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TMI Blog1992 (3) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly, both these payments were considered for computation of disallowance under section 40A(5)/40(c). On appeal, the Commissioner of Income-tax (Appeals) confirmed the order of the Income-tax Officer. In further appeal by the assessee, the Tribunal, following the reasoning given by the Special Bench of the Tribunal in the case of Glaxo G Laboratories (India) Ltd. v. Second ITO [1986] 18 ITD 226 (Bom), upheld the action of the Income-tax Officer. At the hearing before us, Dr. Pal, learned counsel for the assessee, relied upon a number of decisions including the decisions of the Calcutta High Court on the proposition that monetary payment to employees by H way of reimbursement of medical expenses is not perquisite. He has also referred to the fact that the Central Board of Direct Taxes has consistently taken the view that such reimbursement, even though falling within the definition of perquisite, was not to be included in the total income of the assessee under the head "Salary" ". He referred in particular to circular No. 33 dated August 1, 1955, which stated, inter alia, that the provision of ordinary medical facilities to the employee or his family free of charge or reim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time so as to mitigate the hardship of the employees. The circular issued on December 31, 1985, as reiterated by the latest circular dated February 20, 1987, accepts the position that the reimbursement of medical expenses, such as operation fees, hospitalisation charges, cost of medicines, tests, etc., actually incurred in India in a recognised public hospital will not be treated as a perquisite for the purposes of charging income-tax. Thus, the Board has never taken the view that reimbursement of medical expenses will not be treated as a perquisite but as a part of the salary. The Board treated such reimbursement as a perquisite and allowed it to be outside the net of taxation. Learned counsel, however, fairly conceded that the High Courts in several cases have taken the view that reimbursement of medical expenses is not a perquisite. According to learned counsel, since the Board in the circulars treated reimbursement of medical facilities as a perquisite, it is not open to the Revenue authorities to shift their stand by reason only of the fact that several High Courts have held that such reimbursement is not a perquisite for the purpose of section 40A(5)/40(c). Learned counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... special leave petition from the said judgment and order of the High Court. In a nutshell, learned counsel's case is that the Board, having consistently treated medical reimbursement as a perquisite and the High Courts on the other hand having held such reimbursement not as a perquisite, the reimbursement cannot at all be reckoned for the purpose of disallowance under section 40A(5)/40(c). He further buttresses his case by saying that the cash payment by way of reimbursement is not also roped in in "profits in lieu of salary", the definition of the expression in section 17(3) not admitting of its inclusion. The Revenue, on the other hand, had supported the reasoning and conclusion of the Tribunal. We have considered the rival contentions. What was of primary concern to the Board was the tax relief in respect of the medical facilities provided free of cost as well as medical reimbursement provided to an employee. It is true that the Central Board of Direct Taxes in its successive circulars has shown an inclination to relieve employees of taxation in respect of provision of medical facilities including medical reimbursement. The question whether reimbursement is classifiable a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, this reading of the definition of the expression "profits in lieu of salary" to us appears to be lop-sided. The reading of the said expression in an exclusive manner to mean only terminal benefits glosses over the opening words of clause (3) of section 17. The definition starts with the words "profits in lieu of salary includes." This is an inclusive definition. The expression "includes" broadens the expression into a large sphere and can embrace any receipt which arises as gains or profits of employment in the shape of cash. It is a pointer to the proposition that it can include any cash receipt in the course of employment and even terminal cash receipts, unless excepted in terms. The terminal cash benefits no doubt find special reference in the said definition but this specific mention of some of the terminal cash benefits as exceptions only indicates that the Legislature has taken extra caution not to leave out from the ambit of the expression terminal benefits. We are not impressed with the argument that the cash benefits received other than terminal cash benefits cannot be brought within the description of "profits in lieu of salary". The definition of salary is also not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is given to the employee for the medical treatment by not directly incurring the expenditure but paying to the employee a sum equal to the expenditure incurred by the employee beforehand. Therefore, the use of the expression "perquisite" in the circulars in connection with the benefit of medical treatment including reimbursement of medical expenses does not turn the case one way or the other. Reference in this connection may be made to the insertion of a proviso below sub-clause (v) of clause (2) of section 17 by the Finance (No. 2) Act, 1991. One may observe that expenses incurred by the employer for the medical treatment of the employee or any member of the family of the employee have been treated as a perquisite by the Legislature. The said proviso had seven parts. In all the parts except in one, there is reference to the, value of the benefit of facilities for medical treatment of the employee. With the one exception as aforesaid, all the situations involve direct spending by the employer for the treatment. Of course, the con cession also includes a case where the employer, without himself incur ring the expenditure, reimburses the employee who has incurred the expenditure. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rlier decision of this court in CIT v. Kanan Devan Hills Produce Co. Ltd. [1979] 119 ITR 431. The assessee's argument is two-pronged ; on the one hand, it has argued that medical reimbursement is perquisite and the Central Board of Direct Taxes has consistently understood the medical reimbursement as one of the items of perquisites and described it as perquisite in the series of circulars that it had issued regulating the concession in respect of medical reimbursement for the purpose of assessment under the head "salary". It is found from the later insertion of the proviso below section 17(2) that the cash payment towards reimbursement of the expenses incurred by the employee has also been included in the same proviso to be a benefit at par with the other medical benefits provided for not by cash payment but by provision of actual medical relief free of cost. This no doubt creates some difficulty. That difficulty can be solved only by the presumption that the subsequent legislation has brought in a fiction by the special inclusion of a particular monetary benefit which really does not pertain to the essential nature of perquisite and that fiction brought in by the amendment takes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use (vi) of clause (2) of section 17." The other argument of learned counsel is that the reimbursement, even if held not to be a perquisite, cannot, as a logical corollary, be taken as salary. This argument does not also appeal to us. We have already dealt earlier with the contention of Dr. Pal that, if the reimbursement is not perquisite it could not be "profits in lieu of salary". "Profits in lieu of salary" as defined in clause (3) of section 17, according to him, refers to all payments that are available to the employee as terminal cash benefits and, therefore, leaves no place for medical reimbursement. The contention, though seemingly persuasive, is untenable. The logic running through the argument snaps because it overlooks the fact that the terminal benefits which are referred to in the definition appear in that clause only as special inclusions combined with certain exclusions. The expression "profits in lieu of salary" as such is not defined. It is left to the common understanding of the expression. But the Legislature takes additional pains to see that the terminal benefits are also included in the meaning of the expression " profits in lieu of salary". Any receipt of c ..... 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