- (1.) A common question arises in this batch of appeals. It pertains to the interpretation of Section 40 (a) (v) as well as Section 40-A (5 of the Income Tax Act. Up to 31/3/1972, Section 40 (a) (v) was in force and from 1/4/1972, Section40-A (5 came into force in its place. Both the provisions were substantially similar. Indeed, Section 40 (a) (v) was preceded by Section 40 (c) (iii) which was, of course, applicable only to companies and not to other assessees.
(2.) Section 40 (c) (iii) introduced by Finance Act, 1973 with effect from 1/4/1963, as substituted by Finance Act, 1964, read as follows: "40.Amounts not deductible. Notwithstanding anything to the contrary in S. 30 to 39, the following amounts shall not be deducted in computing the income chargeable under the head 'profits and gains of business or profession' * * * (c) in the case of any company * * * (iii) any expenditure incurred after the 29th day of February, 1964, 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 company in respect of any obligation which but for such payment would have been payable by such employee) , to the extent such expenditure exceeds one-fifth of the amount of salary payable to the employee for any period of his employment after the aforesaid date: Provided that in computing the aforesaid expenditure any payment by way of gratuity or the value of any travel concession or assistance referred to in clause (5 of Section 10 or passage moneys or the value of any free or concessional passage referred to in sub-clause (i) or any payment of tax referred to in sub-clause (vii) of clause (6 of that section or any sum referred to in clause (vii) of Ss. (1 of Section 17 or in clause (v) of Ss. (2 of that section or the amount of any compensation referred to in clause (i) or any payment referred to in clause (ii) of Ss. (3 of that section or any payment referred to in clause (iv) or clause (v) or any expenditure referred to in clause (ix) of sub-section (1 of Section 36 shall not be taken into account. "
(3.) By Finance Act, 1968, sub-clause (iii) in clause (c) of Section 40 was deleted and in its place sub-clause (v) was introduced in clause (a) of Section 40. As introduced by the said Finance Act, the sub-clause read as follows: "40.Amounts not deductible. Notwithstanding anything to the contrary in S. 30 to 39, the following amounts shall not be deducted in computing the income chargeable under the head 'profits and gains of business or profession' (a) in the case of any assessee * * * (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) or any expenditure or allowance in respect of any assets of the assessee used by such employee either wholly or partly for his own purposes or benefit, to the extent such expenditure or allowance exceeds 299 one-fifth of the amount of salary payable to the employee, or an amount calculated at the rate of one thousand rupees for each month or part thereof comprised in the period of his employment during the previous year, which ever is less. " (emphasis supplied) [provisos (1 and (2 and Explanations (1 and (2 omitted as unnecessary. ];