Cash allowances and medical reimbursement count toward salary ceilings under tax disallowance provisions, according to the note.

Cash house rent allowance paid to a managing director was treated as remuneration for the statutory ceiling under section 40(c), while cash house rent allowance and medical reimbursement paid to executives were treated as part of salary for computing disallowance under section 40A(5). The analysis rejects the earlier view that such cash payments were outside the ceiling, stating that they must be included in the relevant statutory limits. The note records that the question was answered against the taxpayer and in favour of the Revenue.

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Issues: Whether house rent allowance and medical reimbursement paid in cash to the managing director and executives were to be treated as remuneration or salary for working out the limits under section 40(c) and section 40A(5) of the Income-tax Act, 1961.

Analysis: The cash house rent allowance paid to the managing director fell within section 40(c) as part of remuneration for the purpose of the ceiling. As regards the executives, cash house rent allowance and medical reimbursement, though not perquisites, formed part of salary for computing the disallowance under section 40A(5). The earlier view treating such payments as outside the ceiling was not accepted.

Conclusion: The question was answered in the negative, holding that the impugned payments had to be taken into account for the statutory ceilings, and the answer was in favour of the Revenue.

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