Reimbursement of medical expenses and house rent allowance paid in cash to an employee are to be taken as part of salary for purposes of Section 40a (5)/40 (c) of the Income-tax Act, 1961.

AJIT K. SENGUPTA, J.

( 1 ) IN this reference under Section 256 (1) of the Income-tax Act, 1961, atthe instance of the assessee, the Tribunal has sought for our opinion on the following question :"whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that reimbursements of medical expenses and house rent allowance paid in cash were to be taken as part of salary for purposes of Section 40a (5)/40 (c) of the Act?"

( 2 ) THIS reference arises out of the income-tax assessment of the assessee for the assessment year 1982-83 for which the previous year ended on September 30, 1981. The Income-tax Officer, while computing the inadmissible expenditure under Section 40a (5)/40 (c) of the Income-tax Act, 1961, held that medical reimbursement and house rent allowance paid in cash would form part of salary under Section 17. Accordingly, both these payments were considered for computation of disallowance under Section 40a (5)/40 (c ).

( 3 ) ON appeal, the Commissioner of Income-tax (Appeals) confirmed the order of the Income-tax Officer.

( 4 ) IN further appeal by the assessee, the Tribunal, following the reasoning given by the Special Bench of the Tribunal in the case of Glaxo Laboratories (India) Ltd. v. Second ITO [1986] 18 ITD 226 (Bom), upheld the action of the Income-tax Officer.

( 5 ) AT the hearing before us, Dr. Pal, learned counsel for the assessee, relied upon a number of decisions including the decisions of the Calcutta High Court on the proposition that monetary payment to employees by way of reimbursement of medical expenses is not perquisite. He has also referred to the fact that the Central Board of Direct Taxes has consistently taken the view that such reimbursement, even though falling within the definition of perquisite, was not to be included in the total income of the assessee under the head "salary"". He referred in particular to circular No. 33 dated August 1, 1955, which stated, inter alia, that the provision of ordinary medical facilities to the employee or his family free of charge or reimbursement of such medical expenses to the employee after they are incurred is not to be included in the total income of the employee as a part of the perquisite provided by the employer. This circular was followed by another circular referred to by learned counsel which stated that the provision of ordinary medical facilities made by an employer to his employee or his family free of charge or reimbursement of such medical expenses to the employee after they are incurred by them are not to be included in the total income of the employee provided that such amount does not in any financial year exceed one month's salary of the employee. [see [1982] 137 ITR (St.) 3].

( 6 ) THERE is one more circular being No. 376 dated January 6, 1984, wherein the Central Board has taken the view that the reimbursement of medical expenses to an employee/provision of medical facilities by an employer to an employee will be taxable only in excess of Rs. 5,000 per annum. [see [1984] 146 ITR (St.) 62].

( 7 ) EVENTUALLY, on a representation being made, the Board has directed that the reimbursement of medical expenses, such as operation fees, hospitalisation charges and the cost of medicines, tests, etc. , actually incurred in India by the employer on an employee, including managers or directors and their family members will not be treated as perquisite provided the expenses are incurred on medical treatment in recognised public hospitals in India. [see Circular No. 445 dated December 31, 1985, [1986] 157 ITR (St.) 49].

( 8 ) THERE is yet another circular issued by the Central Board being No. 481, dated February 20, 1987, which reiterates the earlier circular dated December 31, 1985 (see [1986] 157 ITR (St.) 49), that the reimbursement of medical expenses, such as, operation fees, hospitalisation charges, cost of medicines, tests, etc. , which are actually incurred in India by the employee on medical treatment i

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