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TMI Blog2007 (11) TMI 337X X X X Extracts X X X X X X X X Extracts X X X X ..... te employees? 2.1 From the order of the Assessing Officer dated 31-3-2004, passed under section 154 of the Act, it transpires that an order under section 201 and section 201(1A) was passed for financial years 1988-89 to 1997-98 on 30-3-2000. The Tribunal restored the matter to the file of the Assessing Officer with the direction to re-compute the liability of the assessee for financial years 1995-96 to 1997-98 after grossing up the tax with income under section 195A, dealing with income payable "net of tax". The order to this effect was passed on 22-3-2004. Thereafter, it was found that in the original order as well as in the order giving effect to the order of the Tribunal, the value of perquisites for the employees in respect of rent-free accommodation was computed without including the tax in the gross salary. Therefore, a notice under section 154 was served on the assessee. It was contended that the mistake sought to be rectified was not a mistake apparent from record as it involved determination of the issue whether tax was salary or perquisite for the aforesaid purpose. The Assessing Officer did not accept the contention of the assessee. He relied On the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... salary as provided in section 195A. Effect was given to this order on 22-3-2004 and a copy of that order was filed before us. In this order, the Assessing Officer relied on the decision of Hon'ble Delhi High Court in the case of T.P.S. Scott and included the tax perquisite in salary for the purpose of computation of the perquisite in respect of rent-free accommodation. The argument of the learned counsel was that the original order of the Assessing Officer had merged with the order of the Tribunal, to which effect was given on 22-3-2004. In view thereof, the Assessing Officer did not have jurisdiction to rectify the order under section 154 of the Act, as such jurisdiction vested only in the Tribunal. He referred to paragraph 34 of the order of the Tribunal, which dealt with the argument of the learned DR to the effect that the Assessing Officer had failed to include the tax perquisite in computing the salary for the purpose of computing the value of rent-free accommodation. In view thereof, it was contended that the matter may be remanded to the Assessing Officer to re-compute the perquisite in respect of rent-free accommodation after including the tax in the salary. For this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also the decision in the cases of Sri Sri Kubereswar Mahadeva Thakur v. CIT [1992] 196 ITR 649 (Cal.); CIT v. Kamla Town Trust [1992] 198 ITR 191 (All.); Bhopal Sugar Industries Ltd. v. ITO [1960] 40 ITR 618 (SC) and Union of India v. Kamlakshi Finance Corpn. Ltd. AIR 1992 SC 711. 2.5 In reply, the learned DR pointed out that this was not a case of derivative jurisdiction but one of exercise of jurisdiction by the Assessing Officer under section 154 of the Act as the issue under question was not considered by the Tribunal at all. He referred to the order of the Assessing Officer, in which it was mentioned that in the order giving effect to the order of the Tribunal as well as in the original order, the value of perquisite for each employee in respect of rent-free accommodation was computed without including the tax perquisite in the gross salary. Thus, it was argued that the Assessing Officer rectified the original order in which the mistake had taken place, which would have consequential effect on the order giving effect to the order of the Tribunal. Further, he referred to paragraph 34 of the order of the Tribunal in the case of the assessee, in which it was specifically point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgment was delivered. In that case, the penalty under section 271(1)(a) was levied by Assessing Officer which was challenged by the assessee before the AAC but found that penalty levied by Assessing Officer was much less than the penalty leviable under the law. In view of such finding it was held that the penalty levied was not in accordance with law and consequently, the AAC cancelled the penalty. On appeal by the department, the Tribunal was of the view that it had no option except to uphold the order of AAC since it had no power of enhancement. The order of the Tribunal was also upheld by the High Court. However, the Supreme Court reversed the order of High Court and held that AAC had the power of enhancement and, therefore, the Tribunal in such cases had the power to remand the matter to the Assessing Officer for re-computing the penalty in accordance with law. From the above discussion, it appears that in that case the revenue was in appeal before the Tribunal and the subject-matter of appeal was the levy of penalty and, therefore, it could exercise its powers with reference to such subject-matter. In our opinion, this judgment can be applied only where the Tribunal is requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion or retirement benefits of the employee concerned; (ii) employer's contribution to the provident fund account of the employee; (iii) allowances which are exempt from payment of tax; and (iv) any allowance in the nature of entertainment allowance to the extent such allowance is deductible under clause (ii) of section 16. It was further pointed out that this definition was amended with effect from 1-4-2001 to include within the ambit of the term "salary" the pay, allowances, bonus or commission payable monthly or otherwise or any monetary payment, by whatever name called by one or more employers, as the case may be, but does not include-(a) dearness allowance or dearness pay unless it enters into computation of superannuation or retirement benefits of the employee concerned; (b) employer's contribution to the provident fund account of the employee; (c) allowances which are exempt from payment of tax; (d) the value of perquisites specified in sub-section (2) of section 17 of the Income-tax Act, and (e) any payment or expenditure specifically excluded under proviso to sub-clause (iii) of clause (2) or proviso to clause (2) of section 17. It was further pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the hands of the assessee under section 15 read with section 17(2)( iv) of the Income-tax Act, 1961? The Hon'ble Court decided the matter in favour of revenue and we may reproduce one paragraph from that decision as under:- "We may refer to the relevant statutory provisions. Section 15 sets out the income which shall be chargeable to income-tax under the head "Salaries". Vide clause (b) thereof any salary paid or allowed to an employee 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 is an income chargeable to tax under the head "Salaries". For the purpose of section 15 vide section 17 (1)(iv), perquisites are included in salary. Vide sub-clause (iv) of clause (2) of section 17 any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee, is included in "perquisites". The interpretation clause i.e., section 2 of the Act, vide sub-clause (iii) of clause (24) thereof, includes the value of any perquisite or profit in lieu of salary taxable under clauses (2) and (3) of section 17, within the meaning of ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er rule 3 of the Income-tax Rules, 1962, includes the tax paid by the employer on behalf of the employee and tax on such tax. The Hon'ble Court pointed out that the definition was inclusive and it was well settled rule of interpretation of inclusive definitions that it is not controlled by or confined to the words and expressions included in the definitions. It was further pointed out that the purpose of giving a separate definition to the term in rule 3 was to exclude certain kinds of payments, which were otherwise covered by the term "salary". Therefore, the definition in rule 3 is co-extensive with the definition given in section 17 of the Act except so far as there is an express exclusion therefrom of the kinds of payments mentioned therein. It was also pointed out that the dictionary meaning of the word "pay" includes all periodical payments for services rendered. Therefore, both the words, namely, salary and pay would include tax within their ambit. 3.5 In reply, the learned DR pointed out that tax paid by the employer on behalf of the employee is nothing but salary paid in cash. Apart from the decision in the case of C.W. Steel (No. 1) and H.D. Denni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el has picked up a paragraph from Board Circular No. 15, dated 12-12-2001 to argue that the definition of the word "salary" in rule 3 is the same before 1-4-2001 and thereafter. We are of the view' that specific inclusion of clause (d) in "salary" after 1-4-2001 was a conscious decision, which materially altered the definition not only by excluding perquisites under section 17(2)(iv), but also certain other perquisites mentioned in section 17(2)(iii) and proviso to section 17(2). In the face of these changes, it will not stand to reason to accept that the definition of the term "salary" in rule 3 was the same before and after 1-4-2001. Hon'ble Kerala High Court has referred to the definition of "salary" under Income-tax Rules, 1962, and pointed out that tax paid by the employer was in the nature of "pay". Hon'ble Bombay High Court in the case of H.D. Dennis has distinguished the definition under rule 3 and under section 17 and it has been pointed out that' the definition in rule 3 is for the purpose of valuation of perquisites, mentioned in the rule, for computing income under the head "Salary". The objecti ..... 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