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Commissioner of Income-tax, Bombay City-iii Vs. H.D. Dennis and Others - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 128 of 1971
Judge
Reported in(1982)26CTR(Bom)107; [1982]135ITR1(Bom); [1981]7TAXMAN231(Bom)
ActsIncome Tax Act, 1961 - Sections 15, 16, 17, 17(1), 17(2), 144, 147, and 148
AppellantCommissioner of Income-tax, Bombay City-iii
RespondentH.D. Dennis and Others
Excerpt:
(i) direct taxation - perquisite - sections 15, 16, 17, 144, and 148 of income tax act, 1961 - whether expression 'salary' include amount of tax liability borne by employer-company on behalf of employee for purpose of determining value of rent free accommodation - court answered in affirmative - held, tax paid by employer on behalf of employee should be included in salary. (ii) re-assessment - section 147 of income tax act, 1961 - whether reassessment proceedings were validly initiated under section 147 - income tax officer (ito) proceeded on basis of change of opinion for which he was not entitled to reopen assessment - there was no omission on part of assessee to disclose any material fact necessary for assessment - held, ito had no jurisdiction to reopen assessment under section 147.....sawant, j.1. the 11 assessees concerned in the present reference were, at the material time, employees of the caltex (india) ltd. the facts in regard to 10 of the assessees are identical except the figures involved therein. except in the case of shri ziegler in reference application no. 48 of 1970-71, there is a dispute in regard to the validity of the assessment proceedings reopened under s. 147(b) of the i.t. act, 1961 (hereinafter referred to as 'the act'). hence, both the questions which have been referred by the tribunal under s. 256(1) of the act will have to be answered except in the case of the said shri ziegler.2. the assessment year involved in all 11 cases is 1963-64, the corresponding accounting period being the financial year april 1, 1962, to march 31, 1963.3. for the sake.....
Judgment:

Sawant, J.

1. The 11 assessees concerned in the present reference were, at the material time, employees of the Caltex (India) Ltd. The facts in regard to 10 of the assessees are identical except the figures involved therein. Except in the case of Shri Ziegler in Reference Application No. 48 of 1970-71, there is a dispute in regard to the validity of the assessment proceedings reopened under s. 147(b) of the I.T. Act, 1961 (hereinafter referred to as 'the Act'). Hence, both the questions which have been referred by the Tribunal under s. 256(1) of the Act will have to be answered except in the case of the said Shri Ziegler.

2. The assessment year involved in all 11 cases is 1963-64, the corresponding accounting period being the financial year April 1, 1962, to March 31, 1963.

3. For the sake of convenience, we will narrate here the facts relating to the case of Shri H. D. Dennis, one of the said assessees, since the question of law relating to the valuation of the rent perquisite in terms of ss. 15 and 17 of the Act read with r. 3 of the I.T. Rules, 1962, as well as that relating to reopening of the assessment proceedings under s. 147(b) of the Act are common. The first question being common to all the 11 cases and the second question as stated earlier being common to all the cases except that of the said Shri Ziegler. Shri Dennis was an expatriate employee of the Caltex (India) Ltd. (hereinafter referred to as the 'employer-company'), he being a citizen of the United States of America. In addition to his salary, he was provided rent-free unfurnished residential accommodation by the employer-company, and a portion of his tax liability in India in respect of the salary income from the employer-company was borne by it so as to place him in the same tax position as an individual of like status employed in his home-country. To the extent of the amount of the tax which would work out at the rates prevailing in his home-country on the amount of the remuneration earned in India, the assessee had to pay the tax. The excess of the tax liability in India was to be borne by the employer-company and so also the tax becoming payable thereby. The employer-company thus reimbursed to the assessee a portion of his tax liability in India and also borne the additional tax becoming payable by him on such reimbursement of the part-tax. This was a part of the general policy of M/s. Caltex though there was no contract to this effect between the company and the assessee.

4. The relevant particulars as regard the salary income and tax benefits relating to Shri Dennis for the accounting year April 1, 1962, to March 31, 1963, are as under :

Rs.salary from the employer,M/s. Caltex (India) Ltd. 1,22,475Amount of tax borne by the employer 1,86,254Other salaries (from Coril) 1,28,926--------Total 4,37,655--------

5. The question that arose in connection with the assessment of the income of Shri Dennis for the assessment year 1963-64 was as to what would be the value of the perquisite by way of rent-free unfurnished residential accommodation provided to him by the employer-company. There was no dispute that such rent perquisite was chargeable to tax as income. The only question was regard to the mode of computation of the value of such rent perquisite.

6. The income from salary is brought to charge under s. 15 of the Act. Section 17(1)(iv) defines 'salary' as including perquisites or profits in addition to any salary. Section 17(2)(i) defines 'perquisite' as including the value of rent-free accommodation provided to the assessee by his employer. Rule 3 of the I.T. Rules, 1962, prescribes that the value unfurnished rent-free residential accommodation shall be 10% of the salary due to the assessee in respect of the period of his occupation of the said accommodation, during the relevant previous year, limited to the fair rental value of the accommodation. Explanation (2) to r. 3 defines 'salary' for the said purpose as under :

'Explanation - For the purpose of clauses (a) and (b), - ...

(2) 'salary' includes the pay, allowances, bonus or commission payable monthly or otherwise, but does not include the following, namely, -

(i) dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the employee concerned;

(ii) employer's contributions to the provident fund account of the assessee;

(iii) allowances which are exempted from payment of tax.'

7. The question which cropped up was whether the expression 'Salary' as defined in Explanation (2) to r. 3 as set out above include the amount of tax liability borne by the employer-company on behalf of the employee.

8. In terms of the above provisions, the point which arose for consideration in the present case was whether the value of rent perquisite was to be taken :

(1) at 10% of the remuneration of Rs. 1,22,475, or

(2) at 10% of such remuneration plus 10% of the tax borne by the employer, i.e., at 10% of Rs. 3,08,729, that is to say, at Rs. 12,247 or at Rs. 30,873.

9. It was common ground between the parties that the amount of tax borne by the employer-company was chargeable under the head 'Salaries' under ss. 15 and 17 of the Act. Therefore, the narrow point to be considered was whether the amount of such tax borne by the employer-company, viz., Rs. 1,86,254 in the present case was to be taken to mean 'salary' as defined in the said Explanation (2) to r. 3 for the limited purpose of determining the value of rent perquisite.

10. In the original assessment proceedings, the value of rent perquisite was taken at 10% of Rs. 1,22,475 and the amount of tax borne by the employer-company was excluded from the account altogether for this purpose, In the assessment proceedings, the ITO took the view that the tax borne by the employer-company was a part of the salary of the employee, and, therefore, the value of rent perquisite was 10% of the salary inclusive of the amount of the tax borne by the company. To be precise, in the case of shri Dennis, the ITO worked out the value of rent perquisite at 10% of Rs. 4,37,655, i.e., at Rs. 43,766. It appears that there was an error in calculation made by the ITO in this behalf because the other salary of Rs. 1,28,926 admittedly did not come from the employer-company but from another company called 'Coril'. Hence, in so far as the remuneration received from the employer-company was concerned, it was Rs. 3,08,729, and, therefore, 10% of the same would work out to Rs. 30,873. However, since the actual rent of the accommodation was Rs. 13,268 only and the value of rent perquisite was limited to that amount, the said error in calculation made no difference to the result. The ITO, accordingly, took in reassessment proceedings the value of rent perquisite at Rs. 13,268 as against Rs. 12,247 taken in the original assessment.

11. The AAC, in the appeal, agreed with the ITO's finding that 10% of the amount of tax borne by the employer was includible in determining the value of perquisite by way of rent-free accommodation in terms of the said r. 3.

12. In the appeal before the Tribunal, the Tribunal held that the amount of tax liability of the assessee borne by the employer-company inclusive of tax on tax was not salary for the purpose of the said r. 3 and the same could not be taken into account determining the value of perquisite by way of rent-free residential accommodation. For arriving at the said finding, the Tribunal gave the following reasons :

'(1) The Legislature and the rule-making authorities did not intend to give the same meaning to the expression 'salary' for purposes of s. 17 of the I.T. Act, 1961, and for purposes of rule 3 of the I.T. rules, 1962. The definition of 'salary' as given in Explanation (2) to rule 3 is an independent definition and no analogy can be drawn from the separate definition of that term as given in s. 17.

(2) 'Salary' in rule 3 does not mean all income chargeable to tax under the head 'Salaries' in terms of s. 15 and s. 17, excluding the payments specified in Explanation (2) to rule 3, and would include fewer items of income than those included in that expression as set out in s. 17(1).

(3) on the theory that the more specific excludes the general, if any, sum paid by the employer fits into the specific definition of 'perquisites' as provided in s. 17(2)(iv), then it must be understood as perquisites and not as 'profits in addition to any salary' as referred to in s. 17(1)(iv).

(4) The amount of tax liability of an employee borne by the employer including tax on tax exactly fits into the defination of 'perquisites' as set out in s. 17(2)(iv) being the sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee and is, therefore, a 'perquisite' as defined in s. 17(2)(iv), and is not additional salary or 'profit in addition to salary' as referred to in s. 17(2)(iv).

(5) Rule 3, Explanation (2), does not seek to create an artificial defination of salary so as profits in addition to any salary' or tax benefits. The rule making authorities have advisedly though it proper not to include in the defination of 'salary' in Explanation (2) 'perquisite' or 'profits in addition to any salary'.

(6) The amount of tax borne by the employer, by whatever name called, whether 'perquisites' or profits in addition to any salary', is not salary as defined in Explanation (2) to rule 3 for the purpose of valuing the perquisite by way of rent-free residential accommodation.'

13. Before the Tribunal, on behalf of all the assessees except the said Shri Ziegler, a challenge was also directed against the reassessment proceedings initiated u/s. 147 of the Act. It was pointed out on behalf of the assessees that they had furnished all the details necessary for the purposes of their assessment except one, viz., the amount of actual rent payable or paid by the employer-company in respect of the rent-free residential premises occupied by them. According to the Tribunal, such amount of actual rent must have been treated by the ITO at higher than 10% of the assessee's salary exclusive of tax and tax on tax paid by the employer on their behalf, computed the value of rent-free accommodation on the basis of 10% of their salary. The ITO considered that the assessee's omission to disclose the facts relating to the amount of actual rent of such accommodation during the course of the original assessment proceedings resulted in an escapement of income. The ITO thereupon reopened the assessment under s. 147(a) and issued notices under s. 148 of the Act. No return having been filed in response to the said notices under s. 148, the succeeding ITO completed the assessments ex parte under s. 144.

14. In his order of reassessment, the ITO has, however, stated that the assessment was reopened under s. 147(b) of the Act. The Notice under s. 148, having been issued within a period of four years from the end of the relevant assessment year, also did not indicate the clause of s. 147 under which the assessment was reopened. Under the circumstances, the assessee took the assessment as having been made under s. 144 read with s. 148 and s. 147(b) of the Act. The arguments advanced by the assessee before the AAC were also limited to questioning the legality of the assessment reopened under s. 147(b) only. The AAC also seems to have proceeded on this basis and confirmed the reopening of the assessment under s 147(b) of the Act. The original assessment in the case of Shri Dennis was made on May 26, 1964, the notice under s. 148 was issued on January 24, 1967, and the reassessment was made on March 22, 1968.

15. Before the Tribunal the assessee contended that the ITO had proceeded merely on the basis of a change of opinion for which he was not entitled to reopen the assessment under s. 147(b) and that the ITO could have acquired jurisdiction under s 147(b) only if he had reason to believe in consequence of information received subsequent to the completion of the original assessment that the assessee's taxable income had escaped total or partial assessment. On behalf of the revenue, however, it was submitted before the Tribunal that the assessment were reopened under s. 147(a) and not under s. 147(b). In support of this contention, on behalf of the revenue, a copy of the ITO's letter dated August 19, 1966, to his IAC and the IAC's reply to the same on September 6, 1966, were produced before the Tribunal. They are annexs.'G-1' and 'G-2' on record. It was then submitted before the Tribunal on behalf of the revenue that subsequent to the date of the original assessments made for the assessment years 1962-63 and 1963-64 on January 15, 1964, and May 25, 1964, respectively, the IAC happened to inspect the records of one of the assessee's co-employee. Shri H. D. Wilson. On seeing this record, the IAC in his inspection note dated May 5, 1965, opined that the action of the ITO in considering the salary (excluding the tax on tax paid by the employer-company) for the purpose of valuing the rent-free accommodation was wrong and that he should have computed the value of the rent-free accommodation on the basis of the actual rent paid by the company or 10% of the gross salary including the amount of tax or tax on tax paid by the company, whichever was less. It seems subsequently there was an exchange of correspondence between the ITO on the one hand and the IAC, the Commissioner and the CBDT endorsed the view of the IAC vide, its letter dated April 27, 1966. On the receipt of the said letter from the Board, the ITO in consultation with his IAC, reopened the assessment proceedings of the assessee for the assessment year 1962-63, under s. 147(b) and for the assessment year 1963-64, under s. 147(a) of the Act.

16. Though the matter proceeded on these lines, in fact, in the case of three of the assessees, viz., Shri Dennis, Shri Boudrieas and Shri Wilson, particulars of actual rent payable by the employer-company were on record for the year in appeal, viz., 1963-64. Hence, the action taken in regard to these cases was under s. 147(b). The relevant inspection note dated March 5, 1965, and the Commissioner's communication dated May 5, 1966, containing the extract from the Central Board's letter dated April 27, 1956, are annexs. H-1 and H-2, respectively, on the record.

17. On the question of reopening of the assessment, the revenue's case before the Tribunal was that the omission to furnish the amount of actual rent payable by the employer-company in respect of the rent-free accommodation enjoyed by the assessee, which was a necessary material for the purposes of assessments, brought the assessee's case within the purview of s. 147(a). Alternatively, it was also urged on behalf of the revenue that the assessments having been reopened and made within the time-limit four years and having also been understood by the assessee as reopened under s. 147(b), the proceedings should be deemed to have been reopened under the said s. 147(b). It was also further submitted that the ITO had jurisdiction to proceed under the said s. 147(b) since the inspection note dated May 5, 1965, of the IAC and/or letter dated April 27, 1966, from the CBDT expressing its view on the matter, constituted 'information' within the meaning of the said section. It was also argued on their behalf that there was no material to suggest that the ITO who made the original assessment had applied his mind to the point at issue. Assuming that he had done so, that would not still be a bar to his jurisdiction under the said s. 147(b) if in consequence of information, he prima facie came to believe that the assessee's taxable income had escaped partial or total assessment. For the said purpose, it was not necessary that the information should be from an outside source and that the ITO could inform himself on research or re-examination of the facts already on record. As against this, the contention of the assessee was that no action under s. 147(a) of the Act could be initiated by the ITO unless the non-disclosure of the alleged fact was material for the purpose of assessment. It was also urged on behalf of the assessees that in fact the particulars of the actual rent payable by the employer-company were furnished by the assessees for the assessment year 1962-63. However, the assessment for the year had not been made in any different manner since for that year also the value of the rent perquisite was taken at 10% of the salary exclusive of the tax perquisite even though the actual rent payable was more than 10% of the net salary excluding the tax perquisite but less than 10% of the gross salary including the tax perquisite. It was for this purpose, argued the assessees, that the non-disclosure of the information with regard to the actual rent payable by the employer-company for the assessment year 1963-64 was not material for the purpose of assessment since it cannot be said in the circumstances that its disclosure during the course of the 1963-64 assessment proceedings would have made any difference. It was also contended on their behalf that the purpose and scope of the two provisions, viz., s. 147(a) and s. 147(b), were different and if the ITO has in fact reopened an assessment under one of the said provisions, the reassessment should succeed or fail on the basis of that provision alone. With regard to the so-called information, it was pointed out on their behalf that the IAC's said inspection note or instruction received from the Central Board on a point of law could not constitute 'information' within the meaning of the said s. 147(a). It was contended that the presumption in an assessment completed under s. 143(3) was that the ITO had applied his mind. There was nothing to indicate that the assessment was reopened on the ground that the ITO who made the original assessment had not applied his mind on the point at issue. Hence it was not open to the revenue to allege that the assessment was reopened on that ground. It was also further pointed out that the ITO had, in fact, applied his mind to this very problem in the years 1956 and 1957 as was evident from the discussion which took place on a similar point between the ITO and the employer-company's representative in the relevant years. Lastly, it was submitted that the present was clear case of a mere change of opinion unsupported by any fresh facts, and, hence, reopening of the assessment could not be done under the provisions of s. 147(b).

18. The Tribunal by its order dated January 28, 1970, on this issue held that the omission to disclose the actual rent payable by the employer-company was not a material fact and its non-disclosure could not confer any jurisdiction on the ITO to initiate reassessment proceeding under s. 147. That the materials placed by the assessee before the Tribunal did not lead to an inference that the ITO who completed the assessment originally had not applied his mind to the point at issue. In case of an assessment completed under s. 143(3) of the Act (s. 23(3) of the 1922 Act), it was reasonable to presume that the ITO had applied his mind to all questions involved in the assessment to the best of his ability. That the inspection note of the IAC as well as the view endorsed by the Central Board was not a judicial decision and would not constitute information with regard to the true and correct state of law so as to confer any jurisdiction on the ITO to initiate reassessment proceeding under the said s. 147(b). Accordingly, the Tribunal held that the assessee could not be charged with omission or failure to disclose fully or truly any material facts necessary for his assessment and the proceedings initiated under s. 147(a) of the Act must fail. The Tribunal also held that since there was no information received by the ITO so as to entitle him to reopen the proceedings under s. 147(b), the reassessment proceedings were bad in law. The Tribunal thus gave a finding against the revenue.

19. The Commissioner having applied for stating the case for the opinion of this court, the Tribunal by its order dated the 31st August, 1970, referred the following two questions on the point of law to this court :

'1. Whether, on the facts and in the circumstances of the case, the amount of tax borne by the employer, including tax on tax, on behalf of the employee, constitutes 'salary' as defined in explanation (2) to rule 3 of the I.T. Rules, 1962, for the purpose of determining the value of rent perquisite in terms of section 17 of the I.T. Act, 1961 ?

2. If the answer to question No. 1 is in the affirmative, whether the reassessment proceedings were validly initiated u/s. 147 of the I.T. Act, 1961 ?'

That is how the two questions come up before us for consideration.

20. As regards the first question, we may first refer to the relevant provisions of the Act and the rules in this behalf. Section 15 of the Act provides for charging of income-tax income under the head 'salaries'. Section 16 provides for deductions from income chargeable as salaries. Section 17 then defines 'salary', 'perquisite' and/or 'profits in lieu salaries' for the purpose of ss. 15 and 16. The provisions relevant for our purpose are contained in ss. 17(1)(iv), 17(2) and 17(2)(i). The provisions of s. 17(1)(iv) state that 'salary' includes any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages. By virtue of the provisions of s. 17(2)(i), 'perquisite' includes the value of rent-free accommodation provided to the assessee by his employer. Rules 3 of the I.T. Rules, 1962 (hereinafter referred to as the 'said Rules'), provides for the valuation of perquisites as follows :

'3. Valuation of perquisites. - For the purpose of computing the income chargeable under the head 'Salaries' the value of the perquisites (not provided for by way of monetary payment to the assessee) mentioned below shall be determined in accordance with following clauses, namely :-

(a) The value of rent-free residential accommodation shall ordinarily be estimated at a sum equal to, -

where the accommodation is not furnished - 10 per cent.

where the accommodation is furnished - 12.5 per cent. of the salary due to the assessee .......

Explanation. -For the purposes of clauses (a) and (b) - .....

(2) 'salary' includes the pay, allowances, bounce or commission payable monthly or otherwise, but does not include the following, namely :-

(i) dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the employee concerned;

(ii) employer's contributions to the provident fund account of the assessee;

(iii) allowances which are exempted from payment of tax.'

21. These are the only provisions of the Act and the Rules which are relevant for our discussion. It is obvious from the aforesaid rules, that the definition of 'salary' in r. 3 is an inclusive one and, therefore, it is not restricted to what is included in the said definition. The device of inclusive definition is employed by the Legislature with a view to enlarge the meaning of the ordinary words and hence the rule of interpretation of such definition adopted by the courts is to read the word defined so as to enlarge its meaning and not to restrict it to the words included in its inclusive part unless the context otherwise requires.

22. However, Shri Munim, the learned counsel appearing for the assessees, contended that r. 3 has given a special definition of the word 'salary' for the specific purpose of the computation of the valuation of perquisites. That definition is different from the definition given in s. 17 of the Act, inasmuch as, according to Shri Munim, the definition in r. 3 restricts itself only to the 'pay, allowance, bonus or commission payable monthly or otherwise' and excludes from its scope dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits, employer's contributions to the provident fund account of the assessee and the allowances which are exempted from payment of tax. Since this definition of salary given in the said r. 3 nowhere mentions perquisite or profits in lieu of or in addition to any salary or wages, it will have to be held, argued Shri Munim, that the tax paid by the employer on behalf of the assessee whether called as perquisites or profits in lieu of or in addition to any salary, is not intended to be covered by the said expression. We are unable to accept this contention for reasons more than one. Firstly, we have already pointed out that the definition is inclusive and it is a well-settled rule of interpretation of inclusive definition that it is not controlled or confined to the words or expressions which are included in the said definition. On the contrary, it is intended to enlarge the scope of the concept which is sought to be defined. Secondly, the purpose of r. 3 is to lay down the mode of valuation of the perquisite for the purpose of computing the income chargeable under the head 'Salaries' under s. 15 of the Act. The definition of the word 'salary' given in s. 17, as the section itself shows, is for the purposes of ss. 15 and 16 of the Act. It is, therefore, legitimate to presume that the Legislature did not intend to give a different meaning to the word 'salary' in r. 3 from that given in s. 17 of the Act. Therefore, the two definitions will have to be construed as co-extensive in their scope except so far as there is an express exclusion of some of the payments which otherwise go with the word 'salary'. Thirdly, the purpose of giving a separate definition of salary in r. 3 appears to be to exclude certain kinds of payments which are otherwise covered by the word 'salary'. This is obvious from the fact that the definition of salary given in the said rule excludes from its ambit only certain allowances, viz., dearness allowance or dearness pay, unless it enters into the computation of superannuation or retirement benefits of the employee; employer's contribution to the provident fund account of the assessee and allowances which are exempted from the payment of tax. If the Legislature did not want to exclude the said allowances and contributions, it would not been necessary to give a separate definition of salary under the said rule. Therefore,, it is more than obvious that the said definition given in r. 3 is co-extensive with the definition given in s. 17 of the Act, except so far as there is an express exclusion therefrom of the kind of payments mentioned. Next the definition of salary given in the said r. 3 includes pay. The dictionary meaning of the word 'pay' includes all periodical payments for services rendered. Thus, the word 'pay' is nothing but salary and it is synonymous with it. Hence, the tax paid by the employer on behalf of the employee would amount to a payment to him for the services rendered by him. Hence, both the word 'salary' and 'pay' would include such tax paid by the employer on behalf of the employee. Our attention was invited in this connection to two English decisions, viz., (1) North British Railway Company v. Scott [1922] 8 TC 332 and (2) Hartland v. Diggines [1926] 10 TC 247 , wherein it has been held that the word 'salary' would in its natural import comprehend within it taxes paid on behalf of the employees. In the first case, it was a contract entered into by the company with its employees to pay the salary free of income-tax which fell for consideration and what was debated was whether the taxes paid by the company under the said contract would come within the words 'fees, emoluments or salary'. It was held there that the sum paid by the company is not a sum outside of the officer's salary or independent of it, but is a part of his salary, and if the employer did not set off this sum against the employee's salary, the latter would simply pocket his full salary, his debt to the revenue having been paid by another, not by himself, that is all. In the second case, in accordance with the custom, the income-tax payable by the employee was paid by the employer-company. It was held that the ratio in the earlier case would equally-company. It was held that the ratio in the earlier case would equally be applicable notwithstanding the fact that there was no specific agreement between the employer and the employee to pay the salary free of income-tax. It was emphasised in this case that in effect what the employee has received is the money paid into his hands plus the immunity, i.e. the immunity from paying the tax. The substance of the matter was that the salary paid to the employee is not all that he received. He had received, in addition, money's worth to the extent of the sum which was paid in respect of that salary to the revenue. With respect, we are in complete agreement with the view expressed in the said decisions and are of the view that the income-tax paid on behalf of the employee would be a part of the salary of the employee by the mere connotation of the expression 'salary'. There is also no reason why the tax so paid by the employer would not amount to an allowance even if it is held that it did not form part of his salary, and admittedly the said rule does not exclude from the definition of salary the allowance of the kind paid in the present case. For all these reasons, we are satisfied that Shri Munim is not entitled to succeed in his contention that the definition of the word 'salary' contained in r. 3 does not include tax paid by the employer in the present case. We are fortified in the view we are taking by two decisions viz., one of the Kerala High Court in CIT v. C. W. Steel (No. 1) : [1972]86ITR817(Ker) , and the other of the Madras High Court in CIT v. Mackintosh : [1975]99ITR419(Mad) . In both the cases, the very same question fell for consideration, viz., whether the income-tax paid by the employer was salary for the purposes of finding out the value of the rent-free accommodation given to the employee. Both the courts have answered the issue in favour of the revenue and against the assessee. The Madras High Court in its judgment has approved of the ratio of the decision of the Kerala High Court. We are respectfully in agreement with the decisions of both the courts on the said point. We are, therefore, satisfied that the revenue is entitled to succeed on the first question and the answer to the question will have to be given in its favour and against the assessee.

23. Turning now to the second question, viz., whether the ITO was justified in re-opening the assessment under s. 147(b) of the Act, we may first point out the legal position on the point on the point. This question fell for consideration on a number of occasions before various High Courts, including this court, and also the Supreme Court and we should have thought that the controversy was finally settled and the position in law crystallized. However, Shri Joshi, the learned counsel appearing for the revenue, once again took us through all the decisions on the point. An additional decision which he pointed out on the subject was that of the Calcutta High Court in S. B. (House &Land;) Pvt. Ltd v. CIT : [1979]119ITR785(Cal) . We find that the Calcutta High Court has merely reiterated the position of law which obtained when we delivered a decision on the very same point which is in CIT v. Killick Industries Ltd. : [1980]126ITR147(Bom) . In that decision we have taken stock of all the decisions available till that time, the last of the decisions being that of the Supreme Court in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . Since, as stated earlier, the decision of the Calcutta High Court has made no difference to the position of law as stated by us in the aforesaid decision, we think it is not necessary to go into the entire history of the development of the law on the point. It will be sufficient if we refer to our aforesaid decision and re-state the propositions of law which emerge on the point.

24. The whole controversy centers round the question as to what does and does not constitute information within the meaning of s. 147(b). The position of law with regard to the said controversy is that -

(1) the information may consist of facts or of law,

(2) the information must be fresh or subsequent to the original assessment,

(3) the factual information may be derived from external sources or may be gleaned from the material which was already on record at the time of the original assessment,

(4) a mere change of opinion on the material already considered or occasioned by a reappraisal of the same material is not information. The change of opinion must be supported by fresh information obtained from the record,

(5) opinion expressed by the department or by the CBR is not law. Law is that which is laid down either by the Legislature or judicial decisions and it is the change in such law which constitutes a fresh or subsequent information.

25. In the light of the aforesaid propositions, we may now refer to the facts in the present case. Admittedly, the ITO had reopened the assessment because of the inspection note dated 5th May, 1965, and the communication dated 4th May, 1966, from he Commissioner containing the extract from the letter dated April 27, 1966, of the CBDT. In the inspection note, the IAC had expressed his opinion that the taxes paid by the company ought to have been included in the computation of the value of rent-free accommodation. This opinion was later on confirmed by the CBDT. The assessment was reopened after this confirmation was received as communicated in the letter dated April 27, 1966. It is not disputed further that there was no other information received for reopening the assessment. There is no controversy before us that the present is not and cannot be a case under s. 147(a) of the Act, inasmuch as there was no omission or failure on the part of the assessee to disclose fully or truly all the material facts necessary for the assessment. Therefore, at the highest, according to the revenue, it was a case where there was an information with regard to the position of law based on the opinion expressed by the IAC in regard to the position of law based on the opinion expressed by the highest, according to the revenue, it was a case where there was an information with regard to the position of law based on the opinion expressed by the IAC in the first instance, and then by the CBDT. We have already stated that the opinion expressed either by the department or by the CBDT cannot constitute information on a point of law. Information on a point of law is only that which flows from the changes in law made either by the Legislature or by judicial decisions. Hence, the present case is not covered by any of the propositions stated above and is, therefore, clearly out of the purview of s. 147(b). We are, therefore, more than satisfied that in the present case the ITO had no jurisdiction to reopen the assessment proceedings, and hence, the reassessment is invalid in law.

26. In the result, our answer to the first question is in the affirmative, in favour of the revenue and against the assessee, and our answer to the second question is in the negative, against the assessee, and our answer to the second question is in the negative, against the revenue and in favour of the assessee.

27. In the circumstances, there will be no order as to costs.


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