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Issues Involved:
1. Whether the income-tax paid by the employer on behalf of the assessee can be treated as salary within the meaning of clause (2) of the Explanation to rule 3 of the Income-tax Rules, 1962, for the purposes of calculating the value of rent-free accommodation. Issue-wise Detailed Analysis: 1. Treatment of Income-tax Paid by Employer as Salary: The primary issue in both cases was whether the income-tax paid by the employer on behalf of the assessees could be treated as "salary" for the purposes of calculating the value of rent-free accommodation under rule 3 of the Income-tax Rules, 1962, and rule 24A of the Indian Income-tax Rules, 1922. The assessees argued that the tax borne by the employer was neither fixed nor regular and should be excluded from the computation of the value of perquisites. The Income-tax Officer, however, considered the tax borne by the employer as a "perquisite" and included it in the salary for valuation purposes. Tribunal's Decision: The Tribunal held that it would not be proper to include the tax borne by the employer as part of the assessees' salary for calculating the value of rent-free accommodation. It stated that the tax borne by the employer was a perquisite and could not be included under the term "salary" as defined in Explanation 2, rule 3, of the Income-tax Rules, 1962. High Court's Analysis: The High Court examined the definitions and interpretations of "salary" and "perquisite" under section 17 of the Income-tax Act, 1961. It noted that "salary" includes wages, annuity, pension, gratuity, fees, commission, perquisites, or profits in lieu of or in addition to any salary or wages. "Perquisite" includes the value of rent-free accommodation provided by the employer and any sum paid by the employer in respect of any obligation which would have been payable by the assessee. The court considered the argument that the word "includes" in the definition of "salary" should be understood as "means and includes," making the definition exhaustive. However, the court concluded that the word "includes" generally enlarges the meaning of the word, unless the context suggests otherwise. The court referred to various precedents, including Dilworth v. Commissioner for Land & Income-tax and Kantilal Manilal v. Commissioner of Income-tax, to support the interpretation that "includes" enlarges the meaning of the word. Contextual Interpretation: The court found no context in rule 3 suggesting a restricted meaning for the word "salary." It noted that the purpose of defining "salary" in rule 3 was to exclude certain items rather than restrict its meaning. The court also referred to North British Railway Company v. Scott and Hartland v. Diggines, where it was held that taxes paid by the employer under a contract to pay salary free of income-tax are part of the salary. Conclusion: The High Court concluded that the income-tax paid by the employer is part of the salary of the assessee. It held that the taxes paid by the employer would be included in the word "pay" in rule 3. The court also noted that the tax paid by the employer could be considered an allowance, which is not defined in the Act or Rules but generally means money allotted to meet expenses. Thus, in any view, the income-tax paid by the employer should be treated as salary for valuing rent-free residential accommodation under rule 3 of the Income-tax Rules, 1962, and rule 24A of the Indian Income-tax Rules, 1922. Final Judgment: The references were answered in the affirmative and in favor of the revenue. The revenue was entitled to its costs, with counsel's fee set at Rs. 250 in each case.
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