TMI Blog2006 (11) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... oviso to section 17(2) of the Income Tax Act, 1961 [appearing in the section after clause (vi)] to the extent it treats the medical reimbursement above Rs.15,000/- per annum as taxable perquisite for the salaried persons. Since all the three petitions raise the same question of law, they have been heard and decided together. 2. The main contesting Respondents to these three petitions are the Union of India and the Central Board of Direct Taxes and the concerned Income Tax Officer. Since the vires of a provision of a Central Statute is under challenge, a notice was issued to the Attorney General of India and Mr.B.A. Desai, Additional Solicitor General, has appeared for him. Mr.B.N. Chatterjee has appeared for the Union of India and its officers. Mr.Kaka and Mr.Moray have appeared for the Petitioners in all the three petitions. 3. All the three petitions are based on grievances of individual employees. Thus, Writ Petition No.1411 of 1992 points out that one Shri Subhash Banhatti, an officer of the State Bank of India, was going to the branch at Navghar near Vasai on 6 th June 1991 accompanied by a fellow officer when the taxi in which they were travelling met with a serious ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an in any previous year includes all income from whatever source derived which (a) is received or is deemed to be received in India by or on behalf of such person, (b) accrues or arises or is deemed to accrue or arise to him in India, or (c) accrues or arises to him outside India during such year. Section 2(24) gives the definition of "income" which is an inclusive definition. Amongst others, in clause (iii) thereof, it is provided that income includes the value of any perquisite or profit in lieu of salary taxable under sub-section (2) and (3) of section 17. Section 14 of the Act gives the various heads of income. It lays down that save as otherwise provided under the Act, all income for the purposes of charge of income tax and computation of total income shall be classified under the following heads of income: (A) Salaries (B) Interest on securities (omitted by Finance Act, 1988 w.e.f. 1-4-1989) (C) Income from house property (D) Profits and gains of business or profession (E) Capital gains (F) Income from other sources 8.Section 15 deals with various factors which constitute the income chargeable to income tax under the head "salaries". Section 16 lays down that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 6 of Part A of the Fourth Schedule; and (vii) the aggregate of all sums that are comprised in the transferred balance as referred to in sub-rule (2) of rule 11 of Part A of the Fourth Schedule of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under sub-rule (4) thereof; (viii) the contribution made by the Central Government in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD; (2) "perquisite" includes- (i) the value of rent-free accommodation provided to the assessee by his employer; (ii) the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer; (iii) the value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following case- (a) by a company to an employee who is a director thereof; (b) by a company to an employee being a person who has a substantial interest in the company; (c) by any employer (including a company) to an employee to whom the provisions of paragraphs (a) and (b) of this sub-clause do not apply and whose income under the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... medical treatment of its employees; (b) in respect of the prescribed diseases or ailments, in any hospital approved by the Chief Commissioner having regard to the prescribed guidelines; Provided that, in a case falling in sub-clause (b), the employee shall attach with his return of income a certificate from the hospital specifying the disease or ailment for which medical treatment was required and the receipt for the amount paid to the hospital; (iii) any portion of the premium paid by an employer in relation to any employee, to effect or to keep in force an insurance on the health of such employee under any scheme approved by the Central Government or the Insurance Regulatory and Development Authority established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999) for the purposes of clause (ib) of sub-section (1) of section 36; (iv) any sum paid by the employer in respect of any premium paid by the employee to effect or to keep in force an insurance on his health or the health of any member of his family under any scheme approved by the Central Government or the Insurance Regulatory and Development Authority est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or regularity or benefit therein and the amount is to be passed on or is already passed to a hospital on and then reimbursed. There is no element of any vested right or advantage to the assessee therein. Secondly, it is submitted that under sub-clause (v) of the proviso, a limit is placed at Rs.15,000/- and reimbursement above Rs.15,000/- by the employer will be considered as perquisite to the employee. On the other hand, even if the amount spent on an employee is more than Rs.15,000/-, but it is spent in a hospital maintained by Government or Local Body or an approved hospital treating specified ailments, that would still not be included as perquisite under clauses (i) and (ii) of the proviso and will not be added to the salary of the employee concerned. It is therefore submitted that out of two employees needing hospitalisation, one going to the Government or the Municipal or the approved hospital may get medical treatment exceeding Rs.15,000/- and yet it will not be added to his income as perquisite. On the other hand, merely because an employee goes to a private hospital and incurs expenses exceeding Rs.15,000/-, in the event of reimbursement of such amount by his employer, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat case was an employee of a French company which had entered into an agreement with an Indian company for rendering certain services in Europe and also provided backup and other services in installing a plant in India. Amongst others, he was to be paid a living allowance of Rs.220/- per day when posted at Delhi and Rs.150/- per day when posted at Baroda to cover the extra cost of living. The Division Bench noted that the very fact that the allowance was likely to be reduced or increased depending upon the change in the circumstances from place to place and depending upon whether free accommodation or free transport was allowed or not goes to indicate that the allowance was given as reimbursement rather than a personal advantage. The Division Bench followed the test in Owen v. Pook (supra) that the word "perquisite" would not apply to a mere reimbursement of a necessary disbursement. The Court observed that in its opinion, the better test was to decide whether the allowance of this kind was given by way of reimbursement or was given by way of a personal advantage. 15. The question as to whether a daily allowance is a perquisite came up before a Division Bench of the Gauhati High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age of superannuation. Hence, it was not a perquisite allowed to the employee. 18.It was also submitted on behalf of the Petitioners that reimbursement of medical reimbursement by the State should be treated as a part of fundamental right to life under Article 21 of the Constitution of India. Reliance is placed on Surjit Singh v. State of Punjab - (1996) 2 SCC 336 for that purpose. It was submitted that it was the obligation of the State, and particularly of the Reserve Bank of India and the State Bank of India, to which the employees concerned belong. 19.It was then submitted that in an Income-tax legislation, there cannot be a discrimination within a class consisting of similar set of taxpayers. Reliance was placed on S.K. Dutta, Income-tax Officer v. Lawrence SC) Singh - (1968) 68 ITR 272 (SC), wherein the Apex Court laid down in the context of exemption that there cannot be any distinction between individuals taxed under similar circumstances. Administrative convenience can never justify discrimination. Section 4(3)(xxi) of the Indian Income-tax Act, 1922 and section 10(26) of Income-tax Act, 1961 exempted members of Scheduled Tribes staying in certain territories includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is always permissible for the State and particularly when it comes to taxation. In one of the earliest judgments of the Apex Court in K.T. Moopil Nair 552 v. State of Kerala - AIR 1961 SC 552, provisions of the relevant statute were held unconstitutional since they suffered from lack of classification and which created inequality in treatment to similarly situated persons. A rational basis is required in making the classification and if that is so, the courts do not interfere therewith. Thus, in East India Tobacco Co. v. State of Andhra 1733 Pradesh - AIR 1962 SC 1733, the Andhra Pradesh Assembly passed an amendment to section 5 of the Madras General Sales Tax Act as applicable to the State granting exemption to certain variety of tobacco. The result of the amendment was that the exemption from the tax was limited to sales of what is known as "country tobacco". The sales of Virginia tobacco were liable to taxes. It was contended that this was discriminatory and reliance was placed on the judgment in the case of Moopil Nair (supra). The Apex Court referred to the judgment of the Supreme Court of United States in Madden v. Kentucky - (1940) 309 U.S. 83 to the effect that legisla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Apex Court in State of Tamil Nadu v. M.K. Kandaswami - AIR 1975 SC 1871 to the effect that in interpreting taxing statutes, a construction to defeat its purpose and in effect to obliterate it from the statute book should be eschewed. If more than one construction is possible that which preserves its workability and efficacy is to be preferred to the one which would render it otiose or sterile. 27.It was therefore submitted that if one looks to the scheme of the section, perquisites are included in the concept of salary, and salary is taxable. Perquisites include any sum paid by the employer in respect of an obligation which would have been payable by the assessee, but for such payment. By an enabling provision in the proviso, it is provided that this clause will not apply to value of medical treatment given in the employer's hospital or public hospitals or municipal hospitals or approved hospitals. Similarly, for specified diseases, approved hospitals are notified. Contribution to the health insurance scheme is also excluded. Sub-clause (v) is not intended for hospitalisation. That is what is specifically stated in para 5 of the affidavit in reply of Shri Madhav Mujumdar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to section 17(2) of the Income-tax Act, 1961 to the extent it treats the medical reimbursement above Rs.15,000/- per year as taxable perquisite for the salaried persons. The first submission of the Petitioners has been that this reimbursement is in the nature of reimbursement of necessary disbursement or actual expenditure. It does not result into any personal advantage to the employees concerned. Various cases are relied upon in support of this proposition wherein the nature of variety of allowances came up for consideration before various courts. The first of these cases relied upon is in Owen v. Pook (supra). That was a case where the travelling expenses of the doctor concerned were reimbursed by the hospital management. The relevant provision of the statutory law in that case merely stated that income tax will be chargeable on full amount of emoluments and that emoluments will include amongst other the perquisites. The concept of "perquisite" was not defined in that provision and therefore the House of Lords held that "the term perquisite has to be given its normal meaning, namely a personal advantage". It is material to note that in the judgment itself, the House of Lords obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld have been paid by the assessee. If the expenses in a private hospital were not to be reimbursed by the employer, the employee would be required to honour the obligation. If the employer reimburses that expenditure, it will have to be included under sub-clause (iv) of section 17(2) in view of the wide sweep of this clause. In view of this wide definition, it will not be permissible to restrict the concept of "perquisite" thereunder to a necessary disbursement or to a contingent payment as in CIT v. Russel (supra). 30.If the medical reimbursements were not perquisites, it would not have been necessary to make the special provisions contained in clauses (i) and (ii) of the first proviso to section 17(2) of the Income-tax Act. The Legislature has specifically provided in clause (i) that value of the medical treatment provided to the employee or member of his family in a hospital maintained by the employer will not constitute a perquisite. Similarly, in proviso (ii)(a), it is provided that where an employer incurs the expenditure for an employee or his family member on his medical treatment in a hospital run by the Government or by local authority or any other hospital approved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tribals from that area. That will surely constitute a discrimination against the government employees belonging to the Scheduled Tribes in that area. In the present case, the Legislature has not declared that it will treat all hospitalisation and reimbursement thereof as perquisite. On the contrary, the Legislation is very clear that in fact any sum paid by the employer in respect of an obligation to be honoured by the assessee will be a perquisite. The Legislature has excluded hospitalisation in the employer's hospitals, public hospitals and hospitals treating prescribed ailments or diseases. It will cover speciality hospitals treating ailments such as diabetes, T.B., etc. This is an enabling provision. Merely because such an enabling provision is made, the Legislature cannot be faulted and cannot be told that it must extend this benefit to the treatment taken in private hospitals also. Declaring the latter part of clause (v) as unconstitutional would in fact amount to a legislation by the Court and which the Courts have always to avoid. 32.It is also material to note that such facilities in private hospitals are not available to the Government employees and giving any such ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng genuinely. The CBDT vide its letter dated 17 th April 1998 had expressed its inability to use its power under section 119 of the Income-tax Act and observed that the matter required legislation if at all. That position has remained as it is and the Additional Solicitor General has been informed accordingly by the learned Attorney General vide his letter dated 4 th August 2006, a copy whereof was placed on record. 36.We are informed that a number of employees have been given benefit of stay granted by this Court. The initial ad-interim relief was granted on 26 th March 1992 and it has been running throughout all these years. The three cases cited in the three petitions are in fact hard cases. However, since we are not accepting the challenge to the concerned provision, the benefit therefrom cannot be availed of by the employees. Since the petitions are not being entertained, the interim orders in all the matters will stand vacated and the consequences will follow. Needless to state but we make it clear that the benefit of the interim relief will not be available hereafter since all the petitions are being dismissed. 37.In the circumstances, all the three petitions and Civi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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