Medical Expense of Director is an Allowable Business Expenditure in Hands of Company: ITAT
Pranav B Prem
The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench “B,” comprising T.R. Senthil Kumar (Judicial Member) and Makarand V. Mahadeokar (Accountant Member), has held that medical expenses incurred on a company director are allowable as a business expenditure when duly authorized by a Board resolution. The ruling clarifies that a company, being a juristic person, cannot have “personal expenses” of its own, and expenses incurred towards directors’ medical treatment under contractual authorization qualify under section 37(1) of the Income Tax Act, 1961.
Background of the Case
The assessee, Rotomag Enertec Ltd. (formerly Rotomag Motors & Controls Pvt. Ltd.), engaged in the business of engineering goods, claimed an amount of ₹1,00,901 as business expenditure towards reimbursement of medical expenses of one of its directors. The Assessing Officer (AO) disallowed the claim, holding that such expenses were personal in nature and not incurred wholly and exclusively for business purposes, invoking section 37(1) of the Act.
The company appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], contending that its directors are employees of the company and medical reimbursements are part of their remuneration, duly authorized by the company’s Board of Directors. It was also submitted that the Board had passed a resolution on 12.04.2011 permitting reimbursement of actual medical expenses incurred by directors. The assessee emphasized that the expenditure was commercially expedient, given that the director was a key managerial person and instrumental in the company’s operations. The company argued that a juristic entity cannot incur “personal” expenses, hence the AO’s disallowance was misconceived. However, the CIT(A) upheld the AO’s disallowance, reasoning that unless covered under a contractual or statutory obligation, personal medical expenses of directors do not fall within the ambit of section 37(1).
Submissions and Reliance on Precedent
Before the Tribunal, the assessee reiterated its submissions and relied upon the decision of the Co-ordinate Bench in Paradeep Oxygen (P) Ltd. v. DCIT [2001] 71 TTJ 662 (CTK), which had held that reimbursement of medical expenses of a managing director, when duly authorized by a bona fide Board resolution, is allowable under section 37(1) as expenditure incurred wholly and exclusively for business purposes. The assessee placed on record the copy of the Board Resolution dated 12.04.2011 (page 175 of the paper book), authorizing reimbursement of such medical expenses.
Findings of the Tribunal
After considering the rival submissions and perusing the record, the Tribunal observed that the company had indeed passed a Board resolution authorizing the reimbursement of medical expenses of directors. The Tribunal reasoned: “The company, being a juristic person, cannot have personal needs of its own, and once the expenditure is incurred pursuant to a valid resolution of the Board and in discharge of contractual obligation, the same partakes the character of business expenditure.” The bench held that in light of binding precedents and the facts on record, the disallowance made by the AO and sustained by the CIT(A) could not be justified. Accordingly, the ITAT directed deletion of the addition of ₹1,00,901 made on account of medical expenses of the director.
Appearance
For Appellant: Tushar Hemani, Sr.Advocate
For Respondent: Abhijit, Sr. DR
Cause Title: M/s.Roomag Motors & Controls P.Ltd. V. Dy.CIT
Case No: ITA No.796/Ahd/2025
Coram: T.R. Senthil Kumar (Judicial Member), Makarand V. Mahadeokar (Accountant Member)
