Professionals aren’t allowed to claim refund on health and related expenses.
Recently, the Delhi High Court passed a judgment against a well-known advocate, who had claimed a medical expense of Rs 1.74 lakh under the head business / professional income. That is, the advocate showed the cost as part of professional profits.
He argued that the expenses incurred on his coronary surgery was similar to the expenses that a business would incur on repairs of plant / machinery. He said the heart was a vital organ and the repair of the same helped him improve his professional competence. The same was demonstrated by the rapid increase in his income after the surgery. Thus, he submitted that the human heart is in the nature of plant / machinery. So, the expenses are deductible.
| HEART, NOT A MACHINE |
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The defender also argued that the term plant / machinery used in the Income Tax Act (I-T Act) was varied including books, vehicles and surgical instruments used for the purpose of business. Therefore, he should be allowed deduction. Further, he claimed that this expenditure should be allowed as a general expense for the profession.
The I-T Act also does not allow self employed, those who operate under the sole proprietorship model or professionals who offer their income under the head business / profession, any specific deduction for medical expenses. Reason: Medical expenses are regarded as personal expenses and hence can’t be claimed under the head business expenditure.
Only salaried individuals enjoy tax exemption for medical expenses, reimbursed by their employer, of up to Rs 15,000 a year. A salaried person can claim for medical expenses for self and close family members.
Here’s what the Delhi Court’s verdict of the case was - The prosecution or the tax authority disallowed the claim as the expenditure was personal in nature. The expenditure was not incurred wholly and exclusively for the profession / business, therefore, it was personal. Also, it is a moral obligation for a businessman (the defender) to keep himself/herself physically and mentally fit and so the expenditure could only be categorised as personal.
If the medical expenditure should be generally allowed, the High Court remarked that the expense incurred should not be for a capital asset and personal in nature, only then can it be allowed.
At the first appellate level, the prosecution’s view was supported and stated that regardless of the earning capacity, since every individual was interested in his/her good health, it would be difficult to accept the advocate’s claim for the purpose of his profession.
The second appellate also rejected the claim. The tribunal concluded that if the defender compares his medical expenses with that incurred on the repair of a plant / machinery, he would have to demonstrate that the plant was used as a tool to carry out professional activity. The tribunal held that as the heart was even otherwise an organ, essential for normal and healthy functioning of a human body, and not an exception in this case for the advocate’s business, it would be difficult to prove that the heart was used as tools for his trade. General well being of the heart and its functioning cannot be equated with using the heart as a tool in professional activities.
Based on the facts and the defender’s submissions, the Delhi High Court held that his claim for allowing the expenses as repairs to plant could not be allowed. Firstly, if a human heart was to be considered a plant, it would necessarily mean that it is an asset which should have found a mention in the advocate’ s firm’s balancesheet. In the absence of the same, he would not only find it difficult to show his heart in the books of accounts but would also find it difficult to arrive at the cost of purchase for the same.
Accordingly, the High Court held that in order to claim the expenses on its repair as a plant, it is necessary that the heart is a part of the books of accounts.
Expenses incurred to repair an impaired heart would add to the longevity and efficiency of a human being. The improvement in the efficiency of the human being would be undertaken in every activity by a person. There is, thus, no direct or immediate connection between the medical expenses incurred by the advocate and his efficiency in the professional field.
The Delhi High Court further held that as a matter of fact, there is no evidence on record to suggest that the advocate could have continued in the same state without the medical procedure undertaken by him. For instance, if an actor undergoes a plastic surgery to avoid his age being reflected on the screen, then one could have argued that the actor could have existed in the state he/she was in without having gone under the knife. But the same was done for the purpose of his profession and hence allowable as a general expenditure. However, such were not the facts in the advocate’s case.
The writer is a certified financial planner
