AHMEDABAD, FEB 11, 2013: THE issues before the Bench are - Whether when an employer reimburses its employees and their family members for travelling and accommodation under holiday home scheme and pays FBT on the same, any TDS obligation arises in such a case and Whether when the employer incurs expenses towards reimbursements of cost of uniform, stitching charges and washing expenses, such expenditure is covered under the provisions of FBT and hence no TDS obligation arises. And the answers go in favour of the assessee.

Facts of the case

A) Assessee company had paid FBT on expenditure on uniform, washing allowance etc., and contended that it was not liable for TDS on the same.

B) Assessee company had paid conveyance, maintenance, reimbursement expenditure (CMRE) to its employees every month based on their status, designation and had not deducted TDS on the same as it had considered the same as part of salary.

C) Appellant had a “Holiday Home Scheme” for the benefit of its employees under which holiday homes were to be created at certain designated places for rest and recreation of appellant’s employees. Till the time of creation of holiday homes, as interim measure, subsidy was provided to employees and their family members when they availed of holiday home assistance under the scheme. The employees were entitled to visit any place in India or abroad for holiday with family once in block of two calendar years for maximum of 10 days or every year for maximum of five days. Under the scheme, employees were granted reimbursement at the rate of full daily allowance for self and entitled members of family and paying guest charges as admissible irrespective of fact that whether they stayed in hotel or made own arrangement of stay. ACIT (TDS) was of the view that the payment under Holiday Home Scheme was purely for non-official and private purpose and was in the nature of salary of the employee taxable u/s 17(1)(iv). It was not exempt u/s 10(14) and could not be considered to be fringe benefit u/s 10(14). ACIT (TDS) held that payment of FBT on this amount did not imply any concession to the appellant who had failed to discharge obligation of deducting tax at source. On appeal, CIT(A) decided the issue in favour of the assessee.

Having heard the matter, the Tribunal held that:

A) ++ at the time of hearing both the parties agreed that issue is now covered in favour of the assessee and against the Revenue by the decision of the Tribunal in assessee’s own case for the A.Y. 2009-10 vide ITA No.184/Ahd/2010 dated 16.11.2012 wherein it was held that FBT was actually paid by the assessee on the impugned expenditure on uniform, washing allowance etc., the same cannot be considered as perquisites in the hands of the employees and therefore, there ws no liability of the assessee-company to deduct TDS therefrom;

B) ++ at the time of hearing both the parties agreed that the issue involved in these appeals is covered in favour of the assessee and against the Revenue by the order of the Tribunal in assessee’s own case for the A.Y. 2009-10 vide ITA No.184/Ahd/2010 dated 16.11.2012 wherein it was held that the CMRE is not blanket payment, but the reimbursement is for the actual amount incurred in maintaining and running the vehicle restricted to maximum amounts per month fixed by taking various parameters into account. Each employee is required to submit his claim on monthly basis for the reimbursable running & maintenance expenditure incurred in the preceding month, in the prescribed form. CMNRE is allowed only to those employees in respect of whom permission is granted by a competent authority to do so after applications are made by the employee’s controlling officers, on a through scrutiny. Even though may checks and balances were in vogue like selection of the employees coming under this scheme, procedure for reimbursements online claim by the employees etc. is there, for any shortcomings committed by the employees, the employee cannot be found fault with, rather it is for the AO assessing the employees to find out the correctness of the claim and in case of any default to take appropriate action. The fact that the employer is paying FBT on CME cannot be ignored. Thus, taking the overall picture of the CMRE, there is no hesitation to hold such reimbursement to employees coming under the scheme as not part of the salary and accordingly no TDS is attracted in the hands of the employer. Hence, the AO was not justified by treating the assessee in default u/s 201(1) and 201(1A). Hence, the AO is directed to delete the same;

C) ++ the CIT(A), while giving relief to the assessee has observed that during the FBT regime, expenditure borne or reimbursed by employer on traveling, accommodation and other items for holiday availed of by employee or any member of his family was prescribed as a fringe benefit for the purpose of section 17(2)(vi) by Rule 3(7)(ii), only in respect of those employers, who were not liable to pay fringe benefit tax. Rule 3(7)(ii) was inserted w.e.f. 1.4.2008. Thus, as far as A.Yrs.2008-09 and 2009-10 are concerned, appellant’s contention that the holiday home scheme could not be considered as perquisite u/s 17(2)(vi) in the hands of employees is acceptable. For A.Ys. 2006-07 and 2007-08, since expenditure incurred by employers for holiday availed of by employees or their family members was not prescribed as a ‘fringe benefit’ for the purpose of section 17(2)(vi), it could not therefore be taxed as perquisite in employee’s hands. However, the payment received under holiday home scheme would be non taxable in employee’s hands only if it was actually and fully utilized towards hotel, boarding and lodging facilities, etc on a holiday availed by self or family member. As far as appellant is concerned, due to payment of FBT and due to holiday home reimbursement being not a prescribed ‘fringe benefit’ for the purpose of section 17(2)(vi) from A.Ys. 2006-07 to 2009-10, appellant is not to be treated as assessee in default u/s 201(1) in this regard. For A.Y. 2010-11 also, appellant is not to be treated as assessee in default subject to verification by the ACIT(TDS) that tax at source has already been deducted from Holiday Home reimbursements. Since there is no dispute about the fact that FBT was paid by the assessee company on this expenditure also, hence, for the same reasons for which we have decided the issue raised by the assessee in its appeals in favour of the assessee, this issue is also decided in favour of the assessee and therefore, we feel no need to interfere with the order passed by CIT(A) and the same is hereby upheld. This ground of the revenue is also dismissed.

(See 2013-TIOL-122-ITAT-AHM)