1988 (7) TMI 81 - AT - Income Tax

Summary

Issues Involved:
1. Whether the conditions of section 10(6)(vii)(a) were fulfilled by the assessee.
2. Whether the payment of bonus by the employer to the assessee violated the approved salary limit.
3. Whether the contract of service was approved in time.

Issue-wise Detailed Analysis:

1. Fulfillment of Conditions under Section 10(6)(vii)(a):
The primary issue was whether the conditions of section 10(6)(vii)(a) were met, which would determine if the tax paid by the employer should be treated as a perquisite. The CIT (A) found that all conditions necessary for availing exemption under section 10(6)(vii)(a) were fulfilled. The audit objection raised was ultimately dropped after correspondence between the Indian Company employing the assessee and the Government of India, which confirmed the approval of the salary and its extent.

2. Payment of Bonus and Salary Limit:
The department contended that the remuneration paid to the assessee exceeded the government-approved limit, as the approved salary was Rs. 8,000 per month with an annual increment of Rs. 500, while the assessee also received a bonus. The CIT (A) and the Tribunal found that the payment of bonus was part of the service contract and was not specifically prohibited by the government. The approval letter from the government did not require the exact quantum of allowances and perquisites to be stated, thus there was no violation of section 10(6)(vii)(a). The Tribunal upheld that the stress was on the approval of the contract of service rather than the quantum of individual items of payment.

3. Timely Approval of the Contract of Service:
The second issue was whether the contract of service was approved in time. The department argued that the approval was not obtained by the due date of 1st October 1980. However, the CIT (A) and the Tribunal found that the approval was obtained on 4th December 1980, which was before the due date of 1st October 1981, as stipulated by the section. The Tribunal agreed with the CIT (A) that the department had wrongly interpreted the due date as 1st October 1980.

Conclusion:
The Tribunal upheld the CIT (A)'s decision, confirming that the conditions of section 10(6)(vii)(a) were met, there was no violation regarding the payment of bonus, and the contract of service was approved in time. The reassessment orders for both years were quashed, and the original assessment orders were restored. The appeal by the department was dismissed.