INDIAN COMPRESSORS LTD.,NEW DELHI vs. DCIT, NEW DELHI

This appeal by the assessee is directed against order dated 03/01/2017 passed by the Ld. Commissioner of Income-tax (Appeals)-18, New Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2012-13 raising following grounds: 1. That having regard to facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the assessment made by the Assessing Officer at Rs. 1,93,24,080/- instead of Rs. 1,74,44,220/- as declared in the return of income.

2. That the Ld. Commissioner has erred in facts and in law in sustaining the order of the Assessing Officer based on surmises and conjectures and ignoring relevant evidence placed on record.

3. That on the facts and circumstances of the case and in law, the Ld., Commissioner erred in not appreciating the fact that the AO has made an addition of Rs. 3,21,062/- incurred on foreign travel of a Director of the Appellant on the ground that there may be an element of personal and pleasure trip cannot be ruled out without bringing any other material fact on record.

4. That on the facts and circumstances of the case, even if there was some personal element in the expenditure, disallowance of the whole sum cannot be made.

5. That on the facts and circumstances of the case and in law, the Ld., Commissioner erred in not appreciating the fact that the Appellant had incurred expenditure on the mediacl treatment of its Director Mr. G.L. Didwania only on the grounds of commercial expediency, so that it could continue to make use of his knowledge.

6. That on the facts and circumstances of the case and in law, the Ld., Commissioner in not appreciating the fact that Mr. G.L. Didwania was the founder of the appellant company and possessed immense know how and that it was in the Appellant’s interest to continue to utilise the knowledge and that it was commercially expcuiv*^ Appellant to incur this expenditure.

7. That on the facts and circumstances of the case and in law, the Ld., Commissioner erred in holding that no evidence was provided to the AO when, to the contrary all medical bills were furnished to the AO.

8. That on the facts and circumstances of the case and in law, the Ld., Commissioner erred in relying upon the fact that Mr. G.L. Didwania had not offered the sum to tax as perquisite when the fact had absolutely no bearing on the case of the Appellant.

9. That on the facts and circumstances of the case and in law, the Ld., Commissioner erred in not appreciating that the case laws quoted were directly applicable to the case of the Appellant.

10. That on the facts and circumstances of the case and in law, the Ld., Commissioner erred in holding that the Appllant has not been able to provide complete details for requisite examination wheras in fact all details had been provided at the time of assessment and no specific detail has been said to not have been provided.

11. That on the facts and circumstances of the case and in law, the Ld., Commissioner erred in upholding the addition of Rs. 16,57,798/- on account of medical expenses incurred for the treatment of Mr. G.L. Didwania by merely stating that the case laws quoted were not applicable as each case turns on its own facts without actually distinguishing the set precedents.

3. Briefly stated facts of the case are that assessee is a company engaged in manufacturing, trading, erection, commissioning, leasing and maintenance of various types of compressors. For the year under consideration, the assessee filed return of income on 27/09/2012 declaring total income of ₹ 1,74,44,220/-. The case of the assessee was selected for scrutiny and statutory notices under the Income-tax Act, 1961 (in short ‘the Act’) were issued and complied with. In the scrutiny assessment completed on 02/03/2015 under section 143(3) of the Act, the Assessing Officer made disallowance of ₹ 3,21,065/- on account of expenses incurred on foreign travel and disallowance of medical expenses of ₹ 18,13,574/- on treatment of one of the directors of the assessee company. On further appeal, the Ld. CIT(A) upheld the disallowances. Aggrieved, the assessee is in appeal before the Tribunal raising the grounds as reproduced above.

4. In the grounds raised, mainly two disallowances made by the Assessing Officer, have been challenged, i.e., firstly, the disallowance out of foreign travel expenses and secondly, disallowance out of medical expenses incurred on treatment of one of the Director. 4.1 The facts qua the first issue of disallowance of foreign travel expenses are that the Assessing Officer (AO) out of the travelling of directors amounting to ₹ 37,24,282/-, noted expenses of ₹ 3,21,065/- as incurred on the foreign travel to USA made by Ms Unnati Didwania, daughter of managing director of the assessee company. On being asked to substantiate the expenses as incurred wholly and exclusively for the purpose of the business, the assessee failed to identify the business purpose of the foreign visit and also failed to file any documentary evidence to support that the foreign tour was for the purpose of the business of the assessee company. The assessing officer asked tour report, details of clients met or seminar/conference attended, approval of board of directors, study report before finalizing the tour and such other related information/details, however, the assessee failed to produce any such information. In view failure on the part of the assessee, the AO observed that personal and pleasure trip by the daughter of the directors cannot be denied and he disallowed the relevant expenses on travel by Ms Unnnati Didwania to the USA. Before the learned CIT(A) also the assessee failed to produce documentary evidence to support that expenses were incurred wholly and exclusively for the purpose of the business. The learned CIT(A) on the basis of documents of purchase of foreign currency for the purpose of the tour, concluded that travel was private in nature and accordingly he upheld the disallowance observing as under: 4.2.3 In this connection & during the hearing, the appellant was specifically requested to submit the details of the foreign travel, purpose, board resolution, if any, and normal policies of the company in relation to such travels. In reply, the AR submitted the copies of related vouchers and submitted that he is not able to provide any further detail in connection to the purpose of such travel etc. and pleaded that the entire amount should not be disallowed on this score. 4.2.4 I have carefully considered the submissions. From the details of travelling of directors amounting to Rs.37,24,282/-, it is seen that Ms. U. Didwania has incurred expenses as a director for travels to Europe, Bangkok , Dubai, Singapore, U.K. This apart, it is also seen that in connection with USA trip the appellant has submitted ledger copy and the vouchers such as travel tickets booked through ‘Kapoor International’. However, the sale voucher of foreign exchange by Transcorp International Ltd. amounting to Rs.113,525/- (for $2,500) shows that the sale of foreign currency has been made under scheme of “PRIWTSIT”, which is indicative of the fact that the purpose was private in nature and in absence of any details furnished by the appellant, the requirements of section 37 (that to be allowed the expenditure has to be wholly and exclusively for business and not being of capital nature and not involving personal elements) are not met. No case of business expediency has also been made out, except a general statement made in this behalf.

4.2 Before us also, the Ld. counsel of the assessee failed to furnish any evidence to substantiate that the expenses were incurred wholly and exclusively for the purpose of the business. The only contention which has been made before us is that entire expenditure of Rs.3,21,065/- should not have been disallowed and a part of expenses should only be disallowed.

4.3 The learned DR, on the other hand, relied on the order of the lower authorities and submitted that the assessee has failed to substantiate the business purpose of travel and for the vouchers of foreign exchange purchased by the assessee, it was evident that the foreign travel in dispute was private in nature and, therefore, disallowance was justified. 4.4 We have heard the rival submissions and perused the relevant material on record. The assessee has incurred expenses of ₹ 37,24,282/- on travelling of the directors, which included expenses on travel of Ms. Unnnati Didwania to various countries of Europe, Bangkok, Dubai, Singapore, UK and USA etc. The Assessing Officer has disallowed only the expenses related to the USA trip as assessee failed to establish that travel to USA by Ms. Unnati Didwania was wholly and exclusively for the purpose of the business. The assessee failed to file copy of tour report, details of any clients met, details of any seminar/conference or any other documents which could establish that the purpose of the travel was for business. Before the learned CIT(A) also the assessee failed to establish the business purpose of the travel. Further, the learned CIT(A) from the vouchers of foreign exchange purchased by the assessee found that purpose of the travel was private in nature. In the circumstances, the onus was on the assessee to establish that the expenditure incurred was for the purpose of the business and in view of the failure on the part of the assessee in discharging its onus, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute and accordingly, we uphold the same. The grounds of the assessee in relation to this issue are dismissed.

CIT(A), held that medical reimbursement paid falls in the nature of the perquisite in terms of section 17(2) of the Act and relying of the decision of the Gururaj Mahuli (supra) sustained the disallowance observing as under: “4.3.8 As it stands on going through the CBDT circulars and instructions and as held in CIT vs Raghu Sinha 2003] 130 TAXMAN 254 (RAJ.) whether the medical reimbursement is perquisite or not within the meaning of section 17(2) of the Act, 1961, we have to see the provisions. The relevant sub-section (2) of section 17 of the Act, 1961 reads as under:- 'For the purposes of sections 15 ,16 and of this section — (1) "Salary" includes— (i) to (iii) ** ** ** (iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages; (v) to (viii) ** ** ** (2) "perquisite" includes— (i) to (iii) ** ** ** (iv) any sum paid by the employer in respect of any obligation which but for such payment, would have been payable by the assessee; and (v) to (viii) ** ** ** Provided that nothing in this clause shall apply to,— (i) to(/v) ** ** ** (v) any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family other than the treatment referred to in clauses (i) and (ii); so, however, that such sum does not exceed fifteen thousand rupees in the previous year. (vi) ** ** ** 4.3.9 Therefore it could not be disputed that the amounts paid as medical reimbursements is in the nature of perquisite falling with the definition of perquisite falling with the definition of perquisites as given in sec. 17(2)(iv) proviso (v) of the Act.0 sec. 17(2) (iv) proviso (v) of the Act. 4.3.10 In Gururaj Mahuli [2010] 187 TAXMAN 34 (BANG.) (MAG.) the difference between expenditure incurred for general sickness or ailments during the lifetime of the employees and that of an accidental cause in the course of duty was explained as under: Whether an amount received bv an employee from his employer for his medical treatment due to an accident in place of work during course of employment will not amount to a perquisite - Held, yes.

6. There are several circulars issued by the Central Board of Direct Taxes from time to time on reimbursement by employer to employees on the expenses incurred for medical treatment for the employees and their families. Many such circulars and amendments, to the Act were evolved due to various representations made from different forum of public. One can gather from that, the term " medical treatment " was meant to mean treatment arising out of general sickness or ailments during the lifetime of the employees. A case where medical treatment is provided to art employee due to happening of an event in the course of employment falls in a different footing. When a mishap happens in the course of the, employment and due to the employment, it is the primary duty on every account for the employer to strive hard and restore the employee of his health 7. Therefore, amount received by the employee for his treatment due to an accident in the place of work during the course of employment will not amount to perquisites and hence cannot be taxed. 4.3.11 Thus the amount here could be treated as a perquisite. 4.3.12 In fact, the medical reimbursement is to be treated to be part of perquisites, even as per the resolution. The resolution increased the perquisite up to Rs.25 lakh in addition to other benefits along with salary of Rs.36,000/- per month. But it was not so treated by the company in the salary of the director. Neither this was included in the salary nor any TDS effected thereon.”

5.2 Before us, the Ld. counsel of the assessee reiterated the submission made before the learned CIT(A) and argued that expenses were incurred as commercial expediency and, thus, should have been allowed under section 37(1) of the Act.

5.3 The learned DR, on the other hand, relied on the order of the lower authorities. 5.4 We have heard the rival submission and perused the relevant material on record. The fact that medical expenditure of Rs.16,57,798/- was incurred toward treatment of Sh. GL Didwaniya, who was director of the company during relevant time is undisputed. The assessee has submitted copy of the resolution passed in extraordinary general meeting wherein remuneration of the whole time directors was changed and medical reimbursement was offered as perquisite to the directors particularly Sh. G.L. Didwania. The relevant part of the explanatory statement of the minutes of the extraordinary general meeting of the company reproduced by the learned CIT(A) in the impugned order is extracted as under :

“Sri G. L. Didwania is the founder of this company and senior most Director. Since, his heath is not well in recent times, the company urges to maintain his health so that the company can get appropriate advice from him which will be helpful to the company in future to increase its profitability. Hence, the remuneration of Mr. Go L. Didwania, the whole time director is amended subject to the approval of the following terms and conditions agreed by and between Mr. G. L. Didwania and the Company. i. Salary: : Rs. 36,000/-per month ii. Perquisites : Will be allowed in addition to salary up to Rs. 25,00.000/- per annum. For this purpose perquisites are classified in 3 categories PART A, PART B AND PART C. Perquisites referred to under Part B and Part C shall not be considered or included for computation of ceiling of perquisites. PART A U) Housing: House Rent Allowance up to 50 % of salary or Rent free accommodation will be provided by the Company.

(II) MedicoI reimbursement: Expenses incurred for the Whole- time Director and the family to the extent permissible and abroad. (III) Leave Travel Concession: For the Whole time Director and his family, once in a. year for any destination in India, and Abroad. (iv) Club fees: Fees of clubs subject to a maximum of two clubs. This will not include admission and life membership fee. (v) Personal accident insurance: Premium not to exceed Rs.1,000/- per annum. For the purpose of Category ‘A’, Family means the spouse, the dependent children and the dependent parents of the Whole time Director PART B (I) Contribution to provident fund, superannuation fund or annuity fund will not be included in the computation of the ceiling on perquisites to the extent these either singly or put together are not taxable under the Income TAX Act. (II) Gratuity not exceeding half a month’s salary for each completed year of service, subject to the provision of the Gratuity Act. (III) Encashment of leave at the end of the tenure will not be included in the computation of the ceiling on perquisites. PART C Provision for Car for use on Company’s business and telephone at residence will not be considered as perquisite. Personal long distance calls on telephone and use of Car for private purpose shall be billed by the Company to the Whole time Director. Nature of Duties: Mr. G. L. Didwania is employed on Whole-time basis and is overall in charge of all operational matter like finance, purchase, sales, production, liasioning, management etc. He is currently reporting to the Board of Directors. Except Mr. G. L. Didwania no other director is interested in the aforesaid resolution.”

5.5 In view of the above resolution passed in the general body meeting of the company, there is no dispute as the reimbursement of medical expenses was allowed to Sh. G.L.

Didwaniya as perquisite and not as commercial expediency. The assessee was required to deduct tax at source on the said amount of perquisite, which was part of the salary as defined under section 17 (2) of the Act. In the facts and circumstances of the case, we do not find any error in the order of the learned CIT(A) on the issue in dispute and accordingly, we uphold the same. The grounds of the appeal of the assessee, related to the issue in dispute are accordingly dismissed.