1989 (1) TMI 22 - HC - Income Tax

Summary

Issues:
Whether the sum representing the cost of air fare paid by the employer to its employee constitutes a perquisite assessable under section 17(2)(iv) of the Income-tax Act, 1961.

Analysis:
The judgment revolves around the question of whether an amount paid by the employer to an employee for expenses incurred during a foreign tour constitutes a perquisite assessable under section 17(2)(iv) of the Income-tax Act, 1961. The assessee, an individual and an employee of a company, had undertaken a foreign tour not related to the company's business. The company paid the expenses incurred by the assessee during the tour, leading to a dispute regarding the taxability of this amount as a perquisite. The Income Tax Officer subjected the amount to tax as a perquisite under section 17(2)(iv). The Appellate Assistant Commissioner, however, ruled in favor of the assessee, stating that there was no obligation on the assessee to spend money on the tour, hence no scope for application of section 17(2)(iv). The Tribunal disagreed, asserting that since the tour was undertaken by the assessee and the expenses were not claimed as business expenditure by the company, the payment constituted a perquisite under section 17(2)(iv).

The court analyzed the undisputed facts that the assessee undertook a personal foreign tour not related to the company's business, and the company did not claim the expenses as business expenditure. Section 17(2)(iv) defines a perquisite as any sum paid by the employer in respect of an obligation that would have been payable by the assessee. The court emphasized that the obligation under this section is to defray expenses incurred, not to undertake the tour itself. As the assessee was obligated to pay for the tour expenses and the employer met this obligation, the payment was considered a perquisite falling under section 17(2)(iv). The court concluded that the payment made by the company was rightly treated as a perquisite assessable in the hands of the assessee for the relevant assessment year. The judgment favored the Revenue, and costs were awarded to them.

In summary, the judgment clarifies the application of section 17(2)(iv) of the Income-tax Act in determining whether an amount paid by an employer to an employee for personal expenses incurred during a foreign tour constitutes a taxable perquisite. The decision emphasizes the obligation of the assessee to defray expenses, irrespective of the purpose of the tour, and upholds the taxability of such payments as perquisites under the specified section.