1992 (5) TMI 15 - HC - Income Tax

Summary

Issues involved:
The judgment addresses three main Issues:
1. Whether reimbursement of medical expenses to an employee is considered a perquisite under section 40A(5) of the Income-tax Act, 1961.
2. Whether the quantum of perquisites for an employee on account of rent or concession in rent should be computed based on employer's expenditure rather than rule 3 of Income-tax Rules, 1962.
3. Whether cash allowances like car allowance and house rent allowance can be treated as part of salary for calculating excess perquisite under section 40A(5) of the Income-tax Act, 1961.

Issue 1: Reimbursement of Medical Expenses
The Tribunal held that cash reimbursement of medical expenses to an employee does not constitute a perquisite. Various High Courts, including Calcutta, Bombay, Andhra Pradesh, Madras, and Karnataka, have supported this view. The Delhi High Court concurred, stating that such cash payments do not fall under the exhaustive definition of "perquisite" in Explanation 2(b) to section 40A(5). The court emphasized that the nature of expenditure specified in the Act excludes cash reimbursements, leading to a conclusion in favor of the assessee.

Issue 2: Quantum of Perquisites for Rent
The court agreed with previous decisions that the calculation of perquisites related to rent for residential accommodation should be based on the employer's expenditure, not rule 3 of Income-tax Rules, 1962. This approach was supported by judgments from various courts, including Bombay, Gujarat, Calcutta, Orissa, and Kerala. The court affirmed that actual payments, especially in cash, should be considered for determining the quantum of perquisites, resulting in an affirmative answer to this issue.

Issue 3: Cash Allowances as Part of Salary
Regarding whether cash allowances like car and house rent allowances should be treated as part of an employee's salary for calculating excess perquisite under section 40A(5), the court referred to a previous case where it was noted that cash payments, while not perquisites, could be considered as part of the salary under section 17 of the Act. Consequently, the court answered this question in the negative, indicating that such cash payments may not be perquisites but are part of the salary.

The judgment provides a detailed analysis of each issue, aligning with previous decisions and legal interpretations.