Srinivasa Iyengar, J.:— The Income-tax Appellate Tribunal, Bangalore Bench, has referred one common question in the first two references and a separate question in the third reference. The common question is as follows:
“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that payment of bonus in cash cannot be disallowed in part or in full applying the provisions of section 40(a)(v) of the Income-tax Act, 1961?”
2. The question referred in the third case is as follows:
“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in holding that payment of house rent allowance in cash cannot be disallowed in part or in full applying the provisions of section 40A(5) of the Income-tax Act, 1961?”
3. These matters relate to the assessment for the assessment years 1970-71, 1971-72 and 1972-73. In the first two years, payments had been made by way of bonus to two officers, namely, K.V Parekh and Subba Rao. The ITO was of the opinion that this constituted perquisite and, therefore, took them into consideration in restricting the allowances to be made at 1/5th of the salary. This was subjected to an appeal by the assessee.
4. The AAC held that such cash payment would not amount to perquisite and, therefore, the additions made by the ITO in this behalf were erroneous and directed the deletion of the same. On a further appeal by the department, the order of the AAC was upheld.
5. In relation to the assessment for the assessment year 1972-73, certain amount by way of house rent allowance had been paid to one of the officers by name Paramar in pursuance of the terms of the agreement of employment. The ITO treated this amount as perquisite coming within the purview of s. 40A(5) of the I.T Act, 1961, which was introduced with effect from April 1, 1972. He, accordingly, restricted the allowance to 1/5 of the salary taking into account this payment as a perquisite. This was subjected to an appeal by the assessee and the AAC held that the cash payment would not come within the definition of “perquisite” in s. 40A(5) of the Act and directed the deletion of the additions made in this behalf. On a further appeal by the department, this action of the AAC was upheld.
6. At the instance of the Commissioner, the above references have been made.
7. So far as the house rent allowance involved in the assessment year 1972-73 is concerned, it appears to us that the matter is beyond controversy. Explanation 2 to s. 40A(5) gives the definition “salary” and “perquisites” for purposes of s. 40A(5) and cl. (a) of the Explanation, inter alia, states that the definition of salary as given in s. 17 is assigned with a modification that the word “perquisite” occurring in sub-cl. (iv) and the whole of sub-cl. (vii) shall be omitted. “Perquisite” is defined under cl. (b) of the Explanation as follows:
“‘Perquisite’ means—
(i) rent-free accommodation provided to the employee by the assessee;
(ii) any concession in the matter of rent respecting any accommodation provided to the employee by the assessee;
(iii) any benefit or amenity granted or provided free of cost or at concessional rate to the employee by the assessee;
(iv) payment by the assessee of any sum in respect of any obligation which, but for such payment, would have been payable by the employee; and
(v) payment by the assessee of any sum, whether directly or through a fund, other than a recognised provident fund or an approved superannuation fund, to effect an assurance on the life of the employee or to effect a contract for an annuity.”
8. By virtue of cl. (a) of this Explanation, a perquisite would not be considered as part of salary. A reading of cl. (b) also shows that a payment in cash by way of house rent allowance does not come within any of the provisions of cls. (i) to (v) therein. Learned counsel for the petitioner did not contend that such allowance would fall within any of those clauses. Therefore, it is clear that this payment of house rent allowance is not a perquisite and accordingly it could not be taken into account in restricting the allowance to 1/5 of the salary. Sub-clause (ii) of s. 40A(5)(a) also refers to any expenditure which results directly or indirectly in the provision of any perquisite (whether convertible into money or not) to an employee. This also indicates that the expenditure should result in the provision of any perquisite which may be one that is convertible into money or not, i.e, it is a provision of something in kind which may be capable of being converted into money or not, but not money itself. Therefore, the view taken by the Tribunal that house rent allowance was not to be included as a perquisite is correct. Accordingly, the question in I.T.R No. 62 of 1976 is answered in the affirmative.
9. The matter in relation to the other two cases depends upon the interpretation to be placed on s. 40(a)(v) as it existed prior to April 1, 1972. It reads as follows:
“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……
Explanation 2.—In this sub-clause, the word ‘salary’ shall have the meaning assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule.”
10. The payment by way of bonus to the two employees was not considered as part of salary and we think rightly. The ITO, however, treated it as a perquisite. The AAC and the Tribunal held that it is a cash payment and could not be considered as a perquisite. There is no separate definition of the expression “perquisite” for the purpose of this section. The definition in s. 17(2) is for the purpose of ss. 15 and 16. Prima facie it appears that perquisite under s. 17(2) does not include a cash payment such as “bonus” paid. In our opinion, for a proper interpretation of the provision in s. 40(a)(v), weight has to be given to the expression “whether convertible into money or not” which implies that the benefit or amenity or perquisite spoken of in the section is something apart from money such as something in kind, which may be convertible into money or not. The expression “whether convertible into money or not” would not at all be appropriate when one considers a payment in cash. Therefore, the view taken by the Tribunal that the amount paid by way of bonus was not a perquisite and, therefore, could not be taken into account in making disallowance on the basis of the restriction to be applied at 1/5th of the salary is correct. Accordingly, we answer the question in the first two references also in the affirmative and in favour of the assessee.
11. Parties to bear their own costs.