1996 (5) TMI 440 - AT - Income Tax

Summary

Issues:
1. Taxability of medical reimbursement as a perquisite under section 17(2)(iv) of the IT Act.
2. Interpretation of CBDT circulars regarding taxability of medical expenses incurred outside India.
3. Applicability of judicial precedents in determining tax liability.

Analysis:
1. The case involved the taxability of a medical reimbursement of Rs. 2,15,000 paid to a salaried employee for a surgical operation in the USA. The Assessing Officer treated it as a perquisite under section 17(2)(iv) of the IT Act and added it to the employee's income. The CIT (Appeals) upheld this decision, relying on a CBDT circular and observing that the circular did not exclude medical reimbursement for expenses incurred outside India from taxability as a perquisite. The CIT (Appeals) confirmed the amount of Rs. 2,20,000 as perquisites, exceeding the amount added by the Assessing Officer.

2. The assessee's counsel cited precedents, including a decision by the ITAT Bombay Bench and the ITAT Jaipur Bench, to argue against the taxability of medical expenses paid by an employer to an employee. The ITAT considered these precedents and concluded that medical expenses should not be taxed as a perquisite solely based on the location of expenditure. The ITAT referenced a Supreme Court decision emphasizing the hierarchical system of courts and the need for lower courts to accept the decisions of higher courts. The ITAT directed the Assessing Officer to follow the principles established in the cited precedents and exclude the reimbursement from tax as perquisites.

3. The ITAT highlighted the importance of judicial discretion and urged the CIT (Appeals) to yield to the higher wisdom of the ITAT as the highest appellate authority under the Income-tax Act. By canceling the orders of the CIT (Appeals) and the Assessing Officer, the ITAT allowed the appeal filed by the assessee, emphasizing the need to follow established judicial precedents in tax matters.