Limit on allowance in respect of benefit, amenity or perquisite under clause (c)(iii)/clause (a)(v) – Reimbursement of certain expenses/payments whether form part of perquisite to be restricted to one-fifth of salary

CIRCULAR NO. 32, DATED 29-10-1969

1. Reference is invited to Departmental Circular No. 30-D of 1966 [printed here as Annex III] issued by the Board on November 7,1966.

2. Under section 40(c )(iii), now section 40(a)(v ), 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 (including any sum paid by the assessee in respect of any obligation which but for such payment would have been payable by such employee) shall be admissible as a deduction in the computation of the assessee-company’s total income only to the extent of one-fifth of the amount of the salary payable to the employee.

3. A question has been raised whether bonus or commission paid to the employee should also be included in the value of “any benefit or amenity or perquisite” for the purpose of limiting the deduction to one-fifth of the salary as explained above.

4. The matter has been examined and it has been decided that salary, dearness allowance, bonus, commission or any other cash allowance payable to the employee in terms of his contract of service, would be regarded as salary under section 17(3) (ii) and not as “benefit or amenity” for the purposes of section 40(c) (iii)/40(a)(v).  Further, only those cash payments would be covered by the expression “perquisites, amenities and benefits” which are paid to the employee voluntarily and gratuitously and not in terms of the specific provisions of his contract of employment.  In other words, the employee concerned should not have been in a position to enforce the payment of these amounts in a court of law.

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October 2020