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Issues Involved:
1. Whether the subsistence allowance constitutes 'profits in lieu of salary' under section 7(1) of the Indian Income-tax Act, 1922. 2. Whether the subsistence allowance is an allowance specifically granted to meet expenses wholly and necessarily incurred in the performance of the duty and thus not includible in the total income under section 4(3)(vi) of the Indian Income-tax Act, 1922. Issue-wise Detailed Analysis: Issue 1: Whether the subsistence allowance constitutes 'profits in lieu of salary' under section 7(1) of the Indian Income-tax Act, 1922. The court reframed the first question to determine if the subsistence allowance falls under the head 'Salaries' within the meaning of section 7(1) of the Indian Income-tax Act, 1922, omitting the reference to Explanation 2. Under section 7(1), tax is payable under the head 'Salaries' for any salary, wages, perquisites, or profits in lieu of salary. The court noted that if a receipt falls within the primary meaning of 'perquisites' or 'profits in lieu of salary,' there is no need to refer to the Explanation. The Tribunal had held that the employer was P.D.T.S., not N.L.C., and that the subsistence allowance incurred by the employees was in the performance of their duties. However, the court emphasized that the source of the payment is immaterial; what matters is if the amount was received by virtue of employment. The court cited C. Lakshmi Rajyam v. Commissioner of Income-tax and Bridges v. Bearsley to support this point, concluding that the subsistence allowance is part of the salary or wages, as it reached the employee by virtue of employment. Issue 2: Whether the subsistence allowance is an allowance specifically granted to meet expenses wholly and necessarily incurred in the performance of the duty and thus not includible in the total income under section 4(3)(vi) of the Indian Income-tax Act, 1922. Section 4(3)(vi) exempts any special allowance or benefit granted to meet expenses wholly and necessarily incurred in the performance of duties. The court noted that for an allowance to qualify for this exemption, it must be specifically granted for meeting such expenses and not for the employee's own benefit. The court referred to Commissioner of Income-tax v. Tejaji Farasram Kharawalla Ltd., where it was held that any surplus remaining after meeting the expenses does not bear the character of an allowance for meeting expenses but becomes additional remuneration. The court also cited Nolder v. Walters and J. C. Mankad v. Commissioner of Income-tax to emphasize that expenses must be incurred in the course of performing duties, not merely because of employment. The court found no evidence that the subsistence allowance was granted to meet expenses wholly and necessarily incurred in the performance of duties. The allowance was linked to the provision of furnished quarters and was not related to the duties performed. Therefore, the subsistence allowance does not qualify for exemption under section 4(3)(vi). Conclusion: The court answered the first question in the affirmative, stating that the subsistence allowance falls under the head 'Salaries' within the meaning of section 7(1) of the Indian Income-tax Act, 1922. The second question was answered in the negative, concluding that the subsistence allowance is not exempt under section 4(3)(vi) as it was not specifically granted to meet expenses wholly and necessarily incurred in the performance of duties. The Commissioner of Income-tax was awarded costs.
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