1984 (8) TMI 72 - HC - Income Tax

Summary

Issues:
Interpretation of section 40A(5) of the Income-tax Act, 1961 regarding the treatment of premium paid on personal accident insurance policies of employees as a perquisite.

Analysis:
The case involved a reference under section 256(1) of the Income-tax Act, 1961 regarding the treatment of premium paid on personal accident insurance policies of employees as a perquisite under section 40A(5) of the Act. The Income Tax Officer (ITO) disallowed the premium amount as a perquisite, considering the benefit accrued to the employees. However, the Appellate Assistant Commissioner (AAC) held that the amounts under the policy were payable to the assessee-company, not the employees, and thus should not be treated as perquisites. The Tribunal, following previous judgments, affirmed the AAC's view (CIT v. Lala Shri Dhar [1972] 84 ITR 192). The key issue revolved around the interpretation of Explanation 2(b)(iv) and (v) to section 40A(5) of the Act, which define a perquisite as a payment by the assessee in respect of obligations payable by the employee or to effect an assurance on the life of the employee.

The court examined the clauses of Explanation 2(b) of section 40A(5) in detail, emphasizing that any payment made by the assessee must ultimately benefit the employees and confer a right upon them. Referring to the Supreme Court decision in CIT v. Russel [1964] 53 ITR 91, the court highlighted that employees must have a vested right in the perquisite for it to be considered as such. Analyzing the personal accident insurance policy in question, the court found that the policy was taken by the assessee-company for the benefit of the company, not the employees. The insured under the policy was the company, and the amount was payable to the company, not the employees listed in the policy. As the employees had no right to claim the amount under the policy, the court concluded that the premium paid should not be treated as a perquisite under section 40A(5) of the Act.

In conclusion, the court answered the reference question in the affirmative, ruling against the Revenue and holding that the premium paid on personal accident insurance policies of employees should not be considered a perquisite under section 40A(5) of the Income-tax Act, 1961.