1. Two questions have been referred to us in this reference under section 256(1) of the Income-tax Act, 1961 (referred to hereinafter as 'the Income-tax Act'). The said questions run as follows :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the scholarship amount of Rs. 2,400 given by the employer to the two children of the assessee-employee is not a benefit in terms of section 17(2)(iii) of the Income-tax Act, 1961 ?
(2) Whether, on the facts and in the circumstances of the case, the scholarship amount of Rs. 2,400 given by the employer to the two children of the assessee-employee is exempt under section 10(16) of the Income-tax Act, 1961 ?'
2. Question No. 1 was referred at the instance of the Commissioner and question No. 2 was referred at the instance of the assessee.
3. The relevant facts are that the assessee is an individual. The assessment years with which we are concerned are 1970-71 and 1971-72, the relevant accounting periods being the financial years ended on March 31, 1970, and March 31, 1971. The assessee was an employee of Goodlass Nerolac Paints Ltd., Bombay, and was getting a salary income of Rs. 34,380 per year. The said company had instituted a scholarship scheme for the benefit of the children of the managing staff in respect of their education. The grant of scholarships was in the sole and uncontrolled discretion of the company and no member of the managing staff had any right to claim such scholarships for his children. The scholarships were not available for children who had failed in the annual examination or who discontinued their education. It was provided that the scholarships would terminate on the child attaining the age of 21 years. The amount of scholarship was Rs. 100 per month per child subject to the maximum of two children of any member of the managing staff. The scholarship was payable to the children and not to any member of the managing staff. There is no reference in the terms of employment of the assessee to any such scholarship scheme. Two children of the assessee between them received in each of these two accounting years Rs. 2,400. The Income-tax Officer added this sum in the assessment of the assessee, holding that the benefit to the children arose out of the source of the employment. On an appeal preferred by the assessee to the Appellate Assistant Commissioner, the Appellate Assistant Commissioner accepted the assessee's claim for each of the said two years. The Revenue appealed to the Income-tax Appellate Tribunal. Before the Tribunal, it was contended on behalf of the Revenue that the scholarships were given to the two children of the assessee only because of the assessee's employment in the said company and the amount received by the said children was assessable as a perquisite in the hands of the assessee because it was either a benefit received by the assessee as an employee or represented a sum which had gone towards the discharge of an obligation, which, but for such payment, would have to be discharged by the assessee. The Tribunal in its judgment has stated that it had gone through the terms of the agreement between the assessee and the company. The said terms did not confer any right on the part of the assessee to expect the company to pay any scholarship to the children of the assessee and hence the scholarships received by his children could not be said to be a benefit received or derived by the assessee. It was pointed out that the scheme clearly provided that the payment of the scholarship would be made only to the children and not to the assessee and the right, if any, to get it was available only to the children but not to the assessee and hence it could not be brought to tax under section 17(2)(iii) of the Income-tax Act. The Tribunal took the view that the benefits spoken of by section 17(2)(iii) were direct benefits to the employee and not an indirect one merely because the assessee could be taken to have saved education expenses to that extent. The Tribunal categorically rejected the contention of the Revenue that the receipt of the said amount by the children of the assessee would fall within the scope of section 17(2)(iii). It appears that the Revenue also contended before the Tribunal that the said amount represented a benefit received by the assessee as an employee, as it was received in respect of an obligation which, but for such payment, would have been payable by the assessee. It was urged by the Revenue that due to the receipt of the said scholarship, the educational expenses of his said two children which had to be paid by the assessee were reduced to the extent of Rs. 2,400 in each of the said two assessment years and hence this amount could be treated as a perquisite received by the assessee under the provisions of section 17(2)(iv) of the Income-tax Act. The Tribunal pointed out that if the Revenue wanted to rest its case under section 17(2)(iv), it should have brought on record material to show that the assessee would have spent Rs. 100 per month on the education of each of the said two children. No such material had been brought on record and hence the Tribunal took the view that the said sum could not be characterised as paid by the employer in respect of an obligation which, but for such payment, would have been payable by the assessee. The argument made by the Revenue under section 17(2)(iii) was rejected on the aforesaid ground. It is from this decision that question No. I has been referred to us. The Commissioner made two applications to the Tribunal for referring the said question in two respective assessment years. Question No. 2 has been referred by the Tribunal at the instance of the assessee who did not make any separate application for reference.
4. We propose first to discuss question No. 1 referred to us. In this connection, it will be useful to take note of the provisions of section 17 of the Income-tax Act. Sub-section(l) of section 17, inter alia, provides that 'salary' includes perquisite given to an employee. Sub-section (2) of section 17 gives an inclusive or extensive definition of the term 'perquisite'. Relevant portion of clause (iii) of sub-section (2) runs as follows :
'the value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases -......
(c) by any employer (including a company) to an employee to whom the provisions of paragraphs (a) and (b) of this sub-clause do not apply and whose income under the head `Salaries', exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds eighteen thousand rupees.'
5. It is common ground that sub-clauses (a) and (b) of clause (iii) do not apply to the assessee. We may note at this stage that clause (iv) of sub-section (2) of section 17 runs as follows :
'(iv) any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee.'
6. Coming to the provisions of section 17(2)(iii)(c) of the Income-tax Act, it appears that it is not possible to take the view that in this case, the scholarships paid to the children of the assessee could be looked upon as perquisites given to the assessee. As pointed out by the Tribunal, there is nothing in the terms of employment of the assessee which confers any right upon or gives rise to an expectation on the part of the assessee that any scholarship shall be paid by the employer company to his children.
7. The Scholarship Scheme makes it clear that the grant of scholarship is for the children of the managing staff, which would show that the payment was not intended to be made to any member of the managing Staff but to their children directly or for the benefit of the children of managing staff. Clause 4 of the scheme says that the grant of scholarships in accordance with the scheme shall be in the sole and uncontrolled discretion of the company. Clause 5 clearly provides that the managing staff or their children or their families would have no right of action, claim or demand whatsoever against the company or the board in respect of the grant of scholarship under the scheme. Clause 6 provides that the company shall be entitled to terminate the scheme or discontinue the grant of scholarships in any individual case or cases. Clause 7 provides that in order to be eligible for the grant of scholarship, the children had to be admitted to a school or an educational institution approved by the company. Clause 9 provides that no scholarship would be granted to children of the managing staff who had completed 21 years of age. Clause 11 lays down that any scholarship which may be granted by the company under the Scheme would be payable to the children of the managing staff and not to the managing staff. In cases where the recipient children had not attained the age of majority, it was provided that special bank accounts would be opened in the names of their respective mothers or legal guardians into which the amount of the scholarship would be credited. Analysis of this scheme clearly shows that there was no right created in favour of any employee against the company for any scholarship being paid to his children. The scholarship was paid entirely gratuitously by the company and in its sole discretion. Payment of the scholarship amount was never received by the employee but by the children concerned or deposited in the special account referred to in the scheme. In these circumstances, we fail to see how it can be said that the scholarship amounted to a perquisite received by the assessee as contemplated under section 17(2)(iii)(c).
8. It was next submitted by Mr. Jetly that although question No. 1 referred to us only referred to section 17(2)(iii)(c) of the Income-tax Act, it was also contended before the Tribunal by the Revenue that the amount of the scholarship constituted a perquisite under the provisions of section 17(2)(iv) of the Income-tax Act, as the scholarship paid had the effect of discharging an obligation of the assessee or, in any event, went to reduce the liability of the assessee in respect of that obligation. It was urged by him that we should ourselves reframe question No. 1 to bring out the real controversy between the parties. We fail to see how we can reframe the question as suggested by Mr. Jetly. The argument under section 17(2)(iv) was specifically canvassed by the Revenue before the Tribunal. The Tribunal gave reasons for rejecting that argument and rejected it and in spite of that, the question framed by the Commissioner for reference to us was only in respect of the claim under section 17(2)(iii)(c) which had also been argued by the Revenue before the Tribunal. In view of this, if we were to reframe the question as suggested by Mr. Jetly, what we would be doing would be to enable a controversy to be raised before us which was never sought to be raised by the Commissioner at the stage of application for reference. In these circumstances, it is not open to us to reframe the question as suggested by Mr. Jetly.
9. Coming next to question No. 2 which has been referred to us at the instance of the assessee, it was submitted by Mr. Jetly that we could not go into that question at all because it was not open to the assessee to ask for that question to be referred in the reference application made by the Commissioner. In support of this submission, Mr. Jetly placed strong reliance on the decision of the Supreme Court in CIT v. V. Damodaran : 121ITR572(SC) . Far from helping Mr. Jetly in his contention, this decision clearly negatives the contention of Mr. Jetly. In that case what was held was that in every case, it is only the party applying for a reference who is entitled to specify the question of law which should be referred. Where the order of the Tribunal under section 254 of the Income-tax Act has decided the appeal partly against one party and partly against the other, the party who is aggrieved and who desires a reference to the High Court must file a reference application. It is not open to him to make a reference application filed by the other party the basis of his claim that a question of law sought by him should be referred. Where, however, the order made by the Tribunal operates entirely in favour of one party, although in the course of making the order the Tribunal may have negatived some points of law raised by that party, not being a party aggrieved by the result of the appeal, it is not open to that party to file a reference application. On a reference application being filed by the aggrieved party, it is open to the non-applicant to ask for a reference of those questions of law which arise on its submissions negatived in the appeal by the Tribunal. In the case before us it is quite clear that the entire appeal before the Tribunal was decided in favour of the assessee, as the claim of the Revenue to include the said amount of Rs. 2,400 in the salary income of the assessee for each of the two assessment years was negatived. The assessee was, therefore, not aggrieved by the decision of the Tribunal at all. All that happened before the Tribunal was that the argument of the assessee, which is reflected in the second question was negatived by the Tribunal and applying the principle laid down by the Supreme Court in the said case, it was not open to the assessee to make any reference application against the decision of the Tribunal, but it was open to the assessee to ask for a reference on that question in respect of which his submissions had been rejected by the Tribunal.
10. In order to decide the said question, it is necessary to refer to the provisions of section 10 of the Income-tax Act, and particularly clause (16) thereof. The opening portion of section 10 provides that in computing the total income of a previous year of any person, any income falling within any of the clauses set out thereafter shall not be included. One of the clauses, namely, clause(16), deals with 'Scholarships granted to meet the cost of education'.
11. In view of our conclusion that the amount of scholarship paid to the children of the assessee was not a perquisite given to the assessee, it is really not necessary to decide question No. 2 at all, but we propose to answer it because, even if we are wrong in our decision in respect of question No. 1, we are of the opinion that the amounts of the aforesaid scholarships could not be added to the income of the assessee as they were scholarships granted to meet the cost of education. In this connection, it was urged by Mr. Jetly that the amount of Rs. 2,400 paid during the two assessment years should not be regarded as scholarships paid to the assessee, as they were not paid to the assessee but paid directly to the children of the assessee and for their benefit. In our view, this argument his to be stated to be rejected. If these amounts were not to be treated as perquisites given to the assessee, the question of including them in the income of the assessee would not arise at all, and if the said amounts are to be included in the income of the assessee on the ground that they are perquisites as suggested by the Revenue, we fail to see how it would be open to the Revenue in the same breath to contend that the said amounts were not paid to the assessee. If the amounts are taken as having been paid to the assessee, they were amounts of scholarship, which is not disputed before us, and hence they are not liable to be included in the computation of the total income of the assessee under the provisions of section 10(16) of the Income-tax Act.
12. In the result, the questions referred to us are answered as follows :
Question No. 1 : In the affirmative and in favour of the assessee.
Question No. 2 : In case it is necessary to answer the same, the answer would be in the affirmative and in favour of the assessee.
The Commissioner to pay the costs of the reference.