1992 (3) TMI 13 - HC - Income Tax

Summary

Issues Involved:
1. Whether reimbursements of medical expenses and house rent allowance paid in cash are to be considered as part of salary for the purposes of section 40A(5)/40(c) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Reimbursements of Medical Expenses:

The Tribunal held that medical reimbursement paid in cash forms part of salary under section 17 of the Income-tax Act, 1961. The Income-tax Officer and the Commissioner of Income-tax (Appeals) both upheld this view. The assessee argued that monetary payment by way of reimbursement of medical expenses is not a perquisite and cited various circulars from the Central Board of Direct Taxes (CBDT) which supported this stance. Circular No. 33 dated August 1, 1955, and subsequent circulars indicated that such reimbursements were not to be included in the total income of the employee as a part of the perquisite provided by the employer. The CBDT's stance was that reimbursement of medical expenses up to certain limits was not taxable. The Tribunal, however, followed the reasoning from the case of Glaxo G Laboratories (India) Ltd. v. Second ITO [1986] 18 ITD 226 (Bom), which supported the inclusion of these reimbursements as part of salary.

The High Court noted that the primary concern of the CBDT was to provide tax relief for medical facilities provided free of cost or through reimbursement. The court acknowledged the consistent view of the CBDT that medical reimbursements should be treated as perquisites but not taxed. However, the court emphasized that the circulars did not directly address whether such reimbursements should be classified as salary or perquisite. The court concluded that the inclusive definition of "profits in lieu of salary" under section 17(3) of the Act could encompass any cash receipt arising from employment, including medical reimbursements.

2. House Rent Allowance:

The Tribunal also held that house rent allowance paid in cash forms part of salary under section 17. The High Court referred to section 10(13A) of the Act, which provides for the exemption of house rent allowance up to certain limits. The court observed that house rent allowance is specifically granted to an employee to meet expenditure on rent and should be included in the computation of salary for the purposes of section 40A(5)/40(c).

Conclusion:

The High Court concluded that both medical reimbursements and house rent allowance paid in cash are to be considered as part of salary for the purposes of section 40A(5)/40(c) of the Income-tax Act, 1961. The question was answered in the affirmative and against the assessee, indicating that these payments should be included in the computation of salary for disallowance purposes under the said sections. There was no order as to costs.