1989 (11) TMI 29 - HC - Income Tax

Summary

Issues:
1. Interpretation of Section 40A(5) of the Income-tax Act regarding disallowance of medical expenses.
2. Applicability of Circular No. 336 dated April 16, 1982, issued by the Central Board of Direct Taxes.
3. Whether medical expenses should be excluded as perquisites under section 40A(5).

Analysis:
The judgment by the High Court of Kerala involved the interpretation of Section 40A(5) of the Income-tax Act, specifically regarding the disallowance of medical expenses incurred by a company. The Income-tax Officer disallowed an amount under this section, which included reimbursement of medical expenses to two executives of the company. The Tribunal upheld the disallowance on other expenditure but directed the exclusion of medical expenses based on Circular No. 336 dated April 16, 1982, and the decision of the Calcutta High Court in CIT v. Britannia Industries Co. Ltd. The Tribunal held that medical expenses need not be treated as perquisites for the purpose of section 40A(5) as per the circular and directed the exclusion of these expenses.

For the assessment year 1979-80, a similar issue arose where medical expenses were disallowed under section 40A(5). The Tribunal referred the question to the High Court for consideration. The Tribunal's decision was based on Circular No. 336 and the Calcutta High Court's judgment, emphasizing that medical expenses should not be considered as perquisites. The Tribunal directed the exclusion of medical expenses while making the disallowance under section 40A(5).

The High Court declined to provide a direct answer to the question referred but directed the Tribunal to reconsider the issue based on the materials available. The Court highlighted the importance of assessing the applicability of Circular No. 336 to the specific circumstances of the case. The judgment emphasized the need for a thorough review by the Tribunal to determine whether the circular should be applied in the context of the disallowance of medical expenses under section 40A(5).

In conclusion, the judgment focused on the interpretation of the Income-tax Act, the relevance of Circular No. 336, and the treatment of medical expenses as perquisites under section 40A(5). The Court stressed the importance of a detailed reconsideration by the Tribunal to determine the applicability of the circular in the specific factual scenario.