Deferred annuity contributions were not salary perquisites where employees had no present vested right or immediate entitlement.

Employer contributions paid into a trust for a deferred annuity were not taxable as salary perquisites under section 7(1) because the employees had no present vested right or immediate entitlement in the employer's share during the accounting year. The amounts were not "allowed to" or "due to" the employees, since their benefit depended on retirement or other contingent events under the deed and rules. A deferred annuity was also outside paragraph (v) of Explanation 1 to section 7(1), which was read as referring to an ordinary annuity and not an expressly deferred, contingent benefit. The references were therefore answered in favour of the employees.

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Issues: (i) Whether the employer's contributions under the trust deed for a deferred annuity constituted a perquisite under section 7(1) of the Indian Income-tax Act. (ii) Whether those contributions were allowed to or due to the employees in the accounting year. (iii) Whether a deferred annuity was covered by paragraph (v) of Explanation 1 to section 7(1) of the Indian Income-tax Act.

Issue (i): Whether the employer's contributions under the trust deed for a deferred annuity constituted a perquisite under section 7(1) of the Indian Income-tax Act.

Analysis: The contributions were paid into a trust fund and the employees obtained no immediate or vested benefit in the employer's share during the relevant year. The scheme showed that the employees would become entitled to the employer's contribution only on retirement at the pensionable age, or in limited contingencies specified by the deed and rules. A mere contingent possibility of benefit was not enough to attract taxation as a perquisite.

Conclusion: The employer's contributions were not perquisites under section 7(1).

Issue (ii): Whether those contributions were allowed to or due to the employees in the accounting year.

Analysis: The expression "allowed to" or "due to" required a present vested right in the employee, not a benefit dependent on future contingencies. Since the employees had no immediate enforceable right to the employer's share in the accounting year, the amounts could not be treated as sums allowed to or due to them in that year.

Conclusion: The contributions were not allowed to or due to the employees in the accounting year.

Issue (iii): Whether a deferred annuity was covered by paragraph (v) of Explanation 1 to section 7(1) of the Indian Income-tax Act.

Analysis: The provision referred to an annuity in the ordinary sense of a present purchased income, not a deferred annuity whose benefit remained contingent and whose capital had not ceased to exist. As the statute did not expressly include deferred annuities, the provision could not be extended to cover the employer's payments on that basis.

Conclusion: A deferred annuity was not hit by paragraph (v) of Explanation 1 to section 7(1).

Final Conclusion: The references were answered in favour of the employees, and the employer's contributions were held not taxable as perquisites under the relevant salary provision.

Ratio Decidendi: For taxation as a salary perquisite under section 7(1), the employee must have a present vested right or immediate entitlement in the employer's payment; a merely contingent or deferred benefit does not suffice.

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