Jagannatha Shetty, J.:—
This is a reference under Section 256(1) of the I.T Act, 1961. The question referred by the Income-Tax Appellate Tribunal, Bangalore Bench, reads:
“Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the premium paid on Personal accident Insurance policies of its employees should not be treated as perquisite for the purpose of Section 40A(5) of the Income-Tax Act, 1961?”
2. The facts behind the legal formation are as follows:
The assessee is an industrial company. The assessment year is 1974-1975, the relevant previous year ending on March 31, 1974. The I.T.O made a disallowance of Rs. 19,182/- launder Section 40A(5) of the Income Tax Act, 1961 (shortly the ‘Act’). That sum represents the premia paid on the accident insurance policy taken by the assessee-company in relation to personal accident or death by accident of some of the employees. The I.T.O was of the opinion that the benefit under the insurance policy accrued to the employees and not to the employer. So he considered it as perquisite under Explanation-2 to Section 40A(5) of the Act.
Upon appeal the A.A.C held that the contract of insurance for personal accident was between the assessee-Company and the insurance company and the amounts under the policy were payable to the assessee company and therefore, the premia paid under the policy should not be taken as perquisites for purposes of Section 40A(5) Explanation-2.
Aggrieved by the order of A.A.C the Department preferred an appeal before the Tribunal. The Tribunal took the same line of reasoning and affirmed the view taken by the A.A.C following the judgment of the Delhi High Court in C.I.T Delhi v. Lala Shri Dhar . 84 ITR 192.. The Tribunal also relied upon its own earlier decision in the same assessee's case relatting to the previous assessment year.
The answer to the question turns on the scope of Explanation 2(b)(iv) and (v) to Section 40A(5) of the Act. For immediate reference it is set out hereunder:
“b) ‘perquisite’ means—
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;
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.”
Clause-(iv) envisages payment by the assessee of any sum under an obligation which, but, for such payment, would have been payable by the employee. It means, if payment had not been made by the employer it has to be payable by the employee. The substance of clause-(v) is also the same. It must also be a payment by the assessee of any sum to effect an assurance on the life of the employee or to effect a contract for an annuity. Brief reference to clauses (i), (ii) and (iii) Explanation-2(b) of Section 40A(5) of the Act may also be made in this context. Clause (i) refers to rent-free accommodation provided to the employee by the assessee, clause (ii) refers to concession in the matter of rent for any accommodation provided to the employee and clause (iii) refers to benefit or amenity granted or provided free of cost or at concessional rate to the employee. A casual look at the definition of the ‘perquisite’ would clearly indicate that any payment made by the assessee on behalf of employees either under an obligationor voluntarily must finally ensure to the benefit of the employees and the employees must have a right therein.
The Supreme Court in C.I.T Kerala and Coimbatore v. L.W Russel . 53 ITR 91. while considering the provisions of Section 7(1) of the I.T Act, 1922, which is similar to Section 17(2) of the Act, observed at page-97:
“It implies that a right is conferred on the employee in respect of those perquisites. One cannot be said to allow a perquisite to an employee if the employee has no right to the same. It cannot apply to contingent payments to which the employee has no right till the contingency occurs. In short, the employee must have a vested right therein.”
The law being thus made clear, we may now proceed to consider whether the benefits under the personal accident policy taken by the assessee would ensure to its employees. We have perused the terms of the policy, the original of which has been made available to us by Mr. Sarangan, Learned Counsel for the assessee. We find that the employees did not take the policy. The policy was taken by the assessee. Under the policy the insured was the assessee company and not the employees. The amount was also payable to the insured and not the employees. There is a schedule enumerating the names of the employees whose risks have been covered under the policy. But those employees have no right to claim the amount payable under the policy. It could be claimed only by the assessee. It was indeed for the benefit of the assessee. From a plain reading of the insurance policy, we do not think that the premia paid under the policy could be treated as perquisite.
In the result, we answer the question in the affirmative and against the Revenue.