TMI Blog1996 (3) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... e deducted in computing the income chargeable under the head 'Profits and gains of business or profession', (a) in the case of any assessee--.... (v) 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch of such expenditure or allowance as is in excess of the limit specified in respect thereof in clause (c) shall not be allowed as a deduction : Provided that where the assessee is a company, so much of the aggregate of-- (a) the expenditure and allowance referred to in sub-clauses (i) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . [Similar restriction is placed on salary paid to an ex-employee as well]. For this purpose, the expression "salary" is defined in clause (a) of Explanation 2 to sub-section (5). (2) Any expenditure incurred by the assessee in providing whether directly or indirectly any perquisite [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 completi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee to its directors, such as house rent allowance, conveyance allowance, furniture allowance, etc., should not be considered 'perquisites' within the meaning of section 40(a)(v) of the Income-tax Act, 1961? " Leave was granted by this court for the reason that there is a conflict 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be so whether the accommodation provided belongs to the assessee or is taken on rent by the assessee. In the latter event, the rent paid by the assessee to the owner of the house will be an expenditure incurred by the assessee in providing a perquisite to its employee within 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 comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 40(a). Now, coming to sub-clause (ii) of clause (a) of sub-section (5)--which corresponds to section 40(a)(v) it uses only one expression "perquisite" as against section 40(a)(v) which spoke of "benefit or amenity or perquisite", but this is no real distinction because the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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