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Commissioner of Income-tax Vs. J. JenkIn Thomas and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 115 of 1968 (Reference No. 44 of 1968)
Judge
Reported in[1975]101ITR511(Mad)
ActsIncome Tax Act, 1922 - Sections 4(3), 7 and 7(1)
AppellantCommissioner of Income-tax
RespondentJ. JenkIn Thomas and ors.
Appellant AdvocateV. Balasubrahmanyam and ;J. Jayaraman, Advs.
Respondent AdvocateS. Swaminathan and ;K. Ramgopal, Advs.
Cases ReferredCarry v. Robinson
Excerpt:
direct taxation - subsistence allowance - sections 4 (3), 7 and 7 (1) of income tax act, 1922 - to claim exemption under section 4 (3) (6) assessee to prove that amount granted to meet expenses wholly and necessarily incurred in performance of duties - fact that same called subsistence allowance and circumstances that it is related to provision of residence show that amount received for own benefit of assessee - amount not for expenses incurred in performance of duties - duty ended in office - assessee would have to stay and subsist somewhere - any receipt for meeting such expenses would not come within ambit of section 4 (3) (6) - assessee failed to make out claim under section 4 (3) (6). - - ' 26. lord pearce stated at page 158 as follows :the reimbursements of actual expenses are.....sethuraman, j.1. this is a common reference relating to the assessment of three persons, viz., messrs. j. j. thomas, e. b. lewis and r. dow. on 9th may, 1957, the neyveli lignite corporation entered into an agreement with messrs, powell duffryn technical services ltd. incorporated in u. k. doing the work of consultants. this company will hereafter be referred to for convenience as 'p.d.t.s.'. it had prepared a scheme for development of a lignite mine and a ground water control system at neyveli. as from 10th may, 1957, it was employed by the neyveli lignite corporation, hereinafter referred to as 'n.l.c.', for a period of 3 years and 6 months. the term of employment of the consultants was liable to be extended for such further period and on such terms as might be agreed upon between the.....
Judgment:

Sethuraman, J.

1. This is a common reference relating to the assessment of three persons, viz., Messrs. J. J. Thomas, E. B. Lewis and R. Dow. On 9th May, 1957, the Neyveli Lignite Corporation entered into an agreement with Messrs, Powell Duffryn Technical Services Ltd. incorporated in U. K. doing the work of consultants. This company will hereafter be referred to for convenience as 'P.D.T.S.'. It had prepared a scheme for development of a lignite mine and a ground water control system at Neyveli. As from 10th May, 1957, it was employed by the Neyveli Lignite Corporation, hereinafter referred to as 'N.L.C.', for a period of 3 years and 6 months. The term of employment of the consultants was liable to be extended for such further period and on such terms as might be agreed upon between the parties. P.D.T.S. had to appoint in consultation with and approval of N.L.C. from overseas and maintain at the mine, starting not later than three months from 10th May, 1957, the following among other staff, one directing engineer, one mechanical engineer and one mining engineer. The P.D.T.S. had to make available to N.L.C. as and when necessary the services of their whole organisation in U.K. and had to arrange for additional engineer to visit India when necessary. In Clause 8, it was provided that P.D.T.S. had to ensure that their staff at the mine was available when required to attend meetings with or convened by N.L.C. Under Clause 9, N.L.C. had to take all necessary steps to ensure that its employees at the mine co-operated with the consultants and their staff to the extent necessary and to enable the consultants to carry out their duties. N.L.C. undertook under Clause 11 to provide free of charge to the consultants, i.e., P. D. T. S. office accommodation at Neyveli and under Clause 12, free residential accommodation, suitable for Europeans for each member o the site staff of the consultants, with basic furniture and free power for lights and fans and free supply of water. The site staff were to be given the necessary transport facilities as contemn plated by Clause 13. The remuneration of the consultants was fixed under Clause 14 on a consolidated fee of 200,000 payable in quarterly instalments of 14,250 each in Sterling in London as shown by Clause 15. In Clause 23(a) it was provided that the following officers, who are the assessees herein, were to be posted as site staff against the posts shown below, viz.:

(1) Director Engineer I E. B. Lewis.

(2) Mechanical Engineer : J, J. Thomas.

(3) Mining Engineer and Surveyor: R. Dow.

2. Clause 23(b) stated that the individual salaries of the site staff were payable by N. L. C, as notified in writing by P. D. T. S. before the arrival of the relative individual at the site and that the sum total of the rates per annum of the salaries of the nine members of the site staff as shown in Clauses 6 and 23(a) was not to exceed 27,500. The salary was payable for the period actually spent on duty on the work of N, L. C. in India in Indian currency. The staff was eligible for leave and the salary for the leave period was to be paid in Indian currency. Then followed the following paragraph in Clause 23(c):

'Each member of the site staff shall be eligible for a subsistence allowance of Rs. 30 per day from the date on which furnished quarters are provided by the Corporation under Clause 12 above and Rs. 45 per day until then, if he lives in accommodation found by the consultants themselves. The subsistence allowance shall be payable for the period actually spent on Corporation duty including travel on Corporation duty but shall not be admissible for any one who is on leave, for the period of such leave.'

3. It is unnecessary to refer to the other clauses of the said agreement between P. D. T. S. and N. L. C,

4. On 17th June, 1957, an appointment order was issued to Mr. R. Dow by P. D. T. S. His U. K. salary was 1,200 per annum, but during the period of his appointment, he would receive remuneration in India in rupees equivalent to 2,000 per annum. Such remuneration would be paid in monthly instalments, at the rate of exchange in force on the last day of the working month being adopted. Paragraph 4 of the letter of appointment stated that he would be paid a subsistence allowance of Rs. 30 per day, which would be increased to Rs. 45 if accommodation was provided by P. D. T. S, but out of the said sum of Rs. 45 he (the employee) would be expected to surrender Rs. 15 per day to the company towards the cost of providing such accommodation. The appointment letters in the case of the two other employees are not annexed to the statement of the case. The case proceeded, however, on the basis that the appointment letters in the other two cases were identical except for any variation in the salary as such.

5. Under Section 4(3)(xiv) of the Indian Income-tax Act of 1922, exemption was available to the income chargeable under the head 'Salaries' for a period of 36 months in the case of 'foreign technicians', the contracts with whom were approved by the Government of India, In the present case the period of exemption with reference to these technicians came to be closed on 23rd June, 1960. The salary became thereafter taxable.

6. We are concerned in the present case with the assessment year 1961-62. During the preceding financial year, Mr. J. J. Thomas rendered services up to 9th November, 1960, and the other two technicians throughout the relevant previous year. The question that arose in the respective assessments was whether the subsistence allowance payable under Clause 23(c) of the agreement between P. D. T. S. and N. L, C. and paragraph 4 of the appointment letter was liable to be taxed. Before the Income-tax Officer, the respective assessees claimed that the relative amounts received in each case would not be brought to tax as it was exempt under Section 4(3)(vi) of the Indian Income-tax Act, 1922. The Income-tax Officer did not accept this contention and on appeal the Appellate Assistant Commissioner also rejected it. When the matter was taken on appeal to the Tribunal, the contentions appeared to have been on a slightly wider basis. Before the Tribunal a reference was made to Section 7 and also to Section 4(3)(vi) of the Act. The Tribunal held that the employer of the respective assessees was P. D. T. S. and not N. L. C., that when the employees came over to India for carrying out the specific work at the mine of the N. L. C. there would, necessarily, be extra expenses over and above what would normally be spent by them at their respective native places and that such expenditure was incurred by the respective employees in the performance of their duties. The Tribunal considered that Clause (ii) of Explanation 2 to Section 7(1) did not apply herein and that the subsistence allowance would fall under Section 4(3)(vi) of the Act of 1922.

7. At the instance of the Commissioner of Income-tax, this reference has been made raising the following two questions :

'1. Whether, on the facts and in the circumstances of the case, the subsistence allowance constitutes 'profits in lieu of salary' as referred to in Clause (ii) of Explanation 2 to subjection (1) of Section 7 of the Indian Income-tax Act, 1922, and therefore, falls under the head 'Salaries'within the meaning of that term under Section 7(1) of the Indian Income-tax Act, 1922?

2. Whether, on the facts and in the circumstances of the case, this was an allowance specifically granted to meet the expenses wholly and necessarily incurred in the performance of the duty of an office or employment of profit and, therefore, not includible in the total income of the assessee in terms of Section 4(3)(vi) of the Indian Income-tax Act, 1922 ?'

8. At the time of the hearing of the reference Mr. Ramgopal, the junior counsel for the assessee, took a preliminary objection saying that the answer to the first question was self-evident as Clause (ii) of Explanation 2 to Section 7(1) could not have any application to the facts herein. In his submission this reference was confined only to question No. 2. Mr. Jayaraman, the learned counsel for the Commissioner of Income-tax, submitted that even on the first question as framed, the argument that the subsistence allowance was assessable under Section 7(1) was open to him and that, in any event, the question could be reframed so as to bring out the real issues between the parties, as the Tribunal could not have intended to place before the court a mere academic question or a question the answer to which was self-evident.

9. After carefully considering the respective submissions, we think it proper to reframe the question No. 1 as follows :

'Whether, on the facts and the circumstances of the case, the subsistence allowance falls under the head 'Salaries' within the meaning of Section 7(1) of the Indian Income-tax Act, 1922 ?'

10. We have reframed the question substantially on the language used by the Tribunal itself. We have only omitted the reference to Explanation 2. Both on purposes of appreciating the reasons for reframing the question as above and for considering the issues involved in this case, it is necessary to make a brief reference to the provisions of Sections 7 and 4(3)(vi) of the Act. Under Section 7(1), the tax is payable by the assessee under the head 'Salaries' in respect of any salary or wages, perquisites or profits in lieu of, or in addition to, any salary or wages. Explanation 1 to Section 7(1) expands the content of the term 'perquisite' by giving an inclusive definition. Similarly, Explanation 2 expands the ambit of 'profits in lieu of salary' by providing another inclusive definition. The fact that these two expressions have not been actually defined, their meaning being extended by an inclusive definition goes to show that in each case we have to find out whether any particular receipt would be 'perquisite' or 'profits in lieu of salary' in their primary sense. If the particular receipt could be brought within the primary sense of the respective terms, then there is no need to go to the Explanation. If, however, the receipt does not come within the scope of the primary meaning of the terms, then we have to see whether they come within the scope of the Explanations which expand the meaning of these terms.

11. Section 7(2) provides for certain deductions. Clause (iii) thereof allows the deduction of any amount actually expended by the assessee, which he, by the conditions of his service, is required to spend out of his remuneration, wholly necessarily and exclusively in the performance of his duties. Section 4(3) is a provision designed for the purpose of not including in the total income of the person receiving the amount, particular categories specified therein. We may set out Section 4(3)(vi) of the Act to the extent necessary herein as follows :

'4. (3) Any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them :......

(vi) Any special allowance or benefit, not being in the nature of an entertainment allowance or other perquisite within the meaning of Sub-section (1) of Section 7, specifically granted to meet expenses wholly and necessarily incurred in the performance of the duties of art office or employment of profit, to the extent to which such expenses are actually incurred for that purpose.'

12. The distinction between Section 7(2)(iii) and Section 4(3)(vi) has to be borne in mind. The Gujarat High Court in J.C. Mankad v. Commissioner of Income-tax : [1965]55ITR448(Guj) has brought out the distinction between the two provisions as follows at page 454:

'Where a special allowance is specifically granted to meet expenses wholly and necessarily incurred in the performance of the duties of an office or employment of profit, such allowance, to the extent to which it is actually spent, is covered by Section 4(3)(vi). If on the other hand no special allowance is granted, but the assessee is required by the conditions of his service to meet such expenses out of his remuneration, the sum so expended is deductible from his assessable income under Section 7(2)(iii). But in both cases the expenses must be expenses which are wholly and necessarily incurred in the performance of the duties of the office.'

13. Bearing in mind the distinction pointed out above we should approach the problem before us.

14. As indicated earlier, the primary investigation has to be whether any particular receipt has to be brought within the scope of Section 7(1) of the Act. If the receipt is found as not satisfying the primary meaning of the expressions 'perquisites' or 'profits in lieu of salary', then alone we have to go to the Explanations. Both sides are, however, agreed before us that in the present case Explanation 2 to which reference has been made by the Tribunal has no application. We have, therefore, refrained the question as to find out whether these receipts could come within the scope of the main provisions of Section 7(1) itself.

15. We may now examine the decisions relevant to this point. In C. Lakshmi Rajyam v. Commissioner of Income-tax : [1960]40ITR340(Mad) the point for consideration was whether certain payment received by an actress from one of the partners of a firm by which she was employed under a document executed in her favour was liable to be taxed. The actress had acted in a film called Samsaram. One Ranganatha Das and his brother-in-law constituted a firm which produced the said picture. The actress played the leading role in the said picture and it was successful beyond expectation. Ranganatha Das executed a document in her favour about 18 months after the release of the picture agreeing to pay her a fourth share of the realisations from the picture in consideration of her wholehearted help, co-operation and valuable services rendered by her and by way of special remuneration in addition to the fixed remuneration paid to her. She, accordingly, received two amounts, which were brought to tax for the assessment years 1952-53 and 1953-54. The question before the court related to the taxability of these amounts. At page 351, after considering the several decisions cited before it, this court observed as follows :

'It has, therefore, to be seen whether, from the point of view of the assessee, the amount received accrued to him by virtue of his employment.'

16. Earlier at page 349 the contention that the amount not having been received from the employer was not liable to be taxed in the hands of the assessee was noticed and it was observed as follows :

'......the mere fact that a gift or payment was made by a personother than an employer will not be decisive of the question whether it was intended as a remuneration or present.'

17. For this proposition, the learned judges have referred to the decision in Bridges v. Bearsley, [1958] 33 ITR 653 . In the said case it was decided by the Court of Appeal in U.K. that the assessee had served long and had expected some shares in the company to be transferred to him ; but the major shareholder had died without transferring the shares either inter vivos or by a will which he left. The owner of the major shareholder transferred the shares to the assessee. It was held that a benefit provided for the holder of an office or employment under a company may be a profit of that office or employment, although provided by the shareholders and not by the company itself, which was the natural paymaster.

18. A slightly different note appears to have been struck by a decision of the Calcutta High Court in David Mitchell v. Commissioner of Income-tax : [1956]30ITR701(Cal) . In that case the assessee was a chartered accountant by profession and he was a partner in a leading firm of chartered accountants. The promoters of the company engaged the services of the chartered accountant firm to assist them in the floatation of the company. The assessee attended to this work as partner of the firm. As a token of appreciation for the assistance rendered by him, he was given 2,500 shares in the company which was an unsolicited gift in his favour. The point for consideration was whether the value of these shares was liable to be taxed. At page 714, the learned judges observed as follows:

'The contract of employment in connection with which he had rendered services to the promoters was a contract between them and Messrs. Lovelock and Lewes. The assessee was not an employee of the promoters under that contract as an individual, nor could he claim any salary or wages as such. The contract of employment could neither be enforced against him personally and individually nor could he, acting as an individual, enforce it against the promoters.........Personally,he was not entitled to claim any salary or wages......It seems to me tobe beyond argument that whether or not the value of the shares was taxable in the hands of the assessee as his income, it was not taxable under Section 7(1).'

19. In that case there was no contract of employment so as to attract Section 7. The learned judges sustained the assessment under the head 'Other sources' in that case.

20. Assuming that N.L.C. is not the employer (on this point, we have our own doubts about the correctness of the Tribunal's findings) even then as pointed out in the decision of this court in C. Lakshmi Rajyam v. Commissioner of Income-tax, which is binding on us, the source from which the amount was received is not material. The real point to be examined is whether the amount reached the employee by virtue of his employment. If it did not, then the amount would not come within the scope of Section 7(1) of the Act. If it did, then, subject to any other contention, it would be primarily assessable under Section 7(1) of the Act.

21. This is not a case where the amount was given as salary as such. It was called subsistence allowance, which would be a perquisite or profit in lieu of salary. We may at this stage consider some of the decisions relevant to this aspect of additional receipts of an employee. In Fergusson v. Noble, [1919] 7 TC 176 the assessee was a detective sergeant in the employment of the Corporation of Glasgow, A sum of 11-14-3 was paid to him in cash as allowance for clothing. Detective officers for the purpose of their work had to wear plain clothes. In order to avoid uniformity each officer received an allowance in cash and out of it he supplied his own requirements. The allowance was fixed by reference to the corresponding free issue of clothing made to uniformed members of the force. The clothing which the employee purchased was specified and was subject to the approval of a superior officer. The question was whether this allowance was liable to be taxed. At page 180, Lord Salvesen of the Court of Session (Scotland) observed as follows :

'It seems to me to be a payment accruing to the respondent by reason of his office.........it seems to me that once we have reached the conclusionthat this money allowance is part of the salary or wages, perquisites, profits or other emoluments which are derived from his office, we must hold that it is assessable to income-tax.....'

22. The question as to whether the assessee could get deduction for the purchases actually made was left for consideration of the taxing authorities.

23. In Corry v. Robinson, [1933] 18 TC 411 the facts were as follows: The assessee, a civil servant, was the deputy cashier of the naval base at Singapore working for the British company. He received the salary appropriate to his rank and in addition a 'colonial allowance' to meet the increased cost of living abroad. The question was whether the 'colonial allowance' was liable to be taxed. Finlay J. held that the amount paid for extra cost of living was assessable to tax. The case went up to the Court of Appeal. But the question of assessability was disputed on other grounds, which are not material for our present purpose.

24. Recently the House of Lords had to go into this point in Owen v. Pook (Inspector of Taxes) [1969] 74 ITR 147. The assessee in this case was a medical practitioner. He had two part-time appointments as obstetrician and anaesthetist at a hospital 15 miles away from his residence. Under the appointments he was on stand-by duty at certain specified times, to deal with emergency cases at the hospital. At such times he was required to be accessible by telephone. On receipt of the telephone call from the hospital he gave instructions to the hospital staff, and then either advised and awaited a further report or set out immediately for the hospital. His responsibility for a patient began as soon as he received a telephone call. The hospital authorities paid him travelling expenses at a rate per mile for journeys between the residence and the hospital up to a single journey of 10 miles. He bore the cost of the additional five miles. Two questions arose in his assessment, viz., (1) whether the travelling expenses received by him from his employers were emoluments from his office or employment, and (2) whether such travelling expenses qualified as admissible deductions under Rule 7. We shall go into the question of deductibility of the expenses a little later and, therefore, at this stage it is necessary to refer only to the discussion in the House of Lords regarding the assessability of the amount as the emoluments from the office. The discussion discloses a divergence of opinion on this point. At page 153 Lord Guest pointed out as follows :

'If the allowance was, as in Fergusson v. Noble a clothing allowance payable whether it was expended or not, I can see the argument that it was an emolument in the sense of a, profit or gain and I do not wish to question the authority of that case : but it the payment was merely a reimbursement for actual expenditure, different considerations arise...... '

25. At page 154 he observed as follows :

'The allowances were used to fill a hole in his emoluments by his expenditure on travel. The allowances were made for the convenience of the employee to allow him to do his work at the hospital from a suitably adjacent area. In my view, the travelling allowances were not emoluments.'

26. Lord Pearce stated at page 158 as follows :

'The reimbursements of actual expenses are clearly not intended by 'salaries', 'fees', 'wages' or 'profits'. It is contended that they are 'perquisites'. The normal meaning of the word denotes something that benefits a man by going 'into his own pocket'.'

27. He held that it was not an income.

28. Lord Donovan observed at page 160 as follows :

'On the footing that the travelling expenses paid to Dr. Owen simply reimbursed what he had spent (or part of what he had spent) on travelling in performance of his duties, I do not think they should be regarded as emoluments of his employment within the meaning of Schedule E. I think the case is distinguishable from Fergusson v. Noble where a cash allowance was paid to the employed which, although he may have been required to spend it on buying a civilian suit, yielded a benefit or advantage to him.'

29. Lord Wilberforce did not specifically decide this issue except saying at page 164 as follows :

'.....I should have difficulty in seeing how the appellant could succeed, on his alternative point, in establishing that reimbursement of a non-deductible expense is something other than an emolument.'

30. Lord Pearson took the view that the amount received as travelling allowance was an emolument.

31. Applying the majority view of the House of Lords, we would have to examine the character of the amount received by the assessee as and by way of reimbursement of any actual expenditure, while on duty. We do not find any facts to show that the amount was actually a kind of reimbursement for any expenditure incurred in the performance of the duties of his office. One has to subsist whether in office or otherwise. The amount is not received to meet any part of the duties of the office or in the actual performance of the duties. It is different from what the U.K. doctor received as travelling expenses, while on duty, so as to enable him to reach the hospital to treat the patient urgently.

32. On the facts herein, as the amount reached the assesses by virtue of his employment and in accordance with the appointment letter, it follows that the amount of subsistence allowance is part of the salary or wages. The name given to a particular payment is not conclusive. So long as it was intended to be paid to the employee under the contract of service, it would have the character of income from the employment just as the clothing allowance and colonial allowance were in Fergusson v. Noble and Corry v. Robinson respectively.

33. Mr. Swaminathan, the learned counsel for the assessee, drew our attention to several decisions wherein the question of deduction of expenditure has been examined. In the present case the assessee never put forward the contention that there was any expenditure which he made out of the salary and which was deductible. If one had to go into this contention, one would have to find out the facts as to whether the assessee did incur any expenditure and if so the quantum thereof. This would involve investigation of facts. On the record, as it is before us, we do not find any fact which can in this connection be taken into account to find out whether the respective assessees have incurred any expenditure which could be allowed as deduction, under Section 7(2)(iii) of the Act. We do not, therefore, think it possible to go into this aspect on the materials before us. As the question of deduction is not material for this reference, we are not also considering the decisions that were cited before us on this point.

34. We now go into the second question. We have already extracted Section 4(3)(vi) of the Act. That provision would come in for application if it satisfies the following requisites :

(1) there must be a special allowance or benefit;

(2) it must not be in the nature of entertainment allowance or other perquisite within the meaning of Sub-section (1) of Section 7; and

(3) it must have been specifically granted to meet expenses wholly and necessarily incurred in the performance of the duties of an office or employment of profit.

35. If all these three conditions are satisfied, then the exemption is available to the extent to which such expenses were actually incurred for that purpose. The exemption was restricted to the actual expenditure incurred by an amendment made by the Finance Act of 1955. Before this amendment the Bombay High Court had taken the view in Tejaji Farasram Kharawalla v. Commissioner of Income-tax : [1948]16ITR260(Bom) that once it was established that the grant was for a particular purpose it was no longer necessary for the assessee to prove that in fact he expended the grant for the purpose for which it was given. It was also held that the assessee might have spent more or less, but qua that grant, he was entitled to the exemption. The validity of this view of the Bombay High Court was canvassed before the Supreme Court in Commissioner of Income-tax v. Tejaji Farasram Kharawalla Ltd., : [1968]67ITR95(SC) In that case the assessee was a distributor of dyes and dye stuffs manufactured by Ciba. Ciba agreed to pay a commission at the rate of 12 1/2% of which 7 1/2% was treated as selling commission and 5% as compensation in lieu of the contingency expenses, which the selling agent had to meet, such as commission to dyeing-masters, agents, etc. The question before the Supreme Court was whether this 5% was liable to be taxed at all or not. At page 99 it was observed as follows :

'An allowance, though made to a person holding an office or employment of profit, intended for appropriation towards expenditure incurred or to be incurred in the discharge of the duties, does not constitute any real income of the grantee. It is in truth expenditure incurred by the employer through the agency of the grantee. The intention of the framers of the Act was to grant exemption in respect of amounts received by the assessee, not for his own benefit but for the specific purpose of meeting the expenses wholly and necessarily incurred or to be incurred in the performance of his duties as an agent. It would, therefore, be reasonable to hold that the allowance granted to meet the expenses wholly and necessarily incurred or to be incurred in the performance of the duties of the office or employment of the grantee alone qualifies for exemption under the Act, and any surplus remaining in the hands of the grantee after meeting the expenses does not bear the character of the allowance for meeting expenses but for performing the duties of the office or employment.........the surplus remaining inthe hands of the grantee acquires for the purpose of the Income-tax Act the character of additional remuneration'. (Underlining ours).

36. From the above passage it would be clear that in order that a person may claim the exemption under Section 4(3)(vi) of the Act he has to show that the amount was received not for his own benefit, but for the purpose of meeting the expenses wholly and necessarily incurred or to be incurred in the performance of his duties. In the present case the submission was that but for this engagement to do the work in Neyveli the respective assessee would not have left Britain and would not have put themselves to the additional expenditure that arose because of their having to be away from their home. It was, therefore, submitted that the amount was received only for meeting the expenses wholly and necessarily incurred or to be incurred in the performance of the duties,

37. The words 'in the performance' have come in for consideration in Nolder v. Walters, [1930] 15 TC 380. That was a case of an aeroplane pilot who was employed by a limited company and who claimed deduction of expenses on telephone, etc., in the assessment of his remuneration to income-tax under Schedule E of the U.K. Act. At page 387 Rowlatt J. said as follows :

''In the performance of the duties' means in doing the work of the office, in doing the things which it is his duty to do while doing the work of the office. A man who holds an office or employment has, equally necessarily, to do other things incidentally, and spend money incidentally because he has the office. He has to get to the place of employment, for one thing.........but it is not in doing the work of the office, which beginswhen he arrives, and sets to work to perform his duties.'

38. Similarly, in J.G. Mankad v. Commissioner of Income-tax the Gujarat High Court had to deal with a case where a chartered accountant practising in Ahmedabad was employed as a part-time professor of accountancy in Bhavnagar on a salary of Rs. 400 per month including travelling allowances and all other allowances. He claimed exemption under Section 4(3)(vi) of the Indian Income-tax Act, 1922, or deduction of the travelling expenses under Section 7(2)(iii) of the Act. It was held that he did not receive any special allowance so as to come within the scope of Section 4(3)(vi) of the Act. We have already extracted a passage earlier in this judgment where the distinction between Section 4(3)(vi) and Section 7(2)(iii) was set out. After pointing out this distinction and while dealing with the scope of the expression 'in the performance of his duties' occurring in both these provisions, it was pointed out at page 454 as follows :

'But in both cases the expenses must be expenses which are wholly and necessarily incurred in the performance of the duties of the office......The expenses must also be expenses which the assesses is required by the conditions of his service to incur out of his remuneration......... the expensesof travelling between Ahmedabad and Bhavnagar could not be said to be expenses incurred by the assessee wholly and necessarily in the performance of the duties of the office of part-time professor of accountancy held by the assessee, for they were incurred partly before the assessee commenced to perform such duties and partly after he concluded them.'

39. Under Section 4(3)(vi) the special allowance must relate to expenses incurred or to be incurred in the course of the performance of the duties of the office or during the performance of the duties of the office. For instance, a person after he reaches his office has to go on duty to various parts of a city for which purpose he receives certain allowances. That would come within the scope of Section 4(3)(vi) of the Act. The subsistence allowance in the present case is not related to the duties as such. We have already extracted the relevant paragraph from the agreement. It is linked with the provision of furnished quarters. If N.L.C. provided the furnished quarters, then he would receive Rs. 30 per day. If P.D.T.S. provided the furnished quarters, he would receive from N.L.C. Rs. 45 out of which he would part with Rs. 15 to P.D.T.S. In either event he would have in his hands only Rs. 30. This is called the subsistence allowance. The meaning of the word 'subsistence' is so clear that it cannot have anything to do with the duties of an office as such. The circumstance that the assessee would have to incur extra expenditure because of his posting in India has really no effect on the problem under consideration. As pointed out in Carry v. Robinson, in the case of a person engaging in for work at Singapore and receiving a 'colonial allowance' the amount received is liable to be taxed as income. The claim for exemption could be sustained only if it is proved that the subsistence allowance was received specifically for meeting the expenses wholly and necessarily incurred in the performance of the duties. There is no evidence on this point. Merely because a person is employed and therefore, he receives the amount the exemption does not follow. The fact of his employment coupled with the receipt would render the amount taxable as observed earlier. The exemption can be claimed only if the conditions of Section 4(3)(vi) of the Act are satisfied. Though the amount is described as the subsistence allowance and can in that sense be considered to be a special allowance, it would not be eligible for exemption, because it is not shown to have been granted to meet the expenses wholly and necessarily incurred in the performance of the duties. The learned counsel for the Commissioner of Income-tax submitted that if a particular amount was liable to be treated as a perquisite under Section 7(1) of the Act, then it would not come within the meaning of Section 4(3)(vi) of the Act at all. We do not think it necessary to decide this point. The claim for exemption has to be made out by the assessee by showing that the amount was granted to meet the expenses wholly and necessarily incurred in the performance of the duties. The fact that it is called a subsistence allowance and the circumstance that it is related to the provision of residence clearly go to show that it is an amount received by the assessee for his own benefit and not for meeting the expenses incurred in the performance of the duties at all. The duties had ended in the office. The assessee would have to stay and subsist somewhere, whether employed in India or in his own country. Any receipt for meeting such expenses would not come within the ambit of Section 4(3)(vi) of the Act as such expenses are not shown to be incurred in the performance of duties. The assessee has failed to make out a claim under Section 4(3)(vi) of the Act.

40. In the result, the first question as refrained by us is answered in the affirmative and against the assessee. The second question is answered in the negative and against the assessee. The Commissioner of Income-tax will have his costs. Counsel's fees RS. 250.


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