Commercial expediency supports medical reimbursement for a key employee when authorised and connected to business welfare.

Medical reimbursement paid by a company for the critical heart surgery of a full-time employee and promoter-director was treated as allowable business expenditure under the Income-tax Act. The payment was authorised by board resolution, booked under employee benefit expenses, and related to a key person instrumental in the business. Because the treatment was for a prescribed ailment in an approved hospital and the company bore only part of the total cost while the employee funded the balance, the outlay was found commercially expedient and not a personal expense of the company. The disallowance was therefore unsustainable and the addition was deleted.

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Issues: Whether reimbursement of medical expenditure incurred for the critical heart surgery of the assessee-company's full-time employee and promoter-director was allowable as business expenditure under section 37(1) of the Income-tax Act, 1961.

Analysis: The reimbursement was made to a key employee who was found to be instrumental in the assessee's business, and the medical treatment was for a prescribed ailment in an approved hospital. The expenditure was authorised by a board resolution and debited under employee benefit expenses. The amount reimbursed was only a partial part of the total medical cost, and the balance was borne personally by the employee, which negatived the allegation of undue benefit. Relying on the settled principle of commercial expediency and the view that a company cannot have personal expenses in the sense contemplated by section 37(1), the disallowance was held to be unsustainable.

Conclusion: The medical reimbursement was held allowable as a business expenditure, and the addition was deleted.

Ratio Decidendi: Expenditure incurred by a company for the medical welfare of a key employee, when authorised by the board and shown to be commercially expedient and wholly connected with business, is allowable under section 37(1) and cannot be treated as the company's personal expense.

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