1995 (3) TMI 162 - AT - Income Tax

Summary

Issues Involved:
1. Whether the medical expenses borne by the employer for the employee's treatment can be assessed as income of the assessee-employee.
2. Whether the expenses incurred for the accompanying person can be treated as perquisite in the hands of the assessee.

Issue-wise Detailed Analysis:

1. Medical Expenses Borne by the Employer:
The primary issue in these appeals is whether the medical expenses borne by the employer for the employee's heart surgery in the USA can be assessed as income of the assessee-employee. The assessee, a director-employee of M/s South India Research Institute Private Limited (SIRIL), had his treatment expenses amounting to Rs. 3,08,311 borne by the company. The Assessing Officer treated these expenses as a perquisite under section 17(2)(iv) of the Income-tax Act and included them in the taxable income.

The CIT (Appeals) deleted the addition, referring to decisions of the Delhi High Court in CIT v. Lala Shri Dhar and CIT v. Vinay Bharat Ram, where it was held that premiums paid by the employer for insurance policies taken to meet contingencies could not be assessed as perquisites in the hands of the employee. The CIT (Appeals) also referred to several other decisions under section 40A(5) and held that they apply to the case of the assessee.

However, upon review, it was determined that the payment made by the employer for the employee's medical treatment satisfies the conditions of section 17(2)(iv):
- There was a payment of a sum by the employer.
- The payment was in respect of an obligation of the assessee.
- The sum would have been payable by the assessee but for the employer's payment.

The tribunal concluded that keeping oneself medically fit is a personal obligation, and the expenditure incurred by the employer for the employee's treatment in the USA is a perquisite. The assessee's contention that he would not have incurred the expenditure on his own was rejected, as he ultimately agreed to the company's proposal and benefited from the treatment. The tribunal restored the addition of Rs. 2,54,244 for the assessment year 1984-85 and Rs. 54,067 for the assessment year 1985-86 as medical expenses incurred by the employer.

2. Expenses for the Accompanying Person:
The second issue concerns the expenses of Rs. 41,689 incurred for Sri G.S. Raju, who accompanied the assessee to the USA. The tribunal held that such expenditure could not be considered a perquisite in the hands of the assessee, as it was not incurred in discharge of any obligation of the assessee. Therefore, the CIT (Appeals) correctly deleted the addition of this amount.

Conclusion:
The appeals were partly allowed. The tribunal restored the addition of medical expenses borne by the employer for the employee's treatment, as these were considered perquisites under section 17(2)(iv) of the Income-tax Act. However, the expenses incurred for the accompanying person were rightly excluded from the assessee's taxable income.