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Facts
The Revenue appealed against the CIT(A)'s order which reversed the Assessing Officer's findings holding the assessee as in default for not deducting TDS on external development charges (EDC). The second issue involved the assessee's liability to deduct TDS on medical reimbursement payments made for directors' overseas treatment.
Held
The Tribunal held that the issue of EDC payments attracting TDS was settled in favour of the Revenue. However, regarding the medical expenses for directors, it was held that the payments did not exceed the prescribed ceiling under the RBI's Liberalized Remittance Scheme (LRS), and therefore, the assessee was not liable to deduct TDS.
Key Issues
1. Whether TDS was deductible on external development charges (EDC) paid by the assessee. 2. Whether the assessee was liable to deduct TDS on medical reimbursement payments made for directors' overseas treatment under the RBI's LRS guidelines.
Sections Cited
201(1), 201(1A), 17(2)
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Income Tax Appellate Tribunal, DELHI BENCH ‘E’, NEW DELHI
Before: Sh. Satbeer Singh Godara & Sh. Manish Agarwal
Asstt. Year: 2015-16 DCIT, Vs Nehru Place Hotels Pvt. Ltd. Circle-76(1), S-1, American Plaza, International New Delhi-110092 Trade Tower, Nehru Place, New Delhi-110019 (APPELLANT) (RESPONDENT) PAN No. AAACN3230C Assessee by : Sh. R. K. Kapoor, CA & Sh. Shubham Kumar, CA Revenue by : Ms. Ankush Kalra, Sr. DR Date of Hearing: 02.12.2025 Date of Pronouncement: 02.12.2025 ORDER
Per Satbeer Singh Godara, Judicial Member:
This Revenue’s appeal for Assessment Year 2015-16, arises against the CIT(A)-23, New Delhi’s order dated 22.12.2022 in case No. 23/10884/2014-15, in proceedings u/s 201(1) r.w.s. 201(1A) of the Income Tax Act, 1961.
Heard both the parties at length. Case file perused.
It emerges at the outset that the first and foremost issue between the parties herein is that of correctness of the learned CIT(A)’s action reversing the Assessing Officer’s findings holding the assessee as the assessee in default for not having deducted TDS on external development charges (“EDC”) and
Suffice to say, we find that the very issue stands settled in the department’s favour and against the assessee in hon’ble jurisdictional high court recent landmark decision in Puri Constructions (P) Ltd. Vs. Addl. CIT (2024) 159 taxmann.com 441 (Del.) that such “EDC” payments indeed attract TDS deduction. We thus find merit in the Revenue’s instant first and foremost ground which stands accepted in very terms.
Next comes the Revenue’s latter substantive ground seeking to revive the assessment findings that the assessee was liable to deduct TDS on it’s medical reimbursement/payments made for oversees treatment of directors which stands deleted in the CIT(A)’s lower appellate discussion as under:
The total amount disallowed has various components. The allowability is component is discussed below. Payment by Credit card Rs. 28,45,736/- 26. This amount represents the expenses incurred in two parts. Firstly, a sum of Rs. 16,09,915/- represents the hospital bills paid through credit card to a Singapore hospital namely; Mount Elizabeth Orchard during September 2014 for medical treatment of the director when he was travelling Singapore for an official visit. This amount also includes the boarding and lodging and Nehru Place Hotels Pvt. Ltd. hotel bills incurred through credit cards amounting to Rs. 1,78,626/- at Singapore during September 2014 and Rs. 10,57,195/- in USA during October 2014 to February 2015 while getting the treatment.
The appellant had gone to Singapore. He was carrying the International Credit Card of the company. The amount was spent there for the treatment of the director mainly for conducting medical test and examination. The disease was detected there and subsequently he was mainly treated in the USA.
The appellant states that he approached the authorised dealer who was authorised to release foreign exchange under the FEMA Regulations and various circulars issued by the RBI. It is further stated by the appellant that he was advised that expenses can be incurred through the international credit cards to any extent for any purpose while travelling out of country. All the aforesaid expenses were incurred as per Rule 5 of FEMA Rules for using the credit cards towards expenses while on visit outside India. The appellant claimed that all the aforesaid expenses were incurred in accordance with clause A. 15 of the Master Circular No.6/2014-15 of RBI dated 01.07.2014 which is reproduced as under:- "15.1 The restrictions contained in rule 5 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000 will not be applicable for use of International Credit cards (ICCs) by residents for making payment towards expenses, while on visit outside India."
On the basis of the allowability to spend any amount by way of foreign currency through the international credit card, it was claimed that the expenses do not take the character of perquisite taxable as salary. Consequently, it was argued that the Assessing Officer was incorrect in holding the appellant as assessee in default for non deduction of TDS and raising demand. Payment of Rs. 15,25,000/- travel of attendant.
This amount represents as sum paid for the one attendant Mr. Aditya Sood amounting to USD 25,000/- while travelling abroad for seeking the treatment during October 2014, who in this case was the brother of Mr. Amit Rai Sood. This amount was released by the authorized dealer in accordance with as per Clause 8 of Nehru Place Hotels Pvt. Ltd. Rule 5 of Schedule III of Master Circular issued by RBI No. 6/2014-15 dated 01/07/2014 which is reproduced as under:- "8. Release of foreign exchange, exceeding USD 25,000 to a person, irrespective of period of stay, for business travel, or attending a conference or specialized training or for maintenance expenses of a patient going abroad for medical treatment or check-up aboard, or accompanying as attendant to a patient going abroad for medical treatment/check-up."
It was argued that as per clause (vi), of section 17(2) any expenditure by the employer on travel and stay abroad of one attendant who a companies the patient in connection with such treatment is allowed. The appellant further argued that in view of the express provision of the Act and the Master Circular of the RBI, the payment of Rs.15,25,000/- is not in the nature of perquisite taxable as salary. Therefore, the appellant was not required to deduct TDS on the payment. The demand u/s 201(1) on payment of Rs.15,25,000/- should be deleted. Payment of Rs. 7,12,002/- as cash paid to the Director 32. This amount represents the foreign currency paid to employee director while travelling abroad. The appellant stated that when the director went to Singapore for the first time, the amount was taken by him in cash equivalent of 10,000 USD. It was stated that the amount is permissible as per the RBI Master Circular. It has also been pointed out that any person travelling abroad can carry cash upto USD 25,000 and such amount of forex is permitted to be carried by the RBI.
The appellant stated that this amount was released by the authorized dealer equivalent to USD 10,000/- as foreign currency as per Para 2 of Schedule III of Master Circular issued by RBI No. 6/2014-15 dated 01/07/2014 which is reproduced as under:- “In respect of remittance application for miscellaneous non trade current account transactions of amount not exceeding USD 25,000 authorized dealer may obtain simplified application cum declaration form."
On the basis of such Master Circular, the appellant argued that the Assessing Officer was unjustified in treating the amount as perquisite taxable as salary and consequently holding the appellant as assessee in default for non deduction of TDS.
It was asserted by the appellant that in view of the Master Circular, the Assessing Officer was unjustified in treating the payment of Rs.7,12,002/- as part of perquisite taxable as salary. Consequently, the appellant argued that the appellant was not required to deduct TDS on such payments made for the benefit of the Director. Payment of Rs. 22,22,535/- made in the subsequent year.
This amount represents the amount incurred on the medical treatment in the hospital in USA for which the payment was made in the next F.Y. i.e. F.Y. 2015-16. The appellant argued that as the payment was made in the subsequent year, therefore, it is to be considered in the next F.Y for the purpose of TDS and in view of the blanket sanction of US$ 100000 for the medical treatment for which no permission is required and authorized dealer can release the payment as per self declaration as per FEMA guidelines and rules. As such, the said amount of Rs.22,22,535/- is below such threshold limit and therefore the appellant argued that it is not required to be treated as taxable perquisite. Therefore, the assessee asserted that no TDS is required to be made on such amount.
All the four transactions are discussed.
It is seen that as per item no.3 of clause (vi), of section 17(2) any expenditure by the employer on travel and stay abroad of one attendant who a companies the patient in connection with such treatment is allowed separately apart from the medical treatment of the employee. There is no bar on the quantum of expense for the attendant. The appellant incurred an expense of Rs. 15,25,000/- (USD 25000) for the attendant accompanying the director. The Master Circular of the RBI allows for payment upto USD 25000 for attendant.
Therefore, in view of the express provision of the Act and the Master Circular of the RBI, the payment of Rs.15,25,000/- is not in the nature of perquisite taxable as salary. Therefore, the appellant was not required to Nehru Place Hotels Pvt. Ltd. deduct TDS on the payment. The demand u/s 201(1) on payment of Rs.15,25,000/- is deleted. The interest u/s 2O1(1A) is also deleted.
In respect of the other payments, it would be relevant to first see what the Master Circular of the RBI says. The Master Circular No.6/2014-15 issued by RBI on 01.07.2014 in respect of availing foreign exchange for medical treatment is reproduced as under:- “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 dealer 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 Dealer. 3.3 A person who has fallen sick after proceeding abroad may also be released foreign exchange by an Authorised Dealer for medical treatment outside India."
The case of the appellant is actually covered by Schedule III of Foreign Exchange Management (Current Account Transaction) Rules 2000 & Foreign Exchange Management (Current Account Transaction) Amendment Rules 2015. These rules are popularly called as Liberalized Remittance Scheme (LRS) also! In the Scheme, for the purpose of Medical Treatment/check-up abroad, remittances upto UDS 2,50,000 is allowed through the automatic route. The total expenses incurred by the appellant during the year under consideration (including the expense accounted in F.Y 2014-15 but paid in the next financial year i.e. F.Y 2015-16) does not exceed the prescribed limit set by the RBI in LRS. Therefore, the case of the appellant is to be examined in term of the LRS. As per both the rules & LRS the prescribed limit is USD 250000 which apparently the appellant has not exceeded. Therefore, by joint reading of section 17(2) and LR Scheme the limit set by RBI is USD 250000 for the purpose of medical treatment by an individual.
Therefore, it is held that the appellant did not exceed the prescribed ceiling of USD 250000 set by the RBI.
As the appellant did not exceed the prescribed ceiling, therefore, the amount reimbursed by the appellant to the director or the amount paid by the company for the medical treatment of the employee director does not take the character of perquisite taxable as salary u/s 17(2) of the Act. Consequently, the appellant was not liable to deduct TDS on the payments made for the medical treatment of the director.
In view of the above, it is held that the Assessing Officer was unjustified in treating the appellant as assessee in default and raising the demand of Rs.22,47,892/- and Rs.19,78,145 u/s 201(1) and 2O1(1A) respectively of the I.T Act. The demand raised is accordingly deleted.
In the result, the raising of demand and levy u/s. 201(1) and 201(1A) of the Act amounting to Rs.42,26,037/- is deleted.”
We have given our thoughtful consideration to the Revenue’s and the assessee’s vehement submissions in tune with their respective stands. It has already come on record that the learned CIT(A) has already gone by the banking regulator RBI’s landmark circular dated 01.07.2014 prescribing ceiling of USD 250000 under the Liberalized Remittance Scheme (“LRS”) thereby concluding that since the assessee had not exceeded the same, it was not liable to deduct any TDS in the given facts. This clinching finding has gone un-rebutted from the Revenue side. We thus find no merit in the Revenue’s instant latter substantive ground stands rejected in very terms.