TMI Blog2018 (8) TMI 849X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, would have been payable by the assessee, shall be included in perquisites. However, in view of proviso (iii) & (iv) appended to this section clearly prohibit the application of section 17(2) in certain eventualities as contained in these provisos. Claim of expenses allowed as business expenditure - Decided in favor of assessee. - ITA No. 295/Del/2016 - - - Dated:- 13-8-2018 - Shri Amit Shukla, Judicial Member And Shri L.P. Sahu, Accountant Member For The Assessee : Sh. D. Subramanian And Sh. Alkesh Babbar, CA For The Revenue : Sh. Amit Jain, Sr. DR ORDER Per L.P. Sahu, A.M.: This is an appeal filed by the assessee against the order of the ld. CIT(A)-V, Delhi dated 27.11.2015 for the assessment year 2010-11 on the following grounds : 1. That the order of the Learned Commissioner of Income Tax [Appeals V] New Delhi [hereinafter stated as CIT [All is bad in law and on facts. 2. That the learned CIT (A) has erred on facts and in law in sustaining the disallowance of ₹ 1, 205, 531 made by the assessing officer in relation to medical insurance premium paid for the family members of the employees of the company on the ground tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd distant relatives of the key managerial persons are being benefited. 3.1. According to the AO, the appellant had adopted an inequitable and unreasonable system by bearing the medical insurance expenses of only the relatives of key managerial persons and their distant family members. Relying of certain case laws such as the Madras High Court decision in India Express Newspapers (Madurai) Pvt. Ltd. (238 ITR 070) and Calcutta High Court decision in MD Jindial (164 ITR 28), the AO was of the view that he was entitled to lift the veil of corporate entity in order to ascertain the actual intention. He distinguished the case law of Bombay High Court in Mahindra Mahindra Ltd., on which reliance was placed by the appellant, since the instant benefit was not for achieving the purpose of corporate social responsibility but in the instant case it was to benefit a few selected employees. Even otherwise since the employees had not offered what amounted to be perquisites in their hands u/s. 17(2)(iv), he was of the view that these were not business expenses qualifying for deduction u/s. 37(1). 3. The assessee carried the matter in appeal before the ld. CIT(A), who after considering the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sample employment letters pl refer pages 65 to 74 of the accompanying paper book - sl no. 9] is as under: you shall be eligible for reimbursement of medical expenses and group medical insurance scheme for self and dependent family members as per rules of the company The above employment terms demonstrate that the payments made towards insurance premium for family members were purely towards the contractual obligations. In the present age the benefits and facilities provided to the employees go a long way in keeping them happy and satisfied thus contributing to increase in productivity of employees. Therefore, the expense in question was incurred to further the business objectives of the assessee through having a more committed work force. The coverage under the medical insurance policy is based on the declaration provided by the employees for the family members. [for sample declarations pl. refer pages 75 to 80 of the accompanying paper book - sl no. 10. The policy document is also enclosed at pages 81 to 96 of the accompanying paper book - sl no. 11] 6.3 Response to the observation of the Learned AO In regard to the observation of the AO that a further perusa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the taxability of medical insurance premium in the hands of the employee lends strength to the contention of the assessee that the said expenditure is recognized by the Income Tax Act itself as a valid expenditure to be incurred by the employer on the employee. 6.4 Section 40a(ia) pertaining to disallowance due to non-deduction of TDS on salary not applicable The disallowance under section 40a(ia) of the Act in relation to non-deduction of tax on salary payment was introduced with effect from April 01 2015 Vide Finance (No.2) Act 2014 and as such was not applicable for the year under appeal. 7 Case laws relied upon by the appellant The assessee relies on the following additional decisions in support of its claim that the expenditure has been incurred wholly and exclusively for the purposes of business and is an allowable expenditure under section 37 of Income Tax Act, 1961. (a) CIT, Kerala v. Malayalam Plantations Ltd., (1964) 531TR 140 The term wholly refers to the quantum of expenditure while the term exclusively refers to the motive, objective and purpose of the expenditure. The term wholly and exclusively does not mean necessarily as it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y for the business purpose of the assessee in order to maintain good relations between the employer and the employees and engender confidence in the management. Therefore, the said deduction was admissible under Section 37. On a reference, a Division Bench of the Gujarat High Court affirmed the decision of the Tribunal and observed as follows (at page 720) : In the last place, the concept of commercial expediency in the context of any payment made in similar circumstances must change with Changing times and the problem deserves a fresh look. As earlier pointed out, payment by way of retirement benefits or family pension is a well-accepted concept in modern times and if an employer makes a beginning and voluntarily expends money on payment of gratuity or pension or compensation to one or more of his employees or their dependents, without there being any compulsion, statutory or otherwise, taking notice of the altering pattern of the employer-employee relationship, then, the expenditure cannot but be treated as having been made to earn greater co-operation and loyalty of his employees in whose mind such a gesture would generate a legitimate expectation of being similarly treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any way connected with the business of the assessee-company. It was no part of the assessee's business to bring the dead body of its chairman of the board of directors from Delhi to Calcutta. It was done for the benefit of the members of the family of the chairman and as such cannot be said to form part of the business of the assessee. However the High Court held that the expenditure incurred to have his body flown back by Airways while he was on business tour is incidental to business and an allowable deduction under Section 37(1) of the Income Tax. (g) CIT vs. Supreme Motors Private Ltd. [1972] 84 ITR 1 (Delhi) In this case of the facts were that the Chairman of the assessee-company had come from Jodhpur to Delhi on a tour of inspection, and while on such tour he died of heart failure. The company chartered a plane to have his body sent back to Jodhpur and incurred a sum of ~ 6, 900 for that purpose. The question was whether the expenditure was incidental to the business carried on by the assessee and allowable as business expenditure. It was held that the expenditure incurred by the assessee was incidental to the business carried on by it and was allowable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not incurred wholly and exclusively for the purpose of business, which is the real intent of Section 37(1) of the IT Act. The ld. Authorities below could not bring any evidence on record to substantiate that the payments so made by the assessee-company had no nexus with the business of the assessee. Even otherwise, it is not necessary that all the payments/expenditure incurred by the assessee should have direct bearing on earning of income, but some payments are also made under certain business expediency. In the instant case, The payments claimed to have been made by the assessee for the insurance premium of such members who have attained the age of 21 years or more or who are the remote relations of assessee have already been offered by the assessee to tax before the ld. CIT(A), as also noted in the written submissions above. The ld. Authorities below appear to have rejected the claim of the assessee that these payments were in the nature of perquisites to the employees as contemplated under sub-clause (iv) of section 17(2) of the IT Act, according to which any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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