By TIOL News Service

KOLKATA, FEB 08, 2018: THE issue is - Whether expenditure incurred by the employer towards medical reimbursement of its employees constitutes fringe benefit as defined in section 115WB of the Act. And the ITAT verdict is NO.

Facts of the case

The Assessee-company, engaged in the business of cultivating, manufacturing and sale of tea, filed return for the relevant AY disclosing fringe benefit of Rs.8,16,26,00,000/-. During the course of assessment proceedings, the AO noticed that the Assessee incurred a sum of Rs.68,42,608/- towards medical reimbursement of its employees but had not considered such expense for the purpose of FBT on the ground that medical expenses so reimbursed falls within the meaning of salary as defined u/s 17 of the Act and hence was not liable to FBT. However, the AO did not agree with the submissions made by the Assessee and he considered 20% of such expenses as value of fringe benefit for the purpose of levying of FBT. On Assessee's appeal, the CIT(A) relying on the answer to question no.69 given in the CBDT Circular No.8/2005, concluded that because the exempt portion of Rs.15,000/- of medical reimbursement was exempt in the hands of the Assessee the same had to be considered as fringe benefit and chargeable to FBT.

After hearing the parties, the Tribunal held that,

++ the issue in question is squarely covered by the decision in the case of Grindwell Norton Ltd. In such case the issue was as to whether a sum of Rs.15,000/- which is exempt prerequisite in the hands of the employee should be considered as expenditure towards fringe benefit for levying of fringe benefit tax. The tribunal in para 9.1. after referring to circular no.8/2005 held that the circular was contrary to legislative intention and the expenditure in question cannot be considered as fringe benefit. The Tribunal after referring to Sec.115WB(3) and the Memorandum explaining the provisions of FBT, held that where perquisites/benefits which are fully attributable to the employee and are taxed in their hands, that would be continued to be taxed under the existing provisions of section 17(2) of the Act. Only in 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. The Tribunal after referring to Sec.115WB(3) of the Act held that in sub-section (3) of section 115WB it is made clear that section 115WB(1)(a), does not include, such perquisite in respect of which tax is paid or payable by the employees held that even though tax is not payable on the basic exemption limit of Rs.15000 on medical reimbursement yet the nature of the medical reimbursement was perquisite chargeable to tax in the hands of the employee. The Tribunal 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. Respectfully following such decision, the Tribunal hold that the sum of Rs.68,42,608/- cannot be considered as the value of fringe benefit for the purpose of determining the value of fringe benefit for levying of fringe benefit tax.

(See 2018-TIOL-224-ITAT-KOL)