1984 (5) TMI 38 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 40(a)(v) of the Income-tax Act, 1961.
2. Whether reimbursement of medical expenses to the managing director should be restricted to Rs. 12,000.

Summary:

1. Applicability of Section 40(a)(v) of the Income-tax Act, 1961:
The Tribunal had to determine if the reimbursement of medical expenses to the managing director fell within the purview of "benefit, amenity or perquisite" u/s 40(a)(v) of the Act. The Tribunal concluded that s. 40(a)(v) prescribed a limit on such expenditures, which should be restricted to Rs. 12,000 per assessment year. However, the High Court disagreed, stating that cash payments do not fall within the scope of "benefit, amenity or perquisite" as defined in the section. The court referenced multiple cases, including CIT v. Kanan Devan Hills Produce Co. Ltd. [1979] 119 ITR 431 (Cal), which held that cash payments directly to employees are not perquisites.

2. Restriction of Reimbursement of Medical Expenses:
The Tribunal had restricted the reimbursement of medical expenses to Rs. 12,000 for each of the assessment years 1969-70 and 1970-71, based on the interpretation of s. 40(a)(v). The High Court, however, found that this restriction was incorrect. The court held that the reimbursement of medical expenses in cash does not constitute a "benefit, amenity or perquisite" and thus, s. 40(a)(v) is inapplicable. Consequently, there should be no limit on the allowance given by the assessee-company to its managing director for medical expenses.

Conclusion:
The High Court concluded that s. 40(a)(v) does not apply to cash payments made by the company to its employee. Therefore, the Tribunal's restriction of the reimbursement of medical expenses to Rs. 12,000 was incorrect. The question was answered in the negative, in favor of the assessee and against the Revenue. The Commissioner was ordered to pay the costs of the reference to the assessee-company, with counsel's fee set at Rs. 800.