Court rules cash payments to employees not disallowed under Income-tax Act; directs reference for taxability issue.

The court held that cash payments to employees are not covered under section 40A(5) of the Income-tax Act. It concluded that the provision does not allow for cash payments to be disallowed. Additionally, the court found a question of law regarding the taxability of a sum credited to the P & D account under section 41(1), directing the Tribunal to refer the matter for consideration without awarding costs.

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Issues involved: Interpretation of provisions u/s 40A(5) of the Income-tax Act regarding disallowance of cash payments to employees and taxability u/s 41(1) of a sum credited to the P & D account representing cessation of liabilities of earlier years.

Interpretation of u/s 40A(5) of the Income-tax Act:
The court referred to a previous decision regarding the expression "benefit, amenity or perquisite" under the section, which was held not to include cash payments to employees. The court found that the provision does not cover any payment made in cash to employees. The court noted that the said provision nowhere suggests that cash payments to employees are admissible under u/s 40A(5). The court concluded that the answer to the question is self-evident and consistent with decisions of other High Courts in India.

Taxability u/s 41(1) of a sum credited to the P & D account:
The court determined that a question of law does arise regarding the taxability of a sum credited to the P & D account representing cessation of liabilities of earlier years. The court directed the Tribunal to refer the question of law to the court for consideration. No costs were awarded in this matter.

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