1. This appeal filed by the revenue is directed against the order dated 21-7-1980 in Appeal No. 928 of 1980-81 of the AAC whereby a sum of Rs. 24,244 brought to tax by the ITO, on the ground that this amount was not exempt under Section 10(14) of the Income-tax Act, 1961 ("the Act"), was deleted.
2. During the previous year ending 31-3-1977, relevant to the assessment year 1977-78, Shri R.M. Nayar, the assessee, was the Chairman-cum-managing director of the Electronics Trade and Technology Development Corporation, New Delhi. During the course of the business of the aforesaid company, the assessee was required to undertake certain foreign tours. For the purpose of these foreign tours, the assessee was granted certain specific allowances. Out of these specific allowances in respect of which the sanction of the Reserve Bank of India was obtained, the assessee made certain savings. The details are as under :------------------------------------------------------------------------------Names of the countries Date of departure Date of arrival Amount of Amount of visited from India back in allowance unspent India granted allowance for------------------------------------------------------------------------------U.S.S.R. 18-7-1976 21-8-1976 20,853.88 8,737.50Czechoslovakia, FranceUnited Kingdom, 4-10-1976 4-11-1976 20,421.00 7,195.62France, United StatesItaly, Senegal, 30-11-1976 25-12-1976 19,987.80 6,940.14Abidjan, Ghana,Hongkong, Taiwan 13-3-1977 21-3-1977 8,028.45 1,371.23 ---------- --------- The assessee filed a return of income declaring total income at Rs. 30,510 but did not declare the aforesaid savings as his income, as according to him, this amount was not liable to tax.
3. Dr. Bhai Mahavir and Shri Sunder Singh Bhandari raised certain questions in the Parliament which were answered on 21-12-1978. The questions and answers are reproduced below : 1. Whether it is a fact that senior executives of the Electronics Trade and Technology Development Corporation have earned large amounts of money as unspent allowance paid to them by the company for their foreign tours.
2. If so, what amounts were paid to them towards daily allowance for their foreign tours during the last three years and what amounts were saved by them individually as unspent money, which have been reimbursed to them against surrendered foreign exchange.
1 and 2. The amount of foreign exchange paid as daily allowance to the executives of the Electronics Trade and Technology Development Corporation (ETTDC) and the amount of foreign exchange saved and converted into Indian currency during the past three years was as under :-------------------------------------------------------------------------------- 1975-76 1976-77 1977-78 ------------------ -------------------- ---------------- Amount Amount Amount Amount Amount Amount paid saved paid saved paid saved--------------------------------------------------------------------------------Chief Executive 6,365 3,237 87,118 35,718 31,148 7,107DirectorAdministration) - - 11,395 4,229 - -Director - - - - 20,671 7,713(Technical)Chief Development19,864 10,188 - - - -Manager 3. Since the sanctions were based on entitlement, no action is called for.
1. What is the amount of foreign exchange reimbursed to the various executives of the Electronics Trade and Technology Development Corporation in respect of their foreign tours during the last three years.
2. Whether the money so reimbursed has been duly accounted for in their income-tax returns.
3. If not, what action has been taken against the executives concerned ------------------------------------------------------------------- 1975-76 1976-77 1977-78 ------------------------------------------------------------------- It may be stated that the difference in the figures of allowance and savings, mentioned by the assessee and as mentioned in answer to R.S.Q. 1717, is due to the fact that the ETTDC Ltd. followed the accounting year which commenced on 1-8-1976 and ended on 31-7-1977.
4. During the course of the assessment proceedings, the ITO required the assessee to explain why the unspent amount of the allowances sanctioned to him should not be taxed in his hands in view of the provisions of Section 10(14). The assessee submitted that since the allowance was granted to him to meet his personal expenses necessitated by special circumstances in which the duty was performed as a Chief Executive of the said Corporation, no part of the allowance was required to be taxed. The ITO, however, did not accept the assessee's submission. He was of the opinion that the daily allowance to the extent to which it was spent would be exempt under Section 10(14) but the amount which was not actually incurred would be taxable. He, therefore, brought to tax the sum of Rs. 24,244.
5. Aggrieved, the assessee filed an appeal to the AAC. It was argued that the allowance given to the assessee to meet his personal expenses necessitated by special circumstances in which the duty was performed, was not liable to be taxed. It was also urged that in addition to the expenses incurred abroad the assessee had to incur expenditure in India on making of dresses, purchase of travel goods, etc., and had also to incur expenditure on reciprocal basis by providing accommodation, food, local conveyance expenses at and gifts in respect of visits of foreigners to India in connection with his duties. It was urged that if the entire expenses were taken into account there would be no savings out of the aforesaid allowances. He also explained that as foreign exchange was involved sanction of the Reserve Bank of India was invariably obtained. The AAC held that as the amount was paid for a specific purpose, the nature of the receipt of the sum in the hands of the assessee could not be held to be income. The AAC also held that since it was not a regular allowance its nature was not of income and the provisions of Section 10(14) were not attracted. The AAC also observed that there was force in the assessee's contention that if all the expenditure incurred by him in India as well as abroad were taken into account, there would be hardly any savings out of the amount received. The AAC, therefore, deleted the sum of Rs. 24,244 from the assessment.
6. The revenue is aggrieved by this order of the AAC. The learned departmental representative referred to the provisions of Section 10(14) and submitted that any allowance or benefit granted to an assessee to meet expenses wholly, necessarily and exclusively, were exempt only to the extent to which such expenses were actually incurred for the purpose for which the allowance was granted. He referred to the commentary by Kanga & Palkhivala, 7th edition, page 248, wherein the learned authors had stated that for claiming exemption under Section 10(14) the following four conditions were to be fulfilled : a. the special allowance or benefit should be specifically granted to meet expenses ; b. the allowance or benefit should not be in the nature of an entertainment allowance or other perquisite within the meaning of Section 17(2) of the Act ; c. the expenses should be wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit ; and d. the exemption is only to the extent to which such expenses are actually incurred.
He submitted that in this case the AAC should not have deleted the sum of Rs. 24,244 from the assessment because that amount was not actually used for the purpose for which it was granted. He referred to the judgment in CIT v. Tejaji Farasmm Kharawalla Ltd.  67 ITR 95 (SC), wherein it has been held that any surplus remaining in the hands of the grantee after meeting expenses does not bear the character of allowance for meeting expenses but for performing the duties of the office or employment and would be taxable. For the same submission he relied on the judgment in Sohanlal G. Sanghi v. CIT  61 ITR 203 (Bom.). He also submitted that the AAC was in error in taking into consideration the expenditure on dresses, travel goods, etc., and reciprocal expenditure on the visits of foreigners to India because such expenditure was not at all relevant for determining whether the sum of Rs. 24,244 was liable to be taxed or not. He submitted that the order of the AAC should be reversed and that of the ITO should be restored.
7. The learned counsel for the assessee did not dispute the fact that the entire sum of Rs. 69,291 was received from the employer in the course of performance of duties on behalf of his employer. He, however, submitted that in order to test the character of the receipt as income, it had to be decided whether the receipt was in the nature of salary.
He submitted that if the amount received by the assessee was not salary, then it could not still be considered as income under any other head. He submitted that for holding that the sum of Rs. 24,244 represented salary, income or not. a reference had to be made to Section 17. Under Section 17 it had to be determined whether this amount could be considered to be a perquisite in the hands of the assessee, he submitted that the amount was not a perquisite because the Gujarat High Court in CIT v. S.G. Pgnatale  124 ITR 391 at page 402 had enunciated the principle that the word "perquisite" would not apply to a mere reimbursement of necessary disbursement. He also referred to the judgment in CIT v. D.R. Phatak  99 ITR 14 (Bom.), wherein it was held that city compensatory allowance was not a perquisite within the meaning of Section 17(2). He also referred to the judgment in Addl. CIT v. A.K. Misra, ITO  117 ITR 342 (All.), wherein it was held that city compensatory allowance will fall within the Explanation to Section 10(74) and was not exempt from tax. The Explanation to Section 10(74) was inserted retrospectively by the Finance Act, 1975. He submitted that in spite of the insertion retrospectively of the Explanation to Section 10(74) the aforesaid judgment of the Bombay High Court was still good law. He also referred to the judgments in CIT v. Justice S.C. Mittal  121 ITR 503 (P. & H.) and CIT v. M.S. Gujral  125 ITR 655(Punj. & Har.), which have been decided on the language of Section 10(13A). These two judgments were cited in support of the argument that the amount not actually incurred was also liable to exemption under Section 10(74). He further submitted that the entire allowance of Rs. 69,291 granted to the assessee was not income ab initio and, therefore, there was no question of seeking any exemption under Section 10(74). In other words, he submitted that Section 10(74) was not at all applicable to this case.
He referred to the judgment in Morley (Inspector of Taxes) v.Tattersall  7 ITR 316 (C.A.), wherein it has been held that the quality and nature of a receipt for income-tax purposes were fixed once and for all, when the subject of the receipt was received. He submitted that this judgment had been followed in Bombay Dyeing & Manufacturing Co. Ltd. v. State of Bombay  SCR 1122, Kohinoor Mills Co. Ltd. v.CIT  49 ITR 578 (Bom.), CIT v. Sandersons & Morganas  75 ITR 433 (Cal.), Bijli Cotton Mills (P.) Ltd. v. CIT  81 ITR 400 (All.) and CIT v. Motor & General Finance Ltd.  94 ITR 582 (Delhi). He very fairly conceded that the argument before the AAC regarding the expenditure on dresses, purchase of travel goods and the reciprocal hospitality to the foreigners while in India was not relevant. He thus submitted that the order of the AAC was correct and did not call for any interference.
8. In reply the learned departmental representative submitted that the assessee had claimed exemption only under Section 10(74) before the lower authorities and he should not, therefore, be allowed to build a new case and argue that the provisions of Section 10(14) were not at all attracted. According to him, the cases relied on by the learned counsel for the assessee were not relevant.
9. We have carefully considered the rival submissions. The learned counsel for the assessee is correct in his submission that the quality and nature of a receipt for income-tax purposes is fixed once and for all, when it is received. This submission is based on the judgment in Morley v. Tattersall (supra) and in CIT v. Motor & General Finance Ltd. (supra). The aforesaid judgment of the English Court of Appeal had been followed in Kohinoor Mills Co. Ltd. v. CIT (supra), CIT v. Sandersons & Morgans (supra), Bijli, Cotton Mills (P.) Ltd. v. CIT (supra) and CIT v. Motor & General Finance Ltd. (supra). In Kohinoor Mills Co. Ltd. v.CIT (supra) the unclaimed wages, the recovery of which was barred by limitation, were held to be not taxable as income. In CIT v. Sandersons & Morgans (supra) the unrefundcd clients' moneys in the hands of solicitors in respect of which the clients' claim had become barred by limitation and which was transferred to the profit and loss account and apportioned amongst the partners, were held to be not in the nature of trading receipts. In Bijli Cotton Mills (P.) Ltd. v. CIT (supra) it was held that although the assessee received the wholesale price, the part representing the ex-mill price alone belonged to it while the balance belonged to the quota-holders. From the outset the excess over the ex-mill price was impressed with the character of trust money, to be held by the assessee on behalf of the quota-holders. It was also held that the consideration applied by the Tribunal that the amount belonging to the quota-holders could not be recovered by them must be regarded as one of little importance. In CIT v. Motor & General Finance Ltd. (supra) the assessee carried on business of film distribution.
Certain amounts were received towards deposit and advance from sub-distributor. The amount received from the sub-distributor was returned after adjustment against payments. The balance remaining in the hands of the assessee was held to be on capital account. It was also held that the fact that by operation of the statute of limitation the sub-distributor might not be able to recover the amounts made no difference. In the light of these judgments, it must be held that the character of the sum of Rs. 24,244, which formed a part of Rs. 69,291, was not in the nature of income when it was received by the assessee from his employer. The mere fact that the assessee for some reason did not spend the entire sum of Rs. 69,291 will not change the character of any part of that receipt as income. We would, thus, hold that the sum of Rs. 24,244 does not represent income which can be brought to tax under any head under the Income-tax Act.
10. The learned departmental representative had argued that the assessee should not be allowed to raise the argument that the sum of Rs. 24,244 was not income at all because before the lower authorities the claim was made only under Section 10(14). We are unable to accept this contention because the AAC himself has held as under: Since it was not a regular allowance, its nature was not income and the provisions of Section 10(14) of the Act are not attracted.
11. It is not disputed on behalf of the assessee that the payment of Rs. 69,291 was received from the employer in the course of performance of duties and on behalf of the employer. Since the amount was received from the employer, the revenue can raise an argument that it is income which is taxable under the head "Salaries". In order to determine whether the disputed amount represents income taxable under the head "Salaries", we have to refer to the provisions of Section 17 of the Act. The definition of the term "salary" given in Section 17 is an inclusive definition and in Section 17(1)(iv) "salary" includes any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages. The definition of "perquisite" is given in Section 17(2) and the definition of the words "profits in lieu of salary" is given in Section 17(5). The amount received by the assessee by way of daily allowance cannot be termed as perquisite because this payment was made for the daily expenditure that the assessee was to incur during his visit abroad. In CIT v. S.G. Pgnatale (supra) the Gujarat High Court following the decision of the House of Lords in Oven v. Pook (Inspector of Taxes) (supra) has held that a perquisite is something which arises by reason of a personal advantage but the word "perquisite" would not apply to a mere reimbursing of necessary disbursement. The amount received by the assessee cannot thus be called as perquisite. Since the amount received cannot be considered as a perquisite, and since it is not a part of salary as said, the said amount cannot be taxed as income under the head "Salaries".
12. Since we have held that the amount received by the assessee is not ab initio income and is thus not taxable under any head of income, there is no question of considering the question of exemption under Section 10(14). In this view of the matter, it is not necessary to go into the case laws relied on by the parties on this point.
13. For the aforesaid reasons, we hold that the sum of Rs. 24,244 does not represent income of the assessee. As already stated, the learned counsel for the assessee did not rely on the argument that a part of the amount was spent on dresses, purchase of travel goods and reciprocal hospitality provided to the foreigners who came to India.
We, thus, confirm the order of the AAC.