2015 (10) TMI 2381 - HC - Income Tax

Expenditure on medical treatment of eyes for improving the vision - whether a business expenditure u/s 37 (1) ? - Held that - We are not persuaded to accept the submission on behalf of the applicant that eyes are required to be exclusively used for the purpose of profession by the applicant. As observed above eyes are an important organ of the human body and is essential for the efficient survival of a human being. Eyes are thus essential not only for the purpose of business or profession but for purposes other than these which are so many. It is therefore clear that the said expenditure as claimed by the applicant is not in the nature of the expenditure wholly and exclusively incurred for the purposes of the profession of the applicant and thus this expenditure cannot be claimed by the applicant to be allowed as deduction in computing the income chargeable under the head profits and gains from business or profession in case of the applicant as per the provisions of Section 37 of the Act. - Decided in favour of revenue.

Issues Involved:
1. Whether the expenditure on medical treatment of eyes for improving vision can be considered as a business expenditure under Section 37(1) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance of Medical Expenditure as Business Expense:

The primary issue revolves around whether the expenditure of Rs. 43,600 incurred by the applicant on a foreign tour for pre-operation investigation of his eyes can be allowed as a business expenditure under Section 37(1) of the Income Tax Act, 1961. The Assessing Officer disallowed this expenditure, deeming it personal and not incidental to the profession.

2. Appeal to Commissioner of Income Tax (Appeals):

The applicant's appeal to the CIT(A) was dismissed. The CIT(A) upheld the disallowance, reasoning that if such logic were accepted, even expenses on food for self-preservation would be allowable under Section 37(1).

3. Tribunal's Concurrence:

The Tribunal also dismissed the applicant's appeal, citing the Supreme Court decision in State of Madras vs. C.J. Coelho. It held that "personal expenses" include those necessary for effective living, such as medical treatment for eyes, which are essential irrespective of the profession. The Tribunal also noted that even if the expenditure had a professional element, it could not be allowed as it was not incurred wholly and exclusively for professional purposes.

4. Applicant's Argument:

The applicant argued that the expenditure was necessary for continuing his profession as a Solicitor. He contended that the medical treatment had a direct nexus with his professional activities, and without it, he would not have been able to practice. He cited several cases, including Sakal Papers Pvt. Ltd vs. Commissioner of Income Tax and Mehboob Productions Private Ltd vs. Commissioner of Income Tax, to support his claim.

5. Revenue's Counter-Argument:

The revenue argued that the expenditure was rightly disallowed, referencing the Delhi High Court decision in Shanti Bhushan vs. Commissioner of Income Tax. It emphasized that eyes are essential for both professional and personal purposes, and the expenditure was personal in nature.

6. Legal Provisions and Interpretation:

Section 37(1) of the Act allows deductions for expenses incurred wholly and exclusively for business or profession, excluding personal expenses. The Court noted that the expenditure must not be personal and must be incurred solely for business purposes.

7. Court's Analysis:

The Court examined the rival submissions and case laws. It agreed with the Tribunal's view that eyes are necessary for effective living, not just for professional purposes. The Court found no evidence that the applicant would be handicapped in his profession without the treatment. It also noted that other visually challenged professionals effectively discharge their duties.

8. Commercial Expediency Argument:

The applicant's argument that the expenditure should be allowed on the principle of commercial expediency was rejected. The Court distinguished the cited cases, noting they did not involve personal expenses but were related to corporate bodies incurring expenses for others.

9. "Wholly and Exclusively" Interpretation:

The Court clarified that the terms "wholly" and "exclusively" mean entirely and solely for business purposes. It found that the expenditure was personal, with any professional benefit being incidental.

10. Conclusion:

The Court concluded that the expenditure on the foreign tour for eye treatment was personal and not wholly and exclusively for professional purposes. Thus, it could not be allowed as a deduction under Section 37(1) of the Act.

Judgment:

The Court answered the referred question in the affirmative, in favor of the revenue, and against the assessee, thereby disposing of the reference application.

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