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income-tax Officer Vs. Punjab Mercantile and Traders - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1984)10ITD720(Delhi)
Appellantincome-tax Officer
RespondentPunjab Mercantile and Traders
Excerpt:
.....before us. we accept the revenue's contention that while there is authority for holding that cash payments are part of salary and not perquisite, there is no authority for the proposition that cash payments are not salary. if this argument was accepted then even payment of salary in cash would amount to absurd proposition that such payments are not assessable under the head 'salaries'. the madras high court in manjushree planations ltd.'s case (supra), relying on cit v. kanan devan hills produce co. ltd. [1979] 119 itr 431 (cal), held that cash payments are not perquisites within the meaning of section 40(c)(iii) of the act. similar view has been taken by the karnataka high court in cit v. mysore commercial union ltd. [1980] 126 itr 340, by the bombay high court in cit v. indokem.....
Judgment:
1. The revenue is aggrieved against the order of the Commissioner (Appeals) holding that privilege leave was neither salary nor perquisite.

2. The assessee is a private limited company carrying on business as commission agent of vegetable oil. It paid its commercial manager, Shri S.K. Kejriwal, salary at the rate of Rs. 4,075 per month amounting to Rs. 44,825 for the period 1-7-1977 to 30-11-1977 and also paid Rs. 25,855 in lieu of privilege leave. The ITO held that salary as well as the payment in lieu of privilege leave totalling Rs. 70,680 was in excess of limit of Rs. 5,000 per month under Section 40A(5)(c) of the Income-tax Act, 1961 ('the Act'). He, accordingly, disallowed Rs. 10,680 (after allowing salary for twelve months though Kejriwal was employed for eleven months).

3. The Commissioner (Appeals), following CIT v. Manjushree Plantations Ltd. [1980] 125 ITR 150 (Mad.), held that payment in lieu of privilege leave of Rs. 25,855 was neither salary nor perquisite and, therefore, was not hit by Section 40A(5). He, accordingly, deleted Rs. 10,680.

4. The revenue is in appeal before us. We accept the revenue's contention that while there is authority for holding that cash payments are part of salary and not perquisite, there is no authority for the proposition that cash payments are not salary. If this argument was accepted then even payment of salary in cash would amount to absurd proposition that such payments are not assessable under the head 'Salaries'. The Madras High Court in Manjushree Planations Ltd.'s case (supra), relying on CIT v. Kanan Devan Hills Produce Co. Ltd. [1979] 119 ITR 431 (CaL), held that cash payments are not perquisites within the meaning of Section 40(c)(iii) of the Act. Similar view has been taken by the Karnataka High Court in CIT v. Mysore Commercial Union Ltd. [1980] 126 ITR 340, by the Bombay High Court in CIT v. Indokem (P). Ltd. [1981] 132 ITR 125, by the Calcutta High Court in Indian Leaf Tobacco Development Co. Ltd. v. CIT [1982] 137 ITR 827 and by the Andhra Pradesh High Court in CIT v. Warner Hindustan Ltd. [1984] 145 ITR 24. All these High Courts have held that cash payments are part of salary. The contrary view has been taken by the Kerala High Court in Full Bench decision in CIT v. Commonwealth Trust Ltd. [1982] 135 ITR 19, where they have held that undue emphasis has been given by the other High Courts on the expression 'whether convertible into money or not' and a restricted meaning is assigned to the term 'benefit, amenity or perquisite and that such a construction was irrational and therefore, cash payments will not take the payment out of purview of 'benefit, amenities or perquisites'. The only conclusion that can be arrived at from the above discussion is that majority of the High Courts have held that cash payment is not a perquisite.

5. Insofar as the Tribunal had held in Manjushree Plantations case (supra), as referred in the High Court's order, that cash payment is not salary, the said view is patently erroneous as discussed above. The Tribunal, Special Bench, Bombay, in Blackie & Sons (India) Ltd. v. ITO [1983] 3 SOT 72 in para 19 had clearly held that cash payments, though not perquisites, were assessable as salary. The whole argument that cash payments were not perquisites started with the premise that cash payments were covered under 'Salaries' and, therefore, the Legislature never intended it to be treated as perquisite.

6. From the above discussions, it is clear that the Commissioner (Appeals) had gone wrong in holding that the amount paid in lieu of privilege leave was not part of salary. He was right only to the extent that it was not a perquisite which view is in accordance with the view held by the majority of the High Courts.

7. The assessee, however, raised an alternative contention before us, on which he succeeds. The contention is based on the decision of the Tribunal, Madras Bench, in N.B. Tendolkar v. ITO, where it was held that the amount received by an employee on his retirement attributable to the accumulated leave due to him would not form part of his income chargeable under the head 'Salaries' and that entitlement to claim salary for leave and the benefit of leave itself were in the nature of capital assets which was not a payment attributable to services rendered. We find that Kejriwal had left the service of the assessee-company in the beginning of December 1977 when he was paid Rs. 25,855 in lieu of privilege leave. Thus, the assessee's case falls within the ratio of N.B. Tendolkar's case (supra).

8. The Tribunal, Madras Bench 'B', in T. V. Hindojha [1983] TTJ (Mad.) 192 took the view that even the payment received on encashment of earned leave during the service period was not assessable under the head 'Salaries' because the amount was received as compensation in return for surrender of leave and was not received for any services rendered and was, therefore, exempt from tax. Similar view was taken by the Hyderabad Bench in ITO v. A.N. Mathur [1983] 71 Taxation (6) 110 (Hyd.). The Tribunal, Delhi Bench 'C' in B.N. Poddar [Appeal No. 1606 (Delhi) of 1983] by order dated 23-3-1984 (to which one of us was a party) had followed the aforesaid decisions.

9. Respectfully following the aforesaid decisions, we hold that encashment of privilege leave did not fall under the head 'Salaries' as defined in Section 17 of the Act nor under Explanation 2(a) to Section 40A(5). Thus, the encashment of privilege leave has to be excluded for computation of disallowance under Section 40A(5). We, accordingly, uphold the order of the Commissioner (Appeals), though for different reasons.


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