1977 (1) TMI 69 - AT - Income Tax

Summary

Issues:
1. Whether cash payments made to employees can be considered as perquisites under sections 40(c)(iii) or 40(a)(v) of the Income Tax Act.
2. Whether various allowances such as house rent allowance, entertainment allowance, city allowance, city compensatory allowance, and car allowance paid to employees are subject to disallowance under the Income Tax Act.

Detailed Analysis:
1. The appeals before the Appellate Tribunal ITAT Hyderabad-B involved the assessment years 1965-66, 1968-69, 1969-70, and 1971-72, with both the assessee and the revenue filing appeals. The primary issue was whether cash payments to employees could be considered as perquisites under sections 40(c)(iii) or 40(a)(v) of the Income Tax Act. The Appellate Assistant Commissioner directed the Income Tax Officer to recompute the allowable perquisite, considering bonus as part of the salary but excluding certain allowances. The assessee contended that house rent allowance and entertainment allowance, being cash payments, were not perquisites. The revenue argued that various allowances provided benefits to employees and should be disallowed. The Tribunal analyzed the relevant statutory provisions and held that cash payments made to employees as per their contract of service did not qualify as perquisites under the Act, citing relevant case law and Circulars issued by the Central Board of Direct Taxes.

2. The second issue involved determining whether various allowances such as house rent allowance, entertainment allowance, city allowance, city compensatory allowance, and car allowance paid to employees were subject to disallowance under the Income Tax Act. The assessee argued that these allowances, being cash payments, should not be considered as perquisites. The revenue contended that these allowances provided benefits or amenities to employees and should be disallowed under the Act. The Tribunal examined the nature of these allowances and held that since they were cash payments made as per the terms of the contract of service, they did not qualify as perquisites under sections 40(c)(iii) or 40(a)(v) of the Act. Therefore, the appeals filed by the assessee were allowed, and the departmental appeals were dismissed for all the relevant assessment years.