Reimbursement of medical expenses to an employee by the company is not a perquisite and is not subject to the limit under Section 40 (a) (v) of the Income-tax Act, 1961.

( 1 ) THE Income-tax Appellate Tribunal, Delhi Bench b has referred to this Court under Section 256 (1) of the Income-tax Act, 1961 (hereinafter referred to as the Act) the following question of law in respect of assessment years 1969-70 and 1970-71.

"whether on the facts and in the circumstances and on true interpretation of Section 40 (a) (v) of the Income-tax Act, 1961 reimbursement of the medical expenses to the managing director has been correctly restricted by the Tribunal to Rs. 12,0001- for each of the assessment years 1969-70 and 1970-71 ?"

( 2 ) THE facts of the case may be stated briefly. Shri Raj Bans Bahadur, Managing Director of the assessee company was taken ill in July 1967. He suffered partial paralysis and was admitted to a nursing home. He remained in the nursing home for sometime, but even after his discharge be required medical treatment which included the services of a qualified nurse who was attending on him day and night. In August 1967, the Board of Directors of the assessee company decided to reimburs e such medical expenses of the Managing Director as may be incurred by him. For the assessment year 1967-69 (year ending on 31st March, 1968) the assessee company reimbursed medical expenses of Rs. 339411- which comprised payments to the nursing home, doctors, nurses and purchase of medicines. The Income-tax Officer had rejected the claim of the assessee company as he was of the view that such payment was hit by the provisions of Section 40 (c) (iii) of the Act, but on appeal, the Appellate Assistant Commissioner restricted the allowance to Rs. 9408. 00. On further appeal, the Tribunal allowed the claim Of the assessee company in its entirety holding that the payments were made to fulfill the legitimate need of the business of the company and they were neither excessive nor unreasonable.

( 3 ) FOR the assessment years 1969-70 and 1970-71, the asses- see company had claimed deductions of Rs. 40319. 00 and Rs. 41197. 00 about the medical expenses reimbursed to its Managing Director. It may be noted that S. 40 (c) (iii) was omitted by Finance Act of 1965 with effect from 1-4-1969 but its provisions were re-enacted with certain modifications under clause 40 (a) (v) which were inserted with effect from 1-4-1969 and this clause 40 (a) (v) was omitted by the Finance (No. 2) Act, 1971 with effect from 1-4-1972 and its provisions were re-inacted with modifications in S. 40a (v) which Section was inserted by the same Act with effect from the same date. The relevant provisions of these clauses which place limit on allowance in respect of prequisites, etc. may be reproduced here at this stage :

40. Notwithstanding anything to the contrary in sections 30 to 39 the following amounts shall not be deducted in computing the income chargeable under the head "profits and gains of. business or profession, (e) In the case of any company

(III) Any expenditure incurred after the 29th day of February, 1964 which results directly or indirectly assessment in the provision of any benefit or amenity or perquisite, whether convertible into money or not, to an employee (incloding any sum paid by the company in respect of any obligation which but for such payment would have been payable by such employee) to the extent such expenditure exceeds one-fifth of the amount of salary payable to the employee for any period of his employment after the aforesaid date. (a) In the case of any assessee

(V) any expenditure which results directly or indirectly in the provision of any benefit or amenity or perquisite, whether convertible into money or not, to an employee (including any sum paid by the assessee in respect of any obligatiota which but for such pay- assessment year ment would have been payable by such employee) 1969-70 / 1970-71 and any expenditure Or allowance in respect of any w. e. f. 1-4-1969) assets of the assessee used by such employee either wholly or partly for his own purposes or benefit, to the extent such e