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Issues:
1. Interpretation of the terms 'salary' and 'perquisite' under section 40A(5) of the Income-tax Act, 1961. 2. Allowability of deduction for salary and perquisites paid to a managing director pending approval by the Central Government. Analysis: Issue 1: Interpretation of 'salary' and 'perquisite' under section 40A(5) The case involved determining whether cash allowances should be considered as part of salary for the purpose of computing disallowance under section 40A(5) of the Income-tax Act, 1961. The Income-tax Officer initially included cash allowances as perquisites, but the Commissioner of Income-tax (Appeals) disagreed, stating that they were not perquisites. The Tribunal sided with the assessee, considering cash allowances as part of salary. The High Court noted that the definition of 'salary' under Explanation 2 of section 40A(5) includes any amounts received by an employee from the employer arising from the employment relation, which would encompass cash allowances. Citing a similar decision by the Kerala High Court, the High Court concluded that cash allowances received by an employee should be treated as part of the salary. The court answered the first question in the affirmative, against the Revenue. Issue 2: Allowability of deduction for managing director's salary pending approval The second question revolved around the disallowance of the salary and perquisites paid to a managing director due to lack of approval by the Central Government. The Income-tax Officer disallowed the remuneration, but the Commissioner of Income-tax (Appeals) directed verification of the actual amount paid and restricted the disallowance accordingly. The Tribunal allowed the actual salary paid for services rendered by the managing director to be deducted under section 37 of the Act. The High Court referred to a previous decision and emphasized that remuneration for services rendered by an employee, even if the appointment was not approved, cannot be denied. Therefore, the High Court agreed with the Tribunal's decision to allow the actual salary paid to the managing director. The second question was answered in the affirmative and in favor of the assessee. In conclusion, the High Court ruled in favor of the assessee on both issues, emphasizing the inclusion of cash allowances in the definition of 'salary' and allowing the deduction for the managing director's salary despite pending approval. The judgment was delivered by Judges Ajit Kumar Sengupta and Bhagabati Prasad Banerjee of the High Court at Calcutta.
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