1996 (11) TMI 49 - HC - Income Tax

Summary

Issues:
Interpretation of perquisite under section 17(2)(iv) of the Income-tax Act.
Applicability of exemption under section 10(14) for boarding and lodging expenses.
Taxability of expenses met by the employer for foreign employees.

Analysis:
The case involved three Dutch nationals deputed to work in India on a ship, with their employer directly meeting their boarding and lodging expenses. Initially, the Income-tax Officer treated these expenses as perquisites, bringing them into the taxable income of the employees for the assessment year 1976-77. However, the Assistant Commissioner of Income-tax (Appeals) overturned this decision based on similar cases from earlier assessment years, stating that these expenses should not be considered as income. The Income-tax Appellate Tribunal upheld this view in the second appeal, prompting the Revenue to seek a reference to the High Court.

The High Court examined the definitions of "perquisite" under section 17(2)(iv) and "special allowance or benefit" under section 10(14) of the Income-tax Act. Section 17(2)(iv) defines perquisite as any sum paid by the employer in place of an obligation of the assessee. The Department argued that since the expenses were a perquisite, they should not be exempted under section 10(14), which allows for specific allowances to meet expenses incurred in the performance of duties.

The court deliberated on whether the expenses qualified as perquisites and if they could be exempted under section 10(14). It noted that the employer's provision of boarding and lodging was a benefit specifically granted to meet expenses incurred in the performance of duties, especially considering the foreign status of the employees and the nature of their work on a ship in India. The court concluded that while the expenses were not a special allowance, they were a benefit meant to cover expenses wholly, necessarily, and exclusively incurred in the course of employment.

Ultimately, the High Court ruled in favor of the employees, stating that the expenses met by the employer for boarding and lodging were exempt under section 10(14) of the Income-tax Act. The court held that the amounts in question did not constitute perquisites and were rightfully excluded from the total income of the employees. As a result, the judgment favored the employees and rejected the Revenue's claim, with no costs awarded.