Commissioner of Income Tax vs Aspinwall and Co. Ltd.

Varghese Kalliath, J.—At the instance of the Commissioner of Income Tax, Cochin, the Income Tax Appellate Tribunal, Hyderabad Bench B, Camp at Cochin, has referred the following question of law for the decision of this court:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in directing the Income Tax Officer to exclude the medical expenses while making the disallowance u/s 40A(5) ?"

The question referred above is a common question of law for the assessment years 1978-79 and 1979-80.

The assessee is a company. While completing the assessment for the assessment year 1978-79, the Income Tax Officer disallowed an amount of Rs. 19,005 u/s 40A(2) of the Income Tax Act, which represented the expenditure incurred by the company on maintenance of bungalows, furniture, etc., as well as the reimbursement of medical expenses to two of the executives of the company. The executives concerned were one Mr. C. Prabhakaran and Mr. E. B. Unni. The aggregate medical expenses for Mr. Prabhakaran was only Rs. 181 and the only disallowance made u/s 40A(5) was out of the total figure of Rs. 6,748 on account of expenditure on other items such as air-conditioner, refrigerator, etc., which was only Rs. 32. In fact, the disallowance on account of medical expenses was negligible. In the case of Mr. E. B. Unni, the disallowance on account of medical expenses was Rs. 773. Regarding expenditure other than medical expenditure, the Tribunal upheld the order of the Income Tax Officer following the decision of this court in Commissioner of Income Tax Vs. Forbes, Ewart and Figgis (P.) Ltd. and Harrison and Crossfield Ltd., .

Against this, the assessee had filed applications for reference which have been dismissed on the ground that no referable question of law arose. In regard to medical expenses, the Tribunal had directed allowance of the same, following the Board''s Circular No. 336 dated April 16, 1982, ([1982] 137 ITR 3), and the decision of the Calcutta High Court in Commissioner of Income Tax Vs. Britannia Industries Co. Ltd., . In this reference, the submission of the Revenue is that the circular of the Board only deals with the terms of perquisites in the hands of the recipient and not in the hands of the company and hence a question of law arises.

For the assessment year 1979-80, the aggregate medical expenses which were disallowed u/s 40A(5) works out to Rs. 6,941. The Tribunal, at the instance of the Commissioner, has referred the question we have extracted in paragraph 1 of this judgment.

We heard counsel on both sides. In the common order of the Appellate Tribunal, the Tribunal has stated that the disallowance of Rs. 19,005 made u/s 40A(5), being expenditure for maintenance of bungalow, furniture, air-conditioner, refrigerator and medical expenses is in accordance with the decision of this court in the case of Commissioner of Income Tax Vs. Forbes, Ewart and Figgis (P.) Ltd. and Harrison and Crossfield Ltd., . The Tribunal itself has referred to the claim of the assessee that the medical expenses should be excluded because of the Circular of the Board No. 336 dated 16-4-1982 ( [1982] 137 ITR 3). The Tribunal further held :

"We find this to be correct because the Central Board of Direct Taxes has said that reimbursement of medical expenses need not be taken as a perquisite in the hands of the employee and consequently in view of the decision of the Calcutta High Court in the case of Commissioner of Income Tax Vs. Britannia Industries Co. Ltd., , it cannot be treated as a perquisite for the purpose of Section 40A(5)."

Holding so, the Tribunal directed the Income Tax Officer to exclude the medical expenses while making the disallowance u/s 40A(5).

Though several decisions were referred to before us, we do not propose to discuss those decisions and the applicability of those decisions to the facts of this case. The Tribunal has substantially relied on the Circular of the Central Board of Direct Taxes No. 336 dated April 16, 1982 ([1982] 137 ITR 3). The above circular is in regard to the computation of the total income of the assessee. The above circular refers to Circular No. 33 dated August 1, 1955. This is the relevant circular. The above circular has not been placed before us and we are not in a position to say the content and scope of the circular and the applicability of the same or the extent of the applicability of the same in the circumstances of the case.

In the circumstances, we decline to answer the question referred to us, but, however, we direct the Tribunal to reconsider the question afresh on the basis of the materials available before the Tribunal. Of course, the Tribunal has to consider whether the circular is applicable to the facts and circumstances of the case. The reference is answered as above.

A copy of the judgment, under the seal of this court and the signature of the Registrar, shall be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.