1. In this reference, made to this court at the instance of the Commissioner of Income-tax, Andhra Pradesh, Hyderabad, under Section 66(1) of the Indian Income-tax Act, 1922 (hereinafter referred to as the 'Act'), the following question of law arises for our consideration :
' Whether, on the facts and in the circumstances of the case, the gratuity of Rs. 11 250 received by the assessee, on his retirement from the Life Insurance Corporation of India, in accordance with the Staff Regulations of 1960, is exempt from tax by virtue of the proviso to Explanation 2 of Sub-section (1) of Section 7 of the Indian Income-tax Act, 1922 '
2. On his retirement from the Life Insurance Corporation of India, the assessee, Sri B. Gopalakrishna Murthy, in accordance with the Staff Regulations of the Life Insurance Corporation of India, received retirement gratuity of Rs. 11,250 from his employers. The Life Insurance Corporation of India deducted the tax at source on the payment of gratuity made to the assessee and the assessee also returned it for the assessment year 1960-61. The Income-tax Officer accordingly taxed that gratuity. Later on, the assessee realised that the gratuity paid to him by his employer was exempt from payment of tax under the proviso to the second Explanation to Sub-section (1) of Section 7 of the Act and that he by mistake returned it. The assessee, therefore, preferred an appeal against the assessment to the Appellate Assistant Commissioner of Income-tax. The Appellate Assistant Commissioner accepted the contention of the assessee that gratuity was exempt from payment of tax and accordingly deleted it from the total income. Aggrieved by the order of the Appellate Assistant Commissioner, the Income-tax Officer filed an appeal to the Appellate Tribunal. The Tribunal also accepted the view expressed by the Appellate Assistant Commissioner and dismissed the appeal filed by the Income-tax Officer. Hence, this reference has been made by the Commissioner of Income-tax as stated above.
3. Before us the learned counsel for the revenue contended that the gratuity that was paid to the assessee was not under a scheme similar to that of the Revised Liberalised Pension Rules of the Central Government, and, therefore, the Tribunal had erred in exempting the gratuity from payment of tax.
4. In order to appreciate the contention of the counsel for the revenue, it may be necessary to read the relevant portion of the section which exempts the gratuity from payment of tax. It is the proviso to the second Explanation to Sub-section (1) of Section 7 of the Act. It reads thus :
' Provided that nothing herein contained shall render liable to income-tax any payment of death-cum-retirement gratuity received after the 16thday of April, 1950, under the revised Pension Rules of the Central Government or under any similar scheme of a State Government, a local authority or a corporation established by a Central, State or provincial Act. .....'(Underlining ours).
5. The Life Insurance Corporation of India is a corporation which has been established by the Act of the Central Government and that is the ' Life Insurance Corporation Act, 1956 '. Payment of gratuity to the assessee is not a solitary and individual payment to the assessee, but it has been made to the assessee under a scheme framed by the Life Insurance Corporation of India for payment of gratuity to its permanent employees. The regulation defining the terms and conditions of service of the staff have been framed by the Life Insurance Corporation of India with the approval of the Central Government. If the payment of gratuity to the assessee is under a scheme similar to the Revised Liberalised Pension Rules of the Central Government then it is exempt from payment of tax under the proviso to Explanation 2 to Sub-section (1) of Section 7 of the Act. The scheme under which the Life Insurance Corporation of India has paid the gratuity to the assessee has to be compared with the scheme of the Liberalised Pension Rules of the Central Government, in order to ascertain whether the former scheme is similar to the latter. The relevant portions of both the schemes are given in the printed book as annexures ' B ' and ' C '.
A. (1) Under Rule 77(a) of the regulations framed by the Life Insurance Corporation of India, gratuity is payable to four categories of permanent employees who have put in not less than 15 years of continuous service. They are, (1) whose services are terminated for any reason, otherwise than as a punishment inflicted by way of disciplinary action; or(2) who voluntarily resigns from the service or dies while in service; or(3) who retires from the Corporation on completion of superannuation, or whose services are determined either due to continued illness or accident incapacitating him from the proper discharge of his services; and (4) whose services are dispensed with owing to reduction of staff or reorganisation of establishment.
(2) Under the Liberalised Pension Rules of the Central Government, gratuity is payable to an officer who has put in five years of qualifying service when he retires from service.
B. (1) Under the regulations of the Life Insurance Corporation ofIndia, gratuity is payable in the case of employees specified in (A) up to amaximum of 15 months' terminal basic pay or 25,000 rupees, whichever isless, on the date of cessation of service.
(2) Under the Liberalised Pension Rules of the Central Government, gratuity that is payable is fixed at 9/20th of the emoluments of an officerfor each completed year of service, subject to a maximum of 15 times the emoluments and in the case of death of an officer, while in service, at 12 times the emoluments and in no case to exceed Rs. 24,000.
C. (1) Under the regulations of the Life Insurance Corporation of India, salary has been defined to be the basic pay, special pay, personal pay, dearness allowance and all other allowances, but excluding overtime payment, conveyance allowance and other compensatory allowances.
(2) Under the Liberalised Pension Rules, the expression ' emoluments ' has been limited to Rs. 1,800 and reckoned in accordance with article 486 of the Civil Services Regulations.
D. (1) Under the regulations of the Life Insurance Corporation of India, officers belonging to 1, 3 and 4 classes are paid gratuity at one month's terminal basic pay for each completed year of service and in the case of an officer belonging to class 2, at the rate of one month's terminal basic pay for each year of service, but calculated in a prescribed manner.
(2) Under the Liberalised Pension Rules of the Central Government, no such distinction between one class of officer and the other has been made.
6. These are, in short, the schemes under which the Life Insurance Corporation of India and the Central Government pay gratuity to its employees. Under both the schemes it is obvious that gratuity is paid to an honest and permanent employee on the cessation of his service either by retirement or by death. There is, however, slight variation in the details in regard to the computation of the quantum of gratuity that is payable to the employees. In the former scheme, the maximum is limited to Rs. 25,000 and in the latter to Rs. 24,000. Whereas, under the former scheme, gratuity is payable on voluntary resignation or on dispensation of service owing to reduction of staff or reorganisation of establishment, under the liberalised pension rules, gratuity is not payable under these circumstances.
7. Thus, it is clear that under both the schemes the object of the employers is to provide some amount in lump sum to its permanent employees at the termination of their service as a reward for honest service, However, in some minor details as regards the quantum that is to be paid, there is slight variation in one scheme from the other. Would this slight variation in minor details make the scheme of the Life Insurance Corporation of India dissimilar to the scheme of the Liberalised Pension Rules of the Central Government, although the broad scheme under which it is paid by both is the same The question thus boils down to this:
'Whether, for two schemes to be similar, the details of the one should agree and be the same with the details of the other, or, in other words, should both the schemes be identical word by word and inch by inch?'
8. This is the meaning that has been given to the word 'similar' in the Law Lexicon, at page 1198, compiled and edited by Sri P. Ramanatha Iyer:
' Sameness in essential particulars : Similar denotes partial resembanee, and may also denote sameness in all essential particulars : Commissioners v. Fontain, 127 Mass. 494.. Similar offence may mean an offence identical in kind. In construing that part of the Revenue Act fixing the duty to be paid on clothes composed wholly or in part of wool, or mohair, or goat's hair, and all goods of similar description, the court said : ' The statute does not contemplate that goods classed under the words 'of similar description' shall be in all respects the same. If it did, these words would be unnecessary. They were intended to embrace goods like, but not identical with, those named. ' (101 U.S. 278, 283 ; 25 Lawyers' Edition 845).
9. In R. v. Clayton-Wright,  118 L.J.R. 380 ;  2 All E.R.763 (C.C.A.). construing the phrase ' similar character ', the court held that:
' A charge of attempting to swindle underwriters by pretending that a mink coat was stolen was of a 'similar character' to charges alleging attempts to swindle underwriters by setting fire to a yacht.' (See Stroud's Judicial Dictionary, 3rd edition, volume 4, page 2791).
10. In Walker v. Wood,  3 All E.R. 188, 190 (C.A.). a disabled person, who owned a motor car adapted for hand controls in order that he might be able to drive it, also owned and occupied an ordinary brick built garage annexed to his house for garaging the vehicle. He claimed that the garage was exempt from rates as being similar to exempt structures supplied for the same purpose by the Minister of Health. Such a structure as supplied by the minister was big enough to house a car, had a roof, sides and back of corrugated asbestos sheeting and galvanised sheet doors and was a strong, substantial prefabricated structure, but was removable by the minister on its ceasing to be needed by the disabled person. In considering the question whether the garage constructed by the disabled person was similar to the structure supplied by the Minister of Health, their Lordships observed:
'I do not think that 'similar in kind' here means similar in the materials of which it is constructed. I do not think that it needs to be prefabricated like the ones supplied by the ministry. In my judgment, 'similar in kind' here means similar in the purpose for which it is used.'
11. In Quinn v. Cameron and Robertson Ltd,  1 All E.R. 760, 773 ;  A.C.9, 37 (H.L.).. Lord Keith of Avonholm observed that:
' It was the function and not the composition of the wheel which should be looked to with reference to the words 'similar abrasive'.
12. In Drew v. Guy the question was whether the business carried on by one is similar to the one carried on by the other, it was held that:
' It is whether the defendant's business was similar to that of R. was whether it was sufficiently like it to compete with it, and that, judging by this rule, although there were considerable differences between R.'s business and that of the defendant, the defendant's business was similar to that of R. .....'
13. In Rees v. Bernard Hastie & Co.,  1 Q.B. 328 (C.A.). ' Welding or cutting ..... by means of electrical, oxy-acetylene or similar process was held to refer to cutting by means of a heating process and not by means of sheares which were electrically operated. '
14. We have carefully considered the above rulings which have been cited before us. In our judgment two schemes will be considered as similar when the basic object or the purpose they serve by their introduction are the same or substantially the same, although they differ in minor details.
15. The object and purpose behind both the schemes of the Life Insurance Corporation of India and the revised Liberalised Pension Rules of the Central Government are the same, i.e., to provide handsome gratuity to its honest and permanent employees who have faithfully served the employer. Though there are slight differences in regard to the computation of the quantum of gratuity to be paid they are in our opinion similar and the assessee is, therefore, entitled to the exemption claimed for.
16. In the result we answer the question in the affirmative and in favour of the assessee. The department shall pay the costs to the assessee.