TaxTMI 
TaxTMI 
1996 (3) TMI 6
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....to an employee (including any sum paid by the assessee in respect of any obligation which but for such payment would have been payable by such employee) or any expenditure or allowance in respect of any assets of the assessee used by such employee either wholly or partly for his own purposes or benefit, to the extent such expenditure or allowance exceeds one-fifth of the amount of salary payable to the employee, or an amount calculated at the rate of one thousand rupees for each month or part thereof comprised in the period of his employment during the previous year, whichever is less : Provided that in computing the aforesaid expenditure or allowance, the following shall not be taken into account, namely :-- (a) any payment by way of gratuity ; (b) the value of any travel concession or assistance referred to in clause (5) of section 10 ; (c) passage moneys or the value of any free or concessional passage referred to in sub-clause (i) of clause (6) of section 10 ; (d) any payment of tax referred to in sub-clause (vii) of clause (6) of section 10 ; (e) any sum referred to in sub-clause (vii) of clause (1) of section 17 ; (f) any sum referred to in sub-clause (v)....
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.... and (ii) of this clause ; and (b) the expenditure and allowance referred to in sub-clauses (i) and (ii) of clause (c) of section 40, in respect of an employee or a former employee, being a director or a person who has a substantial interest in the company or a relative of the director or of such person, as is in excess of the sum of one hundred and two thousand rupees, shall in no case be allowed as a deduction : Explanation 2.--In this sub-section,-- (a) 'salary' has the meaning assigned to it in clause (1) read with clause (3) of section 17 subject to the following modifications, namely :-- (1) in the said clause (1), the word 'perquisites' occurring in sub-clause (iv) and the whole of sub-clause (vii) shall be omitted ; (2) in the said clause (3), the references to 'assessee' shall be construed as references to 'employee or former employee' and the references to 'his employer or former employer' and 'an employer or a former employer' shall be construed as references to 'the assessee' ; (b) 'Perquisite' means, (i) rent-free accommodation provided to the employee by the assessee ; (ii) any concession in the matter of rent respecting any accommodation provi....
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....whether convertible into money or not] to an employee and the amount of expenditure or allowance (e.g., depreciation allowance] in respect of assets of the assessee used by the employee for his own purposes, whether wholly or partly, will not be allowed as deduction in computing the profits of the business or profession, to the extent it exceeds twenty per cent. of the salary payable to the employee or an amount calculated at the rate of rupees one thousand per month, whichever is less. The expression "perquisite" is defined in clause (b) of Explanation 2 to the sub-section as including not only any benefit or amenity but also "payment by the assessee of any sum in respect of any obligation which, but for such payment, would have been payable by the employee". Certain types of expenditure are excluded from the purview of both section 40(a)(v) as well as section 40A(5)(a)(ii). For the sake of completion, it may also be stated that though section 40(a)(v) does not place any restriction upon the amount of salary payable to the employee, such a restriction was implicit in clause (c) of section 40. Clause (c) of section 40 continued to be in force till March 31, 1989. It was omitted ....
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....ict of opinion on the said question between the High Courts in the country. The assessment year concerned in this appeal is 1971-72 and, therefore, the relevant provision is section 40(a)(v). We shall first take up section 40(a)(v). According to section 40, which opens with a non obstante clause, "notwithstanding anything to the contrary in sections 30 to 38", the amounts mentioned in several clauses therein shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession". Clause (a) contains several sub-clauses. We are concerned with sub-clause (v) alone. The main limb of sub-clause (v) places a limit upon two kinds of expenditure, viz., (a) any expenditure which results directly or indirectly in the provision of any benefit or amenity or perquisite whether convertible into money or not, to an employee (including any sum paid by the assessee in respect of any obligation which but for such payment would have been payable by such employee) or (b) any expenditure or allowance in respect of any assets of the assessee used by such employee either wholly or partly for his own purposes or benefit. The limit prescribed or ceiling pro....
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....the meaning of the sub-clause. Similarly, any expenditure incurred by the assessee in providing a benefit or amenity to its employees will equally fall within the sub-clause. This much is not in dispute. Now, take another case where an assessee pays a cash amount of, say, rupees five thousand to its employee asking him to find a house on rent himself instead of the assessee himself taking the house on rent and providing it to the employee. In this case, however, the assessees say, such cash payment made by the assessee is not within the mischief of the sub-clause while the Revenue characterises the assessees' contention as ex facie illogical and absurd. On principle, it should make no difference, the Revenue submits, whether the assessee takes a house on rent and provides it to the employee or pays a cash amount directly to the employee asking him to find a house on rent himself. Counsel for the Revenue commended the reasoning and conclusion of the Full Bench of the Kerala High Court in CIT v. Commonwealth Trust Ltd. [1982] 135 ITR 19 for our acceptance. Counsel for the assessees, however, lay stress upon the language of the sub-clause, to wit, upon the words any expenditure incurr....
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....definition of "perquisite" in clause (b) of Explanation 2 to the sub-section takes in both benefits and amenities. The said definition also includes, inter alia, "payment by the assessee of any sum in respect of any obligation which, but for such payment, would have been payable by the employee" words which are found in the main limb of section 40(a)(v) but which are missing in the main limb of sub-clause (ii) of clause (a) of sub-section (5). Thus, except for certain structural changes, section 40A(5)(a)(ii) and section 40(a)(v) are similar in all material aspects. It, therefore, follows that what we have said with respect to section 40(a)(v) applies equally to section 40A(5)(a)(ii). There still remain the words "including any sum paid by the assessee in respect of any obligation which but for such payment would have been payable by such employee" in section 40(a)(v) and similar words found in section 40A(5)(a)(ii) as well, i.e., in sub-clause (iv) of the definition of " perquisite" in clause (b) of Explanation 2 to sub-section (5). What do they mean ? The said words contemplate a situation where the assessee makes a payment [in cash] in respect of an obligation-obligation of the ....