V. Ramaswami, J.:— The assessee is a controlled company for the purpose of the Act. For the assessment year 1967–68 corresponding to the year ending March 31, 1967, it had given perquisites in the shape of rent-free quarters, free conveyance and insurance premium to three of its-employees drawing salary in excess of Rs. 7,500 per annum in addition to certain payments of bonus. The Income-tax Officer in calculating perquisites admissible under section 40(c) of the Income-tax Act excluded the bonus paid, the value of the rent-free quarters and free conveyance, etc. On an appeal, the Appellate Assistant Commissioner, while confirming the exclusion of the value of rent-free quarters, free conveyance and insurance premium, directed the inclusion of the bonus in the salary paid for the purpose of calculating the value of the perquisites admissible. The revenue preferred an appeal to the Tribunal against this order of the Appellate Assistant Commissioner contending that only salary proper could be taken into account for the purpose of finding out the admissible and all other allowances and perquisites should be excluded. According to the department, bonus is not salary or included in the salary and that it may be either an allowance or perquisite and that the order of the Appellate Assistant Commissioner was wrong. The Tribunal referred to the relevant provisions and ultimately held that the bonus would be more or less in the nature of a salary and in the absence of an express exclusion of bonus it had to be held that the Appellate Assistant Commissioner was justified in holding that the salary would include bonus also. At the instance of the revenue the following question has been referred:
“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the term ‘Salary’ for purposes of section 40(c)(iii) of the Income-tax Act, 1961, would include ‘bonus’ also?”
2. Section 40 of the Income-tax Act, as it was in the relevant assessment year, provided that the amounts referred to in that provision shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”. section 40(c)(iii) of the Act, which is the relevant provision on which the revenue relied for not excluding the bonus in calculating the disallowance, reads as follows:
“(iii) any expenditure incurred after the 29th day of February, 1964, 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 company in respect of any obligation which but for such payment would have been payable by such employee), to the extent such expenditure exceeds one-fifth of the amount of salary payable to the employee for any period of his employment after the aforesaid date;…
Explanation 2.— In sub-clause (iii), the word ‘salary’ shall have the meaning assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule”.
3. We have omitted the provisos, as they are not relevant for the purpose of considering the question.
4. Salary is defined in rule 2(h) of Part A to the Fourth Schedule, which is as follows:
“2(h) ‘salary’ includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.”
5. The question for consideration is whether the bonus paid is included in the word “salary”. Prior to the enactment of the Payment of Bonus Act, 1965, the payment of bonus was considered to be not a deferred wage and it is payable only out of profits. But the enactment changed the character of the payment itself. While considering the validity of the Act, the Supreme Court in Jalan Trading Company Private Ltd v. Mill Mazdoor Sabha [1966] 36 Comp Cas 901 SC. considered the bonus paid as additional wages. This court considering the question of attachability of bonus under the Code of Civil Procedure held in Ganapathia Pillai v. Swaminatha Pillai [1969] 35 FJR 5, AIR 1969 Mad 440., that bonus is included in the wage and payment of bonus is a method of payment of wages. This decision was followed in another case in S.P Krishna Rao v. Thimurskakhan AIR 1970 Mad 135., wherein also it was held that bonus forms part of the wages. These two decisions were followed by the High Court of Kerala in Gopalan… v. Angamali Chit Fund (P) Ltd.… [1975] 2 LLJ 296 Ker.. The learned counsel for the revenue pointed out that the definition of salary and wages in the Payment of Bonus Act excluded bonus from the salary and wages. But as pointed out by the Kerala High Court that was because for the purpose of that Act bonus has to be distinguished from salary or wages and has to be determined in relation to the wages paid to the employees. In fact, the specific exclusion from the definition of salary or wages would signify that but for such exclusion bonus would fall under the words “salaries and wages”. Thus, after the Payment of Bonus Act, the bonus paid is part of the salary or wages. It is true that the Payment of Bonus Act is applicable only to employees drawing salary or wage not exceeding Rs. 1,600 per mensem. For employees, who are drawing more than Rs. 1,600 per mensem, the Act would not be applicable. But that does not mean that if an amount is paid as bonus it will have to be understood in any way different from the payment made to an employee, who is drawing less than Rs. 1,600. The recent development relating to the labour laws showed a change in the understanding of the nature of payment of bonus. It is no longer considered as a share of profits or gift or bounty made by an employer under his sweet will and pleasure. The employee by reason of his contribution or participation in the business of the employer is considered to be entitled for payment of the same, though the exact amount payable may depend on various circumstances Having regard to this development, we are of opinion that even in regard to payment of bonus to employees drawing more than Rs. 1,600 the word “bonus” would have to receive the same interpretation as it means to an employee who is drawing less than Rs. 1,600 per mensem. The learned counsel for the revenue contended that the word “salary” in section 40(c)(iii) read with rule 2(h) of Part A of the Fourth Schedule would have to be understood as only covering a periodical payment excluding all types of allowances and perquisites. He also contended that bonus is in the nature of an allowance and that, therefore, for the purpose of section 40(c)(iii) salary would not include bonus. We are unable to agree with this contention of the learned counsel. The word “salary” would have to be understood with reference to the development of the law relating to bonus, especially when there was no definition of bonus in the Income-tax Act. We may also point out that section 40(c)(iii), as it stood at the relevant period, was substituted for the original provision with effect from April 1, 1964, on the day when the Payment of Bonus Act itself came into force. We consider, therefore, that a reference to the bonus Act in understanding the words ‘salary and bonus’ is permissible. The learned counsel for the revenue referred to the original provision 40(c)(iii) which was inserted on April 1, 1963, and contended that at the time when the original provision was inserted, the Payment of Bonus Act was not in force, and it will have to be understood with reference to the law relating to bonus at the time when the provision was originally inserted. We are unable to agree with this contention of the learned counsel also, as the original provision was different and was completely omitted and a new provision was substituted with effect from April 1, 1964. We are of the view, therefore, that having regard to the general understanding of the word ‘bonus’, payment of bonus should he treated as forming part of the salary itself. The question referred to us is, therefore, answered in the affirmative and against the revenue. The assessee will be entitled to its costs. Counsel's fee Rs. 250.