2006 (11) TMI 116 - HC - Income Tax

Clause (v) of first provisio to section 17(2) treats the medical reimbursement above Rs. 15,000 as taxable perquisite for salaried persons impugned provision have reasonable classification so does not violate article 14 or 21 of constitution of equality petition dismissed

Issues Involved:
1. Constitutional validity of the latter part of clause (v) of the first proviso to section 17(2) of the Income Tax Act, 1961.
2. Whether medical reimbursements exceeding Rs.15,000/- per annum should be considered as taxable perquisites.
3. Alleged discrimination and violation of Article 14 of the Constitution of India.
4. Whether medical reimbursements should be considered a part of the fundamental right to life under Article 21 of the Constitution of India.

Detailed Analysis:

1. Constitutional Validity of Clause (v) of the First Proviso to Section 17(2) of the Income Tax Act, 1961:
The petitions challenge the constitutional validity of the latter part of clause (v) of the first proviso to section 17(2) of the Income Tax Act, 1961, which treats medical reimbursement above Rs.15,000/- per annum as a taxable perquisite for salaried persons. The court examined the statutory provisions, including sections 4, 5, 2(24), 14, 15, 16, and 17 of the Income Tax Act, to understand the legislative intent and the scope of the term "perquisite."

2. Taxability of Medical Reimbursements Exceeding Rs.15,000/-:
The court noted that the definition of "income" under section 2(24) includes perquisites, and section 17(2) defines "perquisite" in an inclusive manner. The court referred to sub-clause (iv) of section 17(2), which includes any sum paid by the employer in respect of any obligation that would have been payable by the assessee. The court held that if the expenses in a private hospital were not reimbursed by the employer, the employee would be required to pay them, and hence, such reimbursements are perquisites under section 17(2)(iv).

3. Alleged Discrimination and Violation of Article 14:
The petitioners argued that the Rs.15,000/- limit on medical reimbursements is arbitrary and discriminates against employees who do not use government or approved hospitals. The court held that Article 14 forbids class legislation but does not forbid classification. The classification must be based on a rationale relevant to the object sought to be achieved. The court found that the classification made by the legislature in excluding certain medical reimbursements from being treated as perquisites is reasonable and does not violate Article 14.

4. Medical Reimbursements and Fundamental Right to Life under Article 21:
The petitioners contended that medical reimbursements should be treated as part of the fundamental right to life under Article 21. The court did not accept this argument, stating that the legislature is competent to classify persons or properties into different categories and tax them differently. The court emphasized that extending the benefit to private hospital treatments is a matter of policy decision, which the court cannot interfere with.

Conclusion:
The court concluded that the latter part of clause (v) of the first proviso to section 17(2) of the Income Tax Act, 1961, is constitutionally valid. It held that medical reimbursements exceeding Rs.15,000/- per annum are taxable perquisites. The court found no violation of Article 14 or Article 21 of the Constitution of India. Consequently, all three petitions were dismissed, and the interim orders restraining the employers from treating medical reimbursements as taxable income were vacated.

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