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 IT Act."

ITAT after considering the arguments from both sides, further noted that the payments in question for which the assessee was being 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 IT Act, and therefore there was no obligation on the part of the assessee to deduct tax at source.

The Tribunal also pointed out that, "We do not find any material to hold that the legislature intended to bring such amendment with retrospective effect. If the legislature intended to apply the amended provision of sub-section (3) retrospectively it would definitely have provided such retrospective effect expressing in clear terms while making such amendment."

"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. 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 observed while allowing the appeals.