Commissioner of Income Tax vs Manjushree Plantations Ltd.

V. Ramaswami, J.—The assessee is a public limited company. In making the assessments for the assessment years 1968-69 to 1971-72, the IT disallowed certain amounts in each year representing leave allowance paid in cash to certain of its employees. The view of the ITO was that these payments would either amount to salary or benefit or perquisite within the meaning of section 40(c) (iii) or the substituted section 40(a) (v), as the case may be. This view was confirmed by the AAC. But, on further appeal, the Tribunal held that the cash amounts paid as leave allowance were neither salary, nor benefit or amenity or perquisite, and as such, the disallowance was improper. Though the Tribunal had considered the question whether the leave allowance would be salary, or benefit or amenity or perquisite, the revenue sought a reference only on the question whether the leave allowance was not a perquisite, and the two questions that are referred to us read as follows: For the assessment year 1968-69:

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the leave allowance was not a perquisite and, therefore, the allowance of the same would not fall to be restricted in terms of section 40(c) (iii) of the income tax Act, 1961?

For the assessment years 1969-70 to 71-72:

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was ''right in law in holding that the leave allowance was not a perquisite and, therefore, the allowance of the same would not fit to be restricted in terms of section 40(a) (v) of the income tax Act 1961?"

The matter is not res integra. It has been decided by the Calcutta High Court with reference to the same provision in Commissioner of Income Tax Vs. Kanan Devan Hills Produce Company Ltd., and it was to the effect that any cash payment directly made to the employee cannot be considered to be a perquisite within the meaning of section 40(c) (iii) of the income tax Act, 1961, or the corresponding later provision, section 40(a) (v). In a batch of Special Leave Petitions Nos. 2970/76, etc., the revenue raised a question whether bonus, house rent allowance and conveyance allowance paid to the employees are not perquisites and those petitions were dismissed by the Supreme Court. It appears that in those decisions which arose from the orders of the Bombay Benches of the income tax Appellate Tribunal, the Tribunal had held that cash payments made by the employer to the employees in terms or service conditions cannot be treated as perquisites for the purpose of dis-allowance u/s 40(c) (iii) or section 40(a) (v). The petitions filed u/s 256(1) before the Bombay High Court also were dismissed in the view that the expression "perquisite" would cover only non-cash benefits to the employees. It also appears that it was brought to the notice of the learned judges of the Supreme Court that the Central Board of Direct Taxes had also issued certain circulars from time to time that payments made to the employees under the terms of service cannot be treated as perquisites. Since these facts were on record we think that the Supreme Court ultimately did not consider it necessary to dictate a lengthy or reasoned order but dismissed the same in limine. This court in CIT v. G. Venkataraman (1978) 111 ITR 444 had occasion to consider a similar provision contained in section 2(6C)(iii) of the Indian income tax Act, 1922, which defines income as including "the value of any benefit or perquisite, whether convertible into money or not obtained from a company".

This court held:

From this language it is clear that the ''benefit or perquisite'' contemplated cannot be money itself. If it is money, the question of its value being taken into account or the benefit or perquisite being converted into money will not arise.

Therefore, the view of this court also was that in order to term a payment as perquisite, it shall be a payment, other than a cash payment, in pursuance of a contract of service. The learned counsel for the revenue did not bring to our notice any other decision which has taken any contrary view. In view of this preponderance of opinion in favour of the assessee, we have to; answer the questions referred to us in the affirmative and against the revenue; but there will be no order as to costs.