Reimbursement of Car Running and Maintenance Charges to Employees amount to ‘ Perquisites ’, TDS Applicable: ITAT [Read Order]

The Kolkata bench of the Income Tax Appellate Tribunal ( ITAT ) in the case of M/s. TCG Lifesciences Pvt. Ltd v. Income Tax Officer, held that the reimbursement of car running and maintenance charges paid to employees would constitute perquisite for which, the employer is liable to deduct tax at source (TDS) under the provisions of the Income Tax Act, 1961.

The Assessing officer, during the course of verification of the returns filed by the assessee-Company found that payments of Rs. 29,51,709/- and Rs. 34,00,802/- were made by the assessee company to different employees towards car running and maintenance expenses and the same were treated as exempt while computing the taxable salary income of the said employees for TDS purpose.

The assessee contended that the said expenses were paid towards reimbursement of car expenses for official duties. However, they failed to prove the contention with evidence and therefore, the AO confirmed the addition.

As per Clause (viii) of sub-section (2) of section 17, perquisite includes the value of any other fringe benefit or amenity as may be prescribed. Such other fringe benefits or amenities as mentioned in Clause (viii) of sub-section (2) of section 17 are prescribed in Rule 3 of Income Tax Rule, 1962 and even the method of valuation thereof is prescribed.

The method of valuation of perquisite provided by way of use of motor car to an employee is given in sub-rule (2A) of rule 3 in tabular form and as per serial no 2 of the said table, where the employee owns a motor car but the actual running and maintenance charges are met and reimbursed to him by the employer, this perquisite will have no value if such reimbursement is for the use of vehicle wholly and exclusively for official purposes provided that the documents specified in Clause (B) of this sub-rule are maintained by the employer. As per Clause (B) of sub-rule (2) of rule 3, the employer has to maintain a complete detail of journey undertaken for official purpose which may include date of journey, destination, mileage and the amount of expenditure incurred thereon. Further, the employer has to give a certificate to the effect that expenditure was incurred wholly and exclusively for the performance of official duty.

While dismissing the contentions of the assessee, the bench noted that the requisite details as specified in Clause (B) of sub-rule 2 of rule 3 of Income Tax Rules 1962 were not maintained by the assessee.

It was therefore, held that “the value of perquisite provided by the assessee company to its employees in the form of reimbursement of car running and maintenance charges was chargeable to tax in their hands and the assessee was liable to deduct tax at source from the said value.”