2003 (10) TMI 656 - AT - Income Tax

Disallowance of being medical expenses - Whether a payment made to the employee, which is otherwise eligible for deduction being in the nature of employee cost on account of medical reimbursements, without there being any legal or contractual obligation to do so would be disqualified from deduction, or not - HELD THAT - We are of the view that even if assessee s incurring an employee cost is motivated more by philanthropic desires rather than hard nosed business sense, it will still continue to be employee cost and, hence, deductible as usual u/s 37(1) of the Act. As for learned Commissioner (Appeals) remark that no doubt the employer should be compassionate enough to look after the medical needs of the employees but employer should charge such expenses on account of magnanimity and generosity or charitable/moral grounds to their personal accounts, rather to the revenue , we may only mention that what is taxable to income tax is the income and if, to earn that income, an assessee has incurred business expenses with a sense of compassion for fellow human beings and contribution to the sense of brotherhood in society, those expenses do not cease to be deductible. The minimum one can do, to encourage such kind hearted deeds as appears to have been done by this assessee, is not to be little those noble gestures by marking those gestures as benevolence at the cost of exchequer . The exchequer does not require tax payers to pay taxes on all their receipts, without any deductions, or to claim deductions for only such expenses as Shylock would have incurred if he was in assessee s place. We leave it at that. Thus, we direct the Assessing Officer to delete the disallowance of ₹ 2,92,855 towards assessee s reimbursing his employee medical expenses incurred on employee s family member. The appeal thus stands allowed.

Summary

Issues involved: Appeal against CIT(A)'s order regarding disallowance of medical expenses incurred on treatment of employee's family member under section 143(3) of the Income-tax Act, 1961 for the assessment year 1994-95.

Core Issue: Disallowance of Medical Expenses:
The appellant, a cine artist, incurred medical expenses for the treatment of his chauffer's wife, a gesture of compassion. The Assessing Officer and CIT(A) disallowed the deduction, stating it was not incurred for business expediency. The Tribunal disagreed, emphasizing that expenses incurred wholly and exclusively for business purposes are deductible, even if voluntary. Referring to legal precedents, it was established that voluntary expenses can still be considered 'wholly and exclusively' for business. The Tribunal held that the expenses, being in the nature of employee costs, were deductible under section 37(1) of the Act, regardless of the motive behind incurring them. The Tribunal directed the Assessing Officer to delete the disallowance, allowing the appeal.

Significant Legal References:
- House of Lords judgment in Atherton v. British Insulated & Helsbey Cables Ltd.
- Hon'ble Supreme Court's observation in Sasson J. David & Co. P. Ltd. v. CIT

Conclusion:
The Tribunal allowed the appeal, emphasizing that expenses incurred for business purposes, even if voluntary and motivated by compassion, are deductible under section 37(1) of the Income-tax Act. The Tribunal directed the Assessing Officer to delete the disallowance of medical expenses incurred on the employee's family member, highlighting the importance of recognizing such compassionate gestures without penalizing them as 'benevolence at the cost of the exchequer'.