Law: Income Tax Act, 1961

Section: 40,40A

Income-tax----Business expenditure---Disallowance---Expenditure resulting in benefit, amenity or perquisite to employee---Scope of S.40(a)(v) & 40-A(5)--¬Payments made in cash are not covered by S.40(a)(v) and S.40-A(5)---Indian Income Tax Act, 1961, Ss.40 & 40-A---[CIT v. Commonwealth Trust Ltd. (1982) 135 ITR 19 (Ker.) overruled]. Sub-clause (v) of section 40(a) was introduced in the Income Tax Act, 1961, by the Finance Act, 1968, with a view to check the deductible expenditure incurred by assessees (including companies) in providing amenities, benefits and perquisites to their higher paid employees. This sub¬clause is indeed an improvement upon section 40(c)(iii) which preceded it. Section 40-A(5) is a further improvement on section 40(a)(v) of the Act. According to section 40, which opens with a non obstante clause, "notwithstanding anything to the contrary in sections 30 to 38", the amounts mentioned in several clauses therein shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession". Clause (a) contains several sub-clauses. The main limb of sub¬clause (v) places a limit upon two kinds of expenditure, viz., (a) any expenditure which results directly or indirectly in the provision .of any benefit or amenity or perquisite whether convertible into money or not, to an employee (including any sum paid by the assessee in respect of any obligation which but for such payment would have been payable by such employee); or (b) any expenditure or allowance in respect of any assets of the assessee used by such employee either wholly or partly for his own purposes or benefit. Except for certain structural changes, section 40-A(5) (a)(ii) and section 40(a)(v) are similar in all material aspects. Sub-clause (i) of clause (a) of subsection (5) deals with "any expenditure which results directly or indirectly in .the payment of any salary to an employee or a former employee". Sub-clause (i) of clause (c) of subsection (5) sets out the limits/ceilings on such expenditure while clause (a) of Explanation 2 appended to the subsection defines the expression "salary" for the purposes of this subsection. These…

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