2017 (3) TMI 24 - AT - Income Tax

Income U/s 2(24) - Addition of medical insurance receipt - reimbursement of expenses incurred in relation to a surgery of gall bladder - Held that - Section 2(24) of the I.T. Act defines the term Income in an inclusive way but reimbursement of expenses cannot be income because the assessee is getting the money back which he already spent. Assessee did not earn this money at all which he is getting as reimbursement. Reimbursement does not mean that the assessee is deriving any income from any sale of goods and services. There is no motive to earn income out of medical insurance. After going through the definition of the income as explained above one can say easily that the reimbursement is not an income. The term reimbursement does not fall in the characteristics of income. No doubt the definition of income is inclusive. This of course does not mean that an amount which can by no stretch of imagination be called income can be treated as income and taxed as such by parliament. It must have some characteristics of income as broadly understood. - Decided in favour of assessee

Summary

Issues:
Assessment of medical insurance receipt as taxable income.

Analysis:
The appeal pertains to the assessment year 2009-10, challenging the order passed by the Commissioner of Income Tax (Appeals) regarding the addition of a medical insurance receipt as income. The Assessee filed a return of income declaring total income, which was selected for scrutiny under section 143(3) of the Income Tax Act. The Assessing Officer added the medical insurance receipt to the income, considering it chargeable to tax under section 2(24) of the Act. The Commissioner upheld this decision, citing the absence of express exemption under section 10D regarding the reimbursement from the insurance company. The Assessee, dissatisfied with this decision, appealed further, arguing that reimbursement of medical expenses should not be treated as income. The Assessee contended that reimbursement does not constitute income as the money received is a refund of already incurred expenses, not derived from selling goods or services to earn income.

Upon considering the arguments, the Tribunal analyzed the definition of "income" from legal perspectives. Referring to the Black's Law Dictionary and a judgment by the Punjab & Haryana High Court, the Tribunal highlighted that income typically involves money received from various sources like employment, business, investments, etc. The definition of income is inclusive and has evolved over time; however, not all receipts can be considered income for tax purposes. The Tribunal emphasized that for an amount to be taxed as income, it must possess characteristics of income as broadly understood. In this context, the Tribunal concluded that reimbursement does not align with the characteristics of income, as it represents a return of previously spent funds, not a source of income derived from economic activities.

Ultimately, the Tribunal ruled in favor of the Assessee, holding that the addition of the medical insurance receipt as income was unjustified. The Tribunal found merit in the Assessee's argument that reimbursement of expenses should not be equated with income for taxation purposes. Consequently, the Tribunal allowed the Assessee's appeal and ordered the deletion of the addition made by the Assessing Officer and upheld by the Commissioner. The decision was pronounced in an open court on January 4, 2017.