Law:

Section:

section 40a(5)(a)/(c ), read with explanation 2, thereto of the income-tax act, 1961-payments not deductible-disallowance of expenditure by way of salary or perquisite-assessee-company paid rs. 80,000 to its managing director employee comprising salary, house rent allowance and reimbursement of gas and electricity charges-whether amounts paid as house rent allowance and for gas and electricity could be considered as perquisite within the meaning of explanation 2(b) to section 40a(5)-held, on facts, no-whether entire amount paid to managing director constituted salary and therefore the maximum that could be allowed out of it in view of section 40a(5)(c)( i) was only rs. 60,000-held, on facts, yes Facts The managing director of the assessee-company, who was an employee of the assessee, was paid Rs. 80,000 during the year comprising Rs. 60,000 as salary, Rs. 15,000 as house rent allowance and Rs. 5,000 by way of payments relating to electricity, gas, etc. Holding that the entire payment represented salary, the ITO invoked the provisions of section 40A(5)(a) read with clause (c) thereof and disallowed the payment in excess of Rs. 5,000 per month. Thus he allowed only Rs. 60,000 out of Rs. 80,000 and disallowed the balance of Rs. 20,000. The AAC upheld the ITO's order. On further appeal, the Tribunal limited the disallowance to Rs. 8,000 as against Rs. 20,000. On reference: Held Perquisite has a special definition for the purpose of section 40A(5 ) as contained in clause (b ) of Explanation 2 to the section. There was no merit in the assessee's contention that the house rent allowance came within sub-clause (iii) or (iv) of clause (b ) of the said Explanation 2. In respect of rent-free accommodation, the Legislature appears to have exhausted the categories under the head by sub-clauses (i) and (ii ) of the said Explanation 2(b). Obviously, in the present case, what had been given was not rent-free accommodation nor any concession in the matter of rent respecting any accommodation provided to the employee. In such circumstances, sub-clauses (i) and (ii) in the above definition of perquisite had to be ruled out. The payment in question, being one related to the house…

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