Benefit derived by the employees not taxed as perquisites. - Income Tax - 1145/CBDT

INSTRUCTION NO. 1145/CBDT Dated : January 27, 1978 Section(s) Referred: 17(2)(iii) ,40A(5) Statute: Income - Tax Act, 1961 The Comptroller Auditor General of India in the report for the year 1975-76 has pointed out that instances have come to his notice that companies sell their vehicles to their employees at a nominal prices and the benefit derived by the employees are not taxed as perquisites in their hands. 2. The above observation of the Comptroller Auditor General has been considered by the Board. Section 17(2)(iii) of the Income-tax Act, 1961 lays down that the value of any benefit or amenity granted or provided free of cost or at a concessional rate in any of the following cases will be perquisite:- (i) by a company to an employee who is a director thereof (ii) by a company to an employee being a person who has a substantial interest in the company. (iii) by any employer (including a company) to an employee to whom the provisions of (i) and (ii) above do not apply and whose income under the head "Salaries" exclusive of all value of benefits or amenity not provided for by way of monetary payment exceeds 18,000 rupees. The sale of transport vehicles/furniture etc. to the employees enumerated above has to be examined in the light of section 17(2)(iii) of the Income-tax Act, 1961. It has been decided by the Board that in such cases the difference between the market price and the sale price is taxable as a perquisite within the meaning of section 17(2)(iii) of the Income-tax Act, 1961. 3. The Income-tax Officers assessing the employer should specially enquire at the time of their assessment whether any assets have been sold to their directors or employees falling in the categories mentioned in para 1 above. If such a sale has been effected an examination should be made whether the sale was at market price or at less than the market price. If such a sale is for a price which is less than the market price the difference between the market price and the sale price should be taxed as a perquisite. 4. The amount of such perquisites will also have to be taken into consideration while determining the dis-allowance under section 40A(5) of the Income-tax Act, 1961.