TaxTMI 
TaxTMI 
2001 (2) TMI 278
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....xpenses of Rs. 1,07,215 for medical treatment of its managing director'. The assessee has also filed a cross-objection only in support of the CIT(A)'s order and since it has no valid grievance worth being considered on merits, the cross-objection is dismissed in limine. 2. The issue in Revenue's appeal lies within a narrow compass of facts. The assessee-company made a reimbursement of medical expenses amounting to Rs. 1,07,215 to Shri S.C. Samal, its managing director, on account of his cardiac operation and post-operative check up at Apollo Hospital, Madras. This expenditure was disallowed by the AO with the observations that "the assessee has claimed Rs. 1,07,250 on account of treatment of M.D. The same is to be disallowed as the same wa....
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....ather than an expenditure for earning the same'. Learned senior Departmental Representative further submitted that it was not even a part of the original terms of appointment of the managing director that he will be reimbursed medical expenses and the Board resolution was an afterthought to regularise meeting personal expenditure of the managing director. It was also pointed out that since Board resolution was not filed at the time of assessment, and in fact on details whatsoever of medical reimbursement were filed at the time of assessment proceedings, the learned CIT(A) was unjustified in deleting the disallowance based on such material. In support of this stand, the learned senior Departmental Representative produced original assessment ....
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....s. CIT (1977) 106 ITR 758 (Bom), Their Lordships of Hon'ble Bombay High Court observed that, "In view of facts and conclusions arrived at by the Tribunal regarding the basis on which the Board resolution was passed by the company, entire amount of medical expenses occasioned by Mehboob Khan's illness which were borne by the assessee-company pursuant to Board's resolution, should be allowed as a deduction on the footing that decision to reimburse was taken on the principles of commercial expediency and that no part of such expense was held to be not proved or arbitrary, excessive or unreasonable." In the case of CIT vs. Steel Ingots (P) Ltd. (1998) 146 CTR (MP) 169, Their Lordships of Hon'ble Madhya Pradesh High Court, respectfully following....
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.... construed as application of income rather than expenditure to earn income, we may quote a passage from the judgment of House of Lords in the case of Atherton vs. British Insulated & Helsbey Cables Ltd. 1925 (10) Tax Cases 155) HL, referred to with approval by the Hon'ble Supreme Court in the case of CIT vs. Chandulal Keshavlal & Co. (1960) 38 ITR 601 (SC), which reads as follows: "It was made clear in the above cited cases of Usher's Wiltshire Brewery vs. Bruce and Smith vs. Incorporated Council of Law Reporting 1914 (6 Tax Cases 477 that a sum of money expended not with a necessity and with a view to direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency and in order to indirectly facilitat....
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....ursement is application of income and not incurring the expenditure for earning the income. The assessee-company is a legal entity, independent from it shareholders or directors, and the expenditure is incurred, duly authorised by a bona fide Board resolution, for commercial expediency and in furtherance of legitimate objects of the company. Merely because an expenditure may end up benefiting a shareholder, though it is incurred for bona fide reasons and in the interest of the company, in our considered view, it cannot be treated as an application of income. In the Revenue's ground of appeal a mention is also made about 'closely-held company of family members' but it is not even necessary to examine this aspect of the matter as this issue i....