Class Quiz 1

Question 1 5 marks
In April, 2018 the Indian High Commission in UK appointed Mr. P Barve and Mr.
K Smith as senior salaried employees. Both were appointed for identical terms of
 basic salary INR 32,00,000
 allowance (deputation allowance, cost of living
allowance, medical allowance, children's' education
allowance, conveyance allowance for
private use etc. ) INR 25,42,000
 perquisites (furnished house, free cooking fuel and
electricity, motor car with driver, club subscriptions,
medical insurance cover etc.) INR 23,65,000

These remunerations by way of salary, allowances were paid during Financial Year
2018-19 in London and all perquisites were provided during the same period, in
London. Mr. P Barve is a UK- born Indian citizen who never visited India till 2017.
In July 2018, he visited India for a holiday and stayed for 10 weeks. Mr. K. Smith is
a UK citizen who has never visited India. You are required to discuss about the
quantum of income taxable in the hands of Mr. P Barve and Mr. K Smith in
India during Assessment Year 2019-20.

Section. 9. Income deemed to accrue or arise in India.

(1) The following incomes shall be deemed to accrue or arise in India-
(ii) income which falls under the head "Salaries", if it is earned in India.
Explanation.—For the removal of doubts, it is hereby declared that the
income of the nature referred to in this clause payable for—
(a) service rendered in India; and
(b) the rest period or leave period which is preceded and succeeded by
services rendered in India and forms part of the service contract of
employment,
shall be regarded as income earned in India ;
..................................................
(iii) income chargeable under the head "Salaries" payable by the
Government to a citizen of India for service outside India ;

Section 10. Incomes not included in total income.

(7) any allowances or perquisites paid or allowed as such outside India by the
Government to a citizen of India for rendering service outside India ;
Question 2 8 [2x4] marks
Mr. Anuj Dharampal works in private limited company in Delhi as a Deputy
Manager and received the following salary package from his employers during
financial year 2018-19:
Rs.
Basic salary 10,00,000
Dearness allowance (this is not being considered 24,000
for computing retirement benefits)
Fixed medical allowance 15,000
lunch allowance 24,000
Running and maintenance cost borne by the 96,000
employer for Maruti Alto car (owned by
employers) without driver for partly official
partly private use (perquisite value Rs. 21,600)
Personal attendant allowance 33,000
Children Education Allowance for 2 children 2,400
Employer's contribution to recognised provident 1,40,000
Fund @14% of basic, matching 14% employee's
contribution

The employer has provided him with a rent free residential house which was
taken on lease by the employer at a rent of Rs.11,000 p.m. The lease was
taken by the employer long time back and is currently under dispute
regarding the lease rental; however, the landlord has been accepting the lease
rental under protest from the employer company - since the landlord does not
spend any money to maintain the flat, the employer had to spend Rs. 60,000
towards maintenance of the leased flat.
You are required to answer the following:
A. The allowances that will be considered and included in the definition
of 'salary' for computing 15% perquisite value for housing
accommodation, are:
(i). Dearness Allowance
(ii). Fixed Medical Allowance
(iii). Lunch Allowance
(iv). Personal Attendant Allowance
(v). Children Education Allowance
B. In respect of motor car perquisite, the amount that will be included
in 'salary' for computing 15% perquisite value for housing
accommodation, is:
(i). Rs. 21,600
(ii). Rs. 96,000
(iii). NIL
(iv). none of the above

C. Employer's contribution to recognised provident Fund @14% of

basic salary:
(i). will be considered in the definition of salary for computing 15%
perquisite value for housing accommodation to the extent it
exceeds 12% of basic salary i.e. only to the extent of 2%
(ii). whole of Employer's contribution (@14%) will be excluded while
calculating salary components for computing 15% perquisite value
for housing accommodation
(iii). whole of Employer's contribution (@14%) will be included in the
definition of 'salary' while adding salary components for computing
15% perquisite value for housing accommodation

D. The perquisite value of the rent free accommodation for the

Assessment Year 2019-20 will be
(i). Rs. 1,48,860
(ii). Rs. 1,92,000
(iii). Rs. 1,40,400
(iv). Rs. 1,32,000
(v). Rs. 1,44,000
(vi). None of the above
Question 3

An assessee met with severe accident endangering his life while supervising
machinery in the factory. He was hospitalized and received medical treatment.
Eventually the employer reimbursed Rs. 1,53,618 being the expenses incurred
by the assessee for treatment. The Assessing Officer found it to be taxable as
perquisite in the hands of the assessee.

Advise the assessee.

In Gururai Mahuli v. ITO [20091125 TTJ 861 (Bang. - Trib.), it was

held that the amount received by the employee for his treatment due
to an accident in the place of work during the course of employment
will not amount to perquisites, and, hence, cannot be taxed. The
employer had performed his duty by admitting his employee in the
nearest best available hospital and reimbursed the medical expenses.
The obligation was on the part of the employer to meet such expenses.
Further if the employer had not acted so, other than legal
consequences, the morale of his entire employees would be lowered,
and may result in shut down of the factory.
The amount received by the employee was neither a benefit nor an
obligation met by the employer on behalf of the employee as
envisaged in the Act.
Thus the amount received by the assessee from the employer towards
medical treatment was not liable to be taxed.