Deputy Commissioner Of Income Tax vs S. Man Mohan Singh
1998 Latest Caselaw 362 Del

ORDER

MISS MOKSH MAHAJAN, AM.:

These appeals for the concerned years have been filed by the Revenue as well as by the assessee.

2. Taking up the appeals of the assessee first, in ITA No. 2207 for asst. yr. 1986-87, the first contention raised relates to confirmation of disallowance at Rs. 44,272 made out of reimbursement of medical expenses. Shri M.S. Syali who appeared on behalf of the assessee submitted that Sardar Man Mohan Singh was the managing director during the period relevant for asst. yr. 1986-87. He had gone abroad in connection with the collaboration agreement entered into with Mls Frick, USA which was for supply of technical know-how and expertise for manufacture of tailor-made refrigeration equipment. While abroad, the assessee suddenly developed cardiac problem and had to be operated upon immediately. Subsequently, the Board of Directors as a gesture of respect to its Chairman-cum-MD agreed to reimburse the expenditure incurred on medical treatment incurred in USA. The aforesaid amount was treated as a perquisite in the hands of the assessee and was brought to tax by the AO. The learned CIT(A) sustained the addition so made on the ground that the same was covered under the provisions of s. 17(2)(iii) and (iv) of the Act. This is not correct. On facts, the company paid the amount to the assessee's brother settled in USA. After having accepted that the payment had no genesis in the contract between the company and the assessee and also after being of the opinion that the same did not emanate from vested rights of the assessee, the same could not be taxed under s. 170(iii) and 17(2)(iv) of the Act.

3. In support reliance was placed on the decision of Tribunal, Jaipur Bench, in case of Smt. Asha Golcha vs. Asstt. CIT (1992) 42 ITD 7 Qp), wherein on identical facts it was held that reimbursement of medical expenses could not be treated as perquisite under s. 17(2)(iii)(c) or under s. 17(2)(iv) of the Act. Again, in case of Dy. CIT vs. P. G. Shanbagh (1995) 54 ITD 417 (Hyd), it was held that expenditure incurred by employer on travel of attendant accompanying the assessee to USA for medical treatment could not be treated as perquisite having been incurred in discharge of assessee's obligations. According to Shri M.S. Syali in the case of assessee, the payment was made to his brother which fact brings the assessee's case on a stronger footing than the one reported in the cases as cited.

4. The learned Departmental Representative, on the other hand, emphasised the reasoning adopted by the learned CIT(A) in her order while upholding the stand of the Department. Attention was drawn to the observations wherein it was mentioned that the fact that the payment is to be made to the brother of the assessee does not alter the character of the payment. As per the reasoning, had the amount not been paid by the brother of the assessee or had the regulations restricting remittance of the amount abroad not being there, the amount incurred on the treatment would have been payable by the assessee. It was, thus, submitted that the same was rightly brought to tax as perquisite in the hands of the assessee.

5. We have considered the rival submissions. On going through the definition of s. 17(2) of the Act we find that the expression "perquisite" includes amongst others the value of any benefit or amenity granted or provided free of cost or at a concessional rate to the director of the company or an employee who has a substantial interest in the company. As per sub-cl. (c) of cl. (iii) of sub-s. (2) of s. 17, it also includes a benefit or amenity granted by an employer to an employee whose salary exceeds the specified amount under certain circumstances.

Clause (iv) of sub-s. (2) of s. 17 also speaks of any sum paid by the employer in respect of any obligation which but for such payment would have been payable by the assessee. Thus, in order to be perquisite under the sub-cl. (iii) or (iv) of sub-s. (2) of s. 17, a benefit or amenity must accrue to the employee or it should be in respect of any obligation which but for such payment would have been payable by the assessee. In the case of the assessee, admittedly, the payment made was not as a result of a contract with the company but was a gratuitous payment. The payment made was also not to the assessee but to his brother who at the first instance met the expenses. The issue in question is whether under these circumstances these could be covered under the aforesaid clauses of sub-s. (2) of s. 17 of the Act. The issue has been considered by the Tribunal in the case of Smt. Asha Golcha vs. Assa. CIT (supra) where the facts are identical. In the aforesaid case, the assessee who is a managing director, had to go to USA for medical check up and to undergo bypass surgery. He was reimbursed in cash medical expenses by the company. On interpretation of the relevant provisions, it was held that reimbursement made by the company to the assessee was on grounds of commercial expediency or staff welfare expenses. The expression "the value of any benefit or amenity granted or provided free of cost..." could not apply to reimbursement in cash of the medical expenses. The benefit or perquisite could not be money itself or cash payment. The reimbursement of medical expenses of the managing director by the company was not an expenditure by the company which resulted directly or indirectly in the provisions of any benefit or amenity or perquisite. So far as s. 17(2)(ii) is concerned, it refers to 'any sum paid by the employer in respect of any obligation which but for such payment, would have been payable by the assessee'. That clause would also not be attracted in the instant case because the question of any obligation did not arise. Therefore, the amount was not to be treated as a perquisite in the hands of the assessee. The view taken by the Tribunal in the case of PJ Shanbagh (supra) is also similar. The assessee has also relied on the decision of Tribunal, Mumbai Bench, in case of Smt. Padma Chary vs. ITO (1996) 59 ITD 350 (Mum). As against these, no contrary decision has been cited by the learned Departmental Representative. In the circumstances, respectfully following the aforesaid decision of the Tribunal, we would set aside the order of the learned CIT(A) and allow relief to the assessee as claimed.

6. The assessee moved an application for admission of additional ground in regard to the taxability of perquisite. It was submitted that the learned CIT(A) in her order dt. 31st Jan., 1991, directed that the amount taxable as perquisite in this year is Rs. 42,272 and the balance of Rs. 3,62,124 is taxable in the subsequent years as the approval of RBI with regard to latter amount was received in subsequent year i.e. 1988-89. As per the aforesaid ground, the directions of the learned CIT(A) in regard to an amount of Rs. 3,62,124 are not valid. Since the additional ground does not require investigation of any new facts other than those already on record, it was pleaded that the same may be admitted. The Departmental Representative was given an opportunity for raising objections and after hearing him, we admit the aforesaid ground for adjudication.

7. The arguments of the learned authorised representative in this respect were that the learned CIT(A) had no jurisdiction to issue instructions for the year which is not before her. In support, reliance was placed on the decision of Ca/cutta High Court in case of Mrs. R.H Dave vs. CIT (1982) 26 CTR (Cal) 315: (1983) 140 1TR 1035 (Cal). It was argued that these directions cannot vest jurisdiction with the AO for the year which is other than the year under appeal. The learned Departmental Representative, on the other hand, supported the decision of the learned CIT(A).

8. We have considered the rival submissions. As reliance has been placed on the decision of the Hon'ble Ca/cutta High Court in the case of Mrs. R.H. Dave vs. CIT (supra), we would refer to the same. The facts in the aforesaid case are that the assessee took a plot of land on lease which was acquired by the Government for which the assessee received compensation by an award dt. 13th Feb., 1970. The ITO brought the compensation amount to tax in the asst. yr. 1971-72 as income from other sources. The AAC held that the amount was capital gains and had to be assessed in the asst. yr. 1962-63 and accordingly deleted the addition made in the asst. yr. 1971-72. The AAC directed the ITO to bring the amount to tax in the correct asst. yr. 1962-63. On further appeal, the Tribunal held that the decision of the AAC to exclude the amount in the asst. yr. 1971-72 was correct but AAC had no jurisdiction to direct the ITO to bring the amount to tax in the correct assessment year. On reference to the High Court, their Lordships held that the AAC had no jurisdiction to come to a finding that the amount could be taxed in a particular assessment year. In holding so, reliance was placed on the decision of the Hon'ble Supreme Court in the case of 1TO vs. Murlidhar Bhagwan Das (1964) 52 ITR 335 (SC). Referring to the case of Murhdhar Bhagwan Das (supra) we find that the issue has been decided under s. 34(3) of the 1922 Act. The expression "finding and direction" came for an interpretation therein. It was held that these expressions have limited meaning. A finding given in an appeal arising out of an assessment must be one necessary for the disposal of the particular case i.e., in respect of a particular assessee and in relation to particular assessment year. While holding so, it was explained that it is possible in certain cases that in order to render a finding in respect of (a) finding in respect of (b) may be called for. The finding concerning the latter is to be intimately connected as a step in reaching the ultimate finding respecting the issue. Similar would be the case in regard to the assessment year under consideration or any other assessment year.

9. The effect of the aforesaid decision has been modified by the scope of the provisions of Expln. 2 and 3 to s. 153(3)(ii) of the Act. It clearly provides therein that in case in an appeal, revision or reference, an income is excluded from the total income of an assessee for a particular assessment year, then reassessment of such income for the proper assessment year is deemed to be made in consequence of or to give effect to any finding or direction within the meaning of s. 1530(ii) of the Act. Even otherwise examining the assessee's case in the light of the ratio of the Supreme Court, we find that the issue before the learned CIT(A) was whether the benefit derived by the assessee constituted a perquisite assessable in the year under appeal or not. After coming to the conclusion that the entire amount constituted a perquisite, it was held that the same was taxable in the hands of the assessee. After coming to this finding, in regard to the relevant year in which it was assessable it was held that since the reimbursement could only be made in foreign exchange and that too after the approval of the RBI, the correct amount taxable is to be in two parts; Rs. 44,272 to be taxed in the year under appeal and the balance in the subsequent assessment year when the approval from the RBI was obtained. Thus, there were two aspects of the issue., one relating to the taxability of the perquisite and the other the year in which the same was taxable. As regards the second issue, the same is to be considered in relation to the whole amount and not a part of it. Since the taxability of an amount was held to be on the basis. of the sanction of the RBI, the directions were given that the same had to be brought to tax in two assessment years. The learned CIT(A) could not have held that only an amount of Rs. 44,272 could be brought to tax in the year under appeal without giving further directions for the remaining amount to be taxed in the other assessment year. Thus, viewed from this angle, the case clearly falls within the decision of the Hon'ble Supreme Court. Nevertheless, as pointed out earlier, under the provisions of s. 153(3)(ii) read with Explanations, the directions of the learned CIT(A) are in order. We would also like to point out that their Lordships of Ca/cutta in one case on which sole reliance was placed did not consider the decision of the Andhra Pradesh High Court in case of Abdul Rehman Sahab vs. ITO (1975) 100 = 541 (AP) wherein the decision of the Hon'ble Supreme Court in case of Murlidhar Bhagwan Das (supra) was also considered. Their Lordships also did not consider the case of P.J Udanj vs. CIT (1967) 63 ITR 766 (AP).

10. In short, since the directions were necessary for deciding the issue relating to the assessment year, in our considered view, they were validly issued. We have expressed our opinion on the issue as we were asked to do so. In any way, this would be of academic value only because of our decision that the amount could not be brought to tax in the form of a perquisite as held by the Revenue authorities.

11. The next ground of appeal relates to addition of Rs. 53,000 made under the head Income from undisclosed sources". The facts in brief as explained are that the assessee showed agricultural income at Rs. 78,000. Since the same could not be substantiated, the AO estimated it at Rs. 25,000. This was as confirmed in an appeal for asst. yr. 1984-85. The remaining amount was treated as income from undisclosed sources. Before the learned CIT(A), the assessee filed details of sale of wheat, potatoes period-wise. After holding that the identity of the purchaser was not established and considering the expenses to be incurred for earning the income, the learned CIT(A) confirmed the finding of the AO.

12. On the facts, it was stated by Shri M.S. Syali that the assessee is a co-owner along with his brother Shri Sarabjeet. Singh. The issue in the case of Shri Sarableet Singh has been decided by the Tribunal for asst. yr. 1985-86. Our attention was drawn to the order of the Tribunal in ITA No. 4967 wherein against the income declared at Rs. 1,44,000, the same has been adopted at Rs. 50,000. As per the arguments advanced, the view taken in the case of Shri Sarabjeet Singh should also be taken in the case of the assessee. The learned Departmental Representative supported the order of the learned CIT(A). On going through the photostat copy of the order of the Tribunal filed before us, we find that the Tribunal in the case of Shri Sarmeet Singh in ITA No. 4967/Del/1988 for asst. yr. 1985-86 discussed the issue in regard to the agricultural income at length. In para 11 of their order, they recorded agricultural income returned from 1981-82 to 1989-90. After discussing the material brought before them, it was held that the income at Rs. 50,000 would be fair and just. Keeping the aforesaid fact in view, we would direct the AO to adopt the income keeping the order of the Tribunal for asst. yr. 1985-86 in view and also income of his brother as finally assessed for asst. yr. 1986-87. On this limited issue, the matter would be restored to the file of the AO.

13. Final ground of appeal relates to interest charged under ss. 139 and 215 of the Act. It is stated to be consequential in nature. We would direct the AO to modify the same in the light of the relief allowed.

ITA No. 50241DYI 991 :

14. In this appeal, the first ground taken relates to the sustaining of an addition of 116th share of income from the estate of mother. In this context, we find that while the AO brought to tax 1/6th share of income from the estate of mother and the learned CIT(A) confirmed the finding. According to Shri Syali, since the estate was not administered till the year end relevant for of the assessment year, the question of inclusion of income in the hands of the assessee did not arise. It was argued that the issue was not examined from the point of view of the provisions of the Act relevant to the administration of estate. In the circumstances, the assessment should be set aside on the aforesaid matter. The learned Departmental Representative conceded that as the issue has not been examined properly, the matter should go back to the AO for re-examination and rendering the decision in accordance with law.

15. On careful consideration of the facts, we find that the facts have not been discussed in detail. Circumstances under which the assessee came to acquire 1/6th share in the property and also whether till the date the estate was fully administered or not were not discussed. In the circumstances, on the aforesaid issue, the matter need to go back to the file of the AO for redecision in accordance with law.

16. The second and third ground of appeal pertaining to confirmation on addition of Rs. 2,373 as income from house property and Rs. 2,000 in regard to assessee's claim of expenses were not pressed, hence not discussed. These are dismissed having become infructuous.

17. In the 4th ground of appeal, the addition made in regard to the income from undisclosed sources is questioned. The learned CIT(A) sustained an addition of Rs. 53,000 by estimating the agricultural income at Rs. 25,000. This is against the claim of the assessee at Rs. 78,000. The issue has since been discussed in para 10 in appeal No. 5024/D11991 where the facts have been discussed in detail. For the reasons given therein, the issue is restored to the file of the AO for deciding the agricultural income in accordance with the directions given therein.

18. In the result, the appeal is allowed in part for statistical purposes. ITA No. 11 91D11 992 :

19. The first ground relates to confirmation of addition of Rs. 8,500 representing income of house property No. 5 C/20 Rohtak Road, New Delhi. The AO made the addition on the ground that no evidence was led to show that the house remained vacant for ten months. CIT(A) found that the aforesaid property was owned by the assessee's father late Sardar Balwant Singh who died in December, 1971. On his death, income from property was included in the income of Snit. Karam. Katir. Relying on the provisions of sub-s. (4) of s. 168 of the Act, it was argued that as the estate had been taxed separately, no income can be assessed in this respect in the hands of the assessee. The learned CIT(A) rejected the assessee's appeal after following the orders for the earlier assessment year. Directions were given that 1/6th of income should be brought to tax in the hands of the assessee.

20. While we find that the AO has disallowed the claim of the vacancy allowance of the assessee, the learned CIT(A) has discussed whether the income is assessable in the hands of the assessee or not. It is not then understood as to whether the assessee declared the income in his hands and whether the same was 1/6th of the share or was the full income.

Both the parties could not throw any light on the aforesaid issue. In the circumstances, we have no option but to restore the matter back to the file of the AO with the direction to ascertain first correct facts in regard to the ownership of the property and in case same is assessed in the hands of the estate, the aforesaid factor should be taken into consideration while deciding whether the income is assessable in the hands of the assessee or not. The issue is to be decided in accordance with law.

21. The next ground relates to in sustaining the addition of Rs. 16,000 as income from undisclosed sources. The facts in brief are that the assessee declared income from agriculture at Rs. 75,OOG. The AO adopted the same at Rs. 50,000, thus making an addition of Rs. 25,000. The learned CIT(A) reduced the addition by Rs. 9,000. The issue has come up in appeal for assessment year in ITA No. 2207/D11991. For the reasons given therein, we restore the matter back to the file of the AO. For the same reasons, the AO is directed to redecide the issue in the light of the directions given therein. The matter is restored back to the file of the AO.

ITA No. 78791D11 992: 22. The first issue relates to confirmation of an addition of Rs. 8,500 in respect of income from house property No. 5 C/20, Rohtak Road, New Delhi. The issue has since been discussed in appeal in ITA No. 1191D/1992. For the reasons given therein, the matter is restored back to the file of the AO to redecide the issue in accordance with law.

23. The second ground of appeal relates to confirmation of addition of Rs. 25,000 as income from undisclosed sources. The AO accepted the agricultural income of the assessee at Rs. 25,000 and brought to tax the remaining amount of Rs. 50,000 as income from undisclosed sources. On the aforesaid issue, we have restored the matter back to the file of the AO with certain directions while deciding the appeal in ITA No. 2207 in the case of the assessee. For this year too, we would restore the matter back to the file of the AO with directions that issue be decided afresh in accordance with law.

ITA Nos. 2744, 8728, 51761D11991, ..

24. The first issue common to all the appeals relates to disallowance of deduction of Rs. 10,000 under s. 80U for the relevant assessment years. The learned Departmental Representative fairly conceded that the issue has since been decided by the Tribunal in ITA No. 1213/Del/1998 for asst. yr. 1983-84 in the case of Shri S.D. Batra. It was submitted that on similar facts, the Tribunal accepted the assessee's contention. Since the party suffered from heart ailment, there was a permanent disability because of which he was entitled to deduction under s. 80U. In the case of the assessee, he also had to undergo surgery in connection with his heart and because of the aforesaid factor, the ratio of the decision in the case of Shri S.L. Batra applied to the case of the assessee too. Considering the submissions and following the aforesaid order of the Tribunal, we would hold that the assessee is entitled to deduction under s. 80U of the IT Act.

25., There is another ground raised in appeal filed in ITA No. 2744/D/199 1. This relates to relief allowed on account of addition of Rs. 25,000 in respect of foreign travel expenses of the assessee's son Shri Jagmohan Singh. While examining the issue, it was found by the AO that Shri Jagmohan Singh, son of the assessee, who was in USA, travelled from USA to India. It was explained that his uncle with whom he was staying purchased the ticket and as such no money was expended also on going from India to USA. This was not believed in by the AO and he made the addition. The learned CIT(A) deleted the same on the ground that no material was brought on record to show that it was the assessee who purchased the aforesaid ticket for which addition was sustainable in his hands. We agree with the. finding of the learned CIT(A). In absence of any evidence to the contrary brought on record, we would uphold the finding of the learned CIT(A).

26. In the result, while appeal in 2207 is allowed in part, appeal in ITA No. 5024/D/1991 allowed in part for statistical purposes, appeal in ITA No. 119/D/1992 allowed for statistical purposes, appeal in ITA No. 7879/D/1992 allowed for statistical purposes and those in ITA Nos. 2744, 8728

5176/D/1991 dismissed.