Cash leave allowance and the meaning of perquisite under income-tax disallowance rules

Cash leave allowance paid directly to employees was treated as outside the expression "perquisite" for the purposes of the disallowance provisions in section 40(c)(iii) for assessment year 1968-69 and section 40(a)(v) for assessment years 1969-70 to 1971-72. The prevailing interpretation of the analogous language in section 2(6C)(iii) of the Indian Income-tax Act, 1922 confined "benefit or perquisite" to advantages other than money itself. On that basis, a cash payment made under service conditions was not subject to restriction under those provisions.

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Issues: Whether leave allowance paid in cash to employees is a perquisite so as to attract disallowance under section 40(c)(iii) of the Income-tax Act, 1961 for assessment year 1968-69 and under section 40(a)(v) of the Income-tax Act, 1961 for assessment years 1969-70 to 1971-72.

Analysis: The issue was treated as settled by prior authority. Cash payments made directly to an employee were held not to fall within the expression "perquisite" under the relevant income-tax provisions. The reasoning was reinforced by the earlier interpretation of the analogous language in section 2(6C)(iii) of the Indian Income-tax Act, 1922, which confined "benefit or perquisite" to something other than money itself. The prevailing judicial view therefore was that a payment in cash under service conditions is not a perquisite for the purpose of the disallowance provisions.

Conclusion: The leave allowance paid in cash was not a perquisite and did not fall to be restricted under section 40(c)(iii) or section 40(a)(v) of the Income-tax Act, 1961.

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