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2011 (2) TMI 210 - HC - Income TaxReimbursement of medical expenses - Perquisits withing the meaning of section 40C / 40A(5) - concerns the treatment which is to be given to the surplus amount at the hands of the assessee which the assessee collected from its customers on account of insurance premium and remained unclaimed because the persons who had paid the excess amount did not come forward to receive the same - the modus operandi of the assessee in dealing with such transactions by arguing that the insurance amount payable to the assessee by the hirer is not a statutory but a contractual obligation - The principal of law which is clearly discernable and is distilled from the aforesaid judgment is that though normally initial character of the receipt would govern the treatment which is to be meted out to a particular sum received by the assessee - the prime obligation was that the hirer to get the vehicle insured but the assessee took up this job upto itself, wherever hirer agreed, to sub-serve its own interest as the assessee wanted the vehicle to remain insured - if the limitation had expired, that would not extinguish the liability but only the remedy - Decided against the assessee
Issues Involved:
1. Treatment of reimbursement of medical expenses as perquisites under Section 40C/40A(5) of the Income-Tax Act, 1961. 2. Deductibility of sur-tax liability in computing the total income. 3. Tax treatment of surplus amounts collected from customers on account of insurance premiums which remained unclaimed. Issue-wise Detailed Analysis: 1. Treatment of Reimbursement of Medical Expenses as Perquisites: The Tribunal referred the question of whether the reimbursement of medical expenses by the assessee company to its employees could be treated as perquisites within the meaning of Section 40C/40A(5) of the Income-Tax Act, 1961. This issue was resolved in favor of the assessee, referencing the case of Commissioner of Income Tax Vs. Mafatlal Gangabhai and Co. (P) Ltd., 219 ITR 644, which established that such reimbursements should not be regarded as perks. 2. Deductibility of Sur-tax Liability: The assessee claimed that its sur-tax liability for the year should be deducted in the computation of its total income. The Tribunal initially rejected this claim but referred the question for opinion. The court decided this issue in favor of the assessee, referencing 219 ITR 589, and affirmed that the sur-tax liability claim was allowable as a deduction in computing the total income. 3. Tax Treatment of Unclaimed Insurance Premiums: The central issue in all appeals was the treatment of surplus amounts collected from customers for insurance premiums that remained unclaimed. The assessee, a financing company for commercial vehicles, collected insurance premiums from hirers, which were kept in separate accounts as deposits. These amounts were used to pay insurance premiums, with any excess intended to be refunded to the hirers. However, many hirers did not claim the excess amounts, which accumulated over time and were eventually written off and credited to the profit and loss account by the assessee. The Tribunal had conflicting views over the years, sometimes treating these unclaimed amounts as income and other times not. The court analyzed the principle of law from various judgments, including CIT Vs. T.V. Sundram Iyengar & Sons Ltd. [1996] 222 ITR 344, which held that amounts initially not of income nature could become income if they remained unclaimed and were credited to the profit and loss account. Applying this principle, the court concluded that the unclaimed insurance premiums, once written off and credited to the profit and loss account, changed their character and became the income of the assessee. The court emphasized that the assessee's conduct of crediting these amounts to the profit and loss account indicated that they were no longer held in trust for the hirers. Conclusion: (a) The question of law regarding the tax treatment of unclaimed insurance premiums was answered in favor of the Revenue and against the assessee. (b) ITR 458/1984 was answered accordingly. (c) Appeals filed by the Revenue were allowed. (d) Appeals filed by the assessee were dismissed.
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