1971 (3) TMI 21 - HC - Income Tax

Policies of personal accident insurance taken by the employers for their employees to meet the contingency of paying compensation for injuries or death - premium paid on such policies could not be assessed in the hands of the employee as perquisite

Issues Involved:
1. Whether the premium paid by the employer-company for a personal accident insurance policy constitutes a "perquisite" under section 7(1) of the Indian Income-tax Act, 1922.

Issue-wise Detailed Analysis:

1. Definition of "Perquisite" under Section 7(1) of the Act:
The court examined the meaning of "perquisite" as used in section 7(1) of the Indian Income-tax Act, 1922. The case focused on whether the premium paid by the employer-company for personal accident insurance could be considered a "perquisite" in the hands of the assessee.

2. Context and Facts of the Case:
The assessee was a director of a company, and the employer-company decided to purchase a personal accident insurance policy for him. The premium of Rs. 1,597.19 was paid by the employer-company. The Income-tax Officer included this premium as a "perquisite" in the assessee's income, which was contested by the assessee.

3. Appellate Assistant Commissioner's Decision:
The assessee argued that the policy was a general insurance policy and not a life insurance policy, hence the premium should not be treated as a perquisite. The Appellate Assistant Commissioner agreed and deleted the addition of Rs. 1,597 from the assessee's income for the three years under appeal.

4. Tribunal's Decision:
The Revenue appealed, arguing that the premium payment fell under clauses (iii), (iv), and (v) of Explanation 1 of section 7(1). The Tribunal dismissed the appeal, stating that the premium payment did not fall under any of these clauses.

5. Revenue's Argument:
Counsel for the Revenue conceded that clause (v) was correctly analyzed by the Tribunal but argued that clauses (ii), (iii), and (iv) could apply. They cited the case of Controller of Estate Duty v. A. T. Sahani, arguing that the right to compensation created an interest in property, which should be considered a perquisite.

6. Court's Analysis of Clauses:
- Clause (iv): The court found that the insurance policy was taken by the employer-company, not voluntarily by the assessee. There was no obligation on the assessee to pay the premium if the employer-company did not. Hence, clause (iv) was inapplicable.
- Clause (iii): The court determined that the premium payment by the employer-company was not a benefit granted to the assessee free of cost. The policy was taken to protect the employer-company, not the employee. Thus, clause (iii) was also inapplicable.
- Clause (ii): The court noted that there was no evidence that the assessee had a substantial interest in the company as defined under sub-clause (iii) of clause (6C) of section 2. Therefore, clause (ii) did not apply.

7. Reference to Previous Cases:
The court referred to L. W. Russel v. Commissioner of Income-tax, where it was held that contingent payments to which the employee had no right till the contingency occurred could not be considered perquisites. This supported the view that the premium payment did not constitute a perquisite.

8. Conclusion:
The court concluded that the premium of Rs. 1,597 paid by the employer-company could not be treated as a perquisite under section 7(1) of the Act. The question was answered in the negative, in favor of the assessee, and against the revenue.

Final Judgment:
The premiums of Rs. 1,597 paid by the employer-company in the three years under reference could not be treated as perquisites within the meaning of that term as used in section 7(1) of the Act. No orders were made as to costs. The question was answered in the negative.

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