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1980 Supreme(Kar) 72
Karnataka High Court
Judges : M.K.Srinivas Iyengar,M.Rama Jois
COMMISSIONER OF INCOME-TAX, KARNATAKA II - Appellant
Versus
MYSORE COMMERCIAL UNION LTD. - Respondent
Income-Tax Referred 62 Of 1976
Decided On : 03/22/1980
Cash payments of bonus and house rent allowance do not constitute 'perquisite' under the Income-tax Act and cannot be subjected to disallowance.
Headnote:
Income-tax Act - Payment of Bonus and House Rent Allowance - Section 40(a)(v), Section 40a(5)
Fact of the Case:
The case involved the disallowance of payment of bonus in cash and house rent allowance under the Income-tax Act for assessment years 1970-71, 1971-72, and 1972-73. The Appellate Tribunal held that the cash payments did not amount to perquisite and could not be disallowed.
Finding of the Court:
The court found that the payment of house rent allowance and bonus in cash did not fall within the definition of 'perquisite' under the Income-tax Act and, therefore, could not be considered as part of the salary for the purpose of making disallowances.
Issues: The main issue was whether the cash payments of bonus and house rent allowance could be considered as perquisite and subjected to disallowance under the Income-tax Act.
Ratio Decidendi: The court interpreted the provisions of Section 40(a)(v) and Section 40a(5) of the Income-tax Act and held that the cash payments did not meet the definition of 'perquisite' and, therefore, could not be disallowed.
Final Decision: The court answered the questions in favor of the assessee, holding that the cash payments of bonus and house rent allowance could not be disallowed under the Income-tax Act.
( 1 ) THE Income-tax appellate Tribunal, Bangalore Bench, has referred one common question in the first two references and a separate question in the third reference, The common question is as follows :
"whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that payment of bonus in cash cannot be disallowed in part or in full applying the provisions of section 40 (a) (v) of the income-tax Act, 1961 ?"
( 2 ) THE question referred in the third case is as follows :
"whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in holding that payment of bonus rent allowance in cash cannot be disallowed in part or in full applying the provisions of section 40a (5) of the Income-tax Act, 1961 ?"
( 3 ) THESE matters relate to the assessment for the assessment years 1970-71, 1971-72 and 1972-72. In the first two years, payments had been made by way of the opinion that this constituted perquisite and, therefore, took them into consideration in restricting the allowances to be made at 1/5th of the salary. This was subjected to an appeal by the assessee. The AAC held that such cash payment would not amount to perquisite, and, therefore, the additions made by the ito in this behalf were erroneous and directed the deletion of the same. On a further appeal by the department, the order of the AAC was upheld. In relation to the assessment for the assessment year 1972-73, certain amount by way of house rent allowance had been paid to one of the officers by name Paramar in pursuance of the terms of the agreement of employment. The ito treated this amount as perquisite coming within the purview of s. 40a (5) of the. T. Act, 1961, which was introduced with effect from April 1, 1972. He, accordingly, restricted the allowance to 1/5th of the salary taking into account this payment as a perquisite. This was subjected to an appeal by the assessee and the AAC held that the cash payment would not come within the deification of "perquisite" in s. 40a (5) of the Act and directed the deletion of the additions made in this behalf. On a further appeal by the department, this action of the AAc was upheld.
( 4 ) AT the instance of the Commissioner, the above references have been made.
( 5 ) SO far as the house rent allowance involved in the assessment year 1972-73 is concerned, it appears to us that the matter is beyond controversy. Explanation 2 to s. 40a (5) and clause (a) of the Explanation, inter alia states that the defination of salary as given in s. 17 is assigned with a modification that the word "perquisite" occurring in sub-clause (iv) and the whole sub-clause (vii) shall be omitted. "perquisite" is defined under whole of sub-clause (b) of the Explanation as follow :
" 'perquisite' means - (i) rent-free accommodation provided to the employee by the assessee; (ii) any concession in the matter of rent respecting any accommodation provided to the employee by the assessee; (iii) any benefit or amenity granted or provided free of cost or at concessional rate to the employee by the assessee; (iv) payment by the assessee of any sum inrespect of any obligation which, but for such payment, would have been payable by the employee; and (v) payment by the assessee of any sum, whether directly or through a fund, other than a recognised provident fund or an approved superannuation fund, to effect an assurance on the life of the employee or to effect a contract for an annuity. "
"by virtue of clause (i) of this Explanation, a perquisite would not be considered as part of salary. A reading of clause (b) also shows that a payment in cash by way of house rent allowance does not come within any of the provisions of cls. (i) to (v) therein. Learned counsel for the petitioner did not contend that such allowance would fall within any of those clause. Therefore, it is clear that this payment of house rent allowance is not perquisite and accordingly it could not be taken
