The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) has held that medical expense of a director is an allowable business expenditure in the hands of the company.
The bench of T.R. Senthil Kumar (Judicial Member) and Makarand V.Mahadeokar (Accountant Member) has observed that reimbursement of medical expenses of a managing director, when duly authorized by Board resolution, is allowable under section 37(1) as expenditure incurred wholly and exclusively for business purposes.
The appellant/assessee claimed an amount of Rs.1,00,901/- as business expenditure towards reimbursement of medical expenses of one of its directors. The Assessing Officer held that such expenditure was personal in nature and not incurred wholly and exclusively for the purpose of business. Invoking section 37(1), the AO disallowed the claim.
Before the CIT(A), the assessee submitted that the Directors are employees of the company, and reimbursement of medical expenses constitutes part of their remuneration, which is contractually authorizing. It was also submitted that the Board of Directors had passed a resolution authorizing such reimbursement. IT was further submitted that the expenditure was incurred on grounds of commercial expediency since the director was a key managerial person and a driving force behind the company’s business. It was argued that a company, being a juristic person, cannot incur “personal expenses”; therefore, disallowance on that ground was misconceived. Reliance was placed on several judicial precedents before CIT(A).
The CIT(A), however, concurred with the AO’s findings, holding that personal medical expenses of directors do not fall within the ambit of section 37(1) unless covered under a contractual or statutory obligation.
The assessee reiterated the submissions before the CIT(A) and also placed reliance on decision of Co-ordinate Bench in case of Paradeep Oxygen (P) Ltd. v. DCIT, in which the Co-ordinate Bench held that reimbursement of medical expenses to the managing director, duly authorized by a bona fide Board Resolution, is allowable under section 37(1) as expenditure wholly and exclusively for business purposes.
The tribunal noted that the assessee has indeed placed on record the copy of the Board Resolution dated 12.04.2011, authorized reimbursement of actual medical expenses incurred by directors. 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.
Case Details
Case Title: M/s.Roomag Motors & Controls P.Ltd. Versus Dy.CIT
Case No.: ITA No.796/Ahd/2025
Date: 09/09/2025
Counsel For Appellant: Tushar Hemani, Sr.Advocate
Counsel For Respondent: Abhijit, Sr. DR
