1. This appeal is directed against the order of the AAC allowing deduction under Section 16(i) of the Income-tax Act, 1961 ('the Act') in respect of the total amount assessed under the head 'Salaries'.
2. The assessee is an individual who was an employee of Rallis India Ltd. and retired on 1-11-1975. The assessee's income chargeable under the head 'Salaries' for the previous year ended 31-3-1976 was Rs. 30,892. This included a sum of Rs. 5,468 being gratuity received by the assessee in excess of the amount exempt under Section 10 of the Act and Rs. 10,010 being ex gratia payment received as terminal benefit. The ITO omitted to take into consideration these two amounts in. computing the standard deduction allowable under Section 16(i). On appeal, the AAC found that these amounts having been assessed under the head 'Salaries' they could not be omitted in computing the standard deduction and directed the ITO to recompute the deduction accordingly.
3. The revenue is in appeal and it is contended that though the amount of gratuity and ex gratia payment are chargeable to income-tax as salary they cannot be taken into account for allowing the deduction under Section 16(i) out of the amount chargeable under the head 'Salaries'. It was submitted that though the amounts in question are assessable because they are derived from the employment, the deduction under Section 16(i) could not be allowed, as the assessee could not have incurred any expenditure to derive the amounts in question. We are unable to appreciate this contention which goes against the plain meaning of the section. According to Section 16 the income chargeable under the head 'Salaries' shall be computed after making deduction in respect of expenditure incidental to the employment of the assessee at a percentage of such salary. It is obvious and self-evident that the deduction is a percentage of the amount chargeable under the head 'Salaries'. There is no room in the section for excluding any portion of the amount chargeable under the head 'Salaries' in calculating the amount of deduction which is a percentage of such salary. Moreover, the gratuity and ex gratia payments are admittedly derived from such employment and, therefore, it is curious that the revenue should on the one hand treat it as salary as derived from employment and at the same time deny the deduction by claiming that it is not derived from such employment. It is also pointed out by the assessee who appeared in person that the CBDT has by a circular made it plain that the standard deduction is to be allowed irrespective of whether any expenditure incidental to employment is actually incurred by the employee or not and further, that the deduction will be available in respect of the entire amount chargeable under the head 'Salaries' including the profits in lieu of or in addition to salary which admittedly covers the amounts in question by definition, except only such salary income as are exempt under the provisions of the Act. We may recall that the concept of standard deduction was itself introduced by the Finance Act, 1974 and the Finance Minister's Budget Speech of 1974-75 stated : "In order to simplify the assessment procedure in the case of salaried taxpayers, I propose to substitute the separate deductions in respect of travelling, books, taxes on professions and expenditure incurred in the performance of duties by a standard deduction up to a maximum of Rs. 3,500 ...." [93 ITR 73, 75 (St.)]. The Government itself issued a Circular No. 131 dated 18-3-1974 [A.N. Iyer's Indian Tax Laws (1980), Part III, page 115] explaining the effect of the amendment and specifically stating that the deduction will be allowed, irrespective of whether any expenditure incidental to employment is actually incurred by the employer or not and also that it will be calculated with reference to the entire amount chargeable to tax under the head 'Salaries'. We find that this position was again reiterated with reference to the assessment year under consideration, by Circular No.161 dated 22-3-1975 [99 ITR 8 (St.)]. Thus, the revenue itself has by public statements given the assessee to understand that that was the plain meaning of the section and the order of the AAC was in conformity with the revenue's own understanding of the section. The argument now advanced does not offer any other reasonable meaning to the section, for the contention put forward can raise an ambiguity where there is none, only by doing violence to the section, besides being self-contradictory. The impression that is left is that this is an attempt to complicate the matter which the Finance Minister wished to simplify and it is not clear whether any responsible decision was taken to appeal against the order which gives effect to the policy of the Government. We are, therefore, of the opinion that the AAC was correct in allowing standard deduction under Section 16(i) to be calculated on the entire amount chargeable to tax under the head 'Salaries' and we have no hesitation in confirming his order. The appeal fails and is dismissed.