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Frank Beaton and Another Vs. Commissioner of Income-tax, Delhi-vi, and Others - Court Judgment

LegalCrystal Citation
Subject Direct Taxation
CourtDelhi High Court
Decided On
Case NumberCivil Writ Petition No. 3628 of 1982
Reported in(1986)53CTR(Del)9; [1985]156ITR16(Delhi)
ActsIncome Act Act, 1961 - Sections 17, 17(1) and 17(2) 192, 199 and 264
AppellantFrank Beaton and Another
RespondentCommissioner of Income-tax, Delhi-vi, and Others
direct taxation - obligation to pay tax - sections 17, 192, 199 and 264 of income tax act, 1961 - petitioner-foreign national employed in india - employer agreed to pay tax on salary - department recovered additional tax due to employee from employer - whether employer responsible to pay additional taxes on behalf of employee - employer responsible to pay tax only on salary as per terms of employment not to pay additional tax on behalf of employment - department cannot recover additional tax from employer. - - it is, thereforee, better to deal with the method of calculation set out in the return or counter-affidavit to the petition. in addition, there is hotel accommodation or other accommodation and there are other allowances like club fees which are to be reimbursed. however,.....kapur, j.1. this writ petition is concerned with the quantum of tax to be paid in the peculiar circumstances of this case. the first petitioner, mr. frank beaton, was the area manager in delhi for the second petitioner, m/s. qantas airways ltd., from january, 1968, to november 12, 1971. he was a non-resident and m/s. qantas airways ltd. is an australian company wholly owned by the government of australia. during the period the first petitioner was posted at delhi, he received a tax-free salary, and also, rent-free accommodation. in the period relevant to the assessment year 1971-72, his salary was rs. 73,712, and rent-free accommodation in the form of a house rented at rs. 2,400 per month was provided to him. during the period relevant to the assessment year 1972-73, he received a salary.....

Kapur, J.

1. This writ petition is concerned with the quantum of tax to be paid in the peculiar circumstances of this case. The first petitioner, Mr. Frank Beaton, was the area manager in Delhi for the second petitioner, M/s. Qantas Airways Ltd., from January, 1968, to November 12, 1971. He was a non-resident and M/s. Qantas Airways Ltd. is an Australian company wholly owned by the Government of Australia. During the period the first petitioner was posted at Delhi, he received a tax-free salary, and also, rent-free accommodation. In the period relevant to the assessment year 1971-72, his salary was Rs. 73,712, and rent-free accommodation in the form of a house rented at Rs. 2,400 per month was provided to him. During the period relevant to the assessment year 1972-73, he received a salary of Rs. 39,072 and corresponding rent-free accommodation for a shorter period. The ITO calculated the taxable income for 1971-72 at Rs. 8,33,486 and the tax demand for this period was for Rs. 7,37,508. For 1972-73, the salary was computed at Rs. 3,04,311 and the tax demand was for Rs. 2,53,764. It may be mentioned that the assessment was based only on salary income, so that the 'tax-free' salary of Rs. 73,712 plus perquisites was grossed up to Rs. 8,33,486 for the assessment year 1971-72 and the 'tax-free' salary of Rs. 39,072 for 1972-73 with perquisites was grossed up to Rs. 3,04,311. The tax demands were collected from petitioner No. 2, which paid them up, perhaps because petitioner No. 1 found himself unable to leave the country unless they were paid.

2. When the assessments were made, the first petitioner had already left the country; so no appeals could be filed by him but, eventually, revision petitions were filed before the CIT under section 264 of the I.T. Act, 1961. An order was passed by the Commissioner on September 8, 1982, holding that the calculation made by the ITO was correct. Against that order, the present writ petition was moved.

3. On consideration of the petition, a show-cause notice was issued to the respondents. It was represented to us that this was a point of some importance as there were several cases of other foreign nationals who were getting 'tax-free' salary, so the case should be decided at this stages itself. We accordingly directed the parties to complete the pleadings informing them that petition will be finally disposed of. We have, in other words, treated this petition as one in which rule nisi has already been issued and have heard the parties. However, the questions involved are of much greater difficulty than at first appearance.

4. In order to determine the correctness of the order, it may be useful to refer to section 264 of the I.T. Act, 1961, which deals with the power of the Commissioner to revise an order passed by an authority subordinate to him. This allows an aggrieved party to file a revision before the Commissioner. The Commissioner may pass an order revising the order, but cannot pass an order prejudicial to the interest of the assessed. This reference is necessary because preliminary objections have been raised that this petition is not maintainable. The order refusing to revise the order is certainly amenable to the writ jurisdiction of this court. If tax beyond the legitimate amount has been charged in this case, it will be a case of an illegal demand which contravenes the constitutional provisions that tax has to be imposed in accordance with law. We, thereforee, overrule the preliminary objection to the effect that the writ petition is not maintainable.

5. One further objection by the Commissioner to the plea of the assessed was that the appropriate tax payable by the assessed was the responsibility of M/s. Qantas Airways Ltd. and not of assessed. It was stated that if there was a refund to the assessed, it would increase the income of the assessed, thus meaning that there would have to be a further assessment as the real income of the assessed would increase. It would mean that the petition would be self-defeating. We think this argument is wholly unfounded. No doubt, the tax has been paid by M/s. Qantas Airways Ltd. in accordance with the agreement, but we see no difficulty in refunding the amount to M/s. Qantas Airways Ltd. and not to Mr. Frank Beaton in case we hold that any amount has to be refunded. We are only concerned with what is the correct tax to be paid and suitable directions can be given by us as to how the excess tax (if any has been paid) is to be dealt with.

6. Turning to merits, the actual method of calculation is not very clear from the order, but it is clear from the affidavit filed as a return to the writ petition. It is, thereforee, better to deal with the method of calculation set out in the return or counter-affidavit to the petition.

7. Here, the calculation for 1971-72 is explained in some detail. It is pointed out that a salary of Rs. 73,712 was paid by way of tax-free salary for the assessment year 1971-72. This is stated in the certificate of the Area Manager, M/s. Qantas Airways Ltd., Schedule-I to this affidavit. In addition, free furnished quarters for which rent amounting to Rs. 22,266 was paid, was provided to Mr. Beaton. Income-tax amounting to Rs. 5,46,530 was deposited by the second petitioner, M/s. Qantas Airways Ltd.

8. According to the affidavit, the perquisite value of the furnished accommodation had to be worked out under rule 3 of the I.T. Rules. The perquisite value would be either 12 1/2 per cent. of the salary or the actual rent paid, whichever was lower. The Commissioner has taken the salary at Rs. 73,712 and stated that a tax-free salary of this amount at the rates prevalent in 1971-72 would only be earned if the salary was Rs. 4,90,946. This was the amount which would leave the assessed with a net salary of Rs. 73,712 after paying tax. It was stated that 12 1/2 per cent. of Rs. 4,09,946 would be more than Rs. 22,266. So, the perquisite value had to be taken at Rs. 22,266. The next step in the calculation was to add Rs. 22,266 to Rs. 73,712 making a total of Rs. 95,978. The salary that had to be earned to leave a net salary of Rs. 95,978 was computed at Rs. 8,33,508. The Commissioner pointed out that by some mistake the real salary had been taken to be Rs. 8,33,486 and there was some arithmetical mistake in calculating the tax at Rs. 7,37,508.

9. For the period corresponding to the assessment year 1972-73, Mr. Beaton worked only from April 1, 1971, to November 12, 1971, and the actual rent for the house in this period was Rs. 17,760. The salary paid was Rs. 39,072. The salary that would yield this residue after deduction of appropriate tax at source would be Rs. 91,796 and so the perquisite value had to be taken not at Rs. 17,760, but at Rs. 11,475 being 12 1/2 per cent. of the gross salary. After adding the value of the perquisite, the salary paid was Rs. 50,547. To earn this much tax-free salary, the gross salary would be Rs. 3,04,311 and thus the tax had been rightly determined at Rs. 2,53,764.

10. In short, the contention in this counter-affidavit was that the tax liability had to be determined by first finding the salary and then the perquisites, adding the two and then computing the amount which would have left this as a tax-free salary. For 1971-72, the actual salary received as tax-free was Rs. 95,978, so the real salary was Rs. 8,33,508. For 1972-73, the net salary was Rs. 50,547 tax-free so the real salary was Rs. 3,04,311.

11. If this is the correct method for calculating the tax, there is no doubt that the Commissioner's calculation is absolutely correct. However, different results flow from different methods of calculation. We have found some difficulty in accepting this method of computing the tax.

12. Let us first approach this problem from applying section 192 of the I.T. Act, 1961, on the assumption that there is no agreement to pay tax-free salary. Assuming that the perquisite value has been correctly calculated, we would find that in 1971-72 the income which had to be taxed would be Rs. 95,978 as pointed out by the Commissioner. Even if the tax was 100 per cent. on this amount, the tax could not be more than Rs. 95,978. Under the provision of section 192, a person responsible for paying the salary had to deduct the tax amount from the salary. If the tax was 100 per cent. he would have deducted the whole of the amount and paid it to the Reserve Bank giving Mr. Beaton nothing. We have deliberately not worked out the actual tax on Rs. 95,978 for the purposes of this argument, but it will be clear that in actual fact, the tax on Rs. 95,978 will be considerably less than the full 100 per cent. as we have computed. Similarly, for 1972-73, the maximum amount at 100 per cent. would be Rs. 50,547. Instead of paying this amount to the I.T. Department, M/s. Qantas Airways paid the additional amount to its employee, Mr. Beaton. The addition to his salary would be Rs. 95,978 plus the extra amount which was not deducted under section 192. The total salary would, thereforee, be less than twice Rs. 95,978. It is the fact that a different amount is arrived at by a different method of computation makes one believe that perhaps the Department has not used the correct method of computing the tax, or at least not the only possible method.

13. A completely different method of calculation has been given by the petitioner as annexure XIV, annexed to the petition. In this method of calculation, first the tax-free salary, which has been received, has been taken to be Rs. 63,360 for 1971-72, to which is added the tax on such salary as a perquisite under section 17(2)(iv). This amounts to Rs. 27,882. To this is again added the perquisite value of the rent-free accommodation. By this method, the taxable income has been computed at Rs. 1,13,338 for 1971-72 and Rs. 62,663 for 1972-73. According to the petition, the real tax due for 1971-72 is Rs. 69,091 and Rs. 28,593 for 1972-73. There is, thereforee, an excess payment for 1971-72 amounting to Rs. 6,68,417 and Rs. 2,25,171 for 1972-73.

14. Reference to section 17(1)(iv) shows that salary includes any fees, commission, perquisites or profits in lieu of or in addition to any salary or wages, although there is a defect in the computation by the petitioner. What has to be found out is (a) the salary. We have already found as per the Commissioner's affidavit that the salary for 1971-72 is Rs. 95,978. The next step is to determine the tax on this amount. The tax on this amount, as would normally have been paid by the assessed and not by the employer, is to be determined from the Finance Act. We find that the income-tax payable on a sum of Rs. 1,00,000 is Rs. 52,000. So, assuming the tax is Rs. 52,000, instead of Mr. Beaton paying this amount to the Department, M/s. Qantas Airways had paid this amount. This sum of Rs. 92,000 has, thereforee, to be added to the taxable income. If it is added, the taxable salary becomes approximately Rs. 1,47,000. Now, the next step is, has Mr. Beaton to pay the additional tax over and above the tax already paid to him or, M/s. Qantas Airways has again to pay the further tax involved in the additional amount To explain this further, the tax on say Rs. 95,000 may be Rs. 52,000, but the tax on Rs. 1,47,000 may be Rs. 90,000, so an additional Rs. 47,000 or so has to be paid by Mr. Beaton, or by M/s. Qantas Airways. If it is paid by M/s Qantas Airways, it is again to be added, and so on. The question is, how many times this step has to take place. If this is to be done indefinitely, then the tax on tax and then the tax on the additional tax, and so on, will keep on bringing the amount of taxable salary up.

15. As an infinite number of calculations is necessary by this method, it is not reasonably possible to calculate the amount of tax by this method. So, we have either to say that the tax on further tax has to be paid by M/s. Qantas Airways, so that an infinite number of calculation has to be made which may eventually lead to the same conclusion as arrived at by the Department. It is this intriguing feature of the case which had made an answer to the point extremely difficult.

16. A number of cases have been cited before at the Bar, and they are of very great help. There is a judgment in favor of the Department in Tokyo Shibaura Electric Co. Ltd. v. CIT : [1964]52ITR283(KAR) , wherein the Mysore High Court held that the real income by way of royalty received under an agreement was not the royalty plus the tax, but such an amount as would be the result of grossing up by a method similar to that adopted by the Department in the present case.

17. In a decision by the Orissa High Court, CIT v. American Consulting Corporation : [1980]123ITR513(Orissa) , the answer seems favorable to the assessed. The conclusion was that what the arrangement provided for was paying the tax and not tax on the tax.

18. In the another case decided by the Calcutta High Court N. Sciandra v. CIT : [1979]118ITR675(Cal) , the decision was favorable to the assessed in the sense that tax on tax had not to be computed. This was because the agreement for paying the tax was not between the assessed and the payer, but was between the assessed's employer and the paying company. Rather than find a way out of this problem, we have been able to resolve the difficulty in this case in quite a different way. The construction of the agreement between the assessed and the company has not, in our view, received the due attention that was necessary. It was actually the key to determining the tax liability in the present case. The agreement is to be found in annexure I to the petition which is a letter addressed to Mr. Beaton regarding his transfer to Delhi. This provides as follows :

'Income-tax. - Payment of any local income-tax on the above salary and allowances will be a company responsibility.'

19. The relevant language is payment of income-tax on the above salary. The salary is $A 5,950 - basic salary and $A 13,380 - Special Manager's single living away from home allowance. This salary is in Australian Dollars. The agreement is to pay the Indian income-tax on this salary. In addition, there is hotel accommodation or other accommodation and there are other allowances like club fees which are to be reimbursed. Taking the obligation to pay income-tax, this shows that the maximum that M/s. Qantas Airways has to pay is the tax on the salary. By the tax on the salary is meant the tax on Rs. 95,978 or any lesser sum that might be computed in respect of the perquisites for 1971-72. This means that first it has to be determined what is the taxable salary of Mr. Beaton as if it was not tax-free. On this income, the tax has to be determined and that is the amount that M/s. Qantas Airways has to pay. If any additional tax due was a result of this addition, which is bound to be due, it has to be paid by Mr. Beaton as there is no agreement to pay tax on tax. Similarly, for 1972-73, M/s. Qantas Airways has only taken the obligation to pay the tax on Rs. 50,547 or any extra amount that may be arrived by computing the value of the perquisites in accordance with rule 3 of the I.T. Rules. On this amount, M/s. Qantas Airways has to pay the tax and there is no further agreement to pay tax on tax. Any additional sum has to be paid by Mr. Beaton.

20. In other words, the agreement in this case means that M/s. Qantas Airways has to pay Mr. Beaton a salary and has to pay a tax on that salary. There is no obligation on M/s. Qantas Airways to pay the tax on tax paid on behalf of Mr. Beaton to the Department. That additional tax has to be paid by Mr. Beaton himself.

21. On this reasoning, we would allow the petition as follows. A writ will be granted in favor of the petitioners to the effect that the tax on the salary has to be paid by M/s. Qantas Airways as if it is a taxable salary. Any further tax resulting from that payment has to be paid by Mr. Beaton. The further difficulty we find is that Mr. Beaton has left this country in 1971 and not now available. We have, thereforee, to see how Mr. Beaton's portion of the tax is to be paid.

22. We had listed the case for re-hearing to see what possible directions could be given in this behalf and we were assured by learned counsel for the petitioners that the tax would be paid by Mr. Beaton on the full amount. If this tax is paid, then the additional amount paid by M/s. Qantas Airways Ltd. would be refunded to it. In case the Department finds that Mr. Beaton has not paid the tax, but M/s. Qantas Airways Ltd. would be refunded to it. In case the Department finds that Mr. Beaton has not paid the tax, but M/s. Qantas Airways Ltd. has paid the tax, then the Department would be free to realise the full amounts as previously calculated from M/s. Qantas Airways Ltd.

23. For the purpose of convenience, the amount that has to be paid by Mr. Beaton and not by M/s. Qantas Airways Ltd. may be explained by way of an example. If 'X' is the salary of Mr. Beaton and 'Y' is the tax on that salary, then 'Y' is to be paid to the paid to the Department by M/s. Qantas Airways Ltd. But, Mr. Beaton has to pay the tax on 'X' plus 'Y' minus to the tax on 'X', i.e., the additional tax, has to be paid by Mr. Beaton. A writ is granted accordingly. The parties will be bear their own costs.

Ranganathan, J.

24. I agree with my Lord that the 'grossing' up of the salary has not been correctly done in this case. However, having regard to the difficult nature of the question involved and the possibility of its recurrence in different situations, I should like to state my reasons separately. In doing so, however, I shall avoid a repetition of the facts as well as the case-law which has been referred to in the judgment of my learned brother and restrict myself to the proposition of law arising in the case and its solution, as I see it.

25. The assessed is an employee and the income in question is chargeable to tax in his hands under the head 'Salaries'. Section 17(1)(iv) of the Act includes, within the scope of the charge imposed by this section 'perquisites' in lieu of, or in addition to, any salary. Section 17(2) defines 'perquisites' to include, inter alia, '(iv) any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessed.'

26. It, thereforee, follows that, if the employer pays any income-tax, the obligation to pay which lies on the employees, the amount of any income-tax so paid will be assessable in the hands of the employee-assesses as part of his salary income. The provision may raise a further question regarding the year in which the perquisite income will become assessable, an aspect touched upon in Sciandra v. CIT : [1979]118ITR675(Cal) , but it may not be necessary to deal with that aspect for the purposes of the present case.

27. The result of the above provision will be that, if an employer stipulates that he will pay his employee a tax-free salary of say Rs. 50,547 and what he means really is that he will go on paying whatever income-tax the employee will be called upon to pay in respect of his salary, then the real salary of the employee is not the amount he is actually paid but an amount calculated in such manner that the assessed will be left with a net salary income of Rs. 50,547 in his hands and with no liability whatsoever to pay income-tax thereon. This apparently simple proportion will involve the payment out of stupendous sums by the employer - to the employee partly and to the Income-tax Department partly - as will be seen from the following steps illustratively and roughly worked out with reference to a 'tax-free' salary of Rs. 50,547 on the basis of the rates prevalent for the assessment year 1983-84.

----------------------------------------------------------------------Amount Tax Tax on Amountof salary thereon previous item perquisite----------------------------------------------------------------------50547 14273 ---- 14,27314273------ 22254 14273 7,981648207981------- 26939 22254 4,685728814685-------- 29764 26939 2,825774862825-------- 31482 29764 1,718803111718-------- 32523 31482 1,041820291041-------- 33152 32523 62983078628-------- 33534 35152 38283699382-------- 33763 33534 22984081229-------- 33982 35763 13984310139-------- 33987 33982 858444985-------- 34035 33987 488463448-------- 34065 34035 358458235------- 34888 34605 238461223------- 34096 34088 8846358------- 34102 34096 6846836------- 34108 34102 6846496------- 34114 34108 6846556------- 34114 34114 -84661

28. If, by the terms of the employment, the employer has agreed to pay all tax which the employee may be called upon to pay in respect of the salary assessed in his hands, the entire tax of Rs. 34,114 calculated above will be added in respect of the year of taxability of the salary itself. If, however, the employer, without any agreement, reimburses the employee in respect of the paid by him from time to time, the perquisite may have to be added in respect of various years in which the amounts are paid by the employer. But there seems to be no doubt, on the language of section 17 or even on general principles, that the above snowballing effect is inescapable if the intention and undertaking of the employer is to ensure that the employee is called upon to pay no tax whatever on his salary income.

29. The real question in every case, it appears to me, will, however, be whether this is what the parties intended and agreed upon. In order to answer this, the terms of the agreement between the parties will have to be seen and the agreement will have to be interpreted according to the normal canone of construction of deeds and instruments, particularly those of a commercial nature, as in the present case. In the present case, the terms of the contract are spelt out in the letter written by the employer to the employee on January 4, 1968. It says :

'Whilst stationed in New Delhi, your salary and allowance........ will be as follows : Basic salary : $A 5,950 p.a.

Special Manager's single living from home allowance : $A 13,380 p.a. Income-tax : Payment of any local Indian income-tax on the above salary and allowance will be a company responsibility.'

30. On the above language, I think it is clear that what all the employer intended and agreed to do was to pay income-tax that would be payable by the employee on his cash salary and allowances as mentioned above. The letter of appointment proceeds, afterwards, to talk of accommodation and other perquisites but by no stretch of the language can the latter be construed as an agreement by the employer to assure the employee that he would not be liable to pay any income-tax at all in this country. Even though the employer is a foreign company, it cannot be presumed that it entered into the contract without some awareness of the tax laws in India. A construction of the contract on the lines suggested by the ITO (and upheld by the CIT) would mean that the employer had agreed to pay the employee a salary of Rs. 95,978 and Rs. 50,547, respectively, for the two assessment years 1971-72 and 1972-73 and to pay the Indian exchequer sums of Rs. 7,37,508 and Rs. 2,53,764 respectively. No businessmen would enter into such an unremunerative bargain, which benefits neither party to the contract and merely results in the purposeless payment of astronomical sums to a foreign Government. No employee may be worth being retained as such heavy cost to the employer. Such an absurd construction of a contract of employment should be avoided. Since the liability to tax depends upon the agreement between the parties, naturally and reasonably understood, I think the only interpretation possible is that the employer agreed to pay the employee a sum of salary and allowances and the tax thereon, implying that any further tax (on other amounts, if any, added to the employee's income by way of perquisites) will have to be borne by the employee himself. Hence, in this case, the salary of the employee must be taken at Rs. 63,360 and Rs. 39,072 plus tax thereon, respectively, for the two years in question. The perquisite value of the rent-free accommodation should be worked out on this figure. The assessed has provided a computation on these lines in annexure XIV to the writ petition, and subject to the verification of the actual figures, it appears to proceed on right lines. This runs as follows :

1971-72 1972-73Rs. Rs.'Tax free' salary actuallyreceived 63,360 39,072Add :Tax on such salary 27,887 12,116under s. 17(2)(iv) ------- ------91,247 51,188Add :Perquisite value of 22,091 11,475house accommodation ------ ------under rule 3 1,13,338 62,663-------- ------

31. We approve of the lines on which this has been worked out for the reasons given above. In so far as the assessments include higher figures as the salary income of the employee, they are patently erroneous and have to be quashed. We, thereforee, quash the orders of the assessment made on the petitioner-employee but direct them to be revised on the lines indicated above and subject to the further direction contained below.

32. The other difficulty that arises in this case is regarding the nature of the direction to be given regarding any refunds that may become consequent on the order quashing the assessments. Normally, where tax is deducted at source from salary and paid into the exchequer, it is treated as paid on behalf of the employee and given credit for at the time of assessment against the taxes due from the employees under s. 199 of the Act. The ITO, in the assessment forms, also treats the taxes recovered from the employer as tax deducted at source. But it is obvious that, the present case, these taxes cannot be directed to be refunded to the employee, petitioner No. 1, for two reasons. The first is that this was not an amount of tax deducted at source from his salary, the second, the petitioner company never acknowledge or admitted that it was liable to pay the employee a salary of several lakhs and that tax appropriate thereto was being deducted at source and paid into the treasury. That was merely an amount paid by the company under compulsion. In view of our conclusion above, that the employee's taxable 'salaries' consisted only of the salary and allowances agreed upon plus the tax thereon, the huge sums in question could also not represent taxes deducted at source. Secondly, if the employee is directed to be paid the entire amount (and he does not pass it on to the employer), that would raise difficult questions regarding the nature and assessability of such refund in his hands and, if the company acquiesces in such action, it may really mean that they had agreed to pay him a tax-free salary and, thereforee, have no concern with the amounts which the employee has, on our interpretation of the contract, been able to get back by way of refund. In other words, since on a proper interpretation of the contract, the moneys paid properly belong to the company, they should be refunded to the company and not to the first petitioner. It is true that these moneys were paid a long time back and the company had taken no steps to challenge the collections of these amounts till 1982 when the writ petitions were filed. But the issues were being agitated in the proper forum against the employee's assessments and so neither the employee nor the employer can be said to be guilty of laches or delay in coming to this court for relief. Any refund consequent on the writ petitions being allowed should, thereforee, be granted to the second petitioner, viz., the company, and not the first petitioner.

33. There is one further difficulty in the case. Our conclusion has been that the employee is liable to tax on certain sums for the two years and the employer is liable to reimburse him to the extent of a part thereof. To illustrate, with reference to the tentative figures referred to earlier, for the assessment year 1972-73, the assessed is liable to tax on an income of Rs. 1,13,338 and the tax will be much more that Rs. 27,887 which is the amount which the employer has agreed to bear. On our interpretation, the excess has to be paid by the employee and is not to be reimbursed by the employer. Consequently, the excess tax calculated on the above basis cannot be deducted from the refund due to the employer for, if it is, then that will itself amount to a perquisite and create further complications. It is, thereforee, necessary to ensure that the tax payable by petitioner No. 1 and excess of the amount found by us to be reimbursable to him by petitioner No. 2 is paid by petitioner No. 1 and, hence, we think it is necessary to add a rider to the direction of refund given above that the above refund is to be given to the second petitioner only on petitioner No. 1 first paying, out of his own funds, the excess taxes due on its assessments as indicated above. Such a direction is necessary and proper because, if on an interpretation of the contract, that is, the correct position, then the first petitioner should have no difficulty or hesitation in discharging his liability under the contract as urged before us. On the other hand, if it is found that the first petitioner claims, or the second petitioner agrees, that such extra sum should also be paid by the company, then obviously their interpretation of the contract is different from the stand taken before us by them and there is no reason why we should grant the discretionary relief of a writ granting the refund, if that be the case. We are, of course, conscious that even if the first petitioner purportedly pays off such liability, there is no way in which the Department can verity whether the liability has been ultimately borne by the company or the employee. However, since we have proceeded only on the basis of the legal rights of the parties, as per the agreement, we would like to make it clear that the Department will be at liberty, in case it comes across any material to show that any part of the tax liability of the petitioner has been borne by the company, to initiate such action as may be permissible in law against the company or the employee, on the basis of the factual position that may emerge and become known to it.

34. In the light of the foregoing discussions, I agree that a writ should issue - (a) quashing the assessments made on the petitioner for 1971-72 and 1972-73; (b) directing that the assessments be redone on the lines indicated above; (c) directing the refund of the excess tax recovered from the petitioners to the second petitioner but only on condition of the first petitioner depositing, out of his own funds, the amount of tax payable by him as per this judgment; and (d) reserving a liberty to the respondents to initiate action against the petitioners in case they discover that the company has paid any part of the tax liability of the first petitioner, as interpreted herein.

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