Judgment:
Madan B. Lokur, J.
1. In this reference under Section 256(1) of the Income Tax Act, 1961, the following questions of law have been referred for our opinion:
1. Whether on the facts and in the circumstances of the case, the proceedings commenced under Section 147(a) of the Income Tax Act are valid?
2. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that reimbursement of medical expenses in the form of payment to nurses represented a 'benefit' liable to tax?
3. Whether on the facts and in the circumstances of the case, the provisions of Section 2(24)(iv) are applicable, and the said income is assessable under Section 56 of the Income Tax Act, 1961?
2. Question No. 1 is not pressed by learned Counsel for the assessed and, thereforee, we return it unanswered.
3. Questions No. 2 and 3 arise from the fact that the assessed had incurred certain expenses for his medical treatment and the expenses were reimbursed to him in cash by his employer. According to the Revenue, this represented a benefit derived by the assessed and was his income within the meaning of Section 2(24)(iv) of the Income Tax Act, 1961 (for short the Act).
4. It is submitted by learned Counsel for the assessed that in view of the decision of the Supreme Court in Commissioner of Income-tax v. Mafatlal Gangabhai and Co. (P) Ltd. : [1996]219ITR644(SC) , the questions that have been referred are now required to be answered in the negative, in favor of the assessed and against the Revenue.
5. In Mafatlal Gangabhai, the question that arose for consideration by the Supreme Court was whether payments made in cash by an assessed to its employees are not deductible in computing the income in view of Section 40(a)(v) and Section 40A(5) of the Act. The Supreme Court rejected the appeal of the Revenue and held that cash payments were not covered by the aforesaid sections and were, thereforee, deductible expenditure. The Supreme Court noted that the words 'whether convertible into money or not' occurring in Section 40(a)(v) and Section 40A(5) of the Act clearly postulate expenditure other than by way of cash payment.
6. According to learned Counsel for the assessed, Section 2(24)(v) of the Act also uses the expression 'whether convertible into money or not' and, thereforee, on a parity of reasoning, cash payments towards medical reimbursement fall outside the scope of Section 2(24)(iv) of the Act. We are in agreement with the view canvassed by learned Counsel for the assessed. The use of the words 'whether convertible into money or not' clearly relate to a benefit other than cash payment as held by the Supreme Court. Following Mafatlal Gangabhai, there is no doubt that both the questions are required to be answered in the negative.
7. Learned Counsel for the Revenue contended that the third question also incorporated, as income, any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the employee or director of a company.
8. These words were also the subject matter of interpretation by the Supreme Court in Mafatlal Gangabhai because similar words appear in Section 40(a)(v) and Section 40A(5)(a)(ii) of the Act. The Supreme Court asked the question what these words mean and answered it by saying that:
The said words contemplate a situation where the assessed makes a payment [in cash] in respect of an obligation - obligation of the employee - which would have been payable by the employee if it is not paid by the assessed. The payment by the assessed contemplated by these words is not evidently a payment to the employee but to a third party, no doubt, on account of the employee.
9. In the present case as well as in Mafatlal Gangabhai, the payment was made not to a third party but to an employee. The position would have, of course, been different if the payment was made to the person who raised the bills for medical treatment but that question does not arise because the cash payments in the present case were made directly to the assessed. thereforee, following the view laid down by the Supreme Court in Mafatlal Gangabhai, we are of the opinion that this contention of learned Counsel for the Revenue must be rejected and it must be held that cash payments made directly to the assessed fall outside the scope of Section 2(24)(iv) of the Act.
10. Under the circumstances, we answer questions No. 2 and 3 in the negative, in favor of the assessed and against the Revenue. The references are disposed of accordingly.
11. We may note that learned Counsel for the Revenue contends that the amounts paid to the assessed form a part of his salary. We decline to go into this issue because no such question has been referred for our opinion.