Cash reimbursements and house rent allowance can form part of salary for tax disallowance purposes.

Cash benefits arising from the employer-employee relationship may be treated as salary for disallowance under sections 40A(5) and 40(c), even where they are not perquisites. The inclusive definition of salary and the concept of "profits in lieu of salary" can cover cash reimbursement of medical expenses paid by an employer. House rent allowance paid in cash is likewise includible in salary, with section 10(13A) operating only to the extent of statutory exemption. Later legislative amendments and circulars did not alter the position for the assessment year discussed.

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Issues: Whether reimbursement of medical expenses paid in cash and house rent allowance paid in cash formed part of salary for the purpose of disallowance under section 40A(5)/40(c) of the Income-tax Act, 1961.

Analysis: The expression "salary" in section 17 is not confined to periodic pay in the narrow sense. The inclusive language of section 17(3) broadens the field of "profits in lieu of salary" so as to take in cash receipts arising out of employment, and reimbursement of expenses by the employer can fall within that broad statutory setting. The definition of perquisite in Explanation 2 to section 40A(5) does not cover cash reimbursement as a perquisite, but that does not exclude it from being treated as salary if it answers the description of cash benefit received from the employer. The later legislative amendment and the Board's circulars did not alter the position for the assessment year in question. House rent allowance was likewise a special allowance connected with employment and was includible in salary, with section 10(13A) indicating only the extent of exemption.

Conclusion: Reimbursement of medical expenses paid in cash and house rent allowance paid in cash were rightly treated as part of salary for the purposes of section 40A(5)/40(c); the question was answered in the affirmative, against the assessee.

Ratio Decidendi: For section 40A(5), cash benefits arising from the employer-employee relationship may constitute salary as "profits in lieu of salary", even if they are not perquisites, and house rent allowance is includible in salary except to the extent specifically exempted by statute.

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