Employer was not at fault for not
deducting tax at source from medical allowances paid to its employees
before incurring of actual medical expenditure. It couldn’t be deemed to
be in default for non-deduction of tax on medical reimbursements if it
has made bona fide estimate of taxable salary of its employees
In
the instant case the payments made by assessee to its employees every
month included a component towards medical expenditure. The AO treated
assessee
as an ‘assessee-in-default’ for not deducting tax at source from medical
reimbursements upto Rs. 15,000 paid to the employees. In this regard,
AO held that the payment of medical expenditure had not to precede the
actual incurring of the expenses and it should be only by way of
reimbursement. On assessee’s appeal, the CIT(A) quashed the order of the
AO Aggrieved revenue filed the instant appeal.
The Tribunal held in favour of assessee as under:
1)
The exemption in respect of medical expenditure was to be restricted to
expenditure actually incurred by the employees, or Rs. 15,000 whichever
was lower. The exemption was to be granted even if the payment preceded
the incurrence of expenditure;
2)
Though the allowance paid by the assessee to the employees would not
form part of taxable salary of an employee, yet if the employer was
required to deduct tax at source treating it as part of salary, then
that would be
contrary to the provisions of Sec.192(3) of the Act;
3)
The liability of the person deducting tax at source couldn’t be greater
than the liability of the person on whose behalf tax at source was
deducted. No tax could be recovered from the employer on account of
short deduction of tax at source under section 192 if a bona fide
estimate of salary taxable in the hands of the employee was made by the
employer. Thus, the order passed by the AO was rightly quashed by the
CIT(A) – ACIT V. SAP LABS INDIA
(P.) LTD. (2013) 36 taxmann.com 200 (Bangalore - Trib.)
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