Jagannatha Shetty, J.

1. This is a reference under s. 256(1) of the I.T. Act, 1961. The question referred by the Income-tax Appellate Tribunal, Bangalore Bench, reads :

"Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the premium paid on personal accident insurance policies of its employees should not be treated as a perquisite for the purpose of section 40A(5) of the Income-tax Act, 1961 ?"

2. The facts behind the legal formulation are as follows :

The assessee is an industrial company. The assessment year is 1974-75 the relevant previous year ending on March 31, 1974. The ITO made a disallowance of Rs. 19,182 under s. 40A(5) of the I.T. Act. 1961 (shortly "the Act"). That sum represents the premia paid on the accident insurance policy taken by the assessee-company in relation to personal accident or death by accident of some of the employees. The ITO was of the opinion that the benefit under the insurance policy accrued to the employees and not to the employer. So he considered it as a perquisite under Explanation 2 to s. 40A(5) of the Act.

3. Upon appeal, the AAC held that the contract of insurance for personal accid