Law:

Section:

Section 40A(5) [omitted with effect from 1-4-1989], of the Income-tax Act, 1961 - Business disallowance - Salary/Perquisites to Employees - Assessment year 1974 -75 - Whether reimbursement of medical expenses in cash to an employee is perquisite within meaning of section 40A(5) - Held, no - Whether quantum of perquisites to an employee on account of rent for residential accommodation, or concession in matter of rent, has to be computed with reference to actual expenditure incurred by employer and not with reference to rule 3 of the Income-tax Rules, 1962 - Held, yes - Whether cash payment on account of car allowance and house rent allowance amounts to perquisite - Held, no Section 17 of the Income-tax Act, 1961 - Salary - Chargeable as - Assessment year 1974 -75 - Whether cash payment to employee on account of car allowance and house rent allowance has to be regarded as salary - Held, yes FACTS The assessee's contention that car allowance, house rent allowance, medical reimbursement, etc., paid to an employee, could not be treated as perquisite to him but that should have been included in the salary payable, was rejected by the ITO. On appeal, the AAC held that house rent allowance and conveyance allowance being cash allowance, could not be treated as perquisites but medical reimbursement could not be excluded from perquisites. It was further held that the actual expenditure incurred in providing any perquisite to the employees had to be taken into account and not the value taken in the hands of the employee for the purpose of evaluating that perquisite. As regards treatment of cash allowances as perquisites and valuation of perquisites the Tribunal upheld the decision of the AAC. However, in respect of the medical expenses it came to the conclusion that the cash reimbursement could not form part of the perquisite. On reference: HELD Explanation 2(b) to section 40A(5) is exhaustive. The payment of cash payment by the employer to an employee by way of reimbursement, does not fall under sub-clauses (i) to (v) of clause (b ) of Explanation 2. Sub-clause (ii) of section 40A(5)(a) deals with two types of cases. Firstly, it deals with perquisite (whether convertible…

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