Sucheta Dalal :Tax benefits: Heart of the matter
Sucheta Dalal

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Tax benefits: Heart of the matter  

July 7, 2011

Is your heart a piece of plant and machinery for you to get tax breaks?

Sucheta Dalal

Former law minister Shanti Bhushan is regularly in the news these days. So it is surprising that a case that he lost in the Delhi High Court in June attracted only routine reporting and no analysis. Mr Bhushan, 80, had sought tax deduction of Rs1.74 lakh for a heart operation under Section (31) of the Income-Tax Act on the grounds that the heart was ‘plant’ and expenditure incurred on its surgery should constitute ‘current repairs’. His case was that his professional work had led to a heart attack and that his income had increased significantly after the operation (repairs). The income-tax appellate tribunal as well as the Delhi High Court rejected Mr Bhushan’s claim and now he plans to approach the Supreme Court.

Mr Bhushan’s annual income is over Rs10 crore, so the case is not about a paltry deduction, but about pushing legal boundaries. The learned judges recognised this saying, “the issue raised is both ingenious and novel” and “the question raised is the product of experience, deftness and obvious artfulness of the petitioner (Shanti Bhushan) who is a seasoned, experienced and eminent Advocate of the country.” The Court then spelt out three parameters for allowing a deduction. First, that the expense should be incurred ‘wholly and exclusively’ for the purpose of the profession; second, it cannot be an expense to bring into existence a capital asset; and third, it should not be an expense of a personal nature. The Court ruled that the claim will not stand because the heart as an ‘asset’ did not find mention in the balance sheet since its ‘cost of acquisition’ cannot be determined. It said that the claim also failed the ‘functionality’ test, since the heart was necessary for survival and cannot be considered a ‘tool’ of trade or professional activity. And, finally, the expenditure incurred on its ‘repair’ was not wholly and exclusively for the assessee’s profession and no direct correlation could be drawn between the two.

But, consider this. Anybody over 60 knows that it is impossible to find reasonably-priced health insurance. And anyone who is self-employed or outside the government/organised sector knows that galloping inflation and healthcare costs (in cities these are rising at 20%pa) as well as a changed lifestyle requires people to keep working well past the age of 60. In the absence of any semblance of social security, the heart, the brain, the knees, and even eyes, are, indeed, important ‘plant and machinery’ for the self-employed, especially for those over 60 for whom getting medical insurance is a battle. So far, neither the government nor the court has recognised this, except for the tiny deductions available under Section 80 D. So it could well be that the Supreme Court may be willing to push the envelope further and Mr Bhushan’s initiative may provide relief to many who really need it.

Human Value Accounting
In a sarcastic reaction to Shanti Bhushan’s litigation, an economic daily has argued that if heart surgery were allowed as a deductible expense for ‘plant & machinery’ under Section 37, it could lead to absurd claims that even groceries and clothing should be allowed as fuel for the plant. This misses the heart of the matter—it is not about a body part that is germane to the issue. While Mr Bhushan’s move to treat his heart as ‘plant and machinery’ may be unique, the concept of attaching a money value to human resources and their external goodwill is neither new nor bizarre.

Management experts have found a way to allow companies to evaluate human assets—it is called human value accounting—through metrics such as skills, strategies, leadership, motivation, attitude and so on. So why can’t the concept be translated to evaluating human value for self-employed persons, or for those whose work, by its very nature, involves a very short span of high-earning potential (film stars or sports persons)? There could well be a case for such individuals to get tax deductions on expenses that will enhance their earnings potential. Or, senior citizens who cannot get insurance cover except at a steep price, procedures such as knee-replacements or cataract and cardiac surgeries can extend their working life and income-generating capacity significantly.

Let’s hope Mr Bhushan’s appeal will, at least, trigger a wider debate on the issue.


-- Sucheta Dalal