Log In

| Recover password


Section 15 broadly describes what chargeable salary is and more particularly refer to all sums due and payable/paid or allowed to the employee in the previous year. This section is further broadened to include certain perquisites that are defined in section 17. Thus the two sections together design taxation under the head salary. By the words ‘allowed to the assessee in the previous year’ would mean amounts in respect of which the assessee acquires a vested right at the time of payment/contribution or provisioning in the books.


In the case of Dr. Jan Nutyen (112TAX238) the AO attempted to make an adjustment u/s 143 (1) (a) for annuity contributions made by the employer to a pension fund maintained in Netherland on the pretext that the foreign pension fund was not recognized under section 17(2)(v) hence the said contributions constituted ‘perquisite’. The assessee was supposed to receive annuity pension only after attaining the age of 65 years. The Apex Court in CIT v. L W Russell (53ITR91) held that one cannot be said to allow a perquisite to an employee if the employee has no right to the same. It cannot apply to contingent payments to which the employee has no right till the contingency occurs. In short, the employee must have a vested right therein. The Calcutta Tribunal following this ruling held that the assessee did not have any vested right in the said contributions. The judgment goes on to read the crux of the issue in stating that in order to be subject to tax under section 15(b), a perquisite must first be allowed in a financial year. If it is so allowed, then the same might be subject to tax notwithstanding the fact the same might not have become due to the employee in the said financial year. However, when the perquisite could not be said to have been allowed in a financial year, the same could not be subject to tax under section 15(b) by invoking the term ‘though not due or before it becomes due to him’, which is used in section 15(b) to qualify the word ‘allowed’. In other words somehow section 17 is controlled by section 15 upon reading the decision of the Apex Court. Yet again Delhi Tribunal in 8SOT 72 held that a reading of section 17(2), along with section 15, would make it clear that a benefit may be termed as a ‘perquisite’ only if a right it conferred on an employee in respect of that perquisite to receive it from his employer. One cannot be said to allow a perquisite to an employee if the employee has no right to the same. It cannot apply to contingent payment to which the employee has no right till the contingency occurs.


Further in the context of superannuation fund contributions under a scheme approved by the Commissioner the AAR in RBS, in RE (364ITR373) held that the employee did not get a vested right at the time of contribution to the fund by the employer. The amount standing to the credit of funds like the pension and fund account, social security of medical or health insurance would continue to remain invested till the employee became entitled to receive it. The vesting right to receive the amount under the scheme or plan did not occur. Therefore, tax was not required to be deducted at source under section 192 of the Act, by the applicant on the contribution to the superannuation fund as perquisite. In this case facts the applicant made a lump sum contribution into the superannuation scheme, in respect of the pension for all eligible employees, calculated based on the actuarial valuation which was in turn typically based on several underlying assumptions so that it was not possible to derive the contribution on a per employee basis which may be used for Income-tax purposes otherwise to tax contributions exceeding a defined limit.

Leave a Reply

Your email address will not be published.

error: Do not copy the content of this website.