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Income Tax Laws – I

Notes
with regard to non-taxability of the amount also, various contentions were raised with
reference to the provisions contained in Sec.9(1)(ii) as well as the Explanation introduced
by the Finance Act, 1983 (w.e.f. 1.4.1979) and another Explanation introduced by the Finance
Act, 1999 (w.e.f. 1.4.2000), to ultimately contend that despite the amendment made by the
Finance Act, 1983, a salary paid for ‘off-period’ was not covered in the provisions and
hence another amendment was made, which is prospective in nature. In effect, it seems
that an attempt was made to show that taxability of such amount was debatable. The
difference between the Branch (Branch Office) on the one hand and H.O. on the other hand
recognised for the purpose of implementing TDS provisions was also brought out as, in
this case, the expatriates were working at the Project Office in India and were getting
salary for rendering services in India and at the same time, they were also getting
continuation/retention payments (Home Salary) from the H.O. in Japan.
The Court also noted that the other counsels appearing for various other assessees have
adopted the arguments taken up by the earlier counsels.

Questions
1. Study and analyse the case.
2. Write down the case facts.
3. What do you infer from it?

Source: http://www.bcasonline.org/articles/artin.asp?875
7.9 Summary

As per section 15, salary is taxable on due or receipt basis whichever is earlier. Under
Section 15 the income chargeable to income tax under the head salaries would include any
salary due to an employee from an employer or a former employer during the previous
year irrespective of the fact whether it is paid or not.
Different forms of salary: (A) Basic Salary: Basic salary is taxable in the hands of an employee.
(B) Allowance: An allowance is defined as a fixed amount of money given periodically in
addition to the salary for the purpose of meeting some specific requirements connected
with the service rendered by the employee or by way of compensation for some unusual
conditions of employment. It is taxable on due/accrued basis whether it is paid in addition
to the salary or in lieu thereon. (C) Perquisites: The term “perquisites” includes all benefits
and amenities provided by the employer to the employee in addition to salary and wages
either in cash or in kind which are convertible into money. These benefits or amenities
may be provided either voluntarily or under service contract.

For income-tax purposes, the perquisites are of three types: Tax-free perquisites, Taxable
perquisites and Perquisites taxable under specified cases.
The basic principles governing valuation of perquisites are: the valuation is done on the
basis of their value to the employee and not the employer’s cost for providing the same,
the value of perquisite is included in the salary income only if the perquisite is actually
provided to the employee. Perquisite which is not actually enjoyed by the employee
(though the terms of employment provide for the same) cannot be valued and taxed in the
employee’s hands. Therefore, where the employee waives his right of perquisite, he cannot
be taxed thereon.

The following amounts shall be deducted in order to arrive at the chargeable income
under the head ‘Salaries’. (A) Standard deduction: Omitted (B) Entertainment allowance
and (C) Tax on employment or Professional Tax

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