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M. Krishna Murthy and ors. Vs. Commissioner of Income-tax, Andhra Pradesh, Hyderabad and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberWrit Petition No. 828 of 1982
Judge
Reported in[1985]152ITR163(AP)
ActsIncome Tax Act, 1961 - Sections 2(14), 2(24), 10, 10(3), 10(10), 10(10AA), 10(13A), 10(14), 15, 16, 17, 17(2), 17(3), 36(1), 40, 40A, 40A(5), 56 and 80GG
AppellantM. Krishna Murthy and ors.
RespondentCommissioner of Income-tax, Andhra Pradesh, Hyderabad and ors.
Appellant AdvocateM. Suryanarayana Murthy, Adv.
Respondent AdvocateM. Chandrasekhara Rao, Adv. for ;Andhra Pradesh State Electricity Board
Excerpt:
(i) direct taxation - leave encashment - sections 2 (14), 2 (24), 10, 10 (3), 10 (10), 10 (10aa), 10 (13a), 10 (14), 15, 16, 17, 17 (2), 17 (3), 40, 40 a, 40a (5), 56, and 80 gg of income tax act, 1961 - question of law referred to high court at instance of assessee - whether leave encashment amount in lieu of salary taxable - profit in lieu of salary is defined in section 17(3) (ii) in order to be profit in lieu of salary payment must be relatable to employment but neither based on extra employment consideration nor fall in any clause of section 10 - leave encashment satisfied all essentials of being profit in lieu of salary and taxable under head of salary. (ii) house rent allowance - sections 2 (14), 2 (24), 10, 10 (3), 10 (10), 10 (10aa), 10 (13a), 10 (14), 15, 16, 17, 17 (2), 17 (3),.....seetharam reddy, j.1. seventy-eight petitioners, employees of the andhra pradesh state electricity board, in this batch of 53 writ petitions have raised common questions and so, they are disposed of by a common judgment. 2. the questions canvassed are - whether the leave encashment amount and various allowances like house rent allowance, city compensatory allowance, incentive bonus, construction and bad climate allowance, shift, thermal maintenance allowance and so on, are income and even if they are, whether are they exempt from tax 3. however, a four-fold preliminary objection was raised on behalf of the revenue in regard to the maintainability of the writ petitions, viz. : (1) each of the writ petitions jointly filed by two or more persons each having a separate and distinct cause of.....
Judgment:

Seetharam Reddy, J.

1. Seventy-eight petitioners, employees of the Andhra Pradesh State Electricity Board, in this batch of 53 writ petitions have raised common questions and so, they are disposed of by a common judgment.

2. The questions canvassed are - whether the leave encashment amount and various allowances like house rent allowance, city compensatory allowance, incentive bonus, construction and bad climate allowance, shift, thermal maintenance allowance and so on, are income and even if they are, whether are they exempt from tax

3. However, a four-fold preliminary objection was raised on behalf of the Revenue in regard to the maintainability of the writ petitions, viz. :

(1) Each of the writ petitions jointly filed by two or more persons each having a separate and distinct cause of action, suffers from the incurable infirmity of misjoinder of parties and causes of action.

(2) Even if the writ petitions are held maintainable, separate court fee should be collected from each of the writ petitioners.

(3) The salary disbursing officers of the petitioners' employer ought not to have been impleaded as respondents herein.

(4) Since the petitioners have alternative remedy of taking the matter in appeal in case the ITO disallows their claims in this behalf and so the writ petitions are incompetent.

4. In support of the first objection, the Revenue relied on the decisions of the Supreme Court in Dhanyalakshmi Rice Mills v. Commr. of Civil Supplies, 0065/1976 : [1976]3SCR387 and Mota Sigh v. State of Harayaa, : AIR1981SC484 , whereas the petitioners cited the decisions in Annam Adinarayana v. State of Andhra Pradesh : AIR1958AP16 and Management, S.C.Co. Ltd. v. Industrial Tribunal [1975] 1 LLJ 470.

5. In management, S.C.Co. Ltd v. Industrial Tribunal [1975] 1 LLJ 470 a Division Bench of this court while placing reliance on an earlier decision of a Division Bench in Annum Adinarayana v. State of Andhra Pradesh : AIR1958AP16 , which in turn, derived its strength from the decision of the Supreme Court in Chandra Bhan Gosain v. State of Orissa : [1963]50ITR195(SC) held that a single writ petition is maintainable at the instance of several petitioners, when a common question of law or fact is involved and the petitioners are jointly interested in the cause of action.

6. The decision in Dhanyalakshmi Rice Mills v. Commr. of Civil Supplies, 0065/1976 : [1976]3SCR387 , relied on by the Revenue, which lays down (p. 2249) :

'The remedy under art. 226 is not appropriate in the cases for the following reasons as well : first, several petitioner had joined. Each petitioner has individual and independent cause of action. A suit by such a combination of plaintiffs would be open to misjoinder. Second, there were tribal issues like limitation, estoppel and question of fact in ascertaining the expenses incurred by the Government for administrative surcharges of the scheme and allocating the expenses with regard to the quality as well as quantity of rice covered by the permits.'

is distinguishable as the material in that case necessarily involved investigation of facts which differ from petitioner to petitioner, like the quantity and nature of the rice involved therein and so forth.

7. In the cases on hand, commonness in regard to the questions involved is conspicuous. It does not involve any investigative process with regard to the material facts. The questions are purely questions of law, which when adjudicated are applicable commonly to all. Hence, the objection raised by the Revenue is not sustainable.

8. Now, the second objection. In mota Singh v. State of Harayana, : AIR1981SC484 , the point involved was-whether the independent truck owners, who had jointly filed a writ petition in respect of impugned tax, would be entitled to do so, and the Supreme Court held (P. 485) :

'Each one has his own cause of action arising out of the liability to pay tax individually and the petition of each one would be a separate and independent petition and each such person would be a liable to pay legally payable court-fee on his petition. It would be travesty of law if one were to hold that as each one uses highway, he has common cause of action with the rest of truck pliers.'

9. A Division Bench of the court In re Grain International, Proddatur : AIR1981AP301 , while faced with the provisions of s. 6 of the Andhra Pradesh Court-fees and suits Valuation Act, in the circumstances where the cause of action for the several persons who had joined in filing a single writ petition being distinct and different and so, whether they could be allowed to join in filing a single writ petition, held that they cannot, but in the circumstances of the case, the petitioners were permitted to effect the necessary amendments and retain the name of the first petitioner alone.

10. In the light of the above two decisions, we are of the view that a single writ petition is maintainable, provided court-fee is paid on behalf of each of the petitioners therein. Alternatively, however, it would be open to the learned counsel for the petitioners to amend the petition, by striking off the petitioners other than the first petitioner in case they are not inclined to pay court-fee on behalf of each and every writ petitioner Resultantly, we uphold the objection of the Revenue.

11. The third objection cannot sustain for the reason that the disbursing officers were purporting to deduct tax out of various allowances referred to hereinabove from the salary and, therefore, they are necessary parties.

12. The last objection pertains to the alternative remedy being available. This being a general question of a law affecting numerous persons working in the Electricity Board or the Government and being a recurring phenomenon, the availability of alternative remedy would not be fatal to the invocation of the jurisdiction of this court under article 226 of the Constitution. Hence, the objection in this behalf is ruled out.

13. We now turn to the merits. The foremost pertains to leave encashment amount. The question is-whether 'leave encashment' is 'profit in lieu of salary' constituting thereby salary as defined under s. 17(3) of the I.T. Act, 1961 and so, is exigible to tax. Before answering the question, the relevant statutory provisions may be set out.

Section 2(24)(iii) of the I.T. Act defines 'income' as under :

'2(24) 'income' includes - ...

(iii) the value of any perquisite or profit in lieu of salary taxable under clauses (2) and (3) of sections 17.'

Section 17 reads :

'17. For the purposes of sections 15 and 16 and of this section, -

(1) 'salary' includes - ...

(iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;... (3) 'profits in lieu of salary' includes -

(i) the amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employer or the modification of the terms and conditions relating thereto;

(ii) any payment other than any payment referred to in clause

(10), clause (10A), clause(10B), clause(11), clause (12) or clause (13A) of section 10, due to or received by an assessee from an employer or a former employer or from a provident or other fund not being an approved superannuation fund, to the extent to which it does not consist of contributions by the assessee or interest on such contributions.'

Note 6(1)(i), (ii) and (vii) to Regulation 29(5) of the Andhra Pradesh State Electricity Board Leave Regulation, read :

29(5). Note 6(1)(i) : - Board employees are permitted to surrender earned leave not exceeding 15 days once in twelve months or 30 days once in twenty-four months without actually having to go on leave and cash value equivalent to leave salary and allownaces in lieu of the leave so surrendered :

Note : Employees may also avail the concession of surrender of earned leave at the time of availing of earned leave if they so desire subject to the above provision. (ii) In the case of surrender of leave not exceeding 15 days and 30 days, the interval between surrender of E.L. should be not less than 12 months and 24 months, respectively;...

(vii) This concession also applies to Board employees who are on foreign service or on deputation to Government of India or other State Governments.'

Certain principles which will be guiding factors in construing the statutory provisions in the I.T. Act and in particular, the expression 'salary' as defined in various section of the said Act and which are fairly settled, may be borne in mind before adjudicating the point involved herein.

(1) The expression 'salary' is defined in various sections of the I.T. Act and the Rules, viz., Explanation to s. 10(10), s. 17, Explanation 2(a) to s. 40A(5), rule 2(h) of Part-A of Schedule IV, Explanation 1 to s. 36(1)(iia) and Explanation 1 to rule 3, in various ways. But, for the purpose of computing income for charging purposes, only the definition of s. 17 has to be looked into.

(2) The chargeability of a receipt has to be judged with reference to s. 17 and de hors s. 10 which directs certain receipts to be excluded from the computation of income.

(3) If s. 17 is not attracted, it is unnecessary to examine s. 10 as it cannot be decided with reference to the said section.

(4) If any receipt does not fall within the ambit of s. 17 and is also included in the exemptable items under s. 10, it shows that the Legislature by way of abundant caution refers to the in s. 10. (see Rani Amrit Kunwar v. CIT : [1946]14ITR561(All) International instruments (P.) Ltd. v. CIT : [1982]133ITR283(KAR) ).

(5) The distinction between s. 10 and other charging sections is that the onus of proving that a particular receipt is income is on the Revenue, while the assessee has to prove that a particular income receipt is exempt from tax. (see Parimisetti Seetharamamma v. CIT : [1965]57ITR532(SC) ).

(6) Any receipt relatable to a particular head and which cannot be taxed for any reason under that head, cannot be taxed as 'income from other sources' under s. 56.(See Nalinikant Ambalal Midi v. S. A. L. Narayan Row, CIT : [1966]61ITR428(SC) ).

(7) The benefit of any ambiguity in interpretation of a charging provision of a taxing statute should be given to the taxpayer. This is based on the premise that the Legislature can always clarify its intention by amending the law with restrospective effect and nullify the decision of the courts.

Now to the question proper.

14. The contention of the Revenue is that leave encashment amount comes within the expression 'profit in lieu of salary' as defined in s. 17(3) of the Act. True, as is conceded by the Revenue, leave encashment amounts falls under s. 17(3) of the act only, and if it does not, it cannot be subjected to tax under any other head. What is, therefore, profit in lieu of salary 'salary', according to the shorter Oxford English Dictionary, means - 'to recompense, reward; to pay for something done' In Jowitt's Dictionary of English Law (1959 edition) 'salary' is explained as - 'a recompense or consideration generally periodically made to a person for his service in another person's business; also wages, stipend, or annual allowance'. In stroud's Judicial Dictionary (4th edition) the expression 'salary' is explained as - 'where the engagment is for a period, is permanent or substantially permanent in character, and is for other than manual or relatively unskilled labour, the remuneration is generally called 'salary'.

15. The Supreme Court in Gestetner Duplicators P. Ltd. v. CIT : [1979]117ITR1(SC) explained that conceptually there is no difference between salary and wages, both being recompense for work done or services rendered, though ordinarily the former expression is used in connection with services of non-manual type, while the latter is used in connection with manual services.

16. It may be seen that under clause (10AA) of s. 10, which was introduce by the Finance Act, 1982, with retrospective effect from April 1, 1978, the receipt by way of leave encashment paid to the employee at the time of retirement on superannuation is specifically exempted from inclusion in the recipient's total income. It is indicative of the fact that the Legislature did not intend to exempt likewise the receipt of leave encashment amount paid to the employee from time to time while in service. This will not, however, ipso facto displace the burden on the Department to establish that the leave encashment amount falls within the ambit of s. 17(3). We have, however, no hesitation to dismiss the contention, faintly advanced though, that clause (10AA) of s. 10 takes in not only the terminal benefit, but also the receipt of leave encash ment in clause (10AA), viz., - 'any payment received by an employee..... as the cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement on superannuation or otherwise,' - is quite explicit and unequivocal that it covers only the payment received at the time of retirement of the employee as the work 'otherwise' employed therein has reference, which is irresistible, to 'retirement' only-whether that retirement is on superannuation or by any mode or method, say, compulsory retirement and so forth.

17. So, the precise question is : whether 'profit in lieu of salary' is income and if so, whether it falls within the province of s. 17(3) of the Act.

18. Without any strain, we hold that 'profit in lieu of salary' is income, as it has been so stated explicitly under s. 2(24) by its inclusive definition. That leads us next to examine as to whether this is postulated by s. 17(3)(ii). Variously contended by the learned counsel for the petitioners, that it does not. Sri V. Jagannadha Rao, learned counsel for some of the petitioners, argued that unless what is received by an employee from the employer is something due to him under the contract of employment mere, receipt cannot be regarded as 'profit in lieu of salary'. In other words, his submission presumably is that under the contract of employment, there was no obligation to pay any amount by way of leave encashment, as this benefit has been unilaterally extended to the employes as a gesture of goodwill and so such voluntary payments which are ex gratia in nature cannot be regarded as 'profit in lieu of salary'.

19. Now, this takes us to interpret the words - 'due to or received' occuring in s. 17(3)(ii). The main thrust of the learned counsel is that unless the amount is first due, the same cannot be said to have been received and so, without the amount being due, any receipt cannot be regarded as 'profit in lieu of salary'. The contention, we apprehend, is both baseless as well as devoid of merit. There is no ambiguity in the language and so, there is no scope for prodding upon the same. Legislature has designedly used both the words 'due to or received'. They are disjunctive and so they made the intention manifest bringing thereby within the net of taxation the amounts that fell due though not received; as well as the amounts that were received without the same being due.

20. The essential ingredients that are to be satisfied for the purpose of application of the provisions enacted in s. 17(3)(ii) are : (1) that the payment must be relatable to employment; (2) that it must not be based on personal or extra employment consideration; and (3) that it must not be a payment falling under any clauses of s. 10 specified in parenthetical clause of s. 17(3)(ii).

21. In our undoubted view, leave encashment satisfies all these ingredients, being in the nature of recompense or reward for the services rendered by the employee. It cannot be regarded as a payment made on personal or extra employment considerations.

22. It is needless to refer to the cases cited by the Revenue, viz., CIT v. Gajapathy Naidu : [1964]53ITR114(SC) ; David Mitchell v. CIT : [1956]30ITR701(Cal) and Krishna Menon v. CIT : [1959]35ITR48(SC) for establishing as to whether the receipt of amount by way of leave encashment is relatable to employment, as it is quite apparent from Note 6(1)(i) of regulation 29(5) referred to above, that the employee is entitled to certain encashment by surrender of earned leave, which benefit he would leave got but for the employment. All the authorties cited by the Revenue are for the proposition that for a receipt to be treated as a taxable receipt, it is enough if it is referable to the activity in which in engaged, be it business, profession or vocation. If a receipt arising out of ovcation, an activity pursued with non-profit motive, is taxable, though it is not attributable to any legal obligation of person making the payment, there is no reason, whatever, why a receipt arising out of employment should be treated as non-taxable, merely because the amount is paid voluntarily and not in fulfilment of any contractual or other legal obligation.

23. That apart, this payment is also attributable to the legal obligation created under the A.P. State Electricity Board Leave Regulations made by the State Electricity Board under rule making power, which are statutory in nature. So, the payment in lieu of salary could be said to have been made in fulfilment of the said contractual or other legal obligation.

24. This receipt is in the nature of addition to the remuneration of the employee and not a casual and non-recurring receipt, which is exempt from tax under clause (iii) of the proviso to s. 10(3).

25. Sri Vijaya Shankar, learned counsel for some of the petitioners, contended that before a receipt can be regarded as 'profit in lieu of salary' falling under s. 17(3)(ii), it must first have the attribute of 'income' as defined in s. 2(24). In other words, the submission is that unless the receipt is something that flows periodically and with some degrre of frequency and regularity from a definite source, it cannot be regarded as income, much less 'profit in lieu of salary'.

26. This argument obviously overlooks the scheme of the Act as reflected in the inclusive definition of income in s. 2(24). Capital gain, compensation for termination of employment falling under s. 17(2) and termination of management or managing agency falling under s. 28 (ii) and (iii) are capital receipts under the general law. But the Legislature, deviating from the general law and the traditional concept of income, roped in such receipts also into the definition of income since it intended that tax should be levied on such receipts as well. So, it would be idle to contend that levy of tax on such capital receipts is not permissible under the Act.

27. The next contention of the learned counsel is that only what is paid by the employer from out of his business profits that may be regarded as profit in lieu of salary and the word 'profit' suggests that the Legislature never intended any other kind of payments to by assessed to tax under the head 'Salary'. secondly,, only terminal benefits come within the purview of the definition of profit in lieu of salary. These two arguments ex facie are mutually contradictory, as terminal benefits such as provident fund payments, surely do not represent commercial profits. The former contention is, in our view, fallacious. There are payment other than fess and commissions which are also retable to employment and are in the nature of addition to salary. In fact, by passage of time, the expressions - 'profit in lieu of' or, 'in addition to' salary have come to stay. That apart, it is the content of the definition and not the appellation that matters. Once it is the accepted that payment by way of leave encashment is referable to employment and represents addition to salary and thus attracts the content of the definition, nothing turns upon the name appended to the definition. That apart, the argument presupposes that profits mean only commercial profits, whish patently overlooks the fact that the ordinary meaning of profits, as given in the dicstionaries is 'advantage or benefit'. So, it is incomprehensible to accept the argument that payments contemplated by s. 17(3)(ii) are payments made by the employer from out of his commercial profits. This narrow construction will also result in payments made by non-commercial employers to their employees escaping assessment in the hands of the employees. Hence, there is nothing in the language of s. 17(3)(ii) warranting such interpretation.

28. The decision of the Allahabad High Court in CIT v. Hind Lamps Ltd. : [1980]122ITR451(All) is useful in this context. In that case, the learned judges held that 'profit bonus' paid to employees ii is 'profit in lieu of salary'. Therefore, clause (g) of the proviso to s. 40(a)(v) is attracted, entitling a company thereby to claim it as business expenditure to be allowed as a deduction in the computation of the total income. Analogically, therefore, leave encashment amount also should be treated as profit in lieu of salary.

29. Further, there is internal evidence furnished by s. 17(3)(ii) providing a clue to the intention of the Legislature as to whether payments by way to leave encashment should be regarded as 'profits in lieu of salary' and, consequently, as 'income'. It may be seen that as and when clauses (10A),(10B),(11),(12) and (13A) were inserted into s. 10 by successive amendments, section 17(3)(ii) was contemporaneously and, consequently, amended so as to introduce them into the parenthetical clause therein. It is significant that when clause (10AA) which provides for exemption for encashment of leave on retirement from service from service from inclusion in the assessee's total income, was inserted into s. 10 to be effective from April 1, 1978, by the Finance Act, 1982, no consequential amendment of s. 17(3)(ii) was made. That demonstrates the intention of Parliament to the effect that all categories of payment by way of leave encashment should be treated as profit in lieu of salary and, consequently, as income. But, one particular category, viz., leave encasment paid on retirment from service, though of income character, should not be included in one's total income.

30. The cases cited for the petitioners, which will be presently examined, are of little or of no assistance to them.

31. Hochstrasser v. Mayes [1961] 42 ITR 457 is a case where a company advanced interest-free loans to the employees under a housing scheme evolved by it enabling the employees to acquire houses for their residence at the place where they were stationed. They scheme further provided that as and when an employee was transferred, he has an to sell house to the company or with the permission of the company, to sell it to others and in the event of the employee sustaining capital loss in the sale, the company undertook to reimburse the loss. The company paid certain amounts in a particular case by way of reimbursement the employee was assessable to tax. In those circumstances, it was held that though the amount would not have been paid to the recipient but for fact that he happened to be the employee, employment was only causa since qua non but not the cause causans of the payments, that there was no direct nexus between the payment and the service rendered by the assessee and so, the payment was made on extra employment-considerations and not for services rendered.

32. Divecha v. CIT : [1963]48ITR222(SC) . In this case, question was whether the compensation paid for the termination of monopoly purchase of the products of a famous electric company was taxable. It was held that the right extinguished being a capital asset, the compensation paid for such extinguishment was also a capital receipt. The contention that the amount represented profit in lieu of salary was rejected by the Supreme Court, and very rightly so, because the recipient (partners) of the moneys did not render any service to the giver and the payment did not relate to any employment.

33. Further observation, which is highly important, was that if the payment was in the nature of recompense or reward for services, and not a payment made out of regard for the personal qualities of the partners, it could be regarded as profit in lieu of salary.

34. CIT v. Hyatt : [1971]80ITR177(SC) is a case where the payment by the employer to the employee of interest on employer's contribution to the provident fund was under consideration. It was It was held that it was specifically excluded from the purview of profit in lieu of salary as defined under s. 17(3)(ii).

35. Lachhman Dass v. CIT : [1980]124ITR706(Delhi) is a decision of the Delhi High Court, which is similar to the one decided by the House of Lords in Hochstrasser v. Mayes [1961] 42 ITR 457.

36. The next case, rather important, cited by Sri Dasaratharama Reddy, learned counsel for some of the petitioners, is CIT v. Sheppard : [1963]48ITR237(SC) . In this case, Explanation 2 to s. 7(1) of the Indian I.T.Act, 1922, as it stood before the amendment in 1955, which corresponds to clauses (i) and (ii) of s. 17(3) of the I.T.Act, 1961, fell for consideration. In fact, the first limb of this Explanation corresponds to clause (ii) of s. 17(3). The second limb is a conditional clause, which reads : 'unless the payment is made solely as compensation for loss of employment and not by way of remuneration for past services.' This conditional clause modifies the payment cotemplated by the first limb. This was, however given a go-by by the amendment made in 1955. From 1955 onwards, even compensation at or in connection with the termination of employment comes under 'profit in lieu of salary', irrespective of whether the compensation is paid for loss of employment or for any other consideration. In the 1961 Act, the receipt of such compensation is given the garb of 'profit in lieu of salary' and is thus made taxable under clause (i) of s. 17(3), which is a radical departure from Explanation 2 to s. 7(1), as it stood prior to 1955. So, the question was whether the compensation paid by the employer unilateally for termination of employment, when there was no compelling obligation under law to pay, would not come within the purview of the conditional clause as obtained in the second limb of Explanation 2 to s. 7(1). It was held that for a compensation paid to an employee for termination off employment to fall within the purview of the conditional clause, as it originally stood in Explanation 2, It was not necessary that there must have been a compelling obligation in law for the employer to make the payment and the payment must have been made in fulfilment of that obligation.

37. However, now the above decision is merely of academic interest, as we are not concerned in the present case with the conditional clause as obtained in Explanation 2 to s. 7(1) of the 1922 Act, inasmuch as we are not concerned in the present case with payments made for termination of employment.

38. So, the above cited cases, as stated earlier, are of no avail to the petitioners.

39. The next contention of Sri Dasaratharama Reddy is that any payments other than terminal payments, i.e., payments made by the employer to the employee on termination of service by way of retirement or otherwise, would come within the purview of the definition of 'profit in lieu of salary' in s. 17(3). This contention is three-fold.

40. The first is that clause (ii) of s. 17(3) takes its colour from the preceding schme. Clause (i) refers to the amount of compensation due to or received by an assessee from his employer of former employer at or in connection with the termination of his employment. The payment contemplated by clause (ii) must also, therefore, be understood as meaning a payment made 'at or in connection with the termication of employment'. The provisions we apprehend do not warrant such argument. Subsection (3) of s. 17, which gives an inclusive definition of 'profits in lieu of salary' compartmentalises it into two distinct, clear and unambiguous limbs without any scope for overlapping. So, on the fact of it, it is impermissible to read the words 'at or in connection with the termination of employment', in clause (ii) as well.

41. The second is that clause (ii) itself furnishes internal evidence of the intention of the Legislature that only terminal payments should be brought within the purview of that clause. Payments falling under the clauses of s. 10 specified in the parenthetical clause of s. 17(3)(ii) are all terminal payments and, therefore, the expression any payment' takes its colour from the nature of the payments referred to in the parenthetical clause. This assumption has again no foundation. It is quite evident from the parenthetical clause, wherein the clauses of s. 10 are specified, that some of them deal with non-terminal benefits as well. Clause (13A) of s. 10 deals with house rent allowance, which is, ex facie, a non-terminal benefit. further, there is no warrant for scuttling down the amplitude of the expression 'any payment' occurring in the main clause by reading it ejusdem genres with the payments contemplated by the parenthetical clause. So, the argument is rejected out of hand.

42. The third argument results in further emasculation of clause (ii) of s. 17(3). Sri Dasaratharama Reddy wants the court to read s. 17(3)(ii) as under :

'any payment (other than...), due to or received by an assessee from an employer or a former employer or from a provident or other fund (not being an approved superannuation fund), to the extent to which it does not consist of contributions by the assessee or interest on such contributions.'

We scarcely see any warrant for either ignoring the disjunctive 'or' or skipping outright the same. occurring between the words 'former employer' and 'from a provident fund or other fund.' The intention of the legislature as prognosticated in no uncertain terms, by the usage of the preposition 'or' in between the said words makes it explicit that any amount due to or received not only from an employer or former employer, but also any payment from a provident fund or other fund, subject to the qualifications made thereunder, would constitute 'profit in lieu of salary'. Secondly, the pronoun, 'it', must necessarily be referable to the preceding nouns 'provident fund or other fund', and not to 'any payment' inasmuch as it is only a fund that may consist of contributions and not any payments.

43. The learned counsel for the petitioners further invited out attention to the commentary by Sri. A. N. Aiyar on s. 17(3)(ii) of the Act, to the effect that clause (ii) is not happily worded and that the said clause is couched in a very wide language so as to take in each and every kind of payment including a payment made at or in connection with the termination of employment. We apprehend, the criticism is misconceived and misplaced.

44. Access to legislative history of these provisions, in brief, is not inopportune. Prior to the amendment made in 1955, Explanation II to s. 7(1) of the 1922 Act specifically exempted compensation for loss of employment from the ambit of the definition of 'profit in lieu of salary' for the reason that under the general law, compensation paid for loss of employment was a capital receipt. Again, payments made to an employee from a provident fund or other fund at or in connection with the termination of his employment were within the purview of that provision, but not payments made from a provident or other fund other than at or in connection with the termination of employment. However, an amendment was made in 1944 omitting the words 'at or in connection with the termination of his employment' occurring in Explanation II to s. 7(1). The exclusion of payments of compensation solely for loss of employment, from the ambit of 'profit in lieu of salary' in the above Explanation, was, however, left intact till 1955. Parliament, however, intended to deviate from the general law concept and bring within the net of taxation such compensation amount also. To effectuate the same, it amended Explanation II to s. 7(1) by the amendment made in 1955, splitting the Explanation into two clauses. Clause (i) was enacted to achieve the aforesaid object. The existing Explanation II was re-enacted as clause (ii) with some modifications. Explanation II under s. 7(1) of the 1922 Act, as it stood subsequent to the 1955 amendment, was the forerunner of s. 17(3) of the 1961 Act. Hence, the words 'at or in connection with the termination of employment' govern only the payments contemplated by clause (i) of s. 17(3) and as those words do not find a place in clause (ii) thereof, it is not permissible to import those words into clause (ii) so as to constrict the scope of the latter clause to payments made 'at or in connection with the termination of employment'. The two clauses, therefore, are distinct, and disjunct and so, stand independent of each other. In fact the Legislature made its intention more manifest by taking the compensation paid to an employee for termination of employment out of the gamut of general law concept, the same being a capital receipt, and placing the same in the position of 'revenue receipt'.

45. Finally, the learned counsel for the petitioners relying on the orders made by the Income-tax Appellate Tribunal, Madras, as well as Hyderabad, wherein it was held that receipts by way of leave encashment while in service as well as on retirement are capital receipts and would not come within the purview of the definition of 'profit in lieu of salary' and tried to persuade us to give weight to the same. The reasoning of the orders, we are afraid, is based on an erroneous appreciation of the provisions of the Act, and so is diametrically opposite. Therefore, we are not persuaded to accede to the said submission.

46. The Tribunals proceeded on the basis that the leave as such is a capital asset and so, encashment of it is in the nature of cash consideration obtained by the surrender of that capital asset. So, the question is whether leave is a capital asset. Section 2(14) defines 'capital asset', meaning property of any kind held by an assessee, whether or not connected with his business or profession, but does not include any stock-in-trade, consumable stores or raw materials held for the purpose of his business or profession. True, some intangible assets like technical know-how, copyright, trademark and so on are treated as capital assets. They have value in terms of money. The question is whether leave standing to the credit of an employee has any such value. Leave was merely privilege of the employee to enjoy a holiday. Merely because what was not an asset can be said to become a capital asset when the provision was made in the rules governing conditions of service for conversion of unutilised leave into cash. So, if it is to be viewed in terms of capital asset and capital receipt, the asset in this case is not the leave as such, but the right to convert the same into cash. Now that right, which may presumably be regarded as an income-yielding asset, is not the subject-matter of sale or surrender, as the subject-matter of sale or surrender is leave. Since leave as such is not a capital asset, anything realised by sale or surrender of it cannot be regarded as realization of capital.

47. This right to convert leave into cash may be compared to the technical know-how acquired by a manufacturer. Just as the technical know-how is the bye-product of manufacturing activity, so also the right to convert leave into cash. A manufacturer may use the know-how in his own manufacturing activity or he may exploit the same by licensing another manufacturer to make us of it charging royalty for such user. In that case, the know-how is an income-yielding capital asset and the money received by the owner for allowing another manufacturer to make use of the same without parting with it is a revenue receipt as has been held so in Rolls-Royce Ltd. v. Jeffrey (Inspector of Taxes) [1965] 56 ITR 510. This principle has been followed in several decisions. Hence, if at all there is any income-yielding asset, it is not the leave as such, but the right conferred to surrender from time to time and obtain cash in lieu thereof. There is no surrender or transfer of that right by the employee. He is only exploiting that right from time to time to earn some more money to supplement his regular salary.

48. It is needless to go into that aspect of the case, as the receipt in this case falls within the four corners of the definition of 'profits in lieu of salary' contained in s. 17(3)(ii) dispensing thereby delving deeply into the academic character as to whether the leave encashment is a consideration received under the contract of sale or transfer of a capital asset and if so, what that capital asset is, and whether that capital asset is a self-generating one and so forth.

49. So, the chief contention of the petitioners in this behalf has to be rejected.

50. The next question pertains to the taxability of receipts by employees by way of house rent allowance, city compensatory allowance, bad climate allowance, and other cash allowances.

51. The argument in the main for the petitioners is that these allowances are given by way of reimbursement of the expenditure incurred by the employees in discharge of their duties at the places where they are stationed, that there is no element of personal benefit in them, that these allowances are neither 'perquisites' falling under clause (2) of s. 17, nor 'profits in lieu of salary' falling under s. 17(3). The further argument is that the income character of receipts is not established. It makes no difference whether the receipts fall within the province of the exemptions enacted in the various clauses of s. 10.

52. The last aspect of the argument is not disputed by the Revenue. The case of the revenue is that the payment of house rent allowance to employees living in their own houses incurring no expenditure by way of rent is either 'profit in lieu of salary', or 'perquisite' and a recipient of the allowance does not qualify for exemption of the same from inclusion in his total income under s. 10(13A), because he does not incur any expenditure on rent. So far as the other allowances are concerned, they are said to be perquisites and they are not receipts by way of reimbursement of expenditure incurred in the actual performance of official duties so as to attract the exemption under s. 10(14).

53. House Rent Allowance :

Section 10(13A) of the Act reads :

'10. 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 - ......

(13A) any special allowance specifically granted to an assessee by his employer to meet expenditure actually incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee, to such extent (not exceeding four hundred rupees per month) as may be prescribed having regard to the area or place in which such accommodation is situate and other relevant considerations.' Section 17(3)(ii), as has already been seen, which defines 'profits in lieu of salary', includes any payment other than payments referred to, interalia, in clause (13A) of s. 10 due to or received by an assessee from an employer. In other words, the parenthetical clause of s. 17(3)(ii) exempts, inter alia, clause (13A) of s. 10, but not 'any other allowance' which would otherwise fall within the ambit of the definition. So, on the principle 'generalia specialibus non derogant' (special will exclude the general), the house rent allowance paid to employees living in rented quarters incurring expenditure by way of rent is expressly excluded, but not the house rent allowance paid to those living in their own houses. Secondly, whether this payment is referable to employment having a direct nexus to the service rendered and not a payment on personal considerations, or in appreciation of the personal qualities of the employee and so, falls within the province of 'profit in lieu of salary'. In our view, the reasons assigned for holding that leave encashment amount falls within the meaning of 'profit in lieu of salary', will also good in respect of house rent allowance as well.

Now, the second limb of the question is whether the house rent allowance is a 'perquisite'. A 'perquisite' is a fringe benefit attached to the post held by the employee unlike 'profit in lieu of salary', which is a reward or recompense for past or future service. At times the provisions enacted in s. 17 (2) and (3) may overlap, say, house rent allowance being payment in cash may well be regarded as profit in lieu of salary : on the other hand, being an allowance attached to a post, it may be regarded as a perquisite too.

54. The view in Sampath Iyengar's book on Income-tax, as edited recently by Justice Ranganathan, is that the payments specified in the parenthetical clause of s. 17(3)(ii) are in the nature of perquisites and, therefore, it would seem inappropriate to exclude them from the definition of 'profit in lieu of salary.'

55. The argument is that the Supreme Court in South Gujarat Rooting Tiles . v. CIT : [1982]137ITR827(Cal) , by the Madras High Court in CIT v. Manjushree Plantations Ltd. [1980] 125 ITR 150 by the Karnataka High Court in CIT v. Mysore Commercial Union Ltd. : [1980]126ITR340(KAR) , and, therefore, house rent allowance cannot be reckoned as a perquisitea. It may, however, be stated that this court in a couple of decisions in Kesava Reddi v. R. D. O., Anantapur [1966] 1 ALT 255 and Taj Majal Hotel v. CIT : [1968]70ITR366(AP) has taken a view at variance with the above, holding that the expression 'inclusive' has to be read as illustrative. It is needless to adjudicate on this aspect of the matter, when once it has been held that this receipt comes within the orbit of s. 17(3)(ii) as 'profits in lieu of salary'.

56. The further argument is that even assuming that s. 17(2) is illustrative, it must be interpreted ejusdem generis and will include only other payments in kind. Assuming that the definition in s. 17(3)(ii) includes cash payments, house rent allowance does not fall within the meaning of perquisite for the reasons :

(1) According to the ordinary dictionary meaning by Murry 'perquisite' means 'any casual emoluments, fee or profit attached to an office in addition to salary or wages'. Webster defines it as : 'gain or profit incidentally made from employment in addition to regular salary or wages especially one of a fund expected or promised'.

(2) The House of Lords in Owen v. Pook (Inspector of Taxes) [1969] 74 ITR 147 held that perquisite indicates a personal advantage to the employee and will not apply to a mere reimbursement of disbursements.

Likewise, the argument is that the house rent allowance is compensatory in nature as, firstly, it is so described in regulation (2) of the A.P. Electricity Board Special Pay and Allowance Regulations and, secondly, it is given to reimburse or recompense an employee for the loss that may be incurred by him in living in his own house. Further, under s. 10(13A), deduction is given in respect of house rent allowance paid to an employee living in a rented house, so also non-salaried assessee gets similar deduction towards house rent under s. 80GG of the Act. Therefore, there is no justification for disallowing the relief to the employees living in their own houses. This again has no substance in the face of the express provision enacted making the intention of the Legislature evident, roping in within the net of taxation this kind of house rent allowance as well. Logic, therefore, has no place.

57. Yet another attempt drawing assistance from three decisions of the Punjab and Haryana High Court in CIT v. Justice S.C. Mittal , CIT v. B. R. Tuli, Ex-Judge and CIT v. M. S. Gujral , wherein it has been held that the house rent allowance paid to a judge of a High Court, who lives in his own house and who is entitled to rent-free quarters, is exempt from income-tax under s. 10(13A).

58. The ratio which is common in all the three above cited decisions is (page 506 of 121 ITR) :

'The provisions of s. 10(13A) of the Act have been enacted to compensate the assessee regarding the expenditure incurred on payment of rent in respect of residential accomodation occupied by him. The main object for enacting this provision appears to be that in case an assessee actually suffers monetary loss by was of expenditure or otherwise in respect of residential accommodation occupied by him and if he is compensated by his employer in that case, subject to the limitations imposed under the Act and the Rules, the allowance paid to him by the employer shall be exempt from income-tax. An assessee, who occupies his own house, has disentitled himself from the rent which he would have been entitled to if he had not occupied the same himself, and in that sense he suffered expenditure in that regard. In that sense, an assessee occupying his own house, if compensated by the employer by payment if a special allowance (HRA), subject to the restrictions as imposed under the Act and the Rules, the compensation paid to the assessee by his employer cannot be subjected to tax.'

With the greatest deference to the learned judges, we are not persuaded to be in line with their Lordships.

59. Firstly, the conclusion is opposed to the explicit language used in clause (13A) of s. 10 which, without mincing the words, reads : 'to meet expenditure actually incurred on a payment of rent' and thereby makes the intention unequivocal that the expenditure must actually be incurred by paying rent. Secondly, there is no scope for the introduction of deeming provision or for inferential deduction to hold, as their Lordships have so held, that the main object for enacting this provision appears to be that in case an assessee actually suffers monetary loss by way of expenditure or otherwise in respect of residential accommodation occupied by him and if he is compensated by his employer in that case, then such recompense also must be exempt. Viewed from any angle, the contention, though attractive, cannot be acceded to.

60. In our judgment, therefore, the house rent allowance paid to an employee, who lives in his own house, falls within the range of s. 17(3)(ii), which is not exempt from tax, as is made manifest by the parenthetical clause saving, inter alia, only s. 10(13A), and so, is liable for inclusion in the total income of the assessee-employee.

61. The common argument advanced by the learned counsel for the petitioners-assessees in regard to the various allowances, which will be enumerated hereinafter, is that these allowances are given by way of reimbursement of the expenditure incurred by the employees in discharging their duties at the places where they are stationed; there is no element of personal benefit embedded in these allowances and so, they are neither 'perquisites' within the meaning of clause (2) of s. 17, nor 'profit in lieu of salary' falling under clause (3) of s. 17. Further, when the income character of the receipts is not established, nothing turns upon whether the receipts full within the province of the exemptions enacted in the various clauses of s. 10, in particular clause (14) of s. 10 read with the Explanation thereto. Besides, perquisite has to be interpreted in the same way in s. 17(2) as in s. 40A(5) of the Act.

62. Before analysis, the Government orders and Board proceedings under which the various allowances in question that are paid to the employees, may be noticed.

63. Subsidiary Rules under rule 44, read :

1. Compensatory allowances include -

(a) house-rent allowance;...

(f) bad climate allowance.

(G. O. Ms. No. 377, Finance, dated 21st October, 1971).

2. A compensatory allowance attached to a post will be drawn in full by a Government servant, performing the duties of the post.

3. House Rent Allowance : A house-rent allowance attached to a post will be paid to the Government servant officiating in the post, provided that, subject to mutual arrangement, it may continue to be paid to the Government servant for whom he is officiating for a maximum period of four months.'

B.P. Ms. No. 919 dated December 13, 1982, whereunder incentive bonus was sanctioned, reads :

'......the question of giving incentive bonus to all the employees at Vijayawada Thermal Station has been under the consideration of the Board.

3. The A.P.S.E. Board after careful consideration hereby accords sanction for the payment of incentive bonus to all the staff who have worked in Vijayawada Thermal Station during the year 1981-82, from the Chief Engineer and below including the office staff.......as per the principles detailed hereunder.'

B. P. Ms. No. 961, dated 22-9-1978, under which Thermal allowance was sanctioned, reads :

'The Andhra Pradesh State Electricity Board after careful consideration of the representations received, accords sanction for payment of Thermal Allowance to Engineers,.....whose nature of work required full time attention to Thermal Generating Stations, which are in operation and who are not in receipt of the shift/maintenance allowance, at the following rates : - ...'

Under G. O. (P) No. 240, dated 17th September, 1979, the rate of city compensatory allowance was revised to 6% of pay subject to a maximum of Rs. 75 p.m. for all the employees working in the twin cities of Hyderabad and Secunderabad.

G. O. Ms. No. 173, dated 24-4-1981, whereunder payment of construction allowance and house rent allowance in lieu of rent-free quarters was continued, reads :

The Government after carefully examining all aspects of the proposals......direct that payment of construction allowance and house rent allowance in lieu of rent-free quarters sanctioned in....be continued under the following rates and conditions........

(i) Payment of construction allowance for the staff of N'Sagar, Srisailam,....at the rate of 10% of their basic pay subject to a maximum of Rs. 150 per month.

(ii) Payment of house rent allowance in lieu of rent-free quarters to the staff actually working in N'Sagar...who are entitled for rent-free accommodation but are not provided with such accommodation at the rates of 10% of their basic pay subject to a maximum of Rs. 150 per month.'

G. O. Ms. No. 155, dated 8-4-1981, reads :

'Bad climate allowance shall be paid to the employees working at Srisailam Project only after the production of a certificate by the Government servant residing in the area declared as 'unhealthy' obtained from Anti-Mosquito Officer to the effect that his/her house was satisfactorily sprayed with insecticide in each round of spraying and that his/her family members have been successfully vaccinated....

City compensatory allowance :

Support was sought to be derived from the two decisions in CIT v. D. R. Pathak : [1975]99ITR14(Bom) and Bishambar Dayal v. CIT : [1976]103ITR813(MP) .

It may be stated at the outset that the above cited two cases were concerned with the question whether city compensatory allowance could be exempted under s. 10(14), as it stood then, and not with the question whether they bear income character at all. Subsequent to the judgment in Pathak's case : [1975]99ITR14(Bom) wherein it was held that city compensatory allowance was granted to the assessee to meet expenses wholly and exclusively incurred in the performance of the duties of his office, Parliament finding that it was incorrectly decided, superseded the judgment by enacting the Explanation to s. 10(14) with retrospective effect from April 1, 1962, by the Finance Act, 1975, by which the position was clarified that the allowance was meant for meeting personal expenses at the place where the duties of the office are ordinarily performed. In fact, in Addl. CIT v. A. K. Misra : [1979]117ITR342(All) , which was adjudicated subsequent to the enactment of the Explanation, the High court construed the scope of the section correctly. We too, therefore, have no hesitation in holding that this allowance is in the nature of an allowance granted for meeting personal expenses at the place of duty and the expenses incurred owing to the increase in the cost of living at the place of duty.

Bad climate allowance :

The reasoning adopted in respect of city compensatory allowance holds good for the bad climate allowance as well, as it is granted for meeting personal expenses at the place of duty, necessitated by the bad climate of the place. Such expenses are not peculiar to the persons in the employment of that particular employer. Other persons living in the same unhealthy locality are also subject to the same expenditure. Hence, it does not qualify for any exemption under s. 10(14) read with the Explanation.

Shift allowance :

This allowance, as contended, is paid only to those who are engaged in extra shifts and not to others. Even so, in our view, it does not make any difference, as it nevertheless constitutes a kind of extra remuneration to the employee for the extra work done by him. This is akin to overtime allowance, which is chargeable to tax. It also equally makes no difference that this allowance is not paid during the period when an employee is on leave, as it does not alter the taxable nature of the receipt.

Incentive bonus :

The submission in this behalf is that this allowance is paid only to those employed in the Thermal Station at Vijayawada, and the same is not extended to other employees of the Board. We are unable to comprehend as to how that circumstance would lend strength to the petitioner-assessees' argument. The payment still has the character of additional remuneration for the service rendered by the employee. (See CIT v. Hind Lamps Ltd. : [1980]122ITR451(All) . The additional fact that there is neither any contractual nor statutory obligation on the part of the employer to pay this bonus, as it is said to be a voluntary payment for serving as an incentive for exerting more strain to maximise generation of electricity, does not make the payment any the less 'perquisite'.

The decisions cited by the petitioners, buttressing the argument in regard to the various allowances enumerated, are of little or no avail to the petitioners-assessees.

64. Owen v. Pook (Inspector of Taxes) [1969] 74 ITR 147 . This case pertains to payment of travelling allowance to a medical practitioner by way of reimbursement of the travelling expenses incurred by him for going from his house to the hospital and back home. The House of Lords held that the allowance could not be regarded as a perquisite because by perquisite was meant what would benefit a person by something going into his pocket and not something intended to fill a hole in his pocket. In out view, this allowance would equally be exempted under s. 10(14), but the ratio, however, cannot be extended to the various allowances with which we are concerned herein, as they are not intended to fill the hole in the pocket caused by extra expenditure, as it were.

65. The next case is CIT v. S. G. Pgnatale : [1980]124ITR391(Guj) . In this case, the Gujarat High Court was concerned with the payment of 'living allowance', i.e., daily allowance paid to the foreign technician while he was posted at Delhi and at Baroda. Even this daily allowance, though fixed, was liable to be reduced proportionately to the extent he was provided with furnished accommodation or free conveyance on any particular day of his service. This indicated that the allowance was paid to the employee by way of reimbursement of the actual expenses incurred in the discharge of his official duties. Furthermore, the employee in that case was not living at Delhi or Baroda during the period of service. He was based elsewhere, but was constrained to stay at Delhi or Baroda for some days in connection with the performance of official duties. It was in those peculiar and special circumstances, the Gujarat High Court held that the 'living allowance' was not liable to be assessed to tax as it was by way of reimbursement of the expenditure incurred by him in the actual performance of his duties.

66. Contrasting with the aforesaid decision, the Madras High Court in CIT v. J. Jenkin Thomas : [1975]101ITR511(Mad) , which was a case of subsistence allowance, which may seemingly be identical with the living allowance, held that 'as the amount reached the assessee by virtue of his employment and in accordance withthe appointment letter, it follows that the amount of subsistence is part of the salary or wages.'

67. Two English cases may also usefully be referred to in this behalf.

68. Fergusson V. Noble [1919] 7 TC 176 (C Sess). This was a case of cash allowance paid to a detective sergeant in the U.K. The allowance was meant for meeting the cost of civil clothes, which the detective sergeant was expected to wear, discarding the uniform. The allowance was payable irrespective of whether the sergeant actually incurred any expenditure or not, on wearing civil clothes. It was held that the cash allowance was a taxable receipt.

69. Robinson (H. M. Inspector of Taxes) v. Corry [1933] 18 TC 411 (CA).

70. This was a case of colonial allowance paid to a deputy cashier post at Singapore Naval Base. It was found as a fact that the allowance was paid to meet the increase in the cost of living at Singapore away from home, but not to meet any expenditure incurred in the discharge of official duties. This allowance was held to be a taxable receipt.

71. Sri Dasaratharama Reddy, learned counsel for some of the petitioners, has cited some rulings for the proposition that cash allowance is not 'perquisite'.

72. CIT v. B. Ghosal : [1980]125ITR744(Ker) . In this case, the question was whether profit bonus should be treated as part of salary within the meaning of rule 2(h) of Part A of IV Schedule to the Act, to see whether this falls within the allowable exemption under s. 10(13A) in respect of house rent allowance. If the receipt is not salary for the purpose of the aforesaid rule 2(h), it does not follow that it is not salary for the purpose of s. 17(2) or s. 17(3). Therefore, this decision does not militate against the view taken in CIT v. Hind Lamps Ltd. [1980] 122 451 [1980] 122 451 (All).

73. It may be stated here that the rulings cited hereinbefore, viz., CIT v. S. G. Pgnatale : [1980]124ITR391(Guj) , CIT v. J. Jenkin Thomas : [1975]101ITR511(Mad) , Fergusson v. Noble [1919] 7 TC 176 (C Sess) and Robinson (H. M. Inspector of Taxes) v. Corry [1933] 18 TC 411 were all concerned with payments of allowances in cash, which were held to be 'perquisites'.

74. The other ruling cited by the learned counsel turn upon the interpretation of the expression 'perquisite' occuring in s. 40(c)(iii), which was the forerunner of s. 40(a)(v), which later re-emerged as s. 40A(5). All these provisions occur in the chapter dealing with the computation of business income and impose a ceiling upon the extent of deduction to be allowed in respect of its business expenditure incurred by a company in so far as such expenditure was incurred on the provision, inter alia, of perquisite for its employees. The cases cited, viz., CIT v. Kanan Devan Hills produce Co. Ltd. : [1979]119ITR431(Cal) and CIT v. Mysore Commercial Union Ltd. : [1980]126ITR340(KAR) , Wherein it was held that the cash allowance is not a perquisite - a view opposite to the abovesaid decisions was taken by the Kerala High Court in CIT v. Commonwealth Trust Ltd. : [1982]135ITR19(Ker) [FB] holding that undue emphasis should not be laid on the words 'Whether convertible into money or not' so as to exclude cash allowance from the purview of the definition of perquisite - have, in our judgment, no relevance with the point in the cases before us. Here we are not concerned with the interpretation of those provisions which pertain to the realm of computation of the business income of a of a company and the extent of disallowance to be made in that behalf. The provisions are distinct and different and there are two definitions of 'perquisite', one under s. 17(2) and another under s. 40A(5). Their operative fields are different. Significantly, the words 'whether convertible into money or not' occurring in s. 40A(5) do not appear in the definition of 'perquisite' in s. 17(2). That apart, Explanation 2 to s. 40A(5) begins with words 'in this section', meaning thereby that it is only for the purpose of that section, it has that meaning, which cannot be extended to the word 'persuitite' occurring in s. 17(2). Conversely, the inclusive definition of perquisite in s. 17(2) is only for the purpose of ss. 15 and 16 and not of s. 40A. It means that the legislature intended that the broader and inclusive definition of 'perquisite' in s. 17(2) shall not govern the meaning of perquisite' in s. 40A.

75. Also explanation 2(b) to s. 40A(5) begins with the words 'perquisite means', whereas in s. 17(2) the definition begins with the words : 'perquisite includes',. So, one is restrictive and the other one is comprehensive. (See Kesava Reddi v. R. D. O., Anantapur [1966] 1 ALJ 255 and Taj Mahal Hotel v. CIT : [1968]70ITR366(AP) ).

76. For all these reasons, we are of the undoubted view that the cash allowances cannot be said to be outside the ordinary meaning of 'perquisites'.

77. No provision, nor any authoritative pronouncement has been cited before us showing that cash allowance is not 'perquisite' within the meaning of s. 17(2).

78. From the foregoing, in our judgment, it is clear that the various allowances referred to hereinabove are 'perquisite' within the meaning of s. 17(2) and, therefore, constitute taxable receipts. In sum :

(1) Each of the writ petitions jointly filed by two or more persons having a separate and distinct cause of action, is nevertheless maintainable, as there is commonness in regard to the questions of law involved therein, without involving any investigative process with regard to the material facts. Such petitions is maintainable provided court fee is paid on behalf of each and every petitioner.

(2) Since the disbursing officers were purporting to deduct tax out of various allowances, they are necessary parties.

(3) The availability of alternative remedy would not be fatal to the invocation of the jurisdiction of this court under article 226 of the Constitution when the question of law involved is a general one affecting numerous person working in the Electricity Board or in the Government and also its a recurring phenomenon.

(4) The leave encashment amount is a receipt which falls within the province of the definition of 'profit in lieu of salary' as enacted in s. 17(3)(ii) of the I.T. Act.

(5) The house rent allowance paid to an employee, who lives in his own house, does attract tax, as it is not exempt under s. 10(13A) and so, is not enscouced by the parenthetical clause in s. 17(3)(ii) of the Act.

(6) City compensatory allowance, bad climate allowance, shift allowance and incentive bogginess, are 'perquisites' within the meaning of s. 17(2) of the Act and, therefore, they constitute taxable receipts.

79. In the result, the writ petitions are dismissed. No costs. Advocate's fee Rs. 100 in each.


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