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TMI Blog1984 (6) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... nfirmity of misjoinder of parties and causes of action. (2) Even if the writ petitions are held maintainable, separate court fee should be collected from each of the writ petitioners. (3) The salary disbursing officers of the petitioners' employer ought not to have been impleaded as respondents herein. (4) Since the petitioners have alternative remedy of taking the matter in appeal in case the ITO disallows their claims in this behalf and so the writ petitions are incompetent. In support of the first objection, the Revenue relied on the decisions of the Supreme Court in Dhanyalakshmi Rice Mills v. Commr. of Civil Supplies, AIR 1976 SC 2243 and Mota Singh v. State of Haryana, AIR 1981 SC 484, whereas the petitioners cited the decisions in Annam Adinarayana v. State of Andhra Pradesh [1957] If An WR 345 ; AIR 1958 AP 16 and Management, S.C.Co. Ltd. v. Industrial Tribunal [1975] 1 LLJ 470. In Management, S.C.Co. Ltd. v. Industrial Tribunal [1975] 1 LLJ 470, a Division Bench of this court while placing reliance on an earlier decision of a Division Bench in Annam Adinarayana v. State of Andhra Pradesh [1957] II An WR 345; AIR 1958 AP 16, which, in turn, derived its strengt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt-Fees and Suits Valuation Act, in the circumstances where the cause of action for the several persons who had joined in filing a single writ petition being distinct and different and so, whether they could be allowed to join in filing a single writ petition, held that they cannot, but in the circumstances of the case, the petitioners were permitted to effect the necessary amendment and retain the name of the first petitioner alone. In the light of the above two decisions, we are of the view that single writ petition is maintainable, provided court-fee is paid on behalf of each of the petitioners therein. Alternatively, however, it would be open to the learned counsel for the petitioners to amend the petition by striking off the petitioners other than the first petitioner in case they are not inclined to pay court-fee on behalf of each and every writ petitioner. Resultantly, we uphold the objection of the Revenue. The third objection cannot sustain for the reason that the disbursing officers were purporting to deduct tax out of various allowances referred to hereinabove from the salary and, therefore, they are necessary parties. The last objection pertains to the alterna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed leave if they so desire subject to the above provision. (ii) In the case of surrender of leave not exceeding 15 days and 30 days, the interval between surrender of E.L. should be not less than 12 months and 24 months, respectively;... (vii) This concession also applies to Board employees who are on foreign service or on deputation to Government of India or other State Governments. Certain principles which will be guiding factors in construing the statutory provisions in the I.T. Act and in particular, the expression Cc salary " as defined in various sections of the said Act and which are fairly settled, may be borne in mind before adjudicating the point involved herein. (1) The expression " salary " is defined in various sections of the I.T. Act and the Rules, viz., Explanation to s. 10(10), s. 17, Explanation 2(a) to s. 40A(5), rule 2(h) of Part-A of Schedule IV, Explanation 1 to s. 36(1)(iia) and Explanation I to rule 3, in various ways. Bat, for the purpose of computing income for charging purposes, only the definition of s. 17 has to be looked into. (2) The chargeability of a receipt has to be judged with reference to s. 17 and de hors s. 10 which directs cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly called " salary ". The Supreme Court in Gestetner Duplicators P. Ltd. v. CIT [1979] 117 ITR 1(SC) explained that conceptually there is no difference between salary and wages, both being recompense for work done or services rendered, though ordinarily the former expression is used in connection with services of non-manual type, while the latter is used in connection with manual services. It may be seen that under clause (10AA) of s. 10, which was introduced by the Finance Act, 1982, with retrospective effect from April 1, 1978, the receipt by way of leave encashment paid to the employee at the time of retirement on superannuation is specifically exempted from inclusion in the recipient's total income. It is indicative of the fact that the Legislature did not intend to exempt likewise the receipt of leave encashment amount paid to the employee from time to time while in service. This will not, however, ipso facto displace the burden on the Department to establish that the leave encashment amount falls within the ambit of s. 17(3). We have, however, no hesitation to dismiss the contention, faintly advanced though, that clause (10AA) of s. 10 takes in not only the terminal benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the net of taxation the amounts that fell due though not received as well as the amounts that were received without the same being due. The essential ingredients that are to be satisfied for the purpose of application of the provisions enacted in s. 17(3)(ii) are: (1) that the payment must be relatable to employment; (2) that it must not be based on personal or extra employment considerations; and (3) that it must not be a payment falling under any clauses of s. 10 specified in parenthetical clause of s. 17(3)(ii). In our undoubted view, leave encashment satisfies all these ingredients, being in the nature of recompense or reward for the services rendered by the employee. It cannot be regarded as a payment made on personal or extra employment considerations. It is needless to refer to the cases cited by the Revenue, viz., CIT v. Gajapathy Naidu [1964] 53 ITR 114 (SC); David Mitchell v. CIT [1956] 30 ITR 701 (Cal) and Krishna Menon v. CIT [1959] 35 ITR 48 (SC) for establishing as to whether the receipt of amount by way of leave encashment is relatable to employment, as it is quite apparent from Note 6(1)(i) of regulation 29(5) referred to above, that the employee is entitle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax on such capital receipts is not permissible under the Act. The next contention of the learned counsel is that only what is paid by the employer from out of his business profits that may be regarded as profit in lieu of salary and the word " profit " suggests that the Legislature never intended any other kind of payments to be assessed to tax under the head " Salary ". Secondly, only terminal benefits come within the purview of the definition of profit in lieu of salary. These two arguments ex facie are mutually contradictory, as terminal benefits such as provident fund payments, surely do not represent commercial profits. The former contention is, in our view, fallacious. There are payments other than fees and commissions which are also relatable to employment and are in the nature of addition to salary. In fact, by passage of time, the expressions " profit in lieu of " or, " in addition to " salary have come to stay. That apart, it is the content of the definition and not the appellation that matters. Once it is accepted that payment by way of leave encashment is referable to employment and represents addition to salary and thus attracts the content of the definition, nothi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which will be presently examined, are of little or of no assistance to them. Hochstrasser v. Mayes [1961] 42 ITR 457 (HL) is a case where company advanced interest-free loans to the employees under a housing scheme evolved by it enabling the employees to acquire houses for their residence at the place where they were stationed. They scheme further provided that as and when an employee was transferred, he had an option to sell the house to the company or with the permission of the company, to sell it to others and in the event of the employee sustaining capital loss in the sale, the company undertook to reimburse the loss. The company paid certain amounts in a particular case by way of reimbursement of the capital loss. The question was whether the receipt in the hands of the employee was assessable to tax. In those circumstances, it was held that though the amount would not have been paid to the recipient but for the fact that he happened to be the employee, employment was only causa sine qua non but not the causa causans of the payment, that there was no direct nexus between the payment and the service rendered by the asses see and so, the payment was made on extra employment c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration. In the 1961 Act, the receipt of such compensation is given the garb of "profit in lieu of salary " and is thus made taxable under clause (i) of s. 17(3), which is radical departure from Explanation 2 to s. 7(1), as it stood prior to 1955. So, the question was whether the compensation paid by the employer unilaterally for termination of employment, when there was no compelling obligation under law to pay, would not come within the purview of the conditional clause as obtained in the second limb of Explanation 2 to s. 7(1). It was held that for a compensation paid to an employee for termination of employment to fall within the purview of the conditional clause, as it originally stood in Explanation 2, it was not necessary that there must have been a compelling obligation in law for the employer to make the payment and the payment must have been made in fulfilment of that obligation. However, now the above decision is merely of academic interest, as we are not concerned in the present case with the conditional clause as obtained in Explanation 2 to s. 7(1) of the 1922 Act, inasmuch as we are not concerned in the present case with payments made for termination of empl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (ii) of s. 17(3). Sri Dasaratharama Reddy wants the court to read s. 17(3)(ii) as under : " any payment (other than ... ), due to or received by an assessee from an employer or a former employer or from a provident or other fund (not being an approved superannuation fund), to the extent to which it does not consist of contributions by the assessee or interest on such contributions. " We scarcely see any warrant for either ignoring the disjunctive " or skipping outright the same, occurring between the words "former employer " and " from a provident fund or other fund ". The intention of the legislature as prognosticated in no uncertain terms, by the usage of the preposition " or " in between the said words makes it explicit that any amount due to or received not only from an employer or former employer, but also any payment from a provident fund or other fund, subject to the qualifications made thereunder, would constitute " profit in lieu of salary ". Secondly, the pronoun, " it ", must necessarily be referable to the preceding nouns " provident fund or other fund ", and not to " any payment " inasmuch as it is only a fund that may consist of contributions and not any pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of employment ". The two clauses, therefore, are distinct, and disjunct and so, stand independent of each other. In fact, the Legislature made its intention more manifest by taking the compensation paid to an employee for termination of employment out of the gamut of general law concept, the same being capital receipt, and placing the same in the position of " revenue receipt ". Finally, the learned counsel for the petitioners relying on the orders made by the Income-tax Appellate Tribunal, Madras, as well as Hyderabad, wherein it was held that receipts by way of leave encashment while in service as well as on retirement are capital receipts and would not come with in the purview of the definition of " profit in lieu of salary " and tried to persuade us to give weight to the same. The reasoning of the orders, we are afraid, is based on an erroneous appreciation of the provisions of the Act, and so is diametrically opposite. Therefore, we are not persuaded to accede to the said submission. The Tribunals proceeded on the basis that the leave as such is a capital asset and so, encashment of it is in the nature of cash consideration obtained by the surrender of that capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplement his regular salary. It is needless to go into that aspect of the case, as the receipt in this case falls within the four corners of the definition of " profits in lieu of salary " contained in s. 17(3)(ii) dispensing thereby delving deeply into the academic character as to whether the leave encashment is a consideration received under the contract of sale or transfer of a capital asset and if so, what that capital asset is, and whether that capital asset is a self-generating one and so forth. So, the chief contention of the petitioners in this behalf has to be rejected. The next question pertains to the taxability of receipts by employees by way of house rent allowance, city compensatory allowance, bad climate allowance, shift allowance and other cash allowances. The argument in the main for the petitioners is that these allowances are given by way of reimbursement of the expenditure incurred by the employees in discharge of their duties at the places where they are stationed, that there is no element of personal benefit in them, that these allowances are neither " perquisites " falling under clause (2) of s. 17, nor " profits in lieu of salary " falling under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a payment on personal considerations, or in appreciation of the personal qualities of the employee and so, falls within the province of " profit in lieu of salary ". In our view, the reasons assigned for holding that leave encashment amount falls within the meaning of " profit in lieu of salary ", will also hold good in respect of house rent allowance as well. Now, the second limb of the question is whether the house rent allowance is a " perquisite ". A " perquisite " is a fringe benefit attached to the post held by the employee unlike " profit in lieu of salary ", which is a reward or recompense for past or future service. At times the provisions enacted in s. 17(2) and (3) may overlap, say, house rent allowance being payment in cash may well be regarded as profit in lieu of salary: on the other hand, being an allowance attached to a post, it may be regarded as a perquisite too. The view in Sampath Iyengar's book on Income-tax, as edited recently by justice Ranganathan, is that the payments specified in the parenthetical clause of s. 17(3)(ii) are in the nature of perquisites and, therefore, it would seem inappropriate to exclude them from the definition of " profit in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , deduction is given in respect of house rent allowance paid to an employee living in a rented house, so also non-salaried assessee gets similar deduction towards house rent under s. 80GG of the Act. Therefore, there is no justification for disallowing the relief to the employees living in their own houses. This again has no substance in the face of the express provisions enacted making the intention of the Legislature evident, roping in within the net of taxation this kind of house rent allowance as well. Logic, therefore, has no place. Yet another attempt drawing assistance from three decisions of the Punjab and Haryana High Court in CIT v. justice S.C. Mittal [1980] 121 ITR 503 (P H), CIT v. B. R. Tuli, Ex-judge [1980] 125 ITR 460 (P H) and CIT v. M. S. Gujral [1980] 125 ITR 655 (P H), wherein it has been held that the house rent allowance paid to a judge of a High Court, who lives in his own house and who is entitled to rent-free quarters, is exempt from income-tax under s. 10(13A). The ratio which is common in all the three above cited decisions is (page 506 of 121 ITR): The provisions of s. 10(13A) of the Act have been enacted to compensate the assessee regarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich will be enumerated hereinafter, is that these allowances are given by , way of reimbursement of the expenditure incurred by the employees in discharging their duties at the places where they are stationed ; there is no element of personal benefit embedded in these allowances and so, they are neither " perquisites" within the meaning of clause (2) of s. 17, nor " profit in lieu of salary " falling under clause (3) of s. 17. Further, when the income character of the receipts is not established, nothing turns upon whether the receipts fall within the province of the exemptions enacted in the various clauses of s. 10, in particular clause (14) of s. 10 read with the Explanation thereto. Besides, perquisite has to be interpreted in the same way in s. 17(2) as in s. 40A(5) of the Act. Before analysis, the Government orders and Board proceedings under which the various allowances in question that are paid to the employees, may be noticed. Subsidiary Rules under rule 44, read 1. Compensatory allowances include (a) house-rent allowance ; ... (f) bad climate allowance. (G. 0. Ms. No. 377, Finance, dated 21st October, 1971). 2. A compensatory allowance attached to a pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided with such accommodation at the rates of 10% of their basic pay subject to a maximum of Rs. 150 per month. G.O. Ms. No. 155, dated 8-4-1981, reads; " Bad, climate allowance shall be paid to the employees working at Srisailam Project only after the production of a certificate by the Government servant residing in the area declared as 'unhealthy' obtained from Anti-Mosquito Officer to the effect that his/her house was satisfactorily sprayed with insecticide in each round of spraying and that his/her family members have been successfully vaccinated......." City compensatory allowance: Support was sought to be derived from the two decisions in CIT v. D. R. Pathak [1975] 99 ITR 14 (Bom) and Bishambar Dayal v. CIT [1976] 103 ITR 813 (MP). It may be stated at the outset that the above cited two cases were concerned with the question whether city compensatory allowance could be exempted under s. 10(14), as it stood then, and not with the question whether they bear income character at all. Subsequent to the judgment in Pathak's case [1975] 99 ITR 14 (Bom), wherein it was held that city compensatory allowance was granted to the assessee to meet expenses wholly and exclusive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditional fact that there is neither any contractual nor statutory obligation on the part of the employer to pay this bonus, as it is said to be a voluntary payment for serving as an incentive for exerting more strain to maximise generation of electricity, does not make the payment any the less " perquisite ". The decisions cited by the petitioners, buttressing the argument in regard to the various allowances enumerated, are of little or no avail to the petitioners-assessees. Owen v. Pook (Inspector of Taxes) [1969] 74 ITR 147 (HL). This case pertains to payment of travelling allowance to a medical practitioner by way of reimbursement of the travelling expenses incurred by him for going from his house to the hospital and back home. The House of Lords held that the allowance could not be regarded as a perquisite because by perquisite was meant what would benefit a person by something going into his pocket and not something intended to fill a hole in his pocket. In our view, this allowance would equally be exempted under s. 10(14), but the ratio, however, cannot be extended to the various allowances with which we are concerned herein, as they are not intended to fill the hole in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any expenditure incurred in the discharge of official duties. This allowance was held to be a taxable receipt. Sri Dasaratharama Reddy, learned counsel for some of the petitioners, has cited some rulings for the proposition that cash allowance is not de perquisite ". CIT v. B. Ghosal [1980] 125 ITR 744 (Ker). In this case, the question was whether profit bonus should be treated as part of salary within the meaning of rule 2(h) of Part A of IV Schedule to the Act, to see whether this falls within the allowable exemption under s. 10(l 3A) in respect of house rent allowance. If the receipt is not salary for the purpose of the aforesaid rule 2(h), it does not follow that it is not salary for the purpose of s. 17(2) or s. 17(3). Therefore, this decision does not militate against the view taken in CIT v. Hind Lamps Ltd. [1980] 122 ITR 451 (All). It may be stated here that the rulings cited hereinbefore, viz., CIT v. S. G. Pgnatale [1980] 124 ITR 391 (Guj), CIT v. J. Jenkin Thomas [1975] 101 ITR 511 (Mad), Fergusson v. Noble [1919] 7 TC 176 (C Sess) and Robinson (H. M. Inspector of Taxes) v. Corry [1933] 18 TC 411 (CA), were all concerned with payments of allowances in cash, which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ludes ". So, one is restrictive and the other one is comprehensive. (See Kesava Reddi v. R. D. O., Anantapur [1966] 1 ALJ 255 and Taj Mahal Hotel v. CIT [1968] 70 ITR 366 (AP)). For all these reasons, we are of the undoubted view that the cash allowances cannot be said to be outside the ordinary meaning of " perquisites ". No provision, nor any authoritative pronouncement has been cited before us showing that cash allowance is not perquisite " within the meaning of s. 17(2). From the foregoing, in our judgment, it is clear that the various allowances referred to hereinabove are " perquisites " within the meaning of s. 17(2) and, therefore, constitute taxable receipts. In sum i (1) Each of the writ petitions jointly filed by two or more persons having a separate and distinct cause of action, is nevertheless maintainable, as there is commonness in regard to the questions of law involved therein, without involving any investigative process with regard to the material facts. Such petition is maintainable provided court fee is paid on behalf of each and every petitioner. (2) Since the disbursing officers were purporting to deduct tax out of various allowances, they are nec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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