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TMI Blog1984 (11) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax Act, 1961, as it stands after the amendment by the Finance Act, 1974, with effect from 1974-75, deals solely and exclusively with deductions admissible against income assessable under the head ' Salaries '. Section 17 lays down that for the purposes of sections 15 and 16, ' salary ' includes, among other things, pension. The plain reading of section 16(i), read with section 17(1), does not in any way restrict the statutory deduction to income from salary, excluding pension. In my view, the assessee is entitled to the statutory deduction provided under section 16(i) against the income from pension assessable under the head ' Salaries '. This view has already been upheld by the Income-tax Appellate Tribunal, Delhi Bench ' E ', in an appeal filed by the department against my order in the case of Brigadier B.D. Khurana [IT Appeal Nos. 2867, 2868 and 2869 (Delhi) of 1978-79, decided on 30-12-1978]." 4. As there was difference of opinion between various Benches of the Tribunal on the question as to whether standard deduction under section 16(i) is permissible against the pension amount received by a Central Government pensioner, the said question arising in the present appeal has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred by the assessee in relation to his employment in the accounting year itself. Even in the past, when the assessee was in employment, had incurred some expenses, he could claim deduction only in the relevant assessment year and not in relation to the assessment year thereafter. If the word ' employment ' in section 16(i) is understood to include the past employment also, it would mean that the assessee would be getting deduction in respect of expenditure incurred by him during the year prior to the accounting year and for which he had already claimed the deduction in the relevant year. It was, therefore, not possible to take the stand that the word ' employment ' used in section 16(i) can be interpreted to include in its ambit the past employment on the theory of an advantage to the employee and disadvantage to the pensioner. Mr. J.S. Rao further urged that the inclusion of ' pension ' within the definition of the expression ' salary ' in section 17 was intended to make the said definition of ' salary ' of such a wide amplitude so as to include all the benefits received by a person during or after the course of employment. As far as the admissibility of standard deduction u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unty nor a matter of grace depending upon the sweet will of the employer and that it creates a vested right in a pensioner for payment for past services rendered. The said statutory right vests in a pensioner because of past employment. The said past employment is in continuation of the relationship of employer and employee, which existed prior to the retirement of the pensioner. Further, since a pensioner after retirement is subject to the control and supervision of the Central Government under the Central Civil Services (Pension) Rules, 1972 (' Pension Rules ') (or earlier such Rules). In this connection, they highlighted that the payment of the pension, in view of rules 8, 9 and 10 thereto, is dependent upon an additional condition of impeccable behaviour even subsequent to retirement. A pensioner cannot take any commercial employment after retirement without the prior sanction of the Central Government. In case of army personnel, he after retirement is subject to recall for active service in case of emergency. He, as a retired army personnel, is entitled to the facilities of canteen, etc., at par with those enjoyed by the armed force personnel in active service. It is, thus, ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see in the present case, has retired. 9. It was further urged by Mr. Nargolwala and Mr. Syali that a pensioner, like the assessee before us, has to incur expenditure to draw pension, inasmuch as a pensioner (i) has to appear twice before the pension paying authority, (ii) has to maintain a bank account and incur expenditure in the collection of the pension payment order, which is to be deposited in the bank account ; and (iii) has to incur expenditure for correspondence with the pension paying authority primarily regarding the interim reliefs allowed or allowable to the pensioner pursuant to the various orders issued by the Government from time to time in this behalf. At was, therefore, clear that a pensioner incurs expenditure incidental to his employment. They further urged that from the scheme of section 16(i), it was apparent that no proof of incurring of actual expenditure or the incurring of expenditure was required for claiming the standard deduction under section 16(i). In support of this argument, reliance has been placed on the ratio of the decision of the Karnataka High Court in H.L. Siddappa v. CIT [1980] 126 ITR 641 and the Board's Circular No. 293 [F. No. 200/140/8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 and 17. That section (section 17) also defines the other expressions used in sections 15, 16 and 17, namely, ' perquisite ' and ' profits in lieu of salary '. Section 15 brings out the items of income, which shall be chargeable to income-tax under the head ' Salaries '. The items of income mentioned therein are as under : " (a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not ; (b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him ; (c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year." [Emphasis supplied] This takes us to section 16, which lays down the various deductions which are to be allowed while computing the income chargeable under the head ' Salaries '. When the Act was enacted and brought into force, this section contained five clauses. Then it read as under, providing the various deductions to be allowed, namely,--- " (i) any amount not exceeding five hundred rupees, expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been so used during the previous year, on the basis provided hereunder :---- (1) where the conveyance is a motor car and the amount of the salary due to the assessee in respect of the previous year--- (a) does not exceed Rs. 15,000 Rs. 150 ; (b) exceeds Rs. 15,000 but does not exceed Rs. 25,000 Rs. 200 ; (c) exceeds Rs. 25,000 Rs. 250 ; (2) where the conveyance is a motor cycle, scooter or other moped Rs. 50 ; (3) where the conveyance is a bicycle Rs. 5 ; (4) where it is a conveyance other than a conveyance referred to in sub-clauses (1) to (3) such amount as the Income-tax Officer may deem fit. " For item (1) in the above clause (iv), which is mentioned hereinbefore, the following item was substituted by the Finance Act, 1969, with effect from 1-4-1970 : " (1) where the conveyance is a motor car and the amount of the salary due to the assessee in respect of the previous year--- (a) does not exceed Rs. 25,000 Rs. 200 ; (b) exceeds Rs. 25,000 Rs. 250." 14. By the Finance Act, 1970, with effect from 1-4-1971, the following was substituted for clause (iv) as stated hereinbefore : " where the assessee is not in receipt of a conveyance allowance, whether as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 16(i) were also deleted. Thereafter, there have been some minor amendments in section 16(i) regarding the quantum of the standard deduction allowable under section 16(i). 18. Having stated hereinbefore that ' pension ' paid to a pensioner, like the assessee before us, is covered by the expression ' salary ' as given in section 17, let us first examine as to the nature of employment of the Government servant vis-a-vis the Central Government. A perusal of the Constitution of India shows that unless a case falls within the four corners of article 310(2) of the Constitution of India, which is not so in the case of the assessee before us, the relationship of all Government servants as a class and the Government cannot be said to be contractual. As laid down by the Supreme Court in Dinesh Chandra Sangma's case, it is well settled that except in the case of a person who has been appointed under a written contract stipulated in article 310(2), employment under the Government is a matter of status and not a contract, even though it may be said to have started initially by a contract in the sense that the offer of appointment is accepted by the employee. 9. Reading articles 309 and 310 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of article 148 of the Constitution, (ii) that the pension is not an ex gratia payment but it is a payment for the past service rendered ; and (iii) it is a social welfare measure rendering socio-economic justice to those who in the hey day of their life ceaselessly toiled for the employer on an assurance that in their old age they would not be left in lurch. It must also be noticed that the quantum of pension is a certain percentage correlated to the average emoluments drawn during last three years of service reduced to ten months under liberalised pension scheme. Its payment is dependent upon an additional condition of impeccable behaviour even subsequent to retirement, that is, since the cessation of the contract of service and that it can be reduced or withdrawn as a disciplinary measure." 21. This takes us to rules 8, 9 and 10 of the Pension Rules. Rule 8 lays down that future good conduct was an implied condition of every grant of pension and its continuance under these rules. The pension sanctioning authority has been authorised thereunder to withhold or withdraw a pension or part thereof, whether permanently or for a specified period, if the pensioner is convicted of a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent '. 22. We now come to the ordinary dictionary meaning of the expression ' derived ' as appearing in section 16(i), as it stood in the year under consideration. In the Living Webster Encyclopedic Dictionary of the English Language by the English Language Institute of America, Chicago, the word ' derived ' given therein has the meaning given below : " Derive. v.t.-derived, deriving [L. Derivare]. To draw or obtain from a source or origin ; to take, as a word, from a particular source ; form from a root, stem or the like ; chem. to obtain as one substance or compound, from another. To trace from a source or origin, as a custom or word ; declare to come from a particular source ; to obtain by reasoning ; deduce v.i. To come from a source ; originate. Derived, a drawn, obtained, or descended from a source. De-RIVED-UNIT, n. Phys. any of the units of area, velocity, etc., which are derived from fundamental units-DE-RIV.---ER, n DE-RIV-A-BLE.a." Taking this ordinary dictionary meaning of the expression ' derived ' in conjunction with what we have stated in the immediately preceding paragraphs, it emerges that the salary in the shape of pension in the present case of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 16(i). It is in this sense that the Tribunal has been consistently holding as in the case of the intervener S.D. Nargolwala or in the case of H. Venkatasubban [IT Appeal Nos. 2905 and 2906 (Mad.) of 1977-78, dated 4-5-1978] by the Madras Bench ' D ', or in the case of Gopal Rao Ekbote [IT Appeal Nos. 1868 and 1869 (Hyd.)(SMC) of 1977-78, dated 17-7-1978] or in the case of S.K. Deb [IT Appeal No. 63 (Gauhati) of 1979, decided on 2-4-1980] that the ' employment ' referred to in section 16(i) comprehends not only the past active service, but also passive present employment between the pensioner and the Government. Further, the pension being taxed under the head ' Salaries ' leaves no matter of doubt that in the computation of income under that head, all the deductions, including the standard deduction that follow and/or provided under the statute, are admissible. The standard deduction cannot be disallowed on the premises as urged by the departmental representative that the word ' employment ' means ' the state of being employed '. The assessee being a pensioner was not at present in the year under consideration in the state of being employed. Simply because a person is entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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