Cash payments made by an assessee to employees do not qualify as perquisites and hence are not subject to restrictions in deductible expenditure.

1 Leave granted in the Special Leave Petition.

2. The only question in this batch of appeal is whether the payments made in cash by an assessee to its employees are within the mischief of S.40(a) (v) and S.40A(5). Sub clause(v) was inserted in clause (a) of S.40 by the Finance Act, 1986 with effect from April 1, 1969. S.40 (a) (v) reads as follows :
"S 40. Amounts not deductible. Notwithstanding anything to the contrary in (S.30 to 38), the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",
(a) in the case of any assessee-
(v) any expenditure which results directly or indirectly in the provision of any benefit or amenity or perquisite, whether convertible into money or not, to any employee (including any sum paid by the assessee in respect of any obligation which but for such payment would have been payable by such employee) or any expenditure or allowance in respect of any assets of the assessee used by such employee either wholly or partly for his own purposes or benefit, to the extent such expenditure or allowance exceeds one fifth of the amount of salary payable to the employee, or an amount calculated at the rate of one thousand rupees for each month or part thereof comprised in the period of his employment during the previous year, whichever is less :
Provided that in computing the aforesaid expenditure or allowance the following shall not be taken into account, namely:-
(a) any payment by way of gratuity:
(b) the value of any travel concession or assistance referred to in clause (5) of S.10;
(c) passage moneys or the value of any free or concessional passage referred to in sub clause (i) of clause (6) of S.10;
(d) any payment of tax referred to in sub clause (vii) or sub clause (vii a) of clause(6) of S.10;
(e) any payment of tax referred to in sub clause (vii) of clause(1) of S.17;
(f) any sum referred to in sub clause (v) of clause (2) of S.17:
(g) the amount of any compensation referred to in sub clause (i) or any payment referred to in sub clause (ii) of clause (3) of S.17;
(h) any sum referred to in sub clause (iv) or clause (v) of sub-section (1) of S.36;and
(i) any expenditure referred to in clause (ix) of sub-section (1) of S.36;
Provided further that nothing in this sub clause shall apply to any expenditure which results directly or indirectly in the provision of any benefit or amenity or perquisite to an employee whose income chargeable under the head "Salaries" is seven thousand five hundred rupees or less.
Explanation 1- The Provisions of this sub clause shall apply notwithstanding that any amount not to be allowed under this sub clause is included in the total income of the employee.
Explanation 2. - In this sub clause, the word 'salary' shall have the meaning assigned to it in clause(h) of R.2 of Part A of the Fourth Schedule."

3. Sub clause (v) of S.40(a) was omitted by the Finance (No.2) Act, 1971, which simultaneously introduced sub-section(5) in S.40A. Sub-section (5) of S.40A omitting unnecessary clauses, reads thus;
"S. 40 A. Expenses or payments not deductible in certain circumstances :-
(1) The provision of this Section shall have effect not withstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head 'Profits and gains of business or profession:-
(5) (a) Where the assessee-
(i) incurs any expenditure which results directly or indirectly in the p