Premium paid by assessee to Nursing Home Benefit Association for medical insurance policy on individual life of each employee did not result directly or indirectly in provision of any benefit or amenity or perquisite to employees.

( 1 ) IN this reference under Section 256 (1) of the I. T. Act, 1961, the following two questions have been referred to this court :" 1. Whether, on the facts and in the circumstances of the case, the premium paid by the assessee to Nursing Home Benefit Association in respect of the medical insurance policy taken on the individual life of each employee resulted directly or indirectly in the provision of any benefit or amenity or perquisite within the meaning of Section 40 (c) (iii) of the Income-tax Act, 1961, and should be taken into account in computing the amount disallowable under the said section ?

( 2 ) "whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that for the purpose of computing the amounts disallowable under Section 40 (c) (iii) of the Income-tax Act, 1961, the amount of salary payable to the employees should be reduced by the recoveries made from the managed companies on account of the services rendered to such companies by the said employees ? "2. This reference arises out of the assessments for the assessment years 1966-67 and 1967-68, for which the relevant previous years were calendar years 1965 and 1966. As per the terms of the contract the assessee-company was required to reimburse the entire nursing expenses of its employees and officers. To avoid any heavy expenditure in any particular year the company took medical insurance policy from a Nursing Home Benefit Association on the individual life of each employee for which it was required to pay premia of Rs. 150 to Rs. 510 per year in the cases of different employees. The ITO treated the amount of premia as the expenditure which resulted directly or indirectly in the provision of a benefit or amenity or perquisite to the employees for working out the disallowable item Under Section 40 (c) (iii) of the Act. The claim of the assessee, on the other hand, was that the premia as such did not result in any such benefit or amenity or perquisite. The ITO, however, rejected the assessee's contention.

( 3 ) ON appeal, the AAC, however, accepted such view.

( 4 ) THE assessee-company was also the managing agent of certain other companies. It had centralised working and common employees who worked both in the offices of the managed companies as well as in the office of the assessee-company. The latter also debited their salaries to its own account in the first instance but simultaneously debited the accounts of the managed companies for the amounts, which, in its opinion, were payable by them for the services by the employees to these companies, and it was the net amount which was finally debited to its profit and loss account and was claimed as expenditure Under Section 37 of the Act. This aspect is important. This was the net amount arrived at after crediting the amount debited to the managed companies and after taking into consideration the amounts actually paid to the employees. The ITO, while determining 1/5th of the amount of salary, with reference to which the benefit, amenity or perquisite were to be examined, took into account the gross salary of each employee which the assessee, as per the contract of service, was required to pay. He rejected the claim of the assessee that the 1/5th portion should have been calculated with reference to the net amount of salary which the company had actually debited to its profit and loss account and had claimed as its deductible expenditure in its own assessment. The AAC, on the other hand, accepted the contention and reversed the order of the ITO.

( 5 ) THERE was a further appeal before the Tribunal. The question canvassed before the Tribunal on behalf of the Revenue was whether the amount of premia paid by the assessee to Nursing Home Benefit Association on the individual life of each employee could be included in the perquisites or benefit for working out the disallowance Under Section 40 (c) (iii) of the I. T. Act, 1961, and further, whether the disa