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High Court Of Calcutta
Ajit Kumar Sengupta, Shyamal Kumar Sen
INDIAN OXYGEN LTD - Appellant
Versus
COMMISSIONER OF INCOME-TAX - Respondent
Income-Tax Reference 313 Of 1987
Decided On : 02/25/1994
INCOME TAX - Reimbursement of Medical Expenses - Whether cash reimbursement of medical expenses paid to directors and employees is covered under 'remuneration, benefit or amenity' under Section 40(c) and 'salary' under Section 40a(5) - Whether expenses incurred on publication of chairman's speech and cost of calendars and gifts are covered under Section 37(3a) - Whether premium paid to Calcutta Hospital and Nursing Home Benefit Association and hospitalisation expenses are deductible under Section 40a(5) - Whether notional interest on interest-free loans is a perquisite under Section 40a(5).
Fact of the Case:
The assessee-company reimbursed medical expenses to its directors and employees, incurred expenses on publication of chairman's speech, distributed calendars and gifts, paid premium to Calcutta Hospital and Nursing Home Benefit Association, and incurred hospitalisation expenses. The Income-tax Officer disallowed these expenses under Sections 40(c), 40a(5), and 37(3a) of the Income-tax Act, 1961.
Finding of the Court:
1. Reimbursement of medical expenses to directors and employees is covered under 'remuneration, benefit or amenity' under Section 40(c) and 'salary' under Section 40a(5). 2. Expenses incurred on publication of chairman's speech and cost of calendars and gifts are covered under Section 37(3a). 3. Premium paid to Calcutta Hospital and Nursing Home Benefit Association is not deductible under Section 40a(5), but hospitalisation expenses are deductible. 4. Notional interest on interest-free loans is not a perquisite under Section 40a(5).
Issues: 1. Whether cash reimbursement of medical expenses paid to directors and employees is covered under 'remuneration, benefit or amenity' under Section 40(c) and 'salary' under Section 40a(5)? 2. Whether expenses incurred on publication of chairman's speech and cost of calendars and gifts are covered under Section 37(3a)? 3. Whether premium paid to Calcutta Hospital and Nursing Home Benefit Association and hospitalisation expenses are deductible under Section 40a(5)? 4. Whether notional interest on interest-free loans is a perquisite under Section 40a(5)?
Ratio Decidendi: 1. The words 'remuneration, benefit or amenity' in Section 40(c) and 'salary' in Section 40a(5) are wide enough to include reimbursement of medical expenses paid to directors and employees. 2. Expenses incurred on publication of chairman's speech and cost of calendars and gifts are intended to enhance the image and goodwill of the company and promote sales, thus falling within the ambit of 'advertisement, publicity and sales promotion' under Section 37(3a). 3. Premium paid to Calcutta Hospital and Nursing Home Benefit Association is not deductible under Section 40a(5) as it does not directly or indirectly result in the payment of salary or provision of perquisite to employees. However, hospitalisation expenses are deductible as they fall within the definition of 'salary'. 4. Notional interest on interest-free loans is not a perquisite under Section 40a(5) as the assessee did not incur any expenditure in providing such loans.
Final Decision: 1. The Tribunal was right in holding that reimbursement of medical expenses to directors and employees is covered under Section 40(c) and Section 40a(5). 2. The Tribunal was right in holding that expenses incurred on publication of chairman's speech and cost of calendars and gifts are covered under Section 37(3a). 3. The Tribunal was right in directing the Income-tax Officer to exclude the premium paid to Calcutta Hospital and Nursing Home Benefit Association from the disallowance under Section 40a(5), but erred in excluding hospitalisation expenses. 4. The Tribunal was right in holding that notional interest on interest-free loans is not a perquisite under Section 40a(5).
( 1 ) IN this reference under Section 256 (1) of the Income-tax Act, 1961, the following questions of law have been referred by the Tribunal to this court : reference Application No. 487/ (Cal) of 1087 : (At the instance of the assessee) :"1. Whether the Tribunal was right in holding that reimbursement of medical expenses paid to the director employees in cash and hospitalisation expenses came within the purview of the expression 'remuneration, benefit or amenity' under Section 40 (c) of the Income-tax Act"
( 2 ) WHETHER, on the facts and in the circumstances of the case, the Tribunal was right in holding that reimbursement of medical expenses paid in cash to its employees was 'salary' for the purpose of Section 40a (5) of the Income-tax Act ?
( 3 ) WHETHER the Tribunal was right in holding that expenses incurred on publication of the chairman's speech in newspapers and journals came within the ambit of Section 37 (3a) of the Income-tax Act?
( 4 ) WHETHER, on the facts and in the circumstances of the case, the Tribunal was right in holding that the cost of calendars and gifts distributed by it was includible in working out the disallowance under Section 37 (3a) of the Income-tax Act ?" reference Application No. 494/ (Cal) of 1987 : At the instance of the Revenue :"1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in directing the Income-tax Officer to exclude the items of expenditure pertaining to (i) premium paid to Calcutta Hospital and Nursing Home Benefit Association, and (ii) hospitalisation expenses borne by the assessee-company for the purpose of computation of disallowance under Section 40a (5) of the Income-tax Act, 1961 2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the notional interest attributable to the interest-free loan cannot be held to be perquisite for the purpose of disallowance under Section 40a (5) of the Income-tax Act, 1961 "2. This reference relates to the income-tax assessment of the assessee-company for the previous year ending September 30, 1979, corresponding to the assessment year 1980-81. In computing the total income of the assessee for the said year, the Income-tax Officer by invoking the provisions of Section 40 (c) of the Income-tax Act, 1961, added back Rs. 14,154 being the cash reimbursement of the medical expenses incurred on wholetime directors of the assessee-company. The Income-tax Officer also disallowed hospitalisation expenses of Rs. 2,637 incurred on directors by applying the said Section 40 (c ). The Income-tax Officer also added back Rs. 1,71,291 representing reimbursement of medical expenses made to the employees by invoking the provisions of Section 40a (5) of the said Act. The Commissioner of Income-tax (Appeals) upheld the first two disallowances made under Section 40 (c) of the said Act and in respect of the third item of Rs. 1,71,291, he held that the said amount should be taken as part of salary for determining the amount to be disallowed with reference to the overall ceiling of Rs. 60,000 fixed under Section 40a (5) of the said Act. 3. On further appeal by the assessee-company, the Tribunal held that the reimbursement of medical expenses to a director by the assessee-company was clearly hit by Section 40 (c) inasmuch as it was an expenditure which resulted directly in the provision of remuneration, benefit or amenity to the director concerned. The Tribunal also held that hospitalisation expenses also came within the ambit of Section 40 (c) on the same analogy. As regards reimbursement of medical expenses to employees, which sum was disallowed under Section 40a (5), the Tribunal also held that the same formed part of remuneration received by the employees from the assessee-company and was, therefore, required to be considered for disallowance with reference to the overall ceiling of Rs. 60,000 fixed under Section 40a (5) of the said Act. 4. Whil
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