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Income Tax Appellate Tribunal, “B” BENCH: KOLKATA
Before: Shri J. Sudhakar Reddy & Shri S.S. Viswanethra Ravi
ORDER Shri S.S. Viswanethra Ravi, JM:
This appeal by the Revenue and corresponding cross objection by the Assessee are directed against the order dt. 03-03-2017 passed by the Commissioner of Income Tax (Appeals), 24, Kolkata for the A.Y 2012-13.
2. Ground no. 1 is relating to deletion of addition made on account payment for medical expenses in the facts and circumstances of the case.
The ld. DR submits that the assessee has incurred medical expenses of Rs.1,93,36,000/- for the treatment and incidental
CO No. 72/Kol/2017 M/s. P.S Group Realty Ltd. travelling expenses in a foreign hospital for its employee, Shri S.K. Dugar, who was earlier one of the directors of the assessee. The said expenditure incurred for medical treatment of an employee incurred outside India by its employer as per section 17(2(v) of the Act. The AO treated the said amount in excess of Rs.15000/- as perquisite in terms of section 17(2)(iv) of the Act in the hands of said employee. The AO invoked the provisions of section 192 and held that the assessee is liable to deduct TDS @ 30% and added an amount of Rs.57,96,300/- to the total income of the assessee.
Further, the ld.DR submits, that the said expenditure on medical expenses and stay abroad of an employee shall be excluded from perquisite only to the extent permitted by RBI. The assessee could not produce any permission issued by RBI in respect of said medical treatment in a foreign hospital. The assesse produced a copy of RBI Circular before the CIT-A and basing on which the ld. CIT-A held that RBI allowed remittance of medical expenses of the amount and rejected the view of AO. Further, he held there was no RBI permission required and the assessee is not liable for deduction of TDS u/s. 192 of the Act. The ld. DR also submits that the assessee failed to submit any evidence showing the permission from RBI to the extent of said medical expenditure. The documents filed before the CIT-A in the first appellate proceedings are part of fresh evidences and the CIT-A did not send the same for examination of AO. The Ld. DR argued that CIT-A violated the procedure under Rule 46A of the IT Rules 1962 and prayed to remand the matter to the file AO for his examination.
On the other hand , the ld.AR submits that the Circular No. 603 dt. 6-6-1991, clearly states that when the medical treatment is availed in a hospital outside India and the expenditure incurred thereon for medical treatment including travel and stay abroad of one attendant to the extent permitted by the RBI, subject to the condition that the amount qualifying for such tax exemption would CO No. 72/Kol/2017 M/s. P.S Group Realty Ltd. not include expenditure incurred on travel in the case of employees whose gross total income, as computed without considering the amount paid or reimbursed for expenditure in connection with medical treatment abroad, exceeds Rs.1,00,000/- and referred to para (v) of above said circular.
Further an amendment came into force from 1-4-1993 by the Finance Act 1992 to the sub-section (5) of section 17 (2) of the Act and submitted that under the liberalized remittance scheme of RBI, US$ 250000 is allowed per financial year and referred to footnotes of section 17(2) of the Act.
Further, the ld. AR referred to frequently asked question (FAQ) updated on 30-09-2013 at Q No. 6 – How much foreign exchange can be drawn for medical treatment abroad? The ld.AR submits that AD Category-I Banks and AD Category-II, may release foreign exchange upto USD 100000 or its equivalent to resident Indian for medical treatment abroad on self-declaration basis, without insisting on any estimate from a hospital/doctor in Indian/abroad. A person visiting abroad for medical treatment can obtain foreign exchange exceeding the above limit, provided the request is supported by an estimate from a hospital/doctor in India/abroad. The ld. AR submits the total estimated medical treatment of its employee was about 450,000( Singapore dollars)and referred to page-10 of the paper book. The assessee is exceeding the above limit as provided under FAQ and made request for purchase of 800000 Singapore dollars in terms of para 2(c ) of RBI Circular No.RBI/2011-12/547, AP(DIR SERIES), Circular No. 124 dt. 10.05.2012 and referred to pages 4-6 of the paper book. The ld. AR argued that the case of assesse is fully covered under the provisions of section 17(2)(vi) of the Act and the expenditure on medical treatment and stay abroad cannot be perquisite in the hands of the assessee to the extent permitted by the RBI.
CO No. 72/Kol/2017 M/s. P.S Group Realty Ltd.
Heard rival submissions and perused the record. The ld. AR produced master circular on miscellaneous remittances from India- facilities for residents updated as on June 13, 2012 issued by RBI to all authorized persons in foreign exchange, which explains the authorized dealers may release foreign exchange upto an amount of US$ 100000 or its equivalent on the basis of self declaration towards medical treatment outside India without insisting on any estimate from a hospital/doctor.
“A.3 Medical Treatment 3.1 With a view to enable residents to avail of foreign exchange for medical treatment abroad without any hassles and any loss of time. Authorised Dealers may release foreign exchange up to an amount of USD 100,000 or its equivalent, on the basis of self declaration that the applicant is buying exchange for medical treatment outside India, without insisting on any estimate from a hospital/doctor. 3.2 For amount exceeding the above limit, estimate from the doctor in India or hospital/doctor abroad, is required to be submitted to the Authorised Dealers. 3.3 A person who has fallen sick after proceeding abroad may also be release foreign exchange by an Authorised Dealer for medical treatment outside India.”
The above clause in master circulars issued by the RBI clarifies any amount exceeding above an estimate from the doctor in India or abroad is required to be submitted to the authorized dealers. Admittedly as is noted from page-10 of the paper book as it was a correspondence between the hospital abroad and person concerning the employee of assessee, who underwent medical treatment abroad shows the estimated cost of medical treatment of Rs.450000 in Singapore dollars. As pointed out by the ld. AR, it is clear from pages- 4 to 6 of the paper book the assesse made an application dt. 12-12-2012 to Axsis Bank Ltd CBB Branch for issuance of foreign demand draft/foreign outward remittance.
Further, the ld.AR pointed out to frequently asked question – Q. No. 6, which is placed on record at page-2 of the paper book, which is reproduced herein below:-
“Q. 6 How much foreign exchange can be drawn for medical treatment abroad? Ans. AD Category I banks and AD Category II, may relese foreign exchange upto USD 100,000 or its equivalent to resident Indians for medical treatment abroad on self-declaration basis, without insisting of any estimate from a CO No. 72/Kol/2017 M/s. P.S Group Realty Ltd. hospital/doctor in India/abroad. A person visiting abroad for medical treatment can obtain foreign exchange exceeding the above limit, provided the request is supported by an estimate from a hospital/doctor in India/abroad.”
The above said answer to frequently asked question by the RBI issued in respect of forex facilities of residents, which was updated to 30-09-2013, placed at page-1 of the paper book, explains direction given to Category I banks and Category II to release foreign exchange. The above said facilities was issued for further clarification to the master circulars issued by the RBI as we already discussed about the same in aforementioned para. Therefore, it is clear from the master circulars issued by the RBI that the employee of assessee availed estimation of cost of medical treatment that may be incurred from the concerned hospital and accordingly, made request to concerned CBB Branch for issuance of foreign exchange currency. Therefore, as rightly found by the CIT-A no permission from RBI is existed in the present case.
Further, the ld.AR placed on record Circular No. 603 dt. 6-6- 1991 issued by the CBDT, which is reproduced herein below:-
“ In supersession of Circular No. 376, dated 6th January, 1984, Circular No. 445, dated 31st December, 1985, Circular No. 481, dated 20th February I .; 987 (reproduced below) and all other instructions on the subject, the Board have decided that the value of the perquisite arising by way of payment or reimbursement by an employer of expenditure on medical treatment incurred by his employee on himself or on his spouse, children or parents, including the provision of free medical treatment or treatment at a concessional rate, will not be included in the taxable salary of the employee in the following cases: (i) Where the medical treatment is availed of at hospitals. Clinics, etc. maintained by the employer; (ii) Where the medical treatment is availed of at hospitals maintained by the Government of local authorities or hospitals approved for the purposes of the Central Government Health Scheme or Central Medical Scheme ( a list of such hospitals furnished by the Ministry of Health and Family Welfare on 11th April, 1991 is annexed). (iii) Where the expenditure is on medical insurance premia; (iv) Where the medical treatment is availed of from any doctor outside the institutions/schemes mentioned in (i) to (iii) above, an expenditure of up to Rs. 10,000 in a year, in the aggregate; and (v) Where the medical treatment is availed of in a hospital outside India and the expenditure is incurred for treatment (including on travel and stay abroad in connection with such treatment ) as also on travel and stay abroad of one attendant, to the extent permitted by the Reserve Bank of India, subject to the condition that the amount qualifying for such tax exemption would not include expenditure incurred on travel in the case or employees whose gross total income, as computed under the Income-tax Act without considering the amount paid or reimbursed for expenditure in connection with medical treatment abroad, exceeds Rs. 1.00,000.
The contents of this circular will be applicable in relation to the assessment year 1991-92 and the subsequent years."
CO No. 72/Kol/2017 M/s. P.S Group Realty Ltd.
A close reading of the above circular explains that the value of perquisite arising by way of payment or reimbursement by an employer of expenditure on medical treatment on himself or on his spouse, children or parents, including the provision of free medical treatment or treatment at a concessional rate, will not be included in the taxable salary of the employee. Therefore, it is clear the value of cost of medical treatment is not a perquisite, chargeable to tax and, therefore, deduction of TDS thereon does not arise at all. Further reading of clause (v) of the said circular explains the expenditure is incurred for treatment (including on travel and stay abroad in connection with such treatment) as also on travel and stay abroad of one attendant, to the extent permitted by the Reserve Bank of India, subject to the condition that the amount qualifying for such tax exemption would not include expenditure incurred on travel in the case or employees whose gross total income, as computed under the Income-tax Act without considering the amount paid or reimbursed for expenditure in connection with medical treatment abroad, exceeds Rs. 1.00,000.
A perusal of the impugned order shows that the CIT-A considered all the issues in detail as discussed by us in the aforementioned paragraphs. The relevant portion of CIT-A is reproduced herein below:-
“6.4 The question whether TDS is liable to be effected has to be answered in either case of whether S.K. Dugar may be rightly treated as an employee or director in so far as large sum of Rs.1,93,36,obo has been paid on his medical treatment abroad. It does appear that Mr. Dugar might have been shown as an employee to avoid treating the said huge amount as income taxable in his hand. 'But the AO has proceeded in the assessment order by treating him a bonafide employee and has applied Proviso to Section.17(2)[after clause-(viii)]. Accordingly the medical treatment expenses in excess of Rs15,000 has been treated as taxable perquisite in the hands of recipient employee Mr. S. K. Dugar. The AO has discussed the provision of Proviso (v) to sub- section 17(2), in case of medical treatment outside India, and has not given benefit to the employee on the ground that RBI exemption permission was not shown to the AO by the appellant inspite of the AO's requisition to that effect. 6.4.1. The appellant's claim is that in terms of RBI circular expenses of employee treatment abroad did not attract specific permission as RBI permits such remission automatically. A copy of the relevant circular [ dated 01.01.2016 updated as on 11.02.2016 in RB/FED/2015-16/3,FED Master Direction No.7/2015-16- Para-A-2 (also listing limits for F.Y.12-13)] was produced in the appeal hearing. Since RBI allows remission of medical expenses of the amount involved in the appellant's case, the AO's case that no permission of RBI existed in the instant case is not correct. As regards employees having gross total income equal to or exceeding 2,00,000/- the exclusion from the exemption as provided in Proviso(vi) to Section.17(2) applies only to travel expenses and not to medical expenses. Both the reasons cited by the AO for holding CO No. 72/Kol/2017 M/s. P.S Group Realty Ltd. the appellant liable for TDS are not relevant. The AO, therefore, is not correct to hold that the appellant is liable to deduct TDS u/s.192 from medical expenses. This ground, therefore, has to be allowed. 6.4.2. In case the payee Mr. Dugar is not treated as a bonafide employee then the expense paid by the-appellant cannot be termed as perquisite. In that case the liability u/s. 192 cannot be brought upon the appellant. In this case also thus there cannot be liability of the appellant to deduct TDS. The ground, therefore is allowed.”
In view of our discussion made hereinabove and the finding of the CIT-A contained in paragraph 14 of this order, we find no violation of Rule 46A of the IT Rules 1962 and as such no infirmity in the impugned order of the CIT-A and it is justified. Ground nos. 1 & 2 raised by the revenue are dismissed.
Ground no. 3 is relating to deletion of addition made on account of non deduction of TDS.
The ld.DR submits that the assessee is a partner in Convent Height Developers. The AO observed that during the assessment proceedings the interest of Rs.67,92,425/- had been paid to the said firm by the assessee without making TDS and the AO held that the assessee is liable to deduct tax at 10% on such interest payment and raised a demand of Rs.6,79,290/-. The ld. DR further submits that the firm charged interest on the money which had been advanced to the assessee and the assessee had credited the interest in the accounts of the firm. As per the TDS provision, the assessee was liable to make TDS and relied on the order of AO.
On the other hand the ld.AR submits that an amount of Rs.85,14,711/- was simultaneously receivable from Convent Height Developers to the assessee as interest. Both debit and credit entries were passed on the same date i.e. 14-12-2012 and no interest was drawn, which was actually receivable by the assessee and no TDS is applicable. The assessee received interest of Rs.85,14,711/- and paid interest of Rs.67,92,425/- resulting net interest of Rs.18,12,286/- Further, the ld. AR submits without prejudice to the above submission that firm, Convent Height Developers taken into consideration such sum being interest paid by the assessee in CO No. 72/Kol/2017 M/s. P.S Group Realty Ltd. computing its income in the return of income and paid the tax thereon and the assessee cannot be held to be default for non deduction of tax.
Heard rival submissions and perused the material available on record. It is claimed that there is netting of interest of Rs.18,2,2826/-, which was taken into account by the Convent Height Developers in its return of income. But, however, no evidence or whatsoever was produced before us to show that said sum was taken into consideration as its income in its accounts and therefore, we deem it proper to remand the matter to the file of AO for his examination. The assessee shall produce the details of accounts in respect of said firm before the AO to prove that the said firm has recognized the said sum as its income and paid taxes thereon. Thus, ground no. 3 is allowed for statistical purpose.
The above appeal of revenue is partly allowed for statistical purpose.
CO No. 72/Kol/2017( arising out of
The ld.AR submits that the assessee is not interested in contesting the grounds raised in the cross objection and accordingly, grounds raised by the assessee in its cross objection are treated as not pressed and accordingly, the same are dismissed.
In the result, the appeal filed by the revenue is partly allowed for statistical purpose and cross objection filed by the assessee is dismissed.