1996 (7) TMI 137 - HC - Income Tax

Summary

Issues:
1. Disallowance of Rs. 6,561 under section 40(c) of the Income-tax Act, 1961.
2. Whether the reimbursement of medical expenses is a benefit or amenity under sections 40(c) and 40A(5) of the Income-tax Act, 1961.

Analysis:

1. The High Court addressed the issue of disallowance under section 40(c) of the Income-tax Act, 1961. The assessee-company had made payments to its managing director, including medical expenses. The Assessing Officer disallowed an excess amount of Rs. 6,561 under section 40(c) as it exceeded the limit. The company challenged this disallowance, and the Appellate Tribunal upheld it, considering medical reimbursement as a benefit or amenity provided by the company. The High Court referred to the Supreme Court's decision in CIT v. Indian Engineering and Commercial Corporation P. Ltd. [1993] 201 ITR 723, where it was held that certain payments to directors were not considered perquisites. Furthermore, the Supreme Court's ruling in CIT v. Mafatlal Gangabhai and Co. (P.) Ltd. [1996] 219 ITR 644 clarified that cash payments made to employees do not fall under the definition of perquisite. Therefore, the High Court concluded that reimbursement of medical expenses did not constitute a perquisite, leading to the disallowance being in favor of the assessee.

2. The second issue involved whether the reimbursement of medical expenses should be considered a benefit or amenity under sections 40(c) and 40A(5) of the Income-tax Act, 1961. The Appellate Tribunal had ruled in favor of treating medical reimbursement as a benefit or amenity. However, the High Court, relying on the Supreme Court's decision in CIT v. Mafatlal Gangabhai and Co. (P.) Ltd. [1996] 219 ITR 644, concluded that cash payments made by the company, including medical reimbursement, did not fall under the definition of benefit, amenity, or perquisite. The High Court's analysis highlighted that the reimbursement of medical expenses to the director was not a perquisite based on established legal precedents. Therefore, the High Court answered both questions in the negative and in favor of the assessee, emphasizing that medical reimbursement did not constitute a benefit or amenity under the Income-tax Act, 1961.