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Issues:
1. Whether the payment made in lieu of privilege leave is to be considered as part of salary or perquisite for the purpose of disallowance under section 40A(5)(c) of the Income-tax Act, 1961. 2. Whether cash payments, including payment in lieu of privilege leave, are to be treated as part of salary or perquisite. Detailed Analysis: Issue 1: The primary issue in this case was whether the payment made in lieu of privilege leave should be categorized as salary or perquisite. The Commissioner (Appeals) held that the payment in lieu of privilege leave was neither salary nor perquisite, following a precedent. The revenue challenged this decision, arguing that cash payments should be considered as part of salary. The Tribunal examined various High Court decisions and concluded that the majority view was that cash payments are not perquisites. The Tribunal disagreed with the Commissioner's view that the payment was not part of salary but agreed that it was not a perquisite, aligning with the majority High Court decisions. Issue 2: The second issue revolved around the treatment of cash payments, including the payment in lieu of privilege leave, as part of salary or perquisite. The Tribunal analyzed different High Court decisions and the legislative intent. It was observed that cash payments, although not perquisites, were assessable as salary. The Tribunal highlighted that the premise that cash payments were covered under 'Salaries' indicated that the Legislature did not intend it to be treated as a perquisite. The Tribunal concluded that the Commissioner (Appeals) was incorrect in holding that the payment in lieu of privilege leave was not part of salary, but it agreed that it was not a perquisite, in line with the majority High Court decisions. In conclusion, the Tribunal dismissed the revenue's appeal and upheld the Commissioner (Appeals) order, albeit for different reasons. The Tribunal held that the encashment of privilege leave did not fall under the head 'Salaries' as defined in the Income-tax Act, excluding it from the computation of disallowance under section 40A(5). The decision was based on precedents and interpretations of the relevant provisions, ensuring consistency with established legal principles and judicial interpretations.
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