Law:

Section:

Section 40(c) of the Income-tax Act, 1961 - Business disallowance - Excessive remuneration - Whether payments made by a company to its employees by way of house rent allowance, ex gratia payments, motor car allowance and insurance premium are not to be considered as expenditure or perquisites for purposes of section 40(c) - Held, yes - Whether emoluments like bonus, commission, special allowances, etc., paid to employees should be taken into account as part of 'salary' - Held, yes Facts For the assessment years 1967-68 and 1968-69, the ITO disallowed a part of payments made by the assessee-company to its employees on the footing that these constituted excess of over one-fifth of salary. On appeal, the A AC held that cash payments in the form of house rent allowance, ex gratia payments, motor car allowance and insurance premium should not be considered as expenditure or perquisites for the purposes of section 40(c)(iii )/40(a)( v). He further held that emoluments like bonus, commission, special allowances, prizes, etc., paid to the employees should be taken into account as part of 'salary'. The Tribunal confirmed the AAC's orders in favour of the assessee and directed recomputation of the disallowance made by the ITO in accordance with these findings. On reference: Held The question whether payments made in the form of house rent allowance, etc., as aforesaid should not be considered as perquisite, was already concluded by the decision in CIT v. Indokem (P.) Ltd. [1981] 132 ITR 125 (Bom) and following the said decision, the Tribunal was justified in upholding the assessee's claim. As regards emoluments like bonus, commission, etc., all those were payments or rewards given to employees for work done by them or in appreciation of good work done which had brought profit and prosperity to the company and the aim was to induce them to do such good work in future. Hence, the Tribunal was justified in holding that these payments should be taken into account as part of 'salary'. Cases referred to CIT v. Indokem (P.) Ltd. [1981] 132 ITR 125 (Bom.) and CIT v. India Radiators Ltd. [1976] 105 ITR 680 (Mad.). G.S. Jetley and S.V. Naik for the Applicant. T.U. Khatri and Miss…

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