Beneficial ownership in employee shares prevents later transfer from being taxed as salary or a perquisite.

A bonus scheme under which annual bonus amounts were applied to buy company shares, held in the names of trustees for an employee, and later transferred on termination of employment was treated as creating beneficial ownership in the employee before the final transfer. Because the company had already divested itself of legal and beneficial interest when the shares were placed with the trustees, the later delivery of the shares did not amount to salary or an additional perquisite paid by or on behalf of the employer under Section 7(1) of the Income-tax Act. The decisive point was that the employee's beneficial interest had already arisen before the legal estate was transferred.

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Issues: Whether the transfer of shares to employees at the termination of their employment, under the bonus scheme, constituted salary or a perquisite/profit received in addition to salary within Section 7(1) of the Income-tax Act.

Analysis: The scheme contemplated annual bonus amounts being applied to purchase company shares, with the shares transferred into the joint names of the managing agents and the employee as trustees, and later handed over to the employee when the employment ended. The Court distinguished this final transfer from a cash bonus paid year by year. Once the shares had been transferred to the trustees, the company retained neither legal nor beneficial interest in them. At the time of the later transfer to the employee, he already had the beneficial interest, and the company had no right to control or compel the transfer. On that footing, the later delivery of the shares was not a payment by or on behalf of the company in the nature of salary or an additional perquisite.

Conclusion: The transfer of shares on termination of employment was not salary or a perquisite under Section 7(1) of the Income-tax Act, and the question was answered in the negative.

Ratio Decidendi: Where an employee already has the beneficial interest in shares held by trustees, the subsequent transfer of the legal estate to the employee does not constitute salary or a perquisite paid by or on behalf of the employer under the charging provision for salaries.

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