The Heart of the Matter
More often than not, income tax cases can devolve into sordid matters involving deceit, dishonesty and general distasteful behavior. But once in a while, you may stumble upon a heart-warming (pun fully intended) story in tax, like I did when I chanced upon the case of Shanti Bhushan vs. CIT on Riverus.
Shanti Bhushan, an eminent lawyer, in this particular case claimed the expense of having a coronary surgery as a deduction under section 31 and 37 of the Income Tax Act. He claimed that his heart was in the nature of a plant which enabled him to carry out his business and profession, and the coronary surgery was in the nature of current repairs of a plant and hence should be allowed as a deduction in terms of section 31 of the Act. Alternatively, he contended that since the heart surgery was done to ensure that he was able to carry out his business without a hitch, it was an expenditure incurred wholly for exclusively for his business and therefore would be a deductible expenditure under Section 37 of the Act.
At first blush, it may seem that the assessee raised a fairly frivolous claim regarding the heart being a “plant” which would help him carry out his business. However, a quick analysis of the case law discussed in the judgment shows that this claim is not something which can be summarily dismissed.
Can a living thing be a ‘plant’?
One of the first questions which must be raised in a case like this is whether a living thing can be categorized as a plant. The assessee cited the case of Yarmouth vs. France to forward this contention. In this particular case, a horse was held to be a “plant” for the business of carrying goods from a wharf to the storehouse, since it was essential for carrying out the stated business. This definition of plant, though unconventional, correctly captures the sense in which it is applicable, which is to say something which is used for the carrying out of business. A quick search on Riverus shows that the Yarmouth case has been referred to by Indian courts 59 times, and the definition given therein is accepted to be correct. Interestingly, this definition of plant was also accepted by the Supreme Court in the case of Scientific Engineering House (P) Ltd. vs. CIT, a case which was to have a substantial bearing on the outcome of Shanti Bhushan’s case as we shall see subsequently.
Now that it has been established that a living thing can, in fact, be categorised as a plant, the question which arises is why did the Delhi High Court not permit the assessee’s claim? The HC took a three-pronged approach to shoot down Shanti Bhushan’s innovative appeal.
Expense not wholly and exclusively in relation to the business
Firstly, on section 37, the court held that the expense was not wholly and exclusively in relation to the business of the assessee, as the surgery would increase his efficiency and longevity generally as well, and hence would not be allowed as an expenditure under this section. The assessee did cite the case of Mehboob Productions Pvt. Ltd. vs. CIT wherein a medical expense was allowed under Section 37, but this was distinguished on the fact that the expense was incurred while the director was on a business trip and hence it could be said that the expense was wholly for the purpose of assessee’s business.
Is a heart a ‘plant’?
The disallowance under Section 31 presents a more interesting approach. Primarily, the court held that the heart of the assessee could not be held to be a plant, notwithstanding the decision in Yarmouth, since if it was a plant it would necessarily be an asset and would have to have a cost of acquisition and be reflected in the books of account of the assessee. Secondly, the heart could also not be said to be a plant since it was not a tool used by the assessee in his profession. The court applied the test of functionality which had been laid down in the case of Scientific Engineering and held that the general well-being of the heart could not be equated to it being used as a tool in the assessee’s profession.
While the fact that a well-functioning heart is a sine qua non for a human being to exist irrespective of their vocation is obvious, the court did not deal with the fact that the heart surgery seemed to have had a marked effect on the performance of the assessee. It was claimed by the assessee that he was unable to undertake taxing work before the surgery. Post it, his earnings increased almost 3 times. This seems to show that his heart, or rather the state of it, did play an instrumental role in determining how effectively he could carry out his profession. Hence, an argument could be made that the heart was a tool which the assessee needed to carry out his business efficiently and hence its “repair” via surgery should be an allowable deduction under Section 31. The ITAT had in fact noted that a musician could possibly claim expenses for repairing her fingers or a vocalist her vocal cords. The case would still fall on account of a plant’s characterization as an asset and the lack thereof in this case, but showing a direct nexus between the well-being of the heart and the ability of the assessee to work might have, at a stretch, satisfied the functionality test laid down by Scientific Engineering. However, that was not to be, and the assessee’s appeal was dismissed in a heart breaking fashion by the High Court, drawing the curtain on this highly unusual tax saga.
Written by Siddharth P. Sharma, Associate Product Manager @ Riverus