Medical reimbursements and surtax deductions allowed, but unclaimed insurance premium written back became taxable trading receipt.

Reimbursement of employees' medical expenses was treated as not amounting to perquisites under the relevant income-tax provision, so the claim was allowed to the assessee. Surtax liability was also recognised as an allowable deduction in computing total income, with the assessee again succeeding. By contrast, the unclaimed balance of insurance premium, originally held in deposit in hire-purchase transactions, became taxable when it remained unclaimed for long periods and was written back to the profit and loss account; once it had effectively become the assessee's own money, it was treated as a trading receipt in that year.

---

---

Issues: (i) whether reimbursement of medical expenses by the assessee company to its employees could be treated as perquisites within the meaning of Section 40C/40A(5) of the Income-tax Act, 1961; (ii) whether the surtax liability of the assessee was allowable as a deduction in computing total income for assessment year 1978-79; and (iii) whether the unclaimed balance of insurance premium, written back and credited to the profit and loss account, constituted taxable income of the assessee.

Issue (i): whether reimbursement of medical expenses by the assessee company to its employees could be treated as perquisites within the meaning of Section 40C/40A(5) of the Income-tax Act, 1961.

Analysis: The question was governed by the earlier binding decision holding that reimbursement of medical expenses paid to employees was not to be treated as perquisites for the purpose of the relevant provision.

Conclusion: The issue was answered in favour of the assessee and against the Revenue.

Issue (ii): whether the surtax liability of the assessee was allowable as a deduction in computing total income for assessment year 1978-79.

Analysis: The question was covered by the earlier decision relied upon by the Court, which treated the surtax liability as an allowable deduction in computation of income.

Conclusion: The issue was answered in favour of the assessee and against the Revenue.

Issue (iii): whether the unclaimed balance of insurance premium, written back and credited to the profit and loss account, constituted taxable income of the assessee.

Analysis: The initial collection of insurance amounts arose in the course of the hire-purchase transactions and was held in deposit for payment of premium and possible refund of excess. However, once the amounts remained unclaimed for long periods and were written off by the assessee and transferred to the profit and loss account, the character of the receipt changed. Applying the principle that a receipt initially not taxable may become income when it becomes the assessee's own money by lapse of time or by contractual or legal consequence, the balance was treated as a trading receipt in the year of write-back.

Conclusion: The issue was answered in favour of the Revenue and against the assessee.

Final Conclusion: The reference was disposed of by answering the common question on unclaimed insurance premium against the assessee, while the two additional questions were answered in favour of the assessee; accordingly, the Revenue's appeals were allowed and the assessee's appeals were dismissed.

Ratio Decidendi: A receipt received in the course of a trading transaction may acquire the character of income in a later year when it becomes the assessee's own money by lapse of time or by operation of law or contract, especially when the assessee itself writes it back to profit and loss account.

---