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Issues Involved
1. Whether the reimbursement of medical expenses by the company to the assessee should be treated as a perquisite under section 17 of the Income-tax Act, 1961. 2. Whether the assessment order dated 13-1-1987 was erroneous and prejudicial to the interests of the Revenue. 3. Whether the Commissioner of Income-tax was correct in invoking section 263 of the Income-tax Act, 1961. Detailed Analysis 1. Reimbursement of Medical Expenses as Perquisite The primary issue was whether the reimbursement of Rs. 1,51,190 for medical expenses by the company to the assessee should be treated as a perquisite under section 17 of the Income-tax Act, 1961. The Commissioner of Income-tax argued that under section 17, the provision of free medical facilities or reimbursement of medical expenses by an employer is treated as a perquisite. The Commissioner relied on Circular No. 445, dated 31-12-1985 of the CBDT, which stated that reimbursement of medical expenses incurred in a recognized public hospital in India is not to be treated as a perquisite. However, the medical expenses in this case were incurred in Houston, USA, and thus were not admissible under the said circular. On behalf of the assessee, it was argued that the reimbursement was a voluntary act by the company on grounds of commercial expediency and staff welfare. The company had authorized the expenditure to ensure the Managing Director's services continued to be available. The Tribunal, in the company's case, had held that this amount was an allowable business expenditure, thus supporting the assessee's claim that the reimbursement was not a perquisite. The Tribunal concluded that the reimbursement was made on grounds of commercial expediency or as staff welfare expenses and did not qualify as a perquisite under section 17(2)(iii)(c) or section 17(2)(iv). The expression "the value of any benefit or amenity granted or provided free of cost" could not apply to reimbursement in cash of medical expenses. 2. Erroneous and Prejudicial Assessment Order The Commissioner of Income-tax considered the assessment order dated 13-1-1987 to be erroneous and prejudicial to the interests of the Revenue because the reimbursement amount was not included in the assessee's income as a perquisite. The Tribunal noted that the assessment order did not show that the matter of reimbursement of medical expenses was enquired into by the ITO. However, the Tribunal found that the merits of the case supported the view that the reimbursement was not a perquisite and thus the assessment order was not erroneous or prejudicial to the interests of the Revenue. 3. Invocation of Section 263 by Commissioner of Income-tax The Commissioner of Income-tax invoked section 263, which allows for revision of orders that are erroneous and prejudicial to the interests of the Revenue. The Tribunal acknowledged that the assumption of jurisdiction under section 263 could be proper if there was a lack of enquiry by the ITO. However, on the merits, the Tribunal found that the Commissioner was not right in treating the reimbursement as a perquisite. The Tribunal also noted that the company's earlier request to the assessee to repay the amount was due to the disallowance of the expenditure by the assessing authority and the first appellate authority. However, this point lost its importance as the Tribunal had ultimately allowed the company's claim that the amount was a business expenditure. Conclusion The Tribunal held that the reimbursement of medical expenses by the company to the assessee was not treatable as a perquisite under section 17 of the Income-tax Act, 1961. Consequently, the order of the Commissioner of Income-tax under section 263 was quashed, and the appeal filed by the assessee was allowed.
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