Employee medical benefit contributions under binding standing orders may escape section 40A(9) and qualify as business deduction.

A contribution to a workers' sickness benefit society made under certified standing orders and a binding settlement was treated as a statutory and contractual obligation for employee medical benefits. The Calcutta HC noted that the payment was not to a recognised fund, approved superannuation fund or approved gratuity fund, but it still fell outside section 40A(9) because it was required under law for the time being in force. The same expenditure was also allowed under section 37(1) as business expenditure incurred wholly and exclusively for the purposes of the business.

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Issues: (i) whether the assessee's contribution to the workers' sickness benefit society was hit by section 40A(9) of the Income-tax Act, 1961; (ii) whether the contribution was allowable as a deduction under section 37(1) of the Income-tax Act, 1961.

Issue (i): whether the assessee's contribution to the workers' sickness benefit society was hit by section 40A(9) of the Income-tax Act, 1961.

Analysis: The contribution was not towards a recognised fund, approved superannuation fund or approved gratuity fund. It was made pursuant to certified standing orders and a collective settlement providing medical benefits to workmen. The standing orders had statutory force under the Industrial Employment (Standing Orders) Act, 1946, and the settlement was binding and legally enforceable under the Industrial Disputes Act, 1947. The payment was therefore required under law for the time being in force and did not fall within the mischief of section 40A(9).

Conclusion: The contribution was not disallowed under section 40A(9) and the finding was in favour of the assessee.

Issue (ii): whether the contribution was allowable as a deduction under section 37(1) of the Income-tax Act, 1961.

Analysis: The expenditure was incurred to discharge a statutory and contractual obligation for providing medical facilities to workmen under certified standing orders and a binding settlement. It was a business expenditure laid out wholly and exclusively for the purposes of the assessee's business and was allowable under section 37(1).

Conclusion: The deduction was allowable under section 37(1) and the finding was in favour of the assessee.

Final Conclusion: The Revenue's challenges failed, the assessee's claim for deduction was upheld, and the connected appeals were dismissed.

Ratio Decidendi: A payment made under certified standing orders and a binding industrial settlement for employee medical benefits is a statutorily required business expenditure and is not hit by section 40A(9), while remaining allowable under section 37(1).

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