1994 (2) TMI 27 - HC - Income Tax

Business Expenditure, Income Tax Act, Medical Expenses, Salary For Purposes, Salary To Employee, Sales Promotion

Issues Involved:
1. Reimbursement of medical expenses to director employees under section 40(c) of the Income-tax Act.
2. Reimbursement of medical expenses to employees under section 40A(5) of the Income-tax Act.
3. Expenses on publication of chairman's speech under section 37(3A) of the Income-tax Act.
4. Cost of calendars and gifts distributed under section 37(3A) of the Income-tax Act.
5. Expenditure on premium paid to Calcutta Hospital and Nursing Home Benefit Association under section 40A(5) of the Income-tax Act.
6. Notional interest on interest-free loans as perquisite under section 40A(5) of the Income-tax Act.

Detailed Analysis:

1. Reimbursement of Medical Expenses to Director Employees under Section 40(c):

The Tribunal held that reimbursement of medical expenses paid to the director employees in cash and hospitalisation expenses fell within the purview of "remuneration, benefit or amenity" under section 40(c) of the Income-tax Act. The court agreed, stating that these reimbursements were part of the service contract and thus constituted remuneration or benefit. The words "remuneration, benefit or amenity" were interpreted broadly to include such reimbursements. Consequently, the first question was answered in the affirmative and in favor of the Revenue.

2. Reimbursement of Medical Expenses to Employees under Section 40A(5):

The Tribunal held that reimbursement of medical expenses paid in cash to employees was considered "salary" under section 40A(5). The court affirmed this view, referencing section 17(1) of the Act, which defines "salary" inclusively to cover profits in lieu of or in addition to any salary or wages. The court cited a previous judgment (IEL Ltd. v. CIT) to support this interpretation, concluding that such reimbursements are indeed part of salary. Therefore, the second question was answered in the affirmative and in favor of the Revenue.

3. Expenses on Publication of Chairman's Speech under Section 37(3A):

The Tribunal upheld the disallowance of expenses incurred on the publication of the chairman's speech, interpreting it as falling under "advertisement, publicity and sales promotion" as per section 37(3B)(i). The court agreed, noting that the purpose of publishing the speech was to enhance the company's image and goodwill, thereby promoting future sales. Hence, the third question was answered in the affirmative and in favor of the Revenue.

4. Cost of Calendars and Gifts Distributed under Section 37(3A):

The Tribunal also upheld the disallowance of expenses for calendars and gifts, considering them as "advertisement, publicity and sales promotion." The court concurred, stating that these items were distributed to promote the company's products and enhance its market presence. Thus, the fourth question was answered in the affirmative and in favor of the Revenue.

5. Expenditure on Premium Paid to Calcutta Hospital and Nursing Home Benefit Association under Section 40A(5):

The Tribunal directed the Income-tax Officer to exclude the premium paid to Calcutta Hospital and Nursing Home Benefit Association from disallowance under section 40A(5). The court upheld this decision, referencing a previous ruling (CIT v. Duncan Brothers and Co. Ltd.) which held that such premiums did not confer any benefit on employees and thus should not be considered for disallowance. Therefore, the first question in the Revenue's reference was answered in favor of the assessee.

6. Notional Interest on Interest-Free Loans as Perquisite under Section 40A(5):

The Tribunal held that notional interest on interest-free loans granted by the company to its employees could not be considered a perquisite for disallowance under section 40A(5). The court affirmed this view, citing that no actual expenditure was incurred by the company in providing these loans. Additionally, the court referenced a previous judgment (CIT v. P. R. S. Oberoi) which supported this interpretation. Consequently, the second question was answered in the affirmative and in favor of the assessee.

Conclusion:

The court answered all questions in favor of the Revenue except for the issues concerning the premium paid to Calcutta Hospital and Nursing Home Benefit Association and notional interest on interest-free loans, which were decided in favor of the assessee. There was no order as to costs.

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