TaxTMI 
TaxTMI 
1996 (4) TMI 148
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.... had also gone to London to attend to the assessee and her living expenses, along with those of the assessee were also initially provided by the company. The total expenses on the surgery as well as the living expenses in London amounted to Rs. 2,55,258. 2. On his return to India, the assessee made a request to ITC Ltd. that the cost and expenses of the medical treatment and the living expenses be met by the company on sympathetic considerations. The request was put to the Board of Directors and after considering the request it was unanimously agreed that the expenses for both the assessee's treatment as well as his living expenses and those of his wife, both during pre and post-operative stages, be paid by the company on discretionary basis. A resolution was accordingly passed. 3. The ITO took the view that the aforesaid expenses represented a perquisite in the assessee's hands, taxable under section 17(2)(iv) of the Act. He accordingly brought the same to assessment as income from salary. The view of the ITO was confirmed in appeal by the CIT (Appeals) according to whom the payment made by ITC Ltd. was a payment towards an expenditure which otherwise the assessee would have....
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.... provided by section 17(1)(iv). Section 17(2)(iv), the provision which is relied upon in this case by the Revenue, says that perquisite includes any sum paid by the employer in respect of any obligation which but for such payment, would have been payable by the assessee. It is well-settled that for a receipt to be taxed under the head ' Salary ', there should exist master-servant relationship. It is not pretended in this case that there was no such relationship. The next question would be whether all payments made by the employer are to be taxed as salary. A long line of English decisions has taken the view that every receipt from the employer is not taxable as salary and it has been held by high authority that the receipt must arise out of the terms of the office. These decisions we may briefly refer to. In Blakiston v. Cooper 5 TC 347 it was held that if a sum of money was given to the incumbent substantially in respect of his services as incumbent, it accrues to him by reason of his office. In Moorhouse (Inspector of Taxes) v. Dooland [1955] 28 ITR 86 (CA) it was held by Lord Jenkins that the link between Dooland's employment and the proceeds of the collections was supplied bv a....
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....,500 in a block of 3 years. The expenses incurred by the company with which we are concerned in the present case, are clearly outside the purview of the terms of employment. Therefore, it is impossible to countenance the suggestion that either the company was obliged to accept the assessee's request or that the assessee had a right to claim the amount. As a matter of fact, from the Board Resolution which is available in the assessment record, we find that it was Mr. Sapru who made a request to ITC Ltd. that the costs and expenses of the emergency medical treatment be met by the company " on a sympathetic consideration ". The company took into account the valuable services rendered by the assessee to it in the past and though the payment would exceed the ceiling prescribed by the Central Government, it was unanimously agreed by the Board that all the same the expenses should be borne by the company " on discretionary basis ". The Resolution thereafter authorised the Secretary to make a formal application to the Central Government under section 310 of the Companies Act for approval. For the sake of completeness of the record, we may observe that initially the approval was refused but....
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.... by the company if Mr. Sapru had not been employed by the company and, therefore, it arises out of the employment and should, therefore, be taxed. Such a submission on behalf of the revenue had been rejected by the House of Lords in the case of Hochstrasser (Inspector of Taxes) v. Mayes [1961] 42 ITR 457. Lord Radcliffe stated that " it is not sufficient to render a payment assessable that an employee would not have received it unless he had been an employee.... " Lord Cohen in the same decision was more explicit and stated the proposition thus-- "My Lords, I am prepared to accept that statement of the law, but it is, I think, clear from the final conclusion of Morris L.J. in the case last cited, and from the decisions cited by Jenkins L.J. in his judgment in the present case (see especially Beak v. Robson, per Lord Simon and Cowan v. Seymour, per Younger L.J.) that it is not enough for the Crown to establish that the employee would not have received the sum on which tax is claimed had he not been an employee. The Court must be satisfied that the service agreement was the causa causans and not merely the causa sine qua non of the receipt of the profit." 10. It would, therefor....
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....element of personal profit is intended." This decision of the House of Lords has been applied by the Gujarat High Court in CIT v. S. G. Pgnatale [1980] 124 ITR 391 while holding that the living allowance given to the assessee was a reimbursement rather than a personal advantage and hence was not a perquisite. It was argued, relying on the above legal position, on behalf of the assessee, that there was no personal advantage to the assessee when the expenses were paid by the company and at best it only amounted to the removal of a disability, in the sense that by undergoing surgery and the subsequent treatment in London Mr. Sapru's health was restored to its original condition and apart from that, there was no personal advantage. If what is meant to be conveyed by this argument is that no money has gone into the assessee's pocket, we think, the argument has to be accepted, inasmuch as there was no monetary benefit or profit to the assessee. The fact that he was not out of pocket would not, in our opinion, be construed as one giving rise to a perquisite. 12. It was then argued on behalf of the assessee that since the Act gives an inclusive definition, the assessee should strictl....
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....um in the first instance, the assessee had not incurred any obligation. Thus, the case does not fall under section 17(2)(iv). 13. The logical question then to be asked is what is the nature of the payment. The Assessing Officer would appear to have had no difficulty in this respect as he says that the payment is in the nature of a gratuitous payment by the assessee's employer (see top of page 4 of the assessment order). The stand of the Learned Counsel for the assessee was also to the same effect. If it is conceded that the payment was gratuitous, the assessment of the same as perquisite must fail. In our opinion, the absence of a term in the contract of employment and the fact that the payment was sanctioned by the company on discretionary basis are all pointers to the conclusion that the payment was made more on gratuitous considerations or humanitarian considerations. 14. A strong plea for not taxing such payments as perquisites has been made by the learned authors, Kanga and Palkhivala in the 8th Edition of their treatise, The Law and Practice on Income-tax, at page 419. They have opined that section 17(2)(iv) should be construed not literally and merely grammatically, bu....