2003 (4) TMI 69 - HC - Income Tax

Court rules medical reimbursement as taxable perquisite under Income-tax Act

The court ruled in favor of the Revenue, holding that the medical reimbursement of Rs. 5,20,230 should be treated as a perquisite under section 17(2) of ... Perquisite under section 17(2) of the Income-tax Act, 1961 - reimbursement of medical expenses treated as perquisite - benefit or amenity provided free of cost or at concessional rate under section 17(2)(iii) - CBDT Circular No. 445 (31 Dec 1985) limited to medical treatment in India in public hospitals - distinction between medical reimbursement for treatment in India and treatment outside IndiaPerquisite under section 17(2) of the Income-tax Act, 1961 - CBDT Circular No. 445 (31 Dec 1985) limited to medical treatment in India in public hospitals - reimbursement of medical expenses treated as perquisite - Whether reimbursement by the employer of medical expenses for treatment abroad is a perquisite within the meaning of section 17(2) of the Income-tax Act, 1961. - HELD THAT: - The court examined clause (2) of section 17 which treats the value of any benefit or amenity granted or provided free of cost or at concessional rate as a perquisite in the cases enumerated in sub-clause (iii). The provision makes no distinction based on the mode of payment (cash or otherwise) and therefore is not confined by the considerations underlying sections 40A(5) or 40(a)(v). The CBDT Circular No. 445 dated 31 December 1985, relied upon by the Revenue, clarifies that genuine medical expenditure incurred on treatment of an employee in India in a public hospital should not be treated as a perquisite; crucially, that clarification is expressly limited to treatment in India and does not extend to treatment abroad. Having regard to the statutory language of section 17(2)(iii) and the limited scope of the CBDT circular, the Tribunal was in error in holding that the medical reimbursement for treatment undertaken outside India was not a perquisite. The court therefore treated the reimbursement of the medical expenses incurred abroad and paid by the employer as a perquisite within section 17(2).Reimbursement of medical expenses for treatment outside India is a perquisite under section 17(2) and the Tribunal erred in holding otherwise.Final Conclusion: The question referred is answered against the assessee and in favour of the Revenue: the medical expenditure reimbursed by the employer for treatment abroad is to be treated as a perquisite under section 17(2). The reference petition is disposed of. Issues:Whether medical expenditure reimbursed to an employee by the employer is a perquisite under section 17 of the Income-tax Act, 1961.Analysis:The case involved a question regarding the taxability of medical expenditure reimbursed to an employee by the employer. The employee, in this case, underwent treatment in the USA and incurred expenses amounting to Rs. 5,20,230, which were later reimbursed by the employer. The Assessing Officer treated the reimbursement as a perquisite under section 17(2) of the Act, 1961. However, the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal held that the medical expenditure was not taxable as a perquisite. The Tribunal relied on a previous decision and the employee's argument that the reimbursement should not be treated as a benefit or amenity provided by the employer.The Revenue argued that a circular issued by the Central Board of Direct Taxes clarified that medical expenses incurred in public hospitals in India should not be considered as a perquisite, but this clarification did not extend to expenses incurred outside India. The Revenue contended that the Tribunal erred in not treating the reimbursement as a perquisite based on this circular. On the other hand, the assessee's counsel cited various court decisions to support the argument that medical expenses incurred outside India should not be treated as a perquisite under section 17(2) of the Act, 1961.The court analyzed the relevant provisions of section 17(2) of the Act, 1961, which define 'perquisite' to include benefits or amenities provided by the employer to the employee. The court noted that the Central Board of Direct Taxes clarified that medical expenses incurred in public hospitals in India should not be treated as a perquisite but did not extend this benefit to expenses incurred outside India. The court concluded that the Tribunal erred in not considering the reimbursement as a perquisite in light of the circular. Therefore, the court ruled in favor of the Revenue, holding that the medical reimbursement of Rs. 5,20,230 should be treated as a perquisite under section 17(2) of the Act, 1961.In conclusion, the court's decision emphasized the importance of considering the specific circumstances and relevant provisions of the law when determining the taxability of reimbursements to employees, especially in cases involving medical expenses incurred both within and outside India.