Bonus or commission or any cash allowance paid to an employee is to be treated as 'perquisite' and not 'remuneration'. - Income Tax - 1023/CBDT

INSTRUCTION NO. 1023/CBDT Dated : November 9, 1976 Section(s) Referred: 40(c)(iii) , 40(E)(v) Statute: Income - Tax Act, 1961 Reference is invited to Board's Circular No. 80* (F. No. 13A/103/69-ITA.II), dated the 4th March, 1972, as amended by Circular No. 84** (F. No 204/13/72-ITA.II), dated the 23rd May, 1972 on the above subject clarifying whether bonus or commission or any other cash allowance to an employee may be treated as part of employee's salary within the meaning of Rule 2(h) of Part 'A' of the Fourth Schedule to the Income-tax Act, 1961, or as perquisite. 2. The Board have re-examined the matter. The Board are of the view that bonus or commission or any other cash allowance paid to an employee is to be treated as 'perquisite' and not 'remuneration'. Income-tax law did not give any scope for differentiation between the payments made under a contract and payments made voluntarily or gratitiously, as no reference to contractual obligation is made in the Act, or Rules. What is specifically excluded in the proviso to section 40(c) (iii) is "profits in lieu of salary" u/s 17(3) (ii), and not "profits in addition to salary". As bonus, commission and other cash allowances are profits in addition to salary, they will be treated as perquisite and thus will be aggregated with the perquisites for working out the limit of 1/5th of the salary for restricting the disallowance. 3. Board's Circular No. 80 read with Circular No. 84 may be treated as superseded to the extent indicated above. 4. Section 40 (c) (iii) of the Income-tax Act, 1961 stands omitted w.e.f. 1st April, 1969 and section 40 (a) (v) stands omitted w.e.f. 1st April, 1972 and in place of these sections, section 40A(5) has come into force w.e.f. 1st April, 1972. In Section 40A(5), the definition of the word "salary" is no longer referable to the definition given in rule 2(h) of Part "A' of the Fourth Schedule to the Income-tax Act, 1961 as in the earlier sections. It is now referable to the definition of the word "salary" as given in section 17(1) and (3) of the Income-tax Act, 1961, subject to certain modifications. "Perquisite" has also been defined in Explanation 2(b) to section 40A (5) of the Income-tax Act, 1961. In view of this, the present instruction is not applicable to assessment year 1972-73, and subsequent years. 5. The Board desire that all pending assessments upto assessment year 1971-72 may be completed in the light of the above clarifications and if any appeals or references are pending, the same may be pursued accordingly.