Loading judgment…
No AI summary yet for this case.
- 1 -
HC-KAR NC: 2025:KHC:40762-DB ITA No. 270 of 2014
IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 14TH DAY OF OCTOBER, 2025 PRESENT THE HON'BLE MR. JUSTICE B M SHYAM PRASAD AND THE HON'BLE MR. JUSTICE T.M.NADAF INCOME TAX APPEAL NO. 270 OF 2014
BETWEEN:
THE COMMISSIONER OF INCOME-TAX LTU JSS TOWERS BSK III STAGE BANGALORE.
THE DEPUTY COMMISSIONER OF INCOME TAX LTU JSS TOWERS BSK III STAGE BANGALORE-560085.
…APPELLANTS (BY SRI. Y.V. RAVI RAJ., ADVOCATE FOR SRI M. DILIP., ADVOCATE)
Digitally Signed by REKHA R Location : High Court of Karnataka
- 2 -
HC-KAR NC: 2025:KHC:40762-DB ITA No. 270 of 2014
AND:
M/S BOSCH LTD HOSUR ROAD ADUGODI BANGALORE-560030. …RESPONDENT (BY SRI.T. SURYA NARAYANA., SENIOR ADVOCATE FOR SMT. TANMAYEE RAJAKUMAR., ADVOCATE)
THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, PRAYING TO I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE IN ITA NO.1028/BANG/2011 DATED 22/01/2014 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, LTU, BANGALORE.
THIS APPEAL, COMING ON FOR HEARING, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE B M SHYAM PRASAD and HON'BLE MR. JUSTICE T.M.NADAF
- 3 -
HC-KAR NC: 2025:KHC:40762-DB ITA No. 270 of 2014
ORAL JUDGMENT (PER: HON'BLE MR. JUSTICE B M SHYAM PRASAD)
The Revenue is in appeal as against the order dated 22.01.2014 in ITA No.1028/BANG/2011 on the file of the Income Tax Appellate Tribunal, Bengaluru Bench [for short 'the Tribunal']. In fact, the Tribunal's order dated 22.01.2014 is common to the appeals in Nos.1028[B]/2011, 1029[B]/2011 and 430[B]/2011. This Court, on 14.09.2020, has dismissed this appeal because of the tax effect but it is restored by the order dated 26.05.2023 in Review Petition No.279/2022.
This Court, prior to the order dated 14.09.2020, had admitted the appeal on the following questions of law: i. Whether the Tribunal is correct in holding that the medical expenses/ reimbursement incurred by the assessee for its employees is not liable
- 4 -
HC-KAR NC: 2025:KHC:40762-DB ITA No. 270 of 2014
to fringe benefit tax because this amount in the employees’ hands is exempt under Section 17 of the Act contrary to Section 115WB (3) of the Act. ii. Whether, in the facts and in the circumstances of the case, the Tribunal was correct in setting aside the order passed under section 263 of the Act on the ground that the order of assessment was not erroneous and prejudicial to the interest of the revenue when the same is contrary to provisions of section 115WB of the Act.
The undisputed fact is that the respondent, in the relevant assessment year 2008-09, has incurred expenditure towards reimbursement of medical expenses incurred by its employees /their family members in unapproved hospitals. The Tribunal, in allowing the respondent’s appeal, has relied upon its orders in No.1407/B/2010 in another appeal in the assessee's own case for the assessment
- 5 -
HC-KAR NC: 2025:KHC:40762-DB ITA No. 270 of 2014
year 2007-08. The Tribunal, in its order dated 07.10.20111, has opined that the Revenue could not have disallowed the reimbursement by an employer to its employees in unapproved hospitals for sums below Rs.15,000/- as Fringe Benefit Tax relying upon the terms of the Board Circular No.8/2005 dated 29.08.2005. The Tribunal's reasoning in this regard is: 7.4.3 In subsection (3) of s.115WB of the Act, it is made crystal clear that s.115WB(1)(a) does not include such perquisites in respect of which tax is paid or payable by the employees. In the present case, the medical reimbursement is taxable but for the exemption provided in proviso (ii) to s.17(2) of the Act. It cannot be said, merely because of the grant of exemption, that the tax is not payable. Therefore, a specific item of perquisite which is normally taxable in the hands
1 The Revenue's appeal against the Tribunal’s order dated 07.10.2011 in ITA No.1407/B/2010 is dismissed because of the tax effect.
- 6 -
HC-KAR NC: 2025:KHC:40762-DB ITA No. 270 of 2014
of individual employee cannot be subjected to FBT, only for the reason that the same is exempt in the hands of the employees. As stated earlier, when an item which is to be treated as a 'perquisite' is exempt in the hands of an individual employee, the same, in our perception, could not be subjected to FBT. 7.4.4. In an overall consideration of the facts and circumstances of the issue as deliberated upon in the fore-going paragraphs and also in conformity with the budget speech of Hon'ble Finance Minister on the floor of the Parliament cited supra, we are of the unanimous view that the payments made to approved hospitals and the reimbursements of such payments do not attract fringe benefit tax. It is ordered accordingly.
This Court must now refer to the relevant part of the Board Circular No.8/2005, which reads as under:
- 7 -
HC-KAR NC: 2025:KHC:40762-DB ITA No. 270 of 2014
"69. At present, if any sum is paid by the employer for expenditure actually incurred by the employee for medical treatment in an unapproved hospital and it exceeds Rs. 15,000 during the year, such sum is 'salary' as defined in clause (1) of section 17 of the Income-tax Act and liable to income-tax in the hands of the employee. There is no change in this position. Since such sum is taxable in the hands of the employee, the same is not liable to FBT. However, if any sum is paid by the employer for expenditure actually incurred by the employee for medical treatment in an unapproved hospital and it does not exceed Rs. 15,000 during the year, such sum does not fall within the meaning of 'salary' as defined in clause (1) of section 17 of the Income-tax Act and not liable to income-tax in the hands of the employee. There is no change in this position. Since such sum is not taxable in the hands of the employee, the same is liable to FBT".
The Revenue's stand is in the light of the Board Circular No.8/2005 that because a reimbursement below Rs.15,000/- in the employee’s hand is exempt
- 8 -
HC-KAR NC: 2025:KHC:40762-DB ITA No. 270 of 2014
from tax as a perquisite, it should be taxed as Fringe Benefit Tax in the hands of the employer.
The substantial questions must be answered as against this Circular in the light of the provisions of Section 115WB [3]. There are two factors i.e., the medical expenses incurred by an employee must be reimbursed by an employer and must not be taxable as such in the employee’s hands. The exemption is because of the proviso to Section 17[2] which in its material part reads as under:
If an employer has paid any sum as reimbursement of the expenditure incurred by the employee for his/her family's medical treatment with any hospital as contemplated under Proviso to Section 17(2)(ii)(a) or 17(2)(ii)(b), such sum is not taxable and the concerned employee must along with the return attach a certificate from the hospital as is contemplated under this provision. If an employee receives medical treatment in hospitals other than those covered in 17(2)(ii)(a) and 17(2)(ii)(b) and if that does not
- 9 -
HC-KAR NC: 2025:KHC:40762-DB ITA No. 270 of 2014
exceed Rs.15,000/-, this amount will also, though as perquisite, not be taxable in the hands of the employee.
This Court must observe that the provision is clear, and it does not admit any ambiguity. If the medical expenses reimbursed are below Rs.15,000/-, it will not be taxable as a Fringe Benefit even if the expenses are with a hospital not covered under the relevant provisions and such reimbursement is a perquisite. This changes only when the reimbursement is above Rs.15,000/-. A reading contrary to these provisions, as is done by the Circular, cannot prevail. This Court can draw support from the opinion of a Division Bench of this Court in ITA 231/20132 wherein it is held: " ….. Thus, if the medical reimbursement exceeds Rs.15,000/- relating to unapproved hospital, then under Section 17(1) of the Act the employees are taxed beyond Rs.15,000/- and
2 [2021]125 taxmann.com 346 [Karnataka]
- 10 -
HC-KAR NC: 2025:KHC:40762-DB ITA No. 270 of 2014
if Rs.15,000/- which is exempt in the hands of the employees is not liable for fringe benefit tax but over and above the aforesaid amount is liable for fringe benefit tax". This question is answered against the Revenue with the emphasis that this proposition applies on all fours because it is undisputed that every reimbursement in the present case by the respondent is below Rs.15,000/-. The appeal is dismissed.
Sd/- (B M SHYAM PRASAD) JUDGE
Sd/- (T.M.NADAF) JUDGE
NV List No.: 1 Sl No.: 42