TMI Blog1991 (9) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... es to which the assessee belongs :-- Bundy Tubing of India Ltd., Tube Investment of India Ltd., Carborundum Universal Ltd., Coromandel Engineering Co. Ltd., New Ambadi Estates (P.) Ltd., and T.I. M. Ltd. The assessee-company was formed on 10-7-1972 and basically it was a service oriented company. One Shri A. M. M. Arunachalam has been working as adviser of the assessee-company being appointed under the terms of the appointment letter dated 17-1-1971. The terms of appointment as well as copy of the appointment letter dated 17-1-1971 were furnished. The terms of appointment revealed that a sum of Rs. 4,250 is payable towards monthly salary, Rs. 450 per month towards engagement of a private servant ; to be provided with medical facility both for him and for his wife, which is available under the assessee-company's medical insurance scheme. In addition the company is obliged to reimburse Shri Arunachalam the actuals incurred towards medical expenses for him and his wife, which are not reimbursed by the insurance company subject to Rs. 4,500 per annum. Besides Shri Arunachalam is to be provided with a car together with a driver for private purposes. Further the assessee- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd one attendant from India to U. K and back is as under : Medical expenses at U. K. pound 8320 - Rs. 1,20,000 Stay expenses U.S. dollar 5150 for living and incidental of the patient - Rs. 64,000 Travel from India to U.K. and back - Rs. 73,875 ----------------------- Rs. 2,57,875 ------------------------ It is stated that the performance of by-pass surgery was preceded by investigations and the actual by-pass surgery was performed by Professor Donald Ross at National Hospital, London. Shri Arunachalam had taken the treatment in U. K. for seven weeks from April 1985 to end of May 1985. Shri Arunachalam proceeded to U.K. for his medical treatment along with his wife Smt. A. R. Lakshmi and also one of his relatives Smt. Valli Alagappan. The total amount for which the Reserve Bank's permission was obtained was Rs. 2,57,875 which includes the release of foreign exchange of pound 8320 and U.S. dollar 5150, both put together equivalent to Rs. 1.84 lakhs. It is stated that the actual expenditure incurred was only Rs. 2,54,994 and the whole of such expenditure was incurred by the assessee-company. It is significant to note that Shri Arunachalam did not solicit any financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As regards the contention that this expenditure was ultimately recovered from the group companies it was stated by the Assistant Commissioner at para 4.7 : " This is only a method adopted by the assessee to arrive at the selling price of its services chargeable to the group companies availing its services, just as any other businessman will take into account all his expenses - direct and indirect - besides profit margin to arrive at the selling price of his products. " The Assistant Commissioner felt that it cannot be argued that the assessee had not incurred this expenditure and on the above grounds he disallowed the expenditure of Rs. 2,54,994. Ultimately as against the nil total income returned under the income-tax return dated 22-9-1984 filed for the assessment year 1986-87 the Assistant Commissioner determined the total Income of the assessee at Rs. 5,11,340, which includes the expenses incurred on Shri Arunachalam for treatment in U.K., which was added back as part of the total income of the assessee. 5. Aggrieved against the add back of Rs. 2,54,994 the assessee-company went in appeal before the Commissioner (Appeals)-II, Madras. The Commissioner (Appeals) by his impugne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dships of the Calcutta High Court followed the earlier decision of the Calcutta High Court in Indian Leaf Tobacco Development Co. Ltd.'s case in support of the decision quoted above. It may generally be stated that the same ratio is laid down in all the decisions cited on behalf of the assessee, the list of which is already given above. In view of the consistent decisions of all the High Courts it is to be held that the expenditure incurred by the assessee directly towards the medical expenses as well as the treatment and also towards travel expenses of Shri Arunachalam and his two attendants cannot be considered to be a perquisite paid to Shri Arunachalam and therefore the excess of the perquisite cannot be disallowed under section 40A(5) or 40(c)(iii). 7. It is next contended that the Board's resolution dated 3-4-1985 had the propensity to amend the terms of appointment and the company had undertaken to defray all the medical expenses, stay expenses and tour expenses of Shri Arunachalam and because a specific sum was also undertaken to be spent under the resolution of the board which isalready extracted above, to the extent provided in the board's resolution the terms of appoin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his employer to compensate him therefor and it was in partial grant of this request the employer gave him a sum of Rs. 9,500. The question was whether this payment of Rs. 9,500 should be considered as profit in lieu of salary. The Delhi High Court held as per the headnote of the decision as follows : " Held, that the payments made to the assessees had no relation to the services rendered by them as employees but were merely payments sanctioned by the employers to compensate them for the personal losses they had suffered. They were, therefore, payments made on personal grounds and there was no element of remuneration for services in these payments. The payments received by the assessees did not fall under section 17(3)(ii) and were not taxable in their hands. " However, the question considered by the Delhi High Court was whether such payments are taxable in the hands of the employees. But that is not the question which is before us now in this case. We are concerned with the question whether the expenditure incurred towards medical expenses and foreign tour expenses can be allowed as business expenditure. The learned departmental representative contended that this cannot be allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure of Rs. 1,500 incurred by it on the medical treatment of its chairman. The expenditure was authorised by the resolution of the company. The Tribunal disallowed the claim on the ground that there was no rule or regulation of the company regarding the payment of medical expenses of its staff. Ultimately the Allahabad High Court held that the chairman was not a member of the staff but was a director of the company. The chairman was only drawing an honorarium of Rs. 100 per month. In the circumstances the Tribunal was not justified in disallowing the sum of Rs. 1,500 claimed by the assessee as an expenditure. (2) In India United Mills Ltd. v. CIT [1975] 98 ITR 426 (Bom.), the assessee-company received a letter from Bombay Hospital Trust, whereby the trust offered its services for medical aid to the clerical staff of the assessee-company on certain terms. It was suggested that the assessee-company would be entitled to send the members of its clerical staff for medical, surgical or any other treatment in the hospital. The members of the clerical staff drawing a sum of less than Rs. 200 per month as salary would be admitted to the direct paying class of the hospital free of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith his illness. After his return to India, the board of directors of the assessee-company, at its meeting held on 1-5-1985 passed a resolution to the effect that the entire expenditure on M's treatment should be borne by the company and debited to its account. In the assessment for the assessment year 1959-60, the assessee claimed the hospital expenditure of Rs. 33,667 on the treatment of M as a deduction in determining its profit for the assessment year. " The Income-tax Officer as well as the Appellate Assistant Commissioner rejected the claim for deduction.The Tribunal upheld the disallowance up to 1/3rd of the claim. The Bombay High Court ultimately held : " In view of the facts and conclusions arrived at by the Tribunal regarding the basis on which the resolution was passed by the company, the entire amount of medical expenses occasioned by M's illness which were home by the assessee-company pursuant to the resolution, should be allowed as a deduction on the footing that the decision to reimburse was taken on the principle of commercial expediency and that no part of such expenses was held to be not proved or arbitrarily excessive or unreasonable. " The case before us appears ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
