Employer-paid personal accident insurance premium was not a taxable perquisite where the employee had no vested right to the benefit.

Premium paid by an employer for personal accident insurance covering a director-employee was analysed under section 7(1) of the Indian Income-tax Act, 1922 and its explanations. The payment was not treated as a perquisite because the policy was taken primarily for the employer's protection, there was no obligation on the employee to pay the premium, and the premium did not amount to a free benefit or amenity. It also did not fall within the category requiring substantial interest, and the employee acquired no vested right to the amount, since any benefit remained contingent on an accident occurring. The premium was therefore not taxable as a perquisite.

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Issues: Whether the premium paid by the employer on a personal accident insurance policy taken for a director-employee constituted a perquisite within the meaning of section 7(1) of the Indian Income-tax Act, 1922.

Analysis: The premium was examined under the relevant parts of Explanation 1 to section 7(1). Clause (iv) did not apply because the policy was taken by the employer for its own protection and there was no obligation on the assessee to pay the premium himself if the employer did not do so. Clause (iii) also did not apply because the payment of premium for cover against an uncertain accident risk did not amount to a benefit or amenity granted free of cost to the assessee. Clause (ii) was inapplicable because there was no material to show that the assessee had the kind of substantial interest in the company contemplated by section 2(6C)(iii). The payment did not create any vested right in the assessee; at the highest, any benefit under the policy was contingent on an accident occurring.

Conclusion: The premium paid by the employer was not a perquisite under section 7(1) and the answer was in the negative, against the revenue and in favour of the assessee.

Ratio Decidendi: An employer's payment of premium for personal accident insurance, taken primarily to protect the employer against liability, is not a taxable perquisite in the employee's hands unless the employee has a vested right to the amount or the payment falls within a specific statutory category under section 7(1).

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