1. At the instance of the income-tax department, the Income-tax Appellate Tribunal, Bangalore Bench, has under sub-section (1) of section 256 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), referred to this court the following question of law :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the term 'salary' occurring in section 10(10) of the Income-tax Act, 1961, includes the 'dearness allowance' and 'special allowance' for purposes of calculating the exempt portion of gratuity received by the assessee for the assessment year 1968-69 ?'
2. The facts relevant for decision of the above question, as found in the statement of the case by the Appellate Tribunal, are briefly these' : The respondent-assessee was an employee of the Canara Bank. On his retirement, he was paid a gratuity of Rs. 23,250. Out of that amount, he claimed under section 10(10) of the Act exemption in respect of Rs. 19,935 which represented the aggregate of his average basic pay, dearness allowance and special allowance for 15 months. The Income-tax Officer held that the assessee could claim exemption in respect of that portion of the gratuity which represented his basic pay only for 15 months and not in respect of the portion of the gratuity which represented the dearness allowance and special allowance which, according to the Income-tax Officer, cannot be regarded as a part of his salary for the purpose of sub-section (10) of section 10 of the Act.
3. Annexure 'C' to the statement of the case is a letter of the management of the Canara Bank in which it is stated that the bank pay an employee special allowance : (i) in recognition of any special skill or qualification possessed by him; (ii) in view of the responsible, onerous or difficult nature of duties attaching to the post or position occupied by him in the bank and that under the gratuity rules of that bank, the term 'salary' includes special allowance.
4. The relevant parts of section 10 of the Act read :
'10. Incomes not included in total income. - In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included,....
(10) any death-cum-retirement gratuity received under the revised Pension Rules of the Central Government or under any similar scheme of a State Government or a local authority or any payment of retirement gratuity received after the first day of June, 1953, under the new Pension Code applicable to the members of the Defense Services, any other gratuity received by an employee on his retirement or on his becoming incapacitated prior to such retirement or on termination of his employment or any gratuity received by his widow, children or dependents on his death, to the extent it does not, in either case, exceed one-half month's salary for each year of completed service, calculate on the basis of the average salary for the three years immediately proceeding the year in which the gratuity is paid, subject to a maximum of twenty-four thousand rupees or fifteen months' salary so calculated, whichever is less.'
5. The word 'salary' is not defined in section 2 of the Act, which contains definitions. Though that word has been defined in section 17 of the Act, that definition is only for purposes of sections 15 and 16 of the Act Again, the definition of the word 'salary' in rule 2 of Part 'A' of the IV Schedule to the Act is also for the purpose of that party only.
6. In the absence of the definition of the word 'salary', applicable to section 10(10) of the Act, the ordinary meaning of that word should be taken while construing that sub-section, unless there is anything in the context which requires a wider or narrower meaning to be given to that word.
7. In Webster's New International Dictionary, second edition, the relevant meaning of the word 'salary' is as follows :
'The recompense or consideration paid or stipulated to be paid to a person at regular intervals for services, especially to holders of official, executive or clerical position; fixed compensation regularly paid, as by the year, quarter, month or week, stipend.'
8. In Shorter Oxford Dictionary the relevant meaning of the word 'salary' is as follows :
'Salary - Fixed payment made periodically to a person as compensation for regular work.'
9. Dearness allowance paid to an employee is, in our opinion, also a part of recompense or consideration paid to him at regular intervals for his services. The view we take receives support from the observations of Panchapakesa Ayyar J. in V. Srinivasan v. Padmasini Ammal, while construing clause (i) of sub-section (1) of section 60 of the Code of Civil Procedure :
'The character of the dearness allowance differs in no respect from the character of pay, except in its temporary nature, as an addition to pay which may be decreased or increased, according to circumstances, or abolished altogether... I am, therefore, clearly of opinion that 'dearness allowance' will be part of a man's salary like acting allowance, when a man is discharging the duties of a higher office for the prescribed period under the rules and is entitled to it. Names may differ, but the character of the payment is the same. Dearness allowance fulfills the very same function as basic pay, and must, therefore, be deemed to be part of the 'salary', unlike travailing allowance, housing allowance, etc., which are meant for particular purposes and are confined to particular occasions, and sometimes to particular areas.'
10. In the present case, special allowance was paid to the assessee-respondent in view of his special skill or qualifications and/or in view of responsible work done by him. Such allowance was not intended to compensate him for any extra expenditure like expenditure on travailing or entertainment incurred by him for purposes of the employment. Such allowance was paid to him at regular intervals. In these circumstances, we do not see why such special allowance paid to him should not be regarded as a part of his salary for the services rendered by him. The above-quoted observations of Panchapakesa Ayyar J. are equally applicable to the special allowance which respondent-assessee was paid, as it was not intended for a particular purpose nor confined to particular occasions.
11. However, Mr. S. R. Rajasekhara Murthy, learned standing counsel for the income-tax department, pointed out that rule 11 of the rules and regulations of the Canara Bank Employees' Gratuity Fund defined the word 'salary' as including only the average of the full basic pay and special allowance and/or officiating allowance, if any, payable, during the 12 months immediately preceding the date of death, disability, retirement, resignation or termination of service, as the case may be, and that dearness allowance was not included in this definition of salary. He contended that dearness allowance could not be regarded as a part of salary in view of the definition of the work 'salary' in the gratuity rules of the Canara Bank which paid gratuity to the respondent-assessee.
12. The above contention had not been urged before the Income-tax Appellate Tribunal. Even otherwise, the definition of the word 'salary' in the rules governing the gratuity scheme of a particular employer, is only for the purpose of those rules and cannot, in our opinion, be relevant for interpretation of section 10(10) of the Act, because any interpretation of that sub-section should be uniform in cases of all employees irrespective of how that word is understood or defined in the gratuity schemes of their respective employers.
13. Mr. Rajasekhara Murthy next referred to the following passage in Corpus Juries Secundum, volume 77, at page 554 :
'The word 'salary' is defined as fixed compensation regularly paid as by the year, quarter, month or week.'
14. Mr. Rajasekhara Murthy contended that dearness allowance cannot be regarded as fixed compensation because it may vary from time to time according to the cost of living.
15. The word 'fixed' occurring in the above passage in Corpus Juries Secundum cannot, in our opinion, be understood as being fixed for all time. Even basic pay of an employee may vary from time to time on account of his earning periodical increments in the time scale of pay or on account of general revision of pay of employees or revision of pay of an individual employee. In the above passage in Corpus Juries Secundum, the word 'fixed' conveys the idea that the remuneration payable to an employee is determined at the commencement of the period for which he is paid and is not dependent on variable factors like the volume of work done by him during that period.
16. Mr. Rajasekhara Murthy was not able to state any convincing reason why special allowance paid to the respondent-assessee should not be regarded as a part of his salary.
17. In the result, our answer to the question referred to us is in favour of the assessee and as follows :
'The Income-tax Appellate Tribunal was right in law in holding that the term 'salary' occurring in section 10(10) of the Act includes 'dearness allowance' and 'special allowance' for purposes of calculating the exempt portion of gratuity received by the assessee for the assessment year 1968-69.'
18. The income-tax department shall pay costs to the respondent-assessee Advocate's fee, Rs. 250.