Aspinwall and Co. Ltd. Vs. Commissioner of Income-tax (No. 1) - Court Judgment

Excerpt:
direct taxation - assessment - sections 17 (2), 40a, 40a (5) and 147 of income tax act, 1961 - whether tribunal right in law in holding that reopening of assessment under section 147 (b) valid - in case income tax officer (ito) determines as to what is effect and consequence of law mentioned in audit and tries to streamline position for curing situation of escaped assessment - it would amount to information because basis of belief would be position of law in regard to which officer became aware - in view of proposition of law ito may proceed to reopen by resorting to powers under section 147 (b) - question referred to court answered in favour of revenue. - labour & services appointment: [v.k. bali, ch, p.r. raman & s. siri jagan, jj] post of pharmacist in homeopathy subordinate service - special rules for kerala homeopathy subordinate service rules, 1999 introducing new qualifications vacancy arising subsequent to coming into force of the said special rules held, vacancies have to be filled up only in accordance with special rules, 1999. unfilled vacancy that had arisen prior to amendment cannot be filled up by candidate not possessing amended qualifications prescribed by special rules. state government has the power to frame or amend the special rules with or without retrospective effect. mohanan k.r. & anr vs director of homeopathy, kerala homeopathy services, trivandrum & ors. - 3. before the income-tax officer as well as higher authorities of the department both the aspects were challenged, meaning thereby that reopening under section 147(b) of the act was impermissible and treatment of the medical expenses in question as perquisite also improper in law. with regard to the second aspect although learned counsel placed before us the decision cited before the tribunal as well as other decisions, it must be stated that the question as to whether medical expenses and consequent reimbursement would be medical perquisite gets basically answered through the plain language of the statutory provision itself in the first instance. section 40a(5) tells us relating to the position where the assessee incurs any expenditure which results directly or indirectly in the payment of any salary to an employee or a former employee, as well as the expenditure resulting directly or indirectly in the provision of any perquisite (whether convertible into money or not) to an employee.v.v. kamat, j. 1. this reference relates to the year 1978-79 requiring us to answer the following two questions : ' 1. whether, on the facts and in the circumstances of the case, the tribunal was right in holding that the reopening of the assessment under section 147(b) was valid 2. whether, on the facts and in the circumstances of the case, the tribunal was right in holding that the reimbursement of medical expenses to the employees was a perquisite for the purpose of computing the disallowance under section 40a(5) or 40(c) ?' 2. necessary short facts are that the assessee is a public limited company carrying on various business activities such as agency for shipping lines, clearing and forwarding, coffee curing, etc. as far as the first question is concerned it can be seen that for the assessment year in question the assessment was completed on january 25, 1979, on a total income of rs. 16,18,100. this was reopened subsequently on january 21, 1981, under the provisions of section 147(b) of the income-tax act. this was for the purpose of withdrawing certain allowances which had been granted mistakenly in the original assessment. as far as the reference under consideration is concerned the item relates to medical reimbursements in respect of certain employees. in regard to this aspect and reopening, invoking the provisions of section 40a(5) of the income-tax act, 1961, the medical expenses are disallowed on the basis that medical expenses are perquisites rejecting the argument of the assessee that the medical expenses could not be considered as perquisites and, therefore, cannot be disallowed as such. 3. before the income-tax officer as well as higher authorities of the department both the aspects were challenged, meaning thereby that reopening under section 147(b) of the act was impermissible and treatment of the medical expenses in question as perquisite also improper in law. 4. the decision of the income-tax officer was confirmed by the commissioner of income-tax (appeals), on both the counts. it is necessary to mention though irrelevant for any purposes that the amount of disallowance involved in the reimbursement in question is rs. 956 (rs. 182 + rs. 774). the first appellate authority considered the factual aspect that the audit of the company has only brought to the notice of the income-tax officer the position of law as available in the decision of this court- premier cotton spinning mills ltd. v. cit (i. t. r. no. 67 of 1976), to the effect that pointing out the position of law in regard to a situation could be considered as information within the meaning of section 147(b) of the income-tax act resulting in reopening the assessment. the first appellate authority also confirmed the decision treating medical expenses as perquisite for the purpose of disallowance under section 40a(5) of the income-tax act. this was on the basis of treating medical expense as a perquisite, referring the allied situation. 5. the appellate tribunal also considered these questions. it was submitted before the tribunal, with regard to the first question that the power to reopen the assessment does not become readily available as a result of a mere change of opinion in the matter. the tribunal considered infact the reasons recorded by the income-tax officer to record that the decision of this court in i. t. r. no. 67 of 1976 being to the effect that section 40a(5) of the act would be most appropriate for application as regards a director employed, showing that for the previous year rs. 2,000 was paid as salary and if this is taken into consideration along with the text of section 40a(5) of the act it would mean disallowance of rs. 12,000. all these led to the belief of the income-tax officer that the amount in question escaped assessment justifying reopening under the provisions of section 147(b) of the act. the tribunal not only referring to the decision in i. t. r. no. 67 of 1976 placed reliance on the decision of the supreme court in indian and eastern newspaper society v. cit : [1979]119itr996(sc) declaring the law relating to the reopening of assessment under the provisions of section 147(b). having gone through the said decision as to what amounts to 'information' declaring that if the income-tax officer determines as to what is the effect and consequence of the law mentioned in the audit and tries to streamline the position in the light thereof, for curing the situation of escaped assessment, it would amount to information because the basis of the belief would be the position of law in regard to which the officer became aware. the position settling down the meaning of the term 'information' made it more than difficult for learned counsel for the assessee to carry the aspect at any higher level. in view of the above position we hold that there is nothing wrong on the part of the income-tax officer to proceed to reopen by resort to powers under section 147(b) of the income-tax act. with regard to the second aspect although learned counsel placed before us the decision cited before the tribunal as well as other decisions, it must be stated that the question as to whether medical expenses and consequent reimbursement would be medical perquisite gets basically answered through the plain language of the statutory provision itself in the first instance. it must also be specified in anticipation that a bare reading of the provisions of section 40a of the act relating to expenses and payments being declared as not deductible in certain circumstances, it would be seen that for the limited purpose of finding out as to what would be a perquisite, the provision would be self-sustained. section 40a(5) tells us relating to the position where the assessee incurs any expenditure which results directly or indirectly in the payment of any salary to an employee or a former employee, as well as the expenditure resulting directly or indirectly in the provision of any perquisite (whether convertible into money or not) to an employee. such term 'perquisite' gets specifically defined for the purpose in explanation 2, clause (b), of the said section. although really not necessary with referenceto the submissions made before us it would be necessary to pinpoint that section 17(2) of the act provides what is known as an inclusive definition of the term 'perquisites' as distinguished from the provisions of explanation 2, clause (b), of section 40a(5), which is self-consisting and self-explanatory. it would appear that five categories of situations which are understood to be perquisites show that the term 'perquisite' has certain essential characteristics and features. rent-free accommodation would be a perquisite. concession in the matter of rent in regard to accommodation provided to the employee by the assessee would also be a perquisite. similarly a benefit or an amenity either granted or provided free of cost or at concessional rate would also be a perquisite in the context. identically if under an obligation between the employer and the employee any payment is made and such payment would be payable by the employee, such payment by the assessee-employer would also be a perquisite. lastly, if any sum is paid by the assessee-employer directly or through a fund this would also amount to perquisite in the above self-sustained and self-explanatory definition of the term perquisite. the examination of these facets would show that it relates to a specific liquidated sum in the context granted to an employee as terms of employment. these features would require examination and application, in order to appreciate the contention as to whether medical expenses and their consequential reimbursements would share and partake of the character of a perquisite in the sense that it is intended by the above definition. the answer is obviously in the negative. it would be seen that the payment in question with regard to the question of reimbursement would necessarily have a fluctuating character depending on the expenses incurred in relation to the illness or suffering. it would not have any fixed character. on the other hand, there would be months and years when there would be no question of medical expense and their consequential reimbursement. this is because medical expenses and the question of reimbursement could never be understood as having a static uniform and continuous character in terms of payment or reimbursement in regard thereto. 6. apart therefrom a number of decisions are placed before us, illustratively of the bombay high court, calcutta high court and the madras high court in (phaltan sugar works ltd. v. cwt : [1994]208itr989(bom) ; cit v. mercantile bank ltd. : [1988]169itr44(bom) ; cit v. indokem private ltd. : [1981]132itr125(bom) ; cit v. national engineering industries ltd. : [1994]208itr1002(cal) ; indian leaf tobacco development co. ltd. v. cit : [1982]137itr827(cal) ; cit v. kanan devan hills produce co. ltd. : [1979]119itr431(cal) and ctt v. manjushree plantations ltd.[1980] 125 itr 150) taking the consistent and uniform view that the medical expenses could never be regarded as perquisites in the context. however, we must record that even going through the said decisions what we found was that the courts had followed earlier decisions on the principle of consistency without considering the question as such. 7. it is in view of this position, it is unnecessary to refer to another aspect placed by learned counsel for the assessee. learned counsel submitted that with regard to the same assessment year this court remitted the matter to consider the question in view of the fact that certain government circulars of the central board of direct taxes not being available could not be considered. learned counsel in fact placed for our benefit a copy of the order of the income-tax appellate tribunal, cochin bench, considering the question under section 260(1) of the income-tax act, 1961, after the said order of remittance of this court. learned counsel wanted to persuade us adopting the reasoning of the tribunal in regard thereto contending that although this view is taken by the appellate tribunal as far back as in 1990, the department did not think of challenging the same for whatever it is worth. we have to appreciate the submission based on a practical approach, coming from learned senior counsel for the department that form the multifarious considerations in not challenging the order, one of them being the smallness of the amount involved. at any rate as we have considered the position independently ourselves, we agree with learned senior counsel for the department that it is not necessary to consider and adopt in view of our independent consideration of the question. for all these reasons question no. 2 also gets decided that the medical expenses and consequent reimbursement would not be a perquisite as held above. 8. in view of the above reasons, question no. 1 is answered in the affirmative, that is, against the assessee and in favour of the department. question no. 2 is answered in the negative, against the department and in favour of the assessee. 9. a copy of this judgment under the seal of this court and the signature of the registrar shall be sent to the income-tax appellate tribunal, cochin bench, for passing consequential orders.