Limit on allowance in respect of benefit, amenity or perquisite under clause (c)(iii)/clause (a)(v) - Reimbursement of certain expenses/pay-ments whether form part of perquisite to be restricted to one-fifth of salary
Circular No. 32 was issued by the Central Board of Direct Taxes on 29 October 1969. Its subject is Limit on allowance in respect of benefit, amenity or perquisite under clause (c)(iii)/clause (a)(v) - Reimbursement of certain expenses/pay-ments whether form part of perquisite to be restricted to one-fifth of salary.
Draws the line between salary and perquisite for the one-fifth ceiling in section 40(c)(iii), later section 40(a)(v). Under that provision expenditure resulting directly or indirectly in a benefit, amenity or perquisite to an employee, whether convertible into money or not, including a sum paid by the employer to meet an obligation that would otherwise have fallen on the employee, is deductible in computing the company's total income only up to one-fifth of the salary payable to that employee. The Board decides that salary, dearness allowance, bonus, commission or any other cash allowance payable in terms of the contract of service is salary under section 17(3)(ii) and not a benefit or amenity for this purpose. Only cash payments made voluntarily and gratuitously, and not under a specific provision of the contract of employment, fall within perquisites, amenities and benefits; put another way, the employee should not have been in a position to enforce payment in a court of law.
A question had been raised whether bonus or commission paid to an employee goes into the value of the benefit or amenity subject to the one-fifth of salary limit.
Limit on allowance in respect of benefit, amenity or perquisite under clause (c)(iii)/clause (a)(v) - Reimbursement of certain expenses/pay-ments whether form part of perquisite to be restricted to one-fifth of salary
CIRCULAR NO. 32, DATED 29-10-1969
1. Reference is invited to Departmental Circular No. 30-D of 1966 [printed here as Annex III] issued by the Board on November 7,1966.
2. Under section 40(c )(iii), now section 40(a)(v ), 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) shall be admissible as a deduction in the computation of the assessee-company’s total income only to the extent of one-fifth of the amount of the salary payable to the employee.
3. A question has been raised whether bonus or commission paid to the employee should also be included in the value of "any benefit or amenity or perquisite" for the purpose of limiting the deduction to one-fifth of the salary as explained above.
4. The matter has been examined and it has been decided that salary, dearness allowance, bonus, commission or any other cash allowance payable to the employee in terms of his contract of service, would be regarded as salary under section 17(3) (ii) and not as "benefit or amenity" for the purposes of section 40(c) (iii)/40(a)(v). Further, only those cash payments would be covered by the expression "perquisites, amenities and benefits" which are paid to the employee voluntarily and gratuitously and not in terms of the specific provisions of his contract of employment. In other words, the employee concerned should not have been in a position to enforce the payment of these amounts in a court of law.
In an assessment of a company where expenditure on employee amenities is disallowed for exceeding one-fifth of salary.
A company pays an employee contractual salary and bonus of Rs. 60,000 and, in addition, meets Rs. 15,000 of his personal obligations and gives him a voluntary cash gift of Rs. 3,000. The salary base is Rs. 60,000, so the ceiling is Rs. 12,000; the Rs. 15,000 and the voluntary Rs. 3,000 are what count against it, and the excess over Rs. 12,000 is disallowed.
Source: the Income Tax Department’s own published text — its page for this instrument.
