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income-tax Officer Vs. G.R. Srinivasan - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Hyderabad
Decided On
Judge
Reported in(1984)10ITD913(Hyd.)
Appellantincome-tax Officer
RespondentG.R. Srinivasan
Excerpt:
.....which period the assessee worked as a deputationist under the government of bhutan and he was paid bhutan compensatory allowance of rs. 12,000. it was claimed before the ito that the said compensatory allowance was exempt from income-tax under the provisions of section 10(7). the ito, however, took the view that the exemption under the said section is allowed only when such allowances and perquisites were paid or allowed by the government of india only. inasmuch as in the case of the assessee, the compensatory allowance was paid not by the government of india but by the government of bhutan, according to the ito, the exemption under section 10(7) is not available to the assessee.therefore, he refused the exemption claimed and added it in the gross salary income derived by the.....
Judgment:
1. This departmental appeal is directed against the order of the AAC, dated 5-7-1983 and it relates to the assessment year 1980-81. The only question involved in this appeal is whether the compensatory allowance paid by the Royal Bhutan Government to the Government of India servants deputed to Bhutan is entitled to exemption under Section 10(7) of the Income-tax Act, 1961 ('the Act').

2. The facts are few and as far as they are relevant for the disposal of this appeal before us, are as follows. The assessee is an individual and he worked as Senior Deputy Accountant General for a part of accounting year relevant to the assessment year 1980-81, viz., 1-4-1979 to 8-9-1979. There was a bilateral agreement between the Government of India and the Royal Government of Bhutan, where under India, with a view to participate in the development programme of Bhutan, agreed to depute its officers and technical personnel to Bhutan. Admittedly, the deputed Central Government servants would be governed by the terms and conditions mentioned in the order, dated 8-11-1977, passed by the Government of India as far as their service conditions, pay and emoluments during the period of deputation to the Royal Government of Bhutan is concerned. Copy of the said orders passed by the Government of India is placed before us and it is made part of the record. We have perused the said rules and conditions. Under the said rules, Bhutan compensatory allowance would be paid to the deputed Central and State Government servants categorywise. For instance, for those deputationists employees drawing pay of Rs. 900 and above, the compensatory allowance was stated to be 125 per cent of the pay subject to a minimum of Rs. 1,350 and a maximum of Rs. 3,280.

3. The assessee, who is an individual, was selected by the Comptroller and Auditor General of India for deputation to the Government of Bhutan in consultation with the Ministry of External Affairs, Government of India and he was deputed to the Government of Bhutan in 1979, which year falls in the accounting year relevant to the assessment year 1980-81. In the written arguments submitted by the assessee himself, it is stated that the Government of India is providing a cash budgetary assistance of Rs. 18 crores per year to the Government of Bhutan by way of development subsidy and the deputationists' pay and allowances were mostly met from out of this sum of assistance granted by the Government of India to the Government of Bhutan. The Government of India used to depute one Chief Accounts Officer to the Government of Bhutan since 1969 onwards and the assessee claims to be the last of such incumbents so deputed for the period from 9-9-1979 to 31-3-1980, during which period the assessee worked as a deputationist under the Government of Bhutan and he was paid Bhutan compensatory allowance of Rs. 12,000. It was claimed before the ITO that the said compensatory allowance was exempt from income-tax under the provisions of Section 10(7). The ITO, however, took the view that the exemption under the said section is allowed only when such allowances and perquisites were paid or allowed by the Government of India only. Inasmuch as in the case of the assessee, the compensatory allowance was paid not by the Government of India but by the Government of Bhutan, according to the ITO, the exemption under Section 10(7) is not available to the assessee.

Therefore, he refused the exemption claimed and added it in the gross salary income derived by the assessee from the Government of Bhutan.

Thus, ultimately, he had determined the taxable income of the assessee for the assessment year 1980-81 at Rs. 27,050.

4. Aggrieved against the assessment dated 23-3-1983 completed under Section 143(3) of the Act, the assessee went in appeal before the AAC.It is contended on behalf of the assessee that the interpretation put by the ITO on the provisions of Section 10(7) is erroneous and unjust.

It is stated that any allowance or perquisite paid or allowed outside India by the Government to a citizen of India for rendering services outside India does not imply that such allowance or perquisite should necessarily be paid or allowed only by the Government of India. The assessee produced a clari-flcatory letter dated 29-11-1977 given by the Commissioner to Mr. Har Mohinder Singh, who worked as technical officer in the office of the Chief Engineer, PWD, Thimpu, Bhutan, who was similarly deputed from CPWD to the Government of Bhutan. Copy of the said letter is also furnished to us. In that letter, it is stated as follows : Since you are working on deputation from CPWD to Royal Government of Bhutan, the salary income derived by you will be determined in accordance with the provisions contained under Section 10(7) of the Income-tax Act, 1961, which speaks that any allowance or perquisite paid or allowed as such outside India by the Government to a citizen of India for rendering service outside India shall not be included in his total income.

Therefore, as the clarification was given from the income-tax department in the case of one of the deputationists to the Government of Bhutan, it is claimed that the exemption under Section 10(7) is available to the assessee also. This argument of the assessee prevailed upon the AAC, who held that the ITO's interpretation of Section 10(7) is misconceived. He was of the view that the term 'paid or allowed', as enshrined in the provisions of Section 10(7) are not specific to imply an interpretation that any allowances or perquisites paid only by the Government of India are eligible for exemption and the said exemption is not allowable if the allowance is paid by any foreign Government. He also derived support to his conclusion from the clarificatory letter, dated 29-11-1977, referred to above. Therefore, he granted exemption for Rs. 12,000 under Section 10(7) to the assessee and directed the ITO to exclude the sum from the amount of Rs. 21,600 included by the ITO towards gross salary received by the assessee from the Government of Bhutan in his assessment order.

5. Aggrieved by the impugned order of the AAC dated 5-7-1983, the department came up in second appeal before this Tribunal. According to it, exemption under Section 10(7) would be available only if the allowances are paid only by the Indian Government. If such allowances are paid by any foreign Government, according to the revenue, the exemption under Section 10(7) would not be available to the assessee.

Therefore, according to it, the impugned order of the AAC excluding Rs. 12,000 from the gross salary received by the assessee from the Government of Bhutan is illegal and liable to be reversed at our hands.

6. We have heard Shri V. Raghavendra Rao, the learned departmental representative and none appeared for the assessee. But the assessee himself sent written arguments received in this office on 18-2-1984. He sought the excuse of this Tribunal for his not presenting personally and he only requested to consider his submissions on the facts and in the circumstances stated in his written arguments. The written arguments are made part of the record.

7. We have duly considered the arguments of the learned departmental representative and the written arguments sent by the assessee to the office of this Tribunal. In the written arguments, it is stated that the Government of India used to provide cash allowance of Rs. 18 crores a year by way of development subsidy to the Royal Government of Bhutan and mostly the pay and allowances of the deputationists used to be drawn from the said amount of subsidy. Therefore, it is found argued in the written arguments that the pay and allowances under the above circumstances should be deemed to have been paid indirectly by the Government of India itself and, therefore, assuming, without admitting, that the word 'Government' used in Section 10(7) should be taken only as the Government of India, the said requirement should be deemed to have been fulfilled. We feel difficult to appreciate this argument without further clinching evidence brought on record. For the present, the state of record does not justify the acceptance of the said argument. Section 10(7) is as follows : 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- (7) any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India for rendering service outside India ; The word 'Government' no doubt was not defined under the Act but it was defined in the General Clauses Act, 1897, in Section 3(23) and the definitions given to the 'Government' or 'the Government are as follows : 3. In this Act and in all Central Acts and Regulations made after the commencement of this Act, unless there is anything repugnant in the subject or context,- (23) 'Government' or 'the Government' shall include both the Central Government and any State Government : In the above categorical definition given to the word 'Government', the argument of the learned departmental representative that the word 'Government' under Section 10(7) should be taken to be the Government of India appears to be correct. However, that interpretation by itself is not sufficient for disposing of this appeal. According to us, the allowances and perquisites which were either paid or allowed by the Government of India, are entitled to exemption under Section 10(7). The Government of India already passed its order by a dated 8-11-1977, copy of which is filed before us by the revenue. It allowed Bhutan compensatory allowance at different slabs of pay. For instance, for employees drawing an Indian pay of Rs. 900 and below, the Bhutan compensatory allowance would be 150 per cent of the pay subject to a maximum of Rs. 850. For employees drawing over and above Rs. 900 of Indian pay, the Bhutan compensatory allowance would be 125 per cent of the pay subject to a minimum of Rs. 1,350 and a maximum of Rs. 3,280.

The subject of the notification dated 8-11-1977 reads "Terms for officers of the Central and State Governments of India during service on deputation with the Government of Bhutan". In our opinion, though the payment was made by the Government of Bhutan, if the payment is allowed by the Government of India then the said allowance is entitled to exemption under Section 10(7). So, the words 'paid or allowed' used in Section 10(7) would clearly show that they are disjunctive. Paying and allowing need not be by the same authority. If the payment is made by one Government and if such payment is allowed by the Government of India, then also the requirement of Section 10(7) is met with. Now, in this case the payment is made by the Royal Government of Bhutan whereas such payment was allowed by the Government of India by the terms and conditions laid down governing the service, pay and emoluments, while the Central Government and State Governments employees are deputed to the Royal Government of Bhutan by their orders, dated 8-11-1977.

Inasmuch as the payment of Bhutan compensatory allowance is approved by the Government of India or allowed by the Government of India to be received by the deputationists Central Government employees by dint of such allowance in terms of the notification dated 8-11-1977, the exemption under Section 10(7) is allowable to such deputationists Government employees. The clarificatory letter dated 29-11-1977 addressed by the Commissioner to one of the deputationists in Bhutan, the text of which is already extracted above, according to us, would represent the correct exposition of the purport of Section 10(7).

8. In the result, we fail to see any merit in the revenue's appeal and, hence, it is dismissed.


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