Bombay High Court
All India State Bank Officers ... vs Union Of India (Uoi) And Ors. on 6 May, 1998
Equivalent citations: [2000]245ITR122(BOM)
Author: M.B. Shah
Bench: M.B. Shah, A.Y. Sakhare
JUDGMENT M.B. Shah, C.J.
1. In these matters despite service of notice, affidavit in reply is not filed by the respondents.
2. The question involved in these petitions is whether the amount of reimbursement of medical expenses is taxable under the Income-tax Act, 1961 ("the Act", for short). The petitioners, who are employees of the Reserve Bank of India as well as the State Bank of India, have filed these petitions challenging' the constitutional validity of proviso (v) to Clause (2) of Section 17 of the Act, which reads as under :
"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 ten thousand rupees in the previous year."
3. The underlined (italics) portion is challenged by the petitioners in these petitions.
4. In Writ Petition No. 1411 of 1992, the facts were that one Subhash Banhatti, an officer of the State Bank of India was working' as regional manager, Region-IV, at the zonal office of respondent No. 3. He left the zonal office at 10 a.m. on June 6, 1991, on an official visit to Navghar (Bassein) branch of the bank in a hired taxi. He was accompanied by one Shri D. Gadkar, Administrative Officer (G.B.) for region IV. On the way to Navghar, between Jogeshwari and Goregaon on the Western Express Highway the taxi was involved in a serious accident in which Banhatti was seriously injured. An unconscious Shri Banhatti was immediately removed to Cooper Hospital at Vile Parle which happened to be most proximately and conveniently located. As Shri Banhatti's condition was very critical and the facilities in Cooper Hospital did not appear adequate, the Deputy General Manager of respondent No. 3 in consultation with the bank's senior medical officer decided and removed Shri Banhatti to Jaslok Hospital where proper medical care was arranged on top priority basis and Shri Banhatti's life was saved. Shri Banhatti was discharged from the hospital on August 2, 1991, after about eight weeks of hospitalisation and had reason to believe that his ordeal was over. Not so. Shri Banhatti has been informed by the Deputy General Manager of respondent No. 3 that the medical expenses incurred by the bank on his behalf during the financial year April 1, 1992, to March 31, 1992, have amounted to Rs. 3,46,828.50 only and as per the extant provisions of the Income-tax Act they have been added to his taxable income for the said year. He has been asked to make arrangements for meeting the said tax liability.
5. Writ Petition No. 213 of 1997 (O.S.) was admitted by this court on March 11, 1997, wherein interim relief was granted restraining the Reserve Bank of India "from deducting any tax at source on the amount of reimbursement made by it to the petitioner therein (S.A. Bendre) in respect of the actual expenditure incurred for medical treatment taken by him." The petitioner in this case is a kidney patient suffering from chronic renal failure in respect of both kidneys and is required to undergo haemodialysis thrice a week. The annual cost of this treatment in respect of the petitioner is in the region of Rs. 1.5 lakhs and this expenditure is reimbursed to the petitioner, who is a senior officer of the Reserve Bank of India by his employer, Reserve Bank of India. As the petitioner was required to instal the dialysis machine, at his own expense, at home and was undergoing treatment under medical supervision of a technician and consultant attached to Bombay Hospital a view was taken that the medical treatment could not be said to have been taken "in an approved hospital" and hence the expenditure incurred on such treatment could not be treated as exempt from income-tax and hence the amount of expenditure in excess of Rs. 10,000 per year would be treated as a "perquisite" and part of the salary income in accordance with the provisions of Section 17(2) of the Income-tax Act, 1961. If the reimbursement made by the Reserve Bank of India, to the petitioner, S. A. Bendre, was to be added to his salary as taxable income, the tax deductible at source was working out to over Rs. 50,000 every year. This court has restrained the Reserve Bank of India, from treating the medical reimbursement in this case as taxable income, pending final disposal of the writ petition.
6. Writ Petition No. 1915 of 1997 was admitted by this court on April 11, 1997, and interim relief was granted restraining the Reserve Bank of India, from deducting any tax at source as recovering any tax from the salary of petitioner No. 3 (P.B. More) on the amount of reimbursement made by the Reserve Bank of India to Shri P.B. More or tax remitted on his behalf in respect of the actual expenditure incurred by Shri P. B. More in the treatment of his minor son for haemophilia. In this writ petition, a general relief on the lines granted by this court on April 6, 1992, in Writ Petition No. 1411 of 1992 was sought and Shri P. B. More's case was cited as an illustrative example. This court, however, restricted the interim relief only to the specific case cited. The facts in this case are that the petitioner's minor son (aged four and half years at that time) is a haemophiliac. Haemophilia is a disorder in which there is a tendency in the patient to bleed severely even from a slight injury. Shri More works as a typist in the Reserve Bank of India and his family is based in Pune. The only place where Shri More's son could get treatment in Pune was at a hospital known as "Lohade Hospital" where the "Haemophilia Care Centre" of the Haemophilia society of Maharashtra is situated. However, as Lohade Hospital had not been "approved" for the purpose of Section 17(2)(ii)(b) of the Income-tax Act, 1961, read with Rule 3A of the Income-tax Rules, 1962, even though its application for this purpose was pending with the Chief Commissioner of Income-tax, Pune, for a long time, Shri More was sought to be taxed on the amount of reimbursement made by the Reserve Bank of India in respect of the expenditure incurred by Shri More on the treatment of his minor son at Lohade Hospital. This court has restrained recovery of such tax from Shri More's salary, pending the hearing and final disposal of this writ petition.
7. The petitioners' main contentions, as set out in detail in the above writ petitions, are as under :
"(a) Medical expenditure cannot be treated as a 'perquisite' as it is not something in the nature of fixed benefit or amenity periodically accruing from the employer to the employee.
(b) There cannot be any discrimination in respect of hospitals and as long as proper substantiation of medical expenditure incurred is done to the satisfaction of the employer, such expenditure should be exempt from tax irrespective of the hospital where it was incurred.
(c) There is no valid or reasonable basis for exempting all expenditure without limit incurred in some hospitals and exempting" expenditure only up to Rs. 10,000 in others.
(d) Since hospitals are taxed on their income, the same amount cannot be taxed as 'perquisite' in the hands of the employees.
(e) The victims of such arbitrary classification suffer for no fault on their part as indicated in the specific cases cited in the writ petitions.
(f) A humanitarian welfare measure on the part of the employer is sought to be converted into a penal measure for the intended beneficiaries.
(g) The employer faces penalty if it does not obey the law and the employee may be deprived of his entire salary for months together in order to meet the tax liability."
8. It has been pointed out that nowadays to get proper medical facilities for a sum less than Rs. 10,000 is practically impossible, particularly in a city like Mumbai and other metropolitan cities. It is, therefore, submitted that the said provision is totally irrational as an employee is required to pay tax on the amount spent by him for medical treatment. It is contended that an employee who suffers because of natural calamity is further penalised by the said proviso and, therefore, should be struck down.
9. Considering the aforesaid submissions and the sufferings of the employees, the Central Board of Direct Taxes (the CBDT) is directed to issue appropriate directions or clarifications under Section 119 of the Income-tax Act, 1961, for removing the hardship caused to the employees who are suffering genuinely.
10. Further, the Registrar of this court is directed to send a copy of this order to the Finance Ministry for taking appropriate action and in any set of circumstances for filing necessary affidavit in reply to these petitions. It would also be open to the petitioners to send a copy of this order to the Finance Ministry.
11. Issue notice to Attorney General of India, returnable on June 22, 1998.
12. Stand over to June 22, 1998.
13. Issuance of certified copy of this order is expedited.