TMI Blog1995 (2) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... . In its return for the assessment year 1972-73, the assessee claimed a deduction of Rs. 60,718 on the ground that it had provided to its employees perquisites in the form of hiring out residential accommodation, paying cash allowance towards rent for residence, facility of using the company's car or in lieu of it giving them some cash allowance towards it, meeting the medical expenses of the employees, etc. For the assessment year 1973-74, it claimed a deduction of Rs. 1,70,800 and claimed additionally deduction under section 35B of the royalty payment to the foreign collaborator. The Income-tax Officer as well as the Appellate Assistant Commissioner disallowed the said claim under section 40A(5) of the Income-tax Act, 1961 (hereinafter referred to as "the Act" for short). The Tribunal, however, held that the assessee is entitled to weighted deduction under section 35B on the royalty payments and that the disallowance made under section 40A(5) was not warranted, as the allowances are cash allowances. The almost yearly exercise of the assessees seeking deduction and the tax collectors not accepting their claims, appeals and references to the various High Courts of the country, ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section (1) of section 36 ; and (i) any expenditure referred to in clause (ix) of sub-section (1) of section 36 : Provided further that nothing in this sub-clause shall apply to any expenditure which results directly or indirectly in the provision of any benefit or amenity or perquisite to an employee whose income chargeable under the head 'Salaries' is seven thousand five hundred rupees or less. Explanation 1.--The provisions of this sub-clause shall apply notwithstanding that any amount not to be allowed under this sub-clause is included in the total income of the employee. Explanation 2.--In this sub-clause, the word 'salary' shall have the meaning assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule." The Kerala High Court has noted that the word "salary" is to be understood in the light of the definition in clause (h) of rule 2 of Part A of the Fourth Schedule, which has defined "salary" to include dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites and commented that the definition indicates that salary would include dearness allowance (if the terms of employment so provide), but all other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re dealing with here. We don't see any reason to give undue emphasis to the words 'whether convertible into money or not' so as to give a very restricted meaning to the term 'benefit, amenity or perquisite', a meaning which would not serve the evident purpose of the section. We say so because that would mean that any cash allowance paid by the employer to an employee of any sum whatsoever will be entitled to deduction despite section 40(a)(v) because restriction is limited only to non-cash advantage given to the employee. Such a construction appears to us to be quite irrational defeating the very purpose of prescribing the limit under section 40(a)(v) so as to dissuade an employer from paying unduly large sums by way of benefit, amenity or perquisite. The statute itself lays down the permissible limit of deduction in respect of salary and that would be incomplete unless a permissible limit of deduction is laid down in respect of other benefits that are extended to an employee. Though the words 'whether convertible into money or not' may at first sight appear to indicate that whatever are not convertible into money stand excluded from the scope of the term 'benefit, amenity, or pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erquisite' means,-- (i) rent-free accommodation provided to the employee by the assessee ; (ii) any concession in the matter of rent respecting any accommodation provided to the employee by the assessee ; (iii) any benefit or amenity granted or provided free of cost or at concessional rate to the employee by the assessee ; (iv) payment by the assessee of any sum in respect of any obligation which, but for such payment, would have been payable by the employee ; and (v) payment by the assessee of any sum, whether directly or through a fund, other than a recognised provident fund or an approved superannuation fund, to effect an assurance on the life of the employee or to effect a contract for an annuity." The Delhi High Court has said : "There has been a catena of authorities which have taken the view that payment of cash allowance to an employee by way of reimbursement of medical expense or house rent is not a perquisite. The leading case on this point is CIT v. Kanan Devon Hills Produce Co. Ltd. [1979] 119 ITR 431 (Cal). That decision of the Calcutta High Court was based on the interpretation of section 40(c)(iii) of the Act and it came to the conclusion that the words ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. [1992] 196 ITR 802. The Karnataka High Court has also come to the same conclusion in CIT v. Mysore Commercial Union Ltd. [1980] 126 ITR 340 and this was followed by it in CIT v. Motor Industries Co. Ltd. [1988] 173 ITR 374 (Kar). Two decisions of the Kerala High Court in favour of the aforesaid view of the Calcutta High Court are CIT v. Toshiba Anand Lamps Ltd. [1984] 145 ITR 563 and Travancore Tea Estates Co. Ltd. v. CIT [1985] 153 ITR 444. As far as this court is concerned, the view of the Calcutta High Court in Kanan Devon Hills Produce Co. Ltd.'s case [1979] 119 ITR 431 has found favour. In the case of Instalment Supply P. Ltd. v. CIT [1984] 149 ITR 457 (Delhi), it was held by this court that reimbursement of medical expenses by paying cash to the employee was not a perquisite. This view was reiterated by this court in CIT v. Escorts Ltd. [1987] 59 CTR 284 and CIT v. Jay Engineering Works Ltd. [1990] 182 ITR 181. Apart from the aforesaid authorities including three decisions of this court, it is clear to us that payment of the type which was made is not a perquisite. Explanation 2(b) to section 40A(5) is exhaustive." In CIT v. Manjushree Plantations Ltd. [1980] 125 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be one incurred wholly and exclusively on items as specified in sub-section (1)(b) thereof. The expenses referred to in the instant proceeding are termed as royalty payment to a foreign collaborator. It is conceded that this expenditure is not incurred wholly and exclusively on advertisement or publicity outside India ; for information regarding markets outside India ; distribution, supply or provision outside India or on the carriage of such goods to their destination outside India or on the insurance of goods in transit ; maintenance outside India of branch office or agency, preparation and submission of tenders for the supply or provision outside India of goods, etc. ; furnishing of samples or technical opinion, travelling outside India for the promotion of the sale outside India of goods, etc., performance of services outside India in connection with, or incidental to, the execution of any contract for the supply outside India of goods, etc., or other activities for the promotion of the sale outside India of goods, etc. None of the items of expenditure as shown in section 35B(1)(b) of the Act is attracted on the payment of royalty. The Tribunal has thus, on the first questi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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