1. This is a reference at the instance of the assessee. The question of law which has been referred to us reads as follows :
'Whether, on the facts and in the circumstances of the case, the amount of tax paid by the Ballarpur on behalf of the assessee in the assessment years 1974-75 and 1975-76 is income taxable under the heading 'Other sources ?'
2. In order to appreciate the question and the proper answer to be given to the same, a few facts may be stated :
The matter relates to the assessment of the assessee, Emil Webber, for the two assessment years 1974-75 and 1975-76. The Ballarpur Paper & Straw Board Mills Ltd. (hereinafter referred to as 'Ballarpur' for the sake of brevity) is a public limited company doing considerable business and having its factory at Ballarpur in India. It undertook the setting up of a Caustic Soda/Chlorine manufacturing plant, and for the purposes entered into an agreement for purchases of certain machinery and equipment with Kerbs & Cie (hereinafter referred to as 'Kerbs') a French concern. There was a further agreement between Ballarpur and Kerbs to the effect that Kerbs should make available services of certain personnel including engineers for setting up the plant at Ballarpur. It appears that thereafter Krebs entered into a further arrangement in their turn with a swiss concern, Escher Wyas Zurich, for the supply of certain machinery and plant as also for making available the services of certain personnel including engineers for setting up the plant. The assessee was one of the engineers whose services were accordingly made available by the Swiss concern for setting up the plant and machinery at Ballarpur. The agreement between Ballarpur and Kerbs has been annexed to the statement of case as annexure 'A'. it is found that the agreements between Kerbs and Escher Wyas Zurich and between Escher Wyas Zurich and the assessee were not made available to the Tribunal and, therefore, have not formed part of the statement of case.
3. According to the agreement, Ballarpur were under obligation to pay by the device indicated in the agreement to Kerbs certain amounts of salaries at the agreed rate. In addition, it was provided that certain daily allowances would be paid to each of the personnel only by Kerbs. Ballarpur also were obliged under the agreement to provide for free loading. Lastly, it was provided that '... salaries are understood free of any Indian tax or duty.'
4. The assessee, as stated earlier, was one of the personnel delegated and he worked at the town of Ballarpur in the previous years ended 31st March, 1974, and 31st March, 1975, under the above-mentioned arrangement. Ballarpur made payments and discharged the obligation in accordance with the terms of the agreement in relation to the services rendered by the assessee. Thus, in respect of the assessment year 1974-75, the sum of Rs. 3,32,481 was paid against delegated invoices and similarly for the next assessment year, i.e. 1975-76, the sum of Rs. 67,200 was paid. Certain daily allowances were also paid to the assessee as provided for in the agreement. Other facilities were also made available to him. Before the Income-tax officer, the assessee had contended that he was exempt from tax. When such a contention was not accepted initially, returns of income-tax for the two years were filed maintaining the contention that he was not taxable. This contention was finally also not accepted and assessments were made for both the years. Ballarpur, thereafter, paid the tax of Rs. 3,23,400 and Rs. 35,546 which was the income-tax determined by the Income-tax Officer for the two years 1974-75 and 1975-76, respectively. In his assessment orders, the Income-tax Officer considered the income-tax and surcharge borne by Ballarpur as perquisite which was added to the amount of salary; this was done in both the years. The matter was carried in appeal to the Appellate Assistant Commissioner. We are not concerned with various other points dealt with in the appeal but only with the amount of tax and surcharge which had been paid by the Ballarpur. The Appellate Assistant Commissioner disagreed with the Income-tax officer who had held that Ballarpur had paid the tax on behalf of Krebs, the foreign employers. According to the Appellate Assistant Commissioner, the Indian tax was paid by Ballarpur by reason of their contract to discharge the liability of the assessee and not that of Kerbs. Accordingly, the Appellate Assistant Commissioner came to the conclusion that the tax paid by Ballarpur could not be treated as a perquisite. He, however, made it clear that the said amount of tax paid by Ballarpur was to be treated as the assessee's income from other sources. Similar was the order passed in respect of the second assessment also.
5. Two appeals were filed before the Income-tax Appellate Tribunal, which were dealt with by the Tribunal by a common order. it was observed by the Tribunal and appears to be the admitted position that Ballarpur were under a legal obligation to pay the tax and had done so. It was also the admitted position between the two sides that Ballarpur could not be regarded as the employees of the assessee. The point dealt with by the Tribunal, which is referred to us for our consideration, is whether the amount of tax paid by Ballarpur under the terms of their agreement with Kerbs was taxable under the heading 'Income from other sources'. The Tribunal applied its mind to the question whether any sum of money paid by one person on behalf of another to discharge the obligation of the latter could be treated as income accruing to the latter. It referred to the decision of a single judge of the Calcutta High Court in Mrs. Roma Bose v. Income-tax Officer : 95ITR299(Cal) , and considering the observations to be found at page 307 of the above report, came to the conclusion that such a payment made on behalf of a taxpayer could constitute an income which accrued to the taxpayer. It was further of the opinion that the proper head under which the income was required to the assessed was the final head to be found in section 14 of the Income-tax Act, 1961, viz., 'Income from other sources.' It is the correctness of these conclusions of the Tribunal which has been questioned in this reference before us.
6. The learned counsel for the assessee has very strenuously urged that the Tribunal was in error in coming to the conclusion that such payment by Ballarpur constituted the income of the assessee which could be assessed under the head 'Income from other sources'. In the first place, our attention was drawn to the definition of 'Income' to be found in clause (24) of section 2 of the Income-tax Act, 1961. According to this sub-section, 'income' includes :
(iii) the value of any perquisite or profit in lieu of salary taxable under clauses (2) and (3) of section 17;....'
(va) the value of any benefit or perquisite taxable under clause (iv) of section 28....'
7. The argument which was urged for our acceptance was that such a payment would obviously, and at the highest, be a benefit which was given to the assessee and where such benefit was to be made liable to assessment of tax, it was done by specific provisions under the definition as also by provisions under sections 17 and 28 of the Act. In other words, what was submitted was that such a benefit given by the employer would amount to salary and be liable to assessment and payment of tax thereafter by reason of the provision to be found in section 2(24)(iii) read with section 17 of the Act. Similarly, it was argued that such a benefit arising from business or exercise of a profession could be considered as income liable to assessment and tax only by reason of the provision to be found contained in section 2(24)(va) read with section 28(iv). It was submitted that, in the absence of similar provision in section 2(24) such a benefit could not be considered as income for the other four heads of income to be found in the classification contained in section 14 of the Act.
8. It was very fairly stated by Dr. Pal that the matter was one of first impression and counsel at the bar were unable to refer us to any decision of an Indian court in which a similar point had been considered. We are afraid that we cannot accept Dr. pal's submission that in the absence of a specific provision in clause (24) of section 2, such a benefit which the assessee has received from Ballarpur could not be regarded or considered to be his income which is liable to be assessed and taxed. The definition of 'income' in section 2(24) is an inclusive definition and not an exhaustive one. Dr. Pal urged that, as the clause originally stood, such a benefit could be assessed as part of the income of an assessee only if it was received from his employer and it was only in 1964 that sub-clause (va) was added when such a benefit could also be considered and assessed as income under the head 'Profits and gains of business or profession'. We are unable to accept this contention based on the legislative history of the provision. Ballarpur, it has been found, was under a legal obligation to discharge this liability to pay tax which was the legal liability of the assessee. It made payments of the amounts of tax for the two years in pursuance of its legal obligation. The result of such payment was a discharge of the legal liability of the assessee to pay tax. It is true that the payment was directly made to the revenue. But to out mind it makes no difference. In Mrs. Roma Bose's case : 95ITR299(Cal) , the money was directly collected by means of garnishee orders from parties who were the debtors of the assessee's husband. This was regarded as his income. In our view such payments in our case must constitute income of the assessee. Merely because the inclusive definition of 'income' to be found in section 2(24) provides only for the two heads of income, viz, 'salaries' dealt with in section 17 and 'Profits and gains of business or profession' dealt with in section 28, it would not follow that the benefits or perquisites which are not covered by these two heads of income would not be assessable if they can be fairly regarded as income of the assessee. We have not been shown any cogent reason why the benefit received by the assessee ought not to be so regarded.
9. There remains for our consideration only one other argument with was rather faintly submitted by the learned counsel for the assessee for our, consideration, It was submitted that such a benefit is required to be considered under the head 'Salaries'. It was further submitted that since the relationship of employer-employee did not exist between Ballarpur and assessee, it was not permissible for the revenue to claim that this income should be regarded as 'income from other sources'. Reliance was sought to be placed on the decision of the Supreme Court in Nalinikant Ambalal Mody v. S. A. L. Narayana Row, commissioner of Income-tax : 61ITR428(SC) . The fallacy underlying this argument is the starting point thereof that such a benefit has to be regarded as pertaining to income from the head 'Salaries'. There is no warrant for such an assumption. Unless this is assumed there is no basis in the second argument advanced by Dr. Pal.
10. In the result, the question referred to us is answered in the affirmative and in favour of the revenue. The assessee will pay the costs of this reference to the revenue.