MEDICAL TREATMENT OF EYES FOR IMPROVING THE VISION HAS AN ELEMENT OF PERSONAL EXPENDITURE

[Mr. M. GOVINDARAJAN]

Section 37 of the Income Tax Act, 1961 (‘Act’ for short) provides that any expenditure (not being expenditure of the nature described in Sections 30 to 36 and not being in the nature of capital expenditure of personal expenses of the assessee) laid out or expended ‘wholly and exclusively’ for the purposes of the business or profession shall be allowed in computing the income chargeable under the head ‘Profit and gains of business or profession’.

The term ‘personal expenditure’ is well defined by the Supreme Court in ‘State of Madras V. C.J. Coelho’ (1964 (4) TMI 14 - SUPREME Court) as expenses on the person of the assessee or to satisfy his personal needs such as clothes, food etc., or for the purposes not related to business.

The eyes are considered as an important organ for an effective living of every human being.   In case of any defect in the eyes, the medical treatment is highly required for the effective living of a human being.  This condition is irrespective of the people who are engaged in the business, profession or vocation carried on by him.   If the expenditure is attributable to both personal and professional it cannot be allowed as a deduction to the professionals.  Such type of expenditure has an element other than business or profession.

In ‘Dhimant Hiralal Thakar V. The Commissioner of Income Tax – B.C. II’ – 2015 (10) TMI 2381 – Bombay High Court the applicant is a solicitor.  He has incurred an expenditure of ₹ 43,600/- towards a pre-operation investigation of his eyes during a foreign tour.  His claim of ₹ 43,600/- as deduction from his professional income was disallowed by the Assessing Officer in his assessment order passed under Section 143 (3) of the Income Tax Act, 1961 on the ground that it was a personal expenditure.  He further held that it did not arise in the course of professional but it is incidental to the profession.

The Commissioner of Income Tax (Appeals), on the file of appeal by the applicant, upheld the order of the Assessing Officer disallowing the said expenditure on the ground that if the logic of the applicant is allowed, it would mean that even expenditure incurred on food to preserve oneself should also be treated as allowable under Section 37(1) of the Act as being incurred for the business.  The Tribunal also concurred with the findings of the Assessing Officer.  The Tribunal held that the expenditure incurred by the applicant cannot be said to have been incurred wholly and exclusively for the purpose of profession.

The applicant moved a reference under Section 256(1) of the Act to the Tribunal seeking a reference  on the above question of law for the opinion of the High Court.   The applicant submitted the following before the High Court:

• For the subject assessment year, the applicant, a Solicitor by profession had visited USA for pre-operation investigation of his eyes incurring an expenditure of ₹ 43,600/-;
• This treatment is relating to the assessee’s profession;
• The eyes have a direct nexus with the professional activity of the application and therefore it is not a personal expenditure as held by the authorities below;
• Medical treatment for eyes is so very important from the point of view of the profession of the assessee and has a direct relation to the profession;
• If the medical treatment was not undertaken then the applicant would not have been in a position to practice his profession;
• Section 37 of the Act is to be interpreted so as to permit allowing such medical expenditure;
• The expression ‘wholly and exclusively’ as used in Section 37(1) does not mean necessarily and that it is for the assessee to decide whether the expenditure should be incurred in the course of business or profession;

The Revenue submitted the following-

• Eyes are not only useful for profession but also are essential otherwise than for professional purposes and is a human need;
• It is not the case that the assessee cannot function as a Solicitor in the absence of eyes;
• The moment this test is applied and it becomes apparent that there is a element of personal use of the yes then the assessee cannot claim expenditure for treatment of eyes under Section 37 of the Act;
• Expenditure as claimed by the applicant goes completely beyond the ambit and scope of Section 37 of the Act;
• This expenditure as claimed by the applicant has rightly held as a personal expenditure.

The High Court analyzed the provisions of Section 37 and found that this section is a residuary provision.  It can be gathered in order to eligible for deduction under this section the following conditions are to be fulfilled:

• The expenditure must not be of the nature described in Sections 30 to 36;
• The expenditure must have been laid down wholly and exclusively for the purpose of business/profession of the assessee;
• The expenditure must not be capital in nature;
• The expenditure must not be personal in nature.

The High Court relied on the decision of the Delhi High Court in ‘Shanti Bhushan’ case in which an identical issue arose before the High Court.  The only difference being the expenses claimed therein was for the treatment of the heart and here it is for eyes.  The Delhi High Court in ‘Shanti Bhushan’ case observed that an impaired heart would handicap functionality of a human being irrespective of his position, status or vacation in life.  Expenses incurred to repair an impaired heart would thus add perhaps to the longevity and efficiency of a human being per se.  The improvement in the efficiency of the human being would be in every activity undertaken by a person.  Thus there is no direct or immediate nexus between the expenses incurred by the assessee on the coronary surgery and his efficiency in the professional field per se.  Therefore the deduction on account of expenses incurred by the assessee on his coronary surgery under Section 37(1) of the Act would have to be rejected.

The High Court found that there was no evidence on record to establish that in the absence of investigation and treatment, the applicant would be handicapped in discharging his obligation as a Solicitor/Advocate.  The High Court also pointed the visually handicapped Advocates were functioning in the Court and even on has been appointed as Additional Advocate General of West Bengal in 1978 and Advocate General in 1986.

The High Court held that such expenditure is incurred for the purposes of the business and some third party gets incidental benefit, the expenditure under Section 37(1) cannot be disallowed.  However, in this case, it is an expenditure which is personal in nature and the benefit of such expenditure in the profession or business is only consequential to the personal expenses.   If at all the expenses in this case is personal and incidental benefit, if any, is to carrying on profession.   Therefore it is not an expenditure which can be said to be incurred wholly or exclusively for the purposes of business.

The High Court further held that one has to examine from the perspective/prism of the person who does make the expenditure.   In this case, the benefit, if any, of improvement in the eyes may/would also ensure to the applicant not only in the profession but also in all other walks of life.   However, the test would really be whether in the absence of being in business or profession, would the applicant have incurred the expenditure to improve his eyes and the answer has to be ‘yes’ keeping in view the normal conduct of human affairs.   This is because effective eye sight is a necessity for living a life of a complete human.   Therefore in this case the expenditure is personal and incidental benefit if any is to the profession carried out by the applicant.  Thus the reference is decided in favor of the Revenue.