COMMISSIONER OF INCOME TAX, BOMBAY ETC vs. M/S. MAFATLAL GANGABHAI AND CO. (P) LTD. ETC.

CIVIL APPEAL No. 2215/1978Supreme Court[1996] 3 S.C.R. 22712 March 1996Bench: 2 JudgesAuthor: B.P. JEEVAN REDDY, M.K. MUKHERJEE OF12 pages
AI SummaryDismissed

What were the facts?

For the accounting year relevant to Assessment Year 1982-83, the assessee, a limited company, claimed deductions for cash payments made to its employees as house rent allowance, conveyance allowance, and medical reimbursement. The Income Tax Officer disallowed these deductions, holding they fell under Section 40-A(5) of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) upheld the assessee's contention that cash payments are not 'perquisites' under Section 40-A(5). The Revenue's appeals to the Income Tax Appellate Tribunal and subsequent applications to the High Court under Section 256(2) were dismissed. These appeals were filed against the High Court's orders rejecting the Revenue's applications.

What did the Supreme Court hold?

The Supreme Court held that the language employed in Section 40(a)(v) of the Income Tax Act, 1961, is not capable of encompassing cash payments made by an assessee to its employees. These cash payments are to be treated as salary, subject to applicable limits, but cannot be brought within the purview of "any expenditure which results directly or indirectly in the provision of any benefit or amenity or perquisite," particularly due to the phrase "whether convertible into money or not." The Court found that Section 40-A(5)(a)(ii) is similar in material aspects to Section 40(a)(v). The Court further clarified that the words "including any sum paid by the assessee in respect of any obligation which but for such payment would have been payable by such employee" contemplate a payment to a third party on behalf of the employee, not a direct cash payment to the employee. Consequently, cash payments by an assessee to its employees do not fall within the ambit of Section 40(a)(v) or Section 40-A(5)(a)(ii). The judgment overruled Commissioner of Income Tax v. Commonwealth Trust Limited and affirmed the view taken by several other High Courts.

What were the issues?

1. Whether cash payments made by an assessee to its employees for house rent allowance, conveyance allowance, and medical reimbursement fall within the mischief of Section 40(a)(v) of the Income Tax Act, 1961, as expenditure resulting in the provision of a benefit, amenity, or perquisite, whether convertible into money or not. 2. Whether cash payments made by an assessee to its employees fall within the mischief of Section 40-A(5) of the Income Tax Act, 1961. Assessee's contentions: The assessee argued that cash payments are not 'expenditure' contemplated by Section 40(a)(v) for providing a benefit, amenity, or perquisite, especially considering the qualifying words "whether convertible into money or not." They contended that such payments are treated as salary and are not within the mischief of the sub-clause. They cited various High Court judgments supporting this view. Revenue's contentions: The Revenue argued that whether the assessee provides a rented house to the employee or pays a cash amount to the employee to find a house should make no difference, implying cash payments should be treated similarly to other forms of benefit provision.

Which sections of the Income-tax Act were involved?

Section 40(a)(v),Section 40-A(5)

AI-generated summary — verify with the full judgment below

COMMISSIONER OF INCOME TAX, BOMBAY ETC A v. M/S. MAFATLAL GANGABHAI AND CO. (P) LTD. ETC. MARCH 12, 1996 [B.P. JEEVAN REDDY AND M.K. MUKHERJEE, JJ.] B Income Tax Act, 1961-Sections 40(a)(V) and 40-A(S)-Amounts not deductible in computing the income chargeable under the head 'Profits and Gains of Business of Profession '-Payments made in cash by an assessee to its employeei~Whether fall within the mischief of Sec. 40(a)(v) and Sec. C 40-A(S) of the Act-Held, No.

During the accounting year relevant to the Assessment Year 1982-83, the assessee, a limited company made payments in cash to its employee., on account of house rent allowance, conveyance allowance and medical reimbursement and claimed deduction. The Income Tax Officer disallowed D these holding that the payments fall within mischief of section 40-A(S) of _,. · the Income Tax Act, 1961. On appeal, the Commissioner of Income Tax (Appeals) upheld the assessee's claim that cash payments cannot be treated as 'perquisites' ·for the purpose of and within the meaning of Section 40-A(S). Revenue's appeal to the Tribunal was dismissed. Applica- E lions U/S 256(1) filed by the Revenue was also dismissed by the Tri

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 40(a)(v)

All 26 judgments and leading authorities on Section 40(a)(v) →

Recent GST High Court judgments

Search GST case law →