2018 (3) TMI 34 - AT - Income Tax

Allowability of Medical expenses for staff - commercial dependency - Held that - In the present case Mr. Anand Sagar, a famous film director is looking after the TV serial direction produced by the assessee company. Thus the well being of such a personality is of utmost important for the business of the assessee company. In the circumstances, keeping the principal of commercial expediency the assessee incurred the expenditure on his hospitalisation and surgery and thus such expenditure incurred by the assessee company was for the purpose of the business of the assessee and in true sense of commercial expediency and thus the same is correctly claimed as expenditure u/s 37(1) and be allowed fully. No merit for disallowance of the medical expenditure incurred on reimbursement to the Director. - Decided in favour of assessee.

Summary

Issues:
1. Allowability of medical expenses incurred on staff and directors under the head "staff welfare."
2. Allowability of conveyance, traveling, and car expenses.

Analysis:
1. The issue in question was the allowability of medical expenses incurred on staff and directors under the head "staff welfare." The assessee had claimed a total medical expense of &8377; 18,83,892, which included expenses related to hospitalization and surgery of a director who suffered a paralytic stroke. The Assessing Officer (AO) disallowed the entire expense, citing Section 37(1) of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) upheld the AO's decision. However, the Appellate Tribunal found in favor of the assessee. The Tribunal noted that the medical expenses were incurred for hospitalization and surgery of the director, which was essential for the business as the director was also an employee of the company. The Tribunal emphasized the concept of "commercial expediency" and held that the expenses were allowable as business expenditure under Section 37(1) of the IT Act. The Tribunal also highlighted that the expenditure was not of a personal nature and was necessary for the business operations. Therefore, the Tribunal allowed the appeal of the assessee, ruling in favor of the allowability of the medical expenses.

2. The second issue pertained to the allowability of conveyance, traveling, and car expenses. The assessee had claimed specific amounts under these heads, which were also contested by the AO. However, the judgment primarily focused on the medical expenses issue, and no detailed analysis or decision regarding the conveyance, traveling, and car expenses was provided. As a result, the Tribunal's decision only addressed the medical expenses issue, and the appeal was allowed solely based on the findings related to the medical expenditure incurred on staff and directors. The Tribunal did not delve into the specifics of the conveyance, traveling, and car expenses, as the judgment primarily revolved around the medical expenses claimed by the assessee.

In conclusion, the Appellate Tribunal, in the given judgment, allowed the appeal of the assessee concerning the allowability of medical expenses incurred on staff and directors under the head "staff welfare." The Tribunal ruled in favor of the assessee, emphasizing the commercial expediency and business necessity of the medical expenditure, thereby deeming it as allowable business expenditure under Section 37(1) of the IT Act.