While deliberating on two petitions filed by employees of the State Bank of India (SBI) and the Reserve Bank of India (RBI), the court has asked the CBDT to issue appropriate directions under Section 19 of the IT Act ``for removing the hardship caused to the employees who are suffering genuinely''.

Employees of SBI and RBI have challenged the constitutional validity of the section of the IT Act which necessitates tax levy on medical reimbursement. The employees maintain that it is practically impossible to avail of adequate modern medical facilities for less than Rs 10,000 (the ceiling stipulated by the act), particularly in cities like Mumbai.

Hence, it is unfair to tax the amount spent on treatment, which is bound to be more than Rs 10,000. Moreover, for employees who suffer as aresult of natural calamities or accidents, the tax comes as an additional penalty.

The petitions cite two instances of officials who were severely inconvenienced due to the tax levied on their medical reimbursement. SBI officer Subhash Banhatti was a regional manager when he met with a motor accident in 1991 during an official visit to the bank's Vasai branch. He was hospitalised for eight weeks.

He was told he was expected to bear the tax liability for the medical expenses (over Rs 3 lakh) incurred by the bank on his behalf.

In the other writ petition, the high court restrained the RBI from deducting tax at source on the amount reimbursed to officer S A Bendre, a kidney patient who was required to undergo haemodialysis thrice a week. The annual cost of treatment was around Rs 1.5 lakh. Bendre was kept under medical supervision at Bombay Hospital.

As per the provisions of the IT Act, reimbursement of the entire medical treatment was deemed as salary income and was hence taxable. The tax deductible atsource on this worked out to over Rs 50,000 a year.

The court, however, passed an interim order restraining the bank from taxing Bendre till final disposal of the petition.

In yet another case, the court restrained the RBI from recovering any tax from typist P B More, whose minor son underwent prolonged treatment for haemophilia in a Pune hospital. The employee was sought to be taxed because the Pune hospital did not fall under the ``approved'' category of hospitals under the IT Act.

The petitioners argue that medical expenditure cannot be treated as a`perquisite as it is not a fixed benefit accruing periodically from the employer.

They also argue against discrimination between hospitals as long as medical expenditure is supported by bills and other documents. There is also no reasonable basis to exempt all expenditure in some hospitals and only up to Rs 10,000 is certain other hospitals.

Interestingly, the petitioners claim that tax on reimbursement is like `turning a welfare measure into a penalaction'.