S. 10(13A) ‘Salary’ does not include bonus for Calculation of HRA

The question whether a particular payment made to an employee constitutes “salary” for the purposes of Rule 2A will have to be determined only by reference to the definition of that expression as contained in Rule 2(h) of Pt. A of the Fourth Schedule to the Act. On a close study of the said rule in conjunction with Rules 4 and 5 of the same Part in the same Schedule,

it appears to us to be perfectly clear that bonus cannot be regarded as falling within the scope of the expression “salary” as defined in Clause (h) of Rule 2. Clauses (b) and (c) of Rule 4 contain a clear indication that the expression “salary” takes in only periodical payments made by the employer to the employee during a year by way of remuneration. Clause (4)(b) of Rule 5 empowers the Commissioner to relax the provisions of Rule 4(c) and to permit the crediting by the employers to the individual accounts of the employees of the periodical bonuses or other contributions of a contingent nature. If bonus were to form part of the salary of the employee, the proportionate contribution has to be automatically credited by the employer and there is absolutely no necessity for this provision for relaxation of the rules. It is also significant that bonus is specifically referred to as a contribution of a contingent nature. We are, therefore, unhesitatingly of the opinion that the Tribunal was right in holding that bonus paid to the assessee did not form part of his “salary”.

 Kerala High Court

Commissioner Of Income-Tax Vs B. Ghosal 

Date of Pronouncement – 27 February, 1980

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