Ajit k Sengupta, J.

(1) IN this reference under Section 256 (1) of the Income-tax Act, 1961, the following questions of law have been referred by the Tribunal to this court : reference Application No. 487/ (Cal) of 1087 : (At the instance of the assessee) :

"1. Whether the Tribunal was right in holding that reimbursement of medical expenses paid to the director employees in cash and hospitalisation expenses came within the purview of the expression remuneration, benefit or amenity under Section 40 (c) of the Income-tax Act"

(2) WHETHER, on the facts and in the circumstances of the case, the Tribunal was right in holding that reimbursement of medical expenses paid in cash to its employees was salary for the purpose of Section 40a (5) of the Income-tax Act

(3) WHETHER the Tribunal was right in holding that expenses incurred on publication of the chairmans speech in newspapers and journals came within the ambit of Section 37 (3a) of the Income-tax Act

(4) WHETHER, on the facts and in the circumstances of the case, the Tribunal was right in holding that the cost of calendars and gifts distributed by it was includible in working out the disallowance under Section 37 (3a) of the Income-tax Act " reference Application No. 494/ (Cal) of 1987 : At the instance of the Revenue :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in directing the Income-tax Officer to exclude the items of expenditure pertaining to (i) premium paid to Calcutta Hospital and Nursing Home Benefit Association, and (ii) hospitalisation expenses borne by the assessee-company for the purpose of computation of disallowance under Section 40a (5) of the Income-tax Act, 1961 2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the notional interest attributable to the interest-free loan cannot be held to be perquisite for the purpose of disallowance under Section 40a (5) of the Income-tax Act, 1961 "

2. This reference relates to the income-tax assessment of the assessee-company for the previous year ending September 30, 1979, corresponding to the assessment year 1980-81. In computing the total income of the assessee for the said year, the Income-tax Officer by invoking the provisions of Section 40 (c) of the Income-tax Act, 1961, added back Rs. 14,154 being the cash reimbursement of the medical expenses incurred on wholetime directors of the assessee-company. The Income-tax Officer also disallowed hospitalisation expenses of Rs. 2,637 incurred on directors by applying the said Section 40 (c ). The Income-tax Officer also added back Rs. 1,71,291 representing reimbursement of medical expenses made to the employees by invoking the provisions of Section 40a (5) of the said Act. The Commissioner of Income-tax (Appeals) upheld the first two disallowances made under Section 40 (c) of the said Act and in respect of the third item of Rs. 1,71,291, he held that the said amount should be taken as part of salary for determining the amount to be disallowed with reference to the overall ceiling of Rs. 60,000 fixed under Section 40a (5) of the said Act. 3. On further appeal by the assessee-company, the Tribunal held that the reimbursement of medical expenses to a director by the assessee-company was clearly hit by Section 40 (c) inasmuch as it was an expenditure which resulted directly in the provision of remuneration, benefit or amenity to the director concerned. The Tribunal also held that hospitalisation expenses also came within the ambit of Section 40 (c) on the same analogy. As regards reimbursement of medical expenses to employees, which sum was disallowed under Section 40a (5), the Tribunal also held that the same formed part of remuneration received by the employees from the assessee-company and was, therefore, required to be considered for disallowance with reference to the overall ceiling of Rs. 60,000 fixed under Section 40a (5) of the said Act. 4. While making the assessment for the said year, the Income-tax Officer had also disallowed a sum of Rs. 3,89,001 under Section 37 (3a) of the said Act. This disallowance was in respect of the following expenses:



Rs .

(i) Expenses incurred on ublication of chairmans speech in newspapers and journals 1,12,016

(ii) Cost of calendars and gifts distributed 2,53,591

(iii) Expenses incurred on greeting cards 23,394

3,89,001

(5) THE Commissioner of Income-tax (Appeals) as well as the Tribunal upheld the disallowance in respect of the first two items of Rs. 1,12,016 and Rs. 2,53,591. The Tribunal held that by publication of the chairmans speech in the newspapers, the assessee-company brought to the notice of the general public the performance of the company for a particular year highlighting the achievements made in different fields of its activities with a view to enhance its image and goodwill as well as to boost its sales in the subsequent years.

(6) AS regards the cost of calendars and gifts amounting to Rs. 2,53,591, the Tribunal held that these calendars and gift articles were embossed with the name of the assessee-company as well as with the product manufactured and/or dealt with by it. These calendars and gifts were generally distributed amongst the assessee-companys customers and other traders through its distribution channel and, therefore, it could not be disputed that the expenses incurred for such purposes were covered by the expression "advertisement, publicity and sales promotion" as appearing in Section 37 (3b) (i) of the said Act. The Tribunal, therefore, upheld the disallowances of both the sums of Rs. 1,12,016 and Rs. 2,53,591 under Section 37 (3a) of the said Act.

(7) THE first four questions in Reference Application No. 487/ (Cal) of 1987 arose out of the aforesaid facts and have been referred by the Tribunal to this court at the instance of the assessee.

(8) CLAUSE (c) of Section 40 of the Income-tax Act, 1961, as it stood at the relevant time read as under :

"(c) in the case of any company- (i) any expenditure which results directly or indirectly in the provision of any remuneration or benefit or amenity to a director or to a person who has a substantial interest in the company or to a relative of the director or of such person, as the case may be, (ii) any expenditure or allowance in respect of any assets of the company used by any person referred to in Sub-clause (i) either wholly or partly for his own purposes or benefit, if in the opinion of the Income-tax Officer any such expenditure or allowance as is mentioned in Sub-clauses (i) and (ii) is excessive or unreasonable having regard to the legitimate business needs of the company and the benefit derived by or accruing to it therefrom, so, however, that the deduction in respect of the aggregate of such expenditure and allowance in respect of any one person referred to in Sub- Clause (i) shall, in no case, exceed- (A) where such expenditure or allowance relates to a period exceeding eleven months comprised in the previous year, the amount of seventy-two thousand rupees ; (B) where such expenditure or allowance relates to a period not exceeding eleven months comprised in the previous year, an amount calculated at the rate of six thousand rupees for each month or part thereof comprised in that period :"

(9) THE first question raised at the instance of the Revenue is concerned with the interpretation of the expression "remuneration or benefit or amenity" appearing in Section 40 (c) (i) of the said Act. Sub-clause (i) of Clause (c) of Section 40 applies to any expenditure incurred by a company which results directly or indirectly in the provision of any remuneration or benefit or amenity to a director or to a person, who has a substantial interest in the company or to their relatives. There can be no doubt that whenever a director-employee is reimbursed in cash for medical expenses and/or hospitalisation expenses incurred by him, it is obviously done under the express or implied terms of his service contract. Furthermore, the word "perquisite" does not appear in Section 40 (c) (i) of the said Act and the restrictive phrase "whether convertible into cash or not" is also missing in the said clause. The words "remuneration or benefit or amenity" have a very wide meaning. In Blacks Law Dictionary, Revised fourth edition, the word "remuneration" has been defined to include "reward, recompense, salary". It has been further stated that if a man gives his services, whatever consideration he gets for giving his services is nothing but remuneration for him. The expression "benefit" has also been defined to mean "advantage, profit, fruit, privilege". In Websters New Twentieth Century Dictionary, unabridged second edition, the word "remuneration" has been defined to mean "the act of paying of equivalent for services, loss or sacrifices; the equivalent given for services, loss or sufferings; that which remunerates ; reward, pay ; recompense, compensation". The word "remunerate" has been defined to mean "to reward ; to recompense ; to requit ; to pay an equivalent for any service, loss, expense or other sacrifice". The word "benefit" has also been defined in the said dictionary to mean "to do a kindness ; a favour conferred, advantage ; profit, anything contributing to an improvement in condition".

(10) IN our view, the words "remuneration, benefit or amenity" are wide enough to include within their purview reimbursement in cash of medical expenses as well as hospitalisation expenses made by the assessee-company to its director-employees.

(11) IN this view of the matter, we answer the first question in the assessees reference in the affirmative and in favour of the Revenue.

(12) THE second question is again concerned with interpretation of the expression "salary" as appearing in Section 40a (5) (a) (i) of the said Act. Explanation (2) to Section 40a (5) clearly lays down that the expression "salary" shall have the same meaning assigned to it in Clause (1) read with Clause (3) of Section 17 of the said Act subject to certain modifications with which we are not concerned in this reference. Section 17 (1) of thedefines the expression "salary" in a very wide manner. This is an inclusive definition. It includes within its purview "profit in lieu of or in addition to any salary or wages". A cash payment by the employer to the employee by way of reimbursement of medical expenses, in our view, certainly falls within the wide and inclusive definition of salary which includes, inter alia, profits in lieu of or in addition to any salary or wages.

(13) THE expression "profits in lieu of salary" is also defined in an inclusive manner in Section 17 (3) of theand includes within its purview any payment due to or received by an assessee from an employer. Further, the question whether reimbursement of medical expenses could partake of the character of salary as appearing in question No. 2 arose earlier in IEL Ltd. , successor-in-interest to Crescent Dyes Chemicals Ltd. (Income-tax Reference No. 86 of 1988-IEL Ltd. v. CIT, where judgment was delivered on March 27, 1992, answering the question in the affirmative and in favour of the Revenue.

(14) IN this view of the matter, we are of the opinion that the Tribunal was right in holding that reimbursement of medical expenses paid in cash by the assessee-company to its employees was salary for the purpose of Section 40a (5) of the Income-tax Act, 1961.

(15) WE, accordingly, answer the second question raised at the instance of the assessee in the affirmative and in favour of the Revenue.

(16) THE third and fourth questions raised at the instance of the assessee are concerned with the expenditure incurred on publication of the chairmans speech in newspapers and journals as well as the cost of calendars and gifts to customers and other traders. There is no statutory requirement to publish a copy of the chairmans speech in newspapers and journals. The chairmans speech is delivered in the annual general meeting of a company which is attended by its shareholders only. The speech is required to be delivered in the annual general meeting notwithstanding the fact whether the same is separately published in the newspapers and journals or not. In fact, the whole purpose of publishing the chairmans speech in the newspaper is to bring to the notice of the general public the performance of the company in respect of the relevant year as well as to highlight the achievements made in the different fields of its activities. As rightly held by the Tribunal, the whole object is to enhance the image and goodwill of the company so as to boost its sales in the subsequent years. Similarly, the distribution of calendars as well as gift articles amongst the customers, dealers and traders clearly serves the purpose of advertisement and publicity. All these are clearly intended to promote sales.

(17) IN our view, therefore, the expenditure incurred by the assessee-company in the publication of the chairmans speech in newspapers and journals as well as the cost of calendars and gifts distributed by it clearly falls within the expression "advertisement, publicity and sales promotion" as appearing in Section 37 (3b) (i) of the said Act and have, therefore, to be considered in working out the disallowance under Section 37 (3a) of the said Act.

(18) IN this view of the matter, we answer both questions Nos. 3 and 4 in the affirmative and in favour of the Revenue.

(19) WE now come to Reference Application No. 494/ (Cal) of 1987. In this reference, at the instance of the Department, which also relates to the assessment of the assessee-company for the assessment year 1980-81, two questions have been raised.

(20) THE first question relates to the expenditure by way of premium paid to Calcutta Hospital and Nursing Home Benefit Association. This question is fully covered by the decision of this court in CIT v. Duncan Brothers and Co. Ltd. [1983] 140 ITR 335. [LQ/CalHC/1981/67] In this case, it was held by this court that the company being under a contractual obligation to reimburse the nursing home expenses of its employees, the taking out of the insurance policies by the company to safeguard its own liability did not exonerate the assessee-company of its liability to its employees. The employees did not get any benefit from the employers taking out the policy, because the policy did not either confer any right on the employees, nor did it detract from the liability of the assessee to its employees as their employer. Therefore, the premia paid by the assessee in respect of the policies did not result directly or indirectly in the provision of any benefit, amenity or perquisite to the employees. Although the said decision was given in the context of Section 40 (c) (iii) of the Income-tax Act, 1961, as it stood in relation to the assessment years 1966-67 and 1967-68, the same principles apply with equal force in the context of Section 40a (5) in the case of the assessee-company in relation to the assessment year 1980-81.

(21) FOLLOWING the said decision of this court, we hold that the Tribunal was justified in directing the Income-tax Officer to exclude the expenditure by way of premia paid to Calcutta Hospital and Nursing Home Benefit Association for the purpose of computation of the disallowance under Section 40a (5) of the said Act.

(22) HOWEVER, in respect of hospitalisation expenses of Rs. 27,641, we find that the decision of this court in Duncan Brothers and Co. Ltd. s case [1983] 140 ITR 335 [LQ/CalHC/1981/67] has no application. As indicated earlier, the meeting of hospitalisation expenses of the employees by the assessee-company is definitely covered by the expression "remuneration, benefit or amenity" as appearing in Section 40 (c) (i) of the.

(23) COMING to Section 40a (5) of the, we find that the expression used therein is "salary" as defined in Clause (i) read with Clause (3) of Section 17 with certain modifications with which we are not concerned herein. We have already discussed elsewhere in this judgment that reimbursement of medical expenses in our view certainly falls within the wide and inclusive definition of "salary" which includes, inter alia, profits in lieu of or in addition to any salary or wages.

(24) WE may also add that where the assessee bears the expenses in respect of any obligation which would have been payable by the employee, the definition of perquisite in Explanation 2 (b) below Section 40a (5) of the is attracted. The definition of perquisite as obtaining therein, inter alia, includes "payment by the assessee of any sum in respect of any obligation which, but for such payment, would have been payable by the employee". The hospitalisation expenses incurred by the assessee answer the description as quoted above, the assessee having directly paid to the hospital. The Tribunal in the case apparently has overlooked the definition of perquisite while deciding that hospitalisation expenses are not attracted by Section 40a (5).

(25) IN this view of the matter, we hold that the expenditure incurred by the assessee-company towards hospitalisation of its employees certainly falls within the wide and inclusive definition of "salary" as defined in Section 17 (1) read with Section 17 (3) of the said Act. We, therefore, hold that the Tribunal was not justified in directing to exclude the hospitalisation expenses by the assessee-company of the sum of Rs. 27,641 for the purpose of computation of disallowance under Section 40a (5) of the said Act.

(26) THE second question raised at the instance of the Revenue is on the issue whether notional interest calculated on interest-free loans granted by the assessee-company to its employees could be taken as perquisites for the purpose of disallowance under Section 40a (5) of the said Act. This section is admittedly applicable only where the assessee incurs expenditure which results directly or indirectly in the payment of any salary or in the provision of any perquisite (whether convertible into money or not) to an employee. It is nobodys case that in providing interest-free loans by the assessee to its employees, any expenditure has been incurred by the assessee-company.

(27) IN that view of the matter, Section 40a (5) can have no application to the so-called notional interest calculated on the interest-free loans advanced by the assessee-company to its employees.

(28) FURTHERMORE, in CIT v. P. R. S. Oberoi [1990] 183 ITR 103 [LQ/CalHC/1989/513] , this court has already held that the grant of interest-free loans by an assessee to its employees did not amount to perquisite, benefit or amenity whether for the purposes of Section 17 (2) and/or Section 40a (5) of the said Act.

(29) IN this view of the matter, we answer the second question in the affirmative and in favour of the assessee. There will be no order as to costs.