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Bishambar Dayal Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMiscellaneous Civil Case No. 721 of 1974
Judge
Reported in[1976]103ITR813(MP)
ActsIncome Tax Act, 1961 - Sections 17, 17(1), 17(2); Constitution of India - Article 222(2); Fundamental Rule - Rule 9(5)
AppellantBishambar Dayal
RespondentCommissioner of Income-tax
Appellant AdvocateY.S. Dharmadhikari, ;K.A. Chitaley and ;K.K. Adhikari, Advs.
Respondent AdvocateP.S. Khirwadkar, Adv.
Cases ReferredA.K. Venkiteswaran v. Commissioner of Income
Excerpt:
- - it clearly implies that a judge by his transfer to another high court has been put to some loss and, therefore, the allowance provided for is to neutralise that loss or to counter-balance the same. but as an argument was advanced on behalf of the department, we have dealt with the same by negativing the department's contention that it could be considered to be the perquisite as well......contention on the question whether the compensatory allowance can be considered to be either salary or perquisite.18. as against this, we might advert to the observations of a division bench of the bombay high court, presided over by kantawala c.j. and tulzapurkar j. in commissioner of income-tax v. d.r. phatak : [1975]99itr14(bom) . in that case the assessee, a government servant, was posted at bombay and he was being paid compensatory (city) allowance by the government. the income-tax officer and the appellate assistant commissioner had rejected the assessee's contention that the compensatory (city) allowance would be exempt from taxation under section 10(14) of the income-tax act, 1961. in the alternative it was contended on behalf of the assessee that it would be a permissible.....
Judgment:

P.K. Tare, C.J.

1. In this reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the petitioner-assessee, the Income-tax Appellate Tribunal has referred the following questions for our opinion :

'1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the compensatory allowance received by the assessee under the provisions of Article 222(2) of the Constitution of India was liable to be included in his total income under the head 'Salaries' for the purpose of income-tax assessment ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Additional Commissioner had rightly held that the order passed by the Income-tax Officer under Section 142(1) of the Income-tax Act without including such compensatory allowance in the total income of the assessee was erroneous in so far as it is prejudicial to the interests of the revenue ?

3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was not entitled to the deduction of the house rent of Rs. 3,720 paid by him at Jabalpur, from such compensatory allowance, either under Section 10(14) or under Section 16(v) of the Income-tax Act, while computing his total income ?'

2. The facts leading to the present reference are that the petitioner-assessee, now retired but at the relevant time functioning as the Chief Justice of the Madhya Pradesh High Court, was being assessed for the assessment year 1970-71. During that period he had received an amount of Rs. 4,567-75 as a compensatory allowance granted by a Presidential order under Article 222(2) of the Constitution of India. The petitioner in his return claimed that his total income of Rs. 40,654 only was liable to be taxed. A note was put up in the return that the amount of compensatory allowance received by virtue of the Presidential order was not taxable either as salary or as income. In the alternative it was contended on behalf of the assessee that the compensatory allowance was not taxable by virtue of Section 10(14) as also Section 16(v) of the Income-tax Act, 1961.

3. The Income-tax Officer, upholding the assessee's contention, held that the compensatory allowance of Rs. 4,567.75 was not liable to be included in the taxable income. However, the Additional Commissioner of Income-tax on a perusal of the assessment order was of the view that the compensatory allowance was in the nature of salary as defined under Section 17(1) of the Income-tax Act, 1961, or at any rate it amounted to a perquisite as defined under Section 17(2) of the said Act. As the Additional Commissioner thought that the order of the Income-tax Officer was erroneous and was prejudicial to the interests of the revenue, he issued a notice to the assessee calling upon him to show cause as to why an order under Section 263 of the Income-tax Act, 1961, should not be passed. The Additional Commissioner expressed the opinion that the definition of the phrases 'salary' and 'perquisite' contained in Sub-sections (1) and (2), respectively, of Section 17 of the Act were not exhaustive, but were only inclusive definitions. In that behalf he referred to a speech of the then Law Minister of India delivered at the time of introducing the provisions in the Constitution, relating to payment of compensatory allowances to judges, who would be transferred from one High Court to another. Therefore, the Additional Commissioner was of the view that at any rate compensatory allowance amounted to a perquisite. Regarding the applicability of Section 10(14) or Section 16(v) of the Act, the Additional Commissioner was of the view that they were inapplicable.

4. On an appeal to the Income-tax Appellate Tribunal (I. A. Appeal No. 1491 (Jab) of 1972-73), the Appellate Tribunal by order, dated January 31, 1974, affirmed the view of the Additional Commissioner by relying on the decision of the Kerala High Court in A.K. Venkiteswaran v. Commissioner of Income-tax : [1973]92ITR233(Ker) . As some important question of law arose, the Appellate Tribunal has referred the above-mentioned questions for the opinion of this court.

5. First, it is necessary to examine the constitutional provisions regarding the salaries of judges of High Courts. Article 221 of the Constitution of India provides as follows:

'221. Salaries, etc., of judges.--(1) There shall be paid to the Judges of each High Court such salaries as are specified in the Second Schedule.

(2) Every Judge shall be entitled to such allowance and to such rights in respect of leave of absence and pension as may from time to time be determined by or under law made by Parliament and, until so determined, to such allowances and rights as are specified in the Second Schedule: Provided that neither the allowances of a Judge nor his rights in respect of leave of absence or pension shall be varied to his disadvantage, after his appointment.'

6. Refering to the Second Schedule mentioned in the said article, we find item No. 10 in part-D, as follows :

'10. (1) There shall be paid to the Judges of High Courts, in respect of time spent on actual service, salary at the following rates per mensem, that is to say,-- The Chief Justice 4,000 rupeesAny other Judge 3,500 rupees :

7. Provided that if a Judge of a High Court at the time of his appointment is in receipt of a pension (other than a disability or wound pension) in respect of any previous service under the Government of India or any of its predecessor Governments or under the Government of a State or any of its predecessor Governments, his salary in respect of service in the High Court shall be reduced-

(a) by the amount of that pension, and

(b) if he has, before such appointment, received in lieu of a portion of the pension due to him in respect of such previous service the commuted value thereof, by the amount of that portion of the pension, and

(c) if he has, before such appointment, received a retirement gratuity in respect of such previous service, by the pension equivalent of that gratuity.

(2) Every person who immediately before the commencement of this Constitution-(a) was holding office as the Chief Justice of a High Court in any Province and has on such commencement become the Chief Justice of the High Court in the corresponding State under Clause (1) of Article 376, or

(b) was holding office as any other Judge of a High Court in any Province and has on such commencement become a Judge (other than the Chief Justice) of the High Court in the corresponding State under the said clause,

shall, if he was immediately before such commencement drawing a salary at a rate higher than that specified in sub-paragraph (1) of this paragraph, be entitled to receive in respect of time spent on actual service as such Chief Justice or other Judge, as the case may be, in addition to the salary specified in the said sub-paragraph as special pay an amount equivalent to the difference between the salary so specified and the salary which he was drawing immediately before such commencement.

(3) Any person, who immediately before the commencement of the Constitution (Seventh Amendment) Act, 1956, was holding office as the Chief Justice of the High Court of a State specified in Part B of the First Schedule and has on such commencement become the Chief Justice of the High Court of a State specified in the said Schedule as amended by the said Act, shall, if he was immediately before such commencement drawing any amount as allowance in addition to his salary, be entitled to receive in respect of time spent on actual service as such Chief Justice, the same amount as allowance in addition to the salary specified in sub-paragraph (1) of this paragraph.'

8. Thus, the salary of a Chief Justice or a Judge of a High Court is fixed by the Constitution itself, which cannot be varied to the disadvantage of the incumbent during his tenure.

9. Then we come to Article 222 of the Constitution of India, which provides for transfer of a judge from one High Court to another and it is in lieu of such transfer that the compensatory allowance becomes payable. The said article is as follows :

'222. Transfer of a Judge from one High Court to another.--(1) The President may, after consultation with the Chief Justice of India, transfer a Judge from one High Court to any other High Court.

(2) When a Judge has been or is so transferred, he shall, during the period he serves, after the commencement of the Constitution (Fifteenth Amendment) Act, 1963, as a Judge of the other High Court, be entitled to receive in addition to his salary such compensatory allowance as may be determined by Parliament by law and, until so determined, such compensatory allowance as the President may by order fix.'

10. In the present case, Parliament has not made any law and the matter is governed by the Presidential order, which however has not been filed on record. In our opinion, that is immaterial. We presume that the Presidential order must be in consonance with the requirements of Sub-clause (2) of Article 222 of the Constitution of India. The learned counsel for the department also did not press for filing of the said Presidential order. It is to be noted that the phrase used is 'compensatory allowance' in addition to salary. The taxing authorities while interpreting this, phrase tried to interpret the 'compensatory allowance' by applying the principle of ejusdem generis and expressed, the view that compensatory allowance would be additional salary. We are unable to accept that interpretation for the simple reason that the dictum of ejusdem generis does not apply to the instant case. When the legislature has specifically provided for compensatory allowance, it can in no case be interpreted to be additional salary. We have, therefore, to understand the implication of the phrase used by the legislature.

11. The dictionary meaning of 'compensate' as per Chamber's Twentieth Century Dictionary (revised edition) is as follows ;

'Compensate.--to make amends for, or to recompense; to counterbalance--v.i., to make up--n. compensation (kam), act of compensating; amends for loss sustained; the neutralisation of opposing forces: (U.S.) salary--adjt. compensational, compensative, compensatory, giving compensation--n. compensator, one who or that which compensates--compensation balance, pendulum, a balance-wheel or pendulum so constructed as to counteract the effect of the expansion and contraction of the metal under variation of temperature, and to weigh.'

12. The word 'compensate' signifies counter-balance of loss sustained. It clearly implies that a judge by his transfer to another High Court has been put to some loss and, therefore, the allowance provided for is to neutralise that loss or to counter-balance the same. This feature of the compensatory allowance has to be borne in mind while examining the provisions of the Income-tax Act, 1961. We would reject the contention of the learned counsel for the department that the compensatory allowance should be equated with additional salary. If that had been the intention of the legislature, a different phrase would have been used suggesting the grant of additional salary.

13. Section 17 of the Income-tax Act, 1961, defines 'salary' and 'perquisite' as under:

' (1) 'Salary' includes-

(i) wages;

(ii) any annuity or pension;

(iii) any gratuity;

(iv) any fees, commissions, perquisites or profits in lieu of or in addition to any, salary or wages;

(v) any advance of salary ;

(vi) the annual accretion to the balance at the credit of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under Rule 6 of Part A of the Fourth Schedule; and

(vii) the aggregate of all sums that are comprised in the transferred balance as referred to in Sub-rule (2) of Rule 11 of Part A of the Fourth Schedule of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under Sub-rule (4) thereof.' '(2) 'Perquisite' includes-

(i) the value of rent-free accommodation provided to the assessee by his employer;

(ii) the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer ;

(iii) the value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases-

(a) by a company to an employee who is a director thereof;

(b) by a company to an employee being a person who has substantial interest in the company;

(c) by any employer (including a company) to an employee to whom the provisions of paragraphs (a) and (b) of this sub-clause do not apply and whose income under the head 'Salaries', exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds eighteen thousand rupees;

(iv) any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee; and

(v) any sum payable by the employer whether directly or through a fund, other than a recognised provident fund or an approved superannuation fund, to effect an assurance on the life of the assessee or to effect a contract for an annuity.'

14. The taxing authorities were of the opinion that the definition of 'salary' and 'perquisite' is not exhaustive, but inclusive. We may observe that even if it were to be assumed that the definition is inclusive, the words 'salary' and 'perquisite' ought to be understood in their ordinary sense according to the dictionary meaning. So far as the taxing statute is concerned, it is an admitted position that its scope cannot be allowed to be expanded by resort to analogy or, where the meaning is clear, its scope cannot be reduced. Effect has to be given to the clear words used in a taxing statute. It is further to be noted that the said definitions are provided for the purposes of sections 15 and 16 of the Act. Chamber's Twentieth Century Dictionary defines 'salary' as under:

'Salary--a periodical payment (usually at longer intervals than a week) for services other than mechanical--v. t. to pay a salary to--n. salariat, the salary-drawing class or body--salaried, salt-money.'

15. Thus, the 'salary' is a periodical payment for services other than mechanical. Similarly, the word 'perquisite' is defined by Chamber's Twentieth Century Dictionary as follows :

'Perquisite.--property acquired otherwise than by inheritance; a casual profit; anything left over that a servant or other has by custom a right to keep ; a tip expected upon some occasions; emoluments; something regarded as falling to one by right--ns. perquisition--a strict search; diligent inquiry; perquisitor--the first purchaser of an estate. Perquisitum from perquirere, to seek diligently--thoroughly, to ask.'

16. Thus, the phrase 'perquisite' signifies some additional benefit in addition to the amount that may be legally due by way of contract for services rendered. Therefore, the utmost that can be urged on behalf of the department is that even if we hold that the definition of 'salary' and 'perquisite' in Section 17 of the Act is inclusive, the definition cannot go beyond the dictionary meaning, which would include the specific items mentioned in Sub-sections (1) and (2) of the said Act. Therefore, the word 'salary' implies remuneration for services rendered. The word 'perquisite' signifies some additional benefits conferred on the employee in addition to his salary; while 'compensatory allowance' is allowance in the nature of compensation to counter-balance the loss suffered by an employee. By no stretch of imagination can we equate the phrase 'compensatory allowance' either with salary or with perquisite. Moreover, compensatory allowance would not at all be covered by any of the sub-clauses of Sub-section (1) or (2) of Section 17 of the Income-tax Act, 1961. The learned counsel for the department made no attempt to bring it within the ambit of any of the said sub-clauses.

17. The taxing authorities purported to rely on the decision of a Division Bench of the Kerala High Court in A.K. Venkiteswaran v. Commissioner of Income-tax. In that case an Income-tax Officer was required to take a house on rent for the purposes of his duty and he claimed exemption under Section 16(v) of the Income-tax Act, 1961. The contention was negatived by the Division Bench of the Kerala High Court. That aspect we may be required to consider if we uphold the department's contention on the question whether the compensatory allowance can be considered to be either salary or perquisite.

18. As against this, we might advert to the observations of a Division Bench of the Bombay High Court, presided over by Kantawala C.J. and Tulzapurkar J. in Commissioner of Income-tax v. D.R. Phatak : [1975]99ITR14(Bom) . In that case the assessee, a Government servant, was posted at Bombay and he was being paid compensatory (city) allowance by the Government. The Income-tax Officer and the Appellate Assistant Commissioner had rejected the assessee's contention that the compensatory (city) allowance would be exempt from taxation under Section 10(14) of the Income-tax Act, 1961. In the alternative it was contended on behalf of the assessee that it would be a permissible deduction under Section 16(v) of the said Act. The Division Bench was required to consider the two questions--one was whether the compensatory (city) allowance received by the assessee was exempt from tax under Section 10(14) of the Income-tax Act, 1961, and, secondly, whether the compensatory (city) allowance received by the assessee was deductible under Section 16(v) of the Income-tax Act, 1961, in computing his total income. The Division Bench answered the first question in the affirmative and in view of that answer answering of the second question was thought unnecessary. We may observe that compensatory (city) allowance would be in the nature of counter-balancing the personal expenditure necessitated by the special circumstances in which the duty was performed. The Division Bench relied on the definition provided by Fundamental Rule 9(5). For the sake of convenience we may reproduce the said Fundamental Rule, which is as follows:

'F.R. 9. (5) 'Compensatory allowance' means an allowance granted to meet personal expenditure necessitated by the special circumstances in which duty is performed. It includes a travelling allowance but does not include a sumptuary allowance nor the grant of free passage by sea to or from any place outside India.'

19. In our opinion, the definition of 'compensatory allowance' as defined by Fundamental Rule 9(5) would be relevant for the purposes of understanding the implication of the phrase 'compensatory allowance' used in Article 222(2) of the Constitution of India. At any rate, it cannot, in our opinion, be equated either with 'salary' or with 'perquisite'. As already pointed out by us earlier, 'salary' would mean remuneration for services rendered. Any compensatory allowance can never be interpreted to signify additional salary. It is a counter-balance for the loss or inconvenience suffered. Similarly, the phrase 'perquisite' would mean additional benefit to an employee in addition to his salary. In the case of compensatory allowance, there is no question of additional benefit, but merely counter-balancing the loss or inconvenience sustained. Similarly, the compensatory (city) allowance would be for the extra cost that an employee may have to incur by being required to stay in a big city where things would be dearer than in small towns or villages.

20. To conclude, we are of opinion that the compensatory allowance granted to the petitioner by the Presidential order could not be considered to be additional salary or perquisite under Section 17(1) or Section 17(2) of the Income-tax Act, 1961.

21. In the view that we take on the main question, it is unnecessary to consider the petitioner-assessee's alternative contentions that the compensatory allowance would be permissible deduction under Section 16(v) of the Income-tax Act, 1961, or exempt under Section 10(14) of the Income-tax Act, 1961.

22. As a result of the discussion aforesaid, we would answer the reference as follows:

That, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was in error in law in holding that the compensatory allowance, received by the assessee under the provisions of Article 222(2) of the Constitution, was liable to be included in his total income under the head 'Salaries' for the purpose of income-tax assessment.

23. As regards the second question, the Additional Commissioner had the jurisdiction to revise the assessment if in his opinion the order of the Income-tax Officer was prejudicial to the interests of revenue. As such, the second question referred to us does not at all arise for consideration and we would refuse to answer the same.

24. As regards the question No. 3, the same would not be needed to be replied as it is not necessary to consider the alternative contentions raised on behalf of the petitioner-assessee before the taxing authorities with reference to Section 10(14) or Section 16(v) of the Income-tax Act, 1961.

25. At this stage we may note that the Appellate Tribunal has not referred the question to us, whether the compensatory allowance could be considered to be perquisite. But as an argument was advanced on behalf of the department, we have dealt with the same by negativing the department's contention that it could be considered to be the perquisite as well.

26. Let the reference be returned to the Income-tax Appellate Tribunal for passing a consequential order in accordance with this judgment. However, under the circumstances, we direct that there shall be no order as to costs of this reference.


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