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TMI Blog2011 (5) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... claim for allowing deduction of the expenses incurred by him on his coronary surgery under section 31 of the IT Act, is rejected. Regarding deduction u/s 37 - held that: - an impaired heart would handicap functionality of a human being irrespective of his position, status or vocation 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. There is thus 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, to claim a deduction on account of expenses incurred by the assessee on his coronary surgery under section 37(1) of the IT Act would have to be rejected. - Decided against the assessee. - ITR No. 230/1994 - - - Dated:- 31-5-2011 - MR JUSTICE SANJAY KISHAN KAUL, MR JUSTICE RAJIV SHAKDHER, JJ. For the Appellant: Mr. S.K.Pathak For the Respondent: Ms. Rashmi Chopra RAJIV SHAKDHER, J 1. This is a reference made to this court under Section 256(2) of the Income Tax Act, 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.1 In other words, the assessee‟s stand was that the expenditure incurred by him on coronary surgery conducted on him, was akin to expenses incurred on current repairs of a plant. The assessee‟s stand thus is that a human heart is in the nature of a plant. 6. The Assessing Officer, however, was of the view that the expenditure in issue, was in the nature of a personal expense and hence, not allowable as deduction either under Section 31, or even, under Section 37 of the I.T. Act. He, therefore, referred the case to Inspecting Assistant Commissioner (in short IAC‟) for directions under Section 144-A of the I.T. Act. 6.1 Before the IAC, the assessee was given an opportunity to present his case. The assessee put forth his submissions both orally as well as in writing. 6.2 In short, the assessee argued that the he suffered a heart attack in December, 1978, because of which he was advised against, undertaking strenuous physical activity, which included any hectic professional work requiring him to travel out of station. The assessee submitted that he agreed to undergo a bypass surgery on the advice of his doctors. It was thus argued that the repair of this v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the incurred expenditure could not be on capital account. Secondly, the expenditure should not be of a personal nature. And lastly, it should have been expended wholly and exclusively for the purposes of business or profession and was of a personal nature. 7.5 The Assessing Officer was of the view that expenditure did not fulfill the last two conditions, inasmuch as, it was not incurred wholly and exclusively for the purpose of business or profession and was of a personal nature. 7.6. According to the Assessing Officer it was the moral obligation of the assessee to keep himself physically and mentally fit, therefore, expenditure of such nature could only be categorized as personal in nature. 7.7 The assessee‟s reliance on the judgment of the Bombay High Court in the case of Mehboob Production Pvt. Ltd. Vs. Commissioner of Income-Tax 106 ITR 78 was distinguished by the Assessing Officer, on the ground that in that particular case, the Director, who was the driving force in the company had travelled abroad. While he was abroad he suffered a heart attack. Therefore, the expenses incurred in providing him medical facilities had been allowed as an expense. The Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a person who is not actively engaged in earning any income is not interested in the efficacious functioning of his heart. The CIT(A) was of the opinion that regardless of the earning capacity. Since, every individual was interested in the efficient working of his heart then, could it be said that a lawyer‟s heart was used, only, for the purpose of his profession. Based on this he sustained the Assessing Officer‟s opinion under Section 31 of the IT Act. Similarly, he also agreed with the Assessing Officer‟s the view taken by him as regards non-availability of deduction even under Section 37 of the IT Act. 10. Not being satisfied, the assessee carried the matter in appeal to the Tribunal. The Tribunal by virtue of the impugned judgment rejected the contention of allowability of expenses made by the assessee both under Section 31 and 37 of the IT Act. Insofar as Section 31 is concerned, the Tribunal relying upon the test as laid down by the Gujarat High Court in the case of CIT Vs. Elecon Engineering Co. Ltd. (1974) 96 ITR 672 (Guj.) came to the conclusion that for the expenses incurred on the repair of the plant to be allowed, the assessee would have to demonst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel for the assessee relied upon the arguments put forth in the written submissions. A perusal of the submissions would show that once again the deduction has been claimed under Section 31, and in the alternative, under Section 37 of the I.T. Act, by treating the expenditure incurred as one, expended wholly and exclusively for the purposes of profession of the assessee. The assessee‟s contention, in short, runs as follows:- 11.1 Coronary surgery was not a life saving operation but was undertaken due to professional and commercial expediency in order to enable assessee to carry out his profession efficiently. It was stressed that the medical procedure had enabled the assessee to travel extensively all over the country in connection with his professional duty of putting in appearances in various High Courts of the country. In support of his contention, as already noticed, a reference was made to the fact that his gross receipts had increased from Rs 3.55 lakhs in the assessment year 1982-83 to 106.87 lakhs in 1992-93. It may be noted that figures of assessment year 1992-93 could not have been on the record of the assessing officer since the order of the Assessing Officer w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... association of persons whose business was to hold race meetings in Calcutta (now known as Kolkata) on a commercial basis. The Club did not own any horse and thus did not employ jockeys. The jockeys were employed by the owners and the trainers of horses which ran in the races organised by the club. Since the club was of the opinion that there was a possibility of the jockeys becoming unavailable due to injury, etc., and this could, not only seriously affect its business, but could also lead to closing down of the business; the club considered it appropriate to remedy this by establishing a training school of Indian boys as jockeys. The purpose being to make available a pool of trained jockeys for the purposes of races organised by it. Somehow, the training school did not prove successful and it had to be closed down within a period of three years. In the relevant accounting year ending on 31st March, 1949, the Club had spent certain sums of money on running this school, which was claimed by it, as deduction under section 10(2)(xv) of the provisions of the Income Tax Act then prevailing. The claim of the club was disallowed by the Income Tax Officer ( in short, ITO). In a further ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on whether the expense was incurred wholly and exclusively for the purposes of the assessee‟s business it applied the following test :- if the expenditure helps or assists the assessee in making or increasing the profits, then undoubtedly that expenditure would be expended wholly and exclusively for the purposes of business. 14.3 The court agreed with the assessee that even voluntary payment, if necessitated on the grounds of commercial expediency, would be amenable for deduction, provided it was intended for the purpose of making or increasing the profits of the assessee company. The court in allowing the deduction held that the nexus between the managing company and the assessee company could not be seriously disputed. If the managing company intended to increase its profits, it would automatically tend to increase the income and profits of the assessee company. In that case, the court came to the conclusion ...the only motive by which the expenditure was actuated was a purely commercial and pecuniary one and that was to see that more profits were made by the managed company so that their own commission should thereby increased. . This again was a case where the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th by the courts in deciding cases under section 37 of the I.T. Act. The court held that so long as the expenditure was incurred for the purposes of business, and merely because some other person or some other activity was also benefitted by such an expenditure, it would not come in the way of the assessee being allowed a deduction. In that case, the court came to the conclusion that since the head office had been used for the purposes of the business whose income was being taxed, the assessee ought to be entitled to depreciation. The judgment noticed the principles, inter alia, set forth by the Supreme Court in Royal Calcutta Turf Club case. As noticed above, one cannot but agree with the principle, it is its applicability of the principle to the assessee‟s case which is in doubt. 16. The fourth case on which great stress has been laid by the petitioner is once again the judgment of the Bombay High Court in the case of Mehboob Productions (supra). The facts of the case were as follows :- 16.1 The assessee company was in the business of film production. Sometime in 1957, the assessee company produced a film titled Mother India‟. Before the court, two questions ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal having returned findings of fact: that Mr. Mehboob Khan had visited USA in connection with the business of the assessee as he was a driving force in the assessee company; that the expenses had been incurred on account of special contingency; and that, there was nothing unbusiness like or abnormal in the assessee company bearing the expenses of medical treatment of a person who meant so much to the company. the revenue not having challenged the conclusion of the Tribunal that the decision of the Board of Directors, which was based on the principles of commercial expediency, was improper or perverse; the deduction with regard to the balance 1/3rd expenses had also to be allowed. 16.5 Importantly, in this case, the High Court was only concerned with, as noticed above, as to whether the balance 1/3rd amount incurred by the assessee company for treatment of Mr. Mehboob Khan had to be allowed as deduction. The revenue had not challenged the findings of the Tribunal. The assessee company‟s reimbursement of the expenses had been allowed on a principle of commercial expediency as, Mr. Mehboob Khan was found to be a driving force‟ in running the affairs of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur of the defendant. 17.2 The Appeal Court was thus called upon to decide as to whether the plaintiff having continued to drive the horse even after knowing the vicious character of the horse had assented to incur the risk which was an incident of his employment. While answering this question, the majority in the Appeal Court considered the effect of the provisions of the Employers Liability Act. In this connection, the following observations were made with regard to whether a horse could be considered a plant within the meaning of section 1 sub-section(1) of the Employers‟ Liability Act. The observations being as follows :- ...Then comes the question which is somewhat more difficult, - can a horse be considered plant‟ within s.1, sub-s. 1, of the Employers‟ Liability Act? It is suggested that nothing that is animate can be plant; that is, that living creatures can in no sense be considered plant. Why not? In many businesses horses and carts, wagons, or drays, seem to me to form the most material part of the plant : they are the materials or instruments which the employer must use for the purpose of carrying on his business and without which he could not car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the word plant‟ is not necessarily confined to apparatus which is used for mechanical operations or is employed in mechanical or industrial businesses. It would according to the court not include stock-in-trade or even articles which are merely part of the premises in which business is carried on. According to the court, for an article to qualify as plant it must have a degree of durability, and that which is quickly consumed or worn out in the course of its operation, within a short span of time, cannot properly be called a plant. The test, which the court suggested could be applied was, the operation that the apparatus / article involved, performed in the performance of the assessee‟s business i.e., did it fulfil the function of a plant in assessee‟s trading activity. In other words, was it a tool of tax payers trade? The court thus held that the word plant‟ in its ordinary sense was a word of wide import and it had to be construed broadly having regard to the fact that articles like books and surgical instruments were expressly included in the definition of plant under section 43(3) of the IT Act. Since the issue pertained to interpretation of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ITO disallowed the claim of the assessee for depreciation allowance on the ground that the lump sum price paid for the documents did not represent value of books but represented the price paid for acquiring technical know-how. Thus ITO was of the view that even though the assessee had incurred expenses on capital account no tangible or depreciable asset have been brought into existence. Accordingly, he had disallowed, as indicated above, claim for depreciation allowance. 20.3 In an appeal preferred by the assessee the Appellant Assistant Commissioner agreed with the assessee that the documents purchased by the assessee constituted a book, on which depreciation was allowable as in the case of plant and machinery. Appropriate directions were issued by the AAC to the ITO. 20.4 The Tribunal, however, in a further appeal by the revenue came to the conclusion that the lump sum amounts paid by the assessee were not solely for purchase of documents. According to the Tribunal assessee had paid the said amount for acquiring other services of the foreign collaborator; the supply of documents being only incidental to those services. Therefore, the Tribunal came to the conclusion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed development rebate and the question was whether the sanitary and pipe-line fittings installed fell within the definition of plant given in Section 10(5) of the 1922 Act which was similar to the definition given in Section 43(3) of the 1961 Act and this Court after approving the definition of plant given by Lindley L.J. in Yarmouth v. France as expounded in Jarrold v. John Good and sons limited 1962, 40 T.C. 681(CA), held that sanitary and pipe-line fittings fell within the definition of plant . .In other words the test would be: Does the article fulfil the function of a plant in the assessee's trading activity? Is it a tool of his trade with which he carries on his business? If the answer is in the affirmative, it will be a plant. 14. If the aforesaid test is applied to the drawings, designs, charts, plans, processing data and other literature comprised in the 'documentation service' as specified in Clause 3 of the agreement it will be difficult to resist the conclusion that these documents as constituting a book would fall within the definition of 'plant'. It cannot be disputed that these documents regarded collectively will have to be treated as a 'book', for, the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In our view, deduction under section 31 of the IT Act would not be available for two reasons: firstly, if the heart of a human being, as in the case of the assessee, were to be considered a plant, it would necessarily mean that it is an asset which should have found a mention in the assessee‟s balance sheet of the previous year in issue, as also, in the earlier years. Apart from the fact that this is admittedly not so, the difficulty that the assessee would face in showing the same in his books of accounts would be of arriving at the cost of acquisition of such an asset. Therefore, in our view before expenses on repair of plant are admitted as a deduction, the plant would necessarily have to be reflected as an asset in the books of accounts. 21.2 The second ground on which, we are persuaded by the counsel for the revenue not to accept the assessee‟s claim is that, even if one were to give the widest meaning to the word plant‟ in section 31 of the IT Act, it would still not fall within the definition of the word plant. The test of functionality laid down by the Gujarat High Court in Elecon Engineering Co. Ltd. (supra) which is affirmed by the Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would suggest that the assessee could have continued in the same state without the medical procedure undertaken by him. On this aspect, the best example which comes to mind, which perhaps, in a given case could be considered as an expense amenable under section 37 of the IT Act would be that of an actor undertaking plastic surgery to prevent age being reflected on screen. It could be argued in the case of an actor that he could have existed in the state he was without having gone under the knife of a plastic surgeon. Such are not the facts in the instant case. 22.3 In this regard, even the judgment of the Bombay High Court in Mehboob Productions (supra), which was cited before us, is distinguishable. As indicated above, only the assessee had come up before it with regard to the Tribunal‟s decision disallowing 1/3rd of the expenses reimbursed by the assessee company to its Director who had suddenly suffered a serious heart attack while running an errand for the assessee company in USA. Based on the findings returned by the Tribunal, that the Director was the "driving force‟ of the company and that he had gone to USA in connection with nomination of the film produced ..... X X X X Extracts X X X X X X X X Extracts X X X X
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