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TMI Blog1984 (8) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank of Hyderabad and Bharat Electronics Limited, Bangalore, including the petitioners are paid monthly House Rent Allowance (HRA), and a certain amount as encashment of leave once a year or once in two years, as the case may be, in terms of their conditions of service. All the petitioners are in occupation of their own houses. In computing the total income of the petitioners, both the H.R.A. and the cash amount of encashment of leave are included as part of their income for the purpose of deducting income-tax under s. 192 of the Act. The petitioners have, in these petitions, filed under article 226 of the Constitution of India, prayed for the issue of a writ in the nature of mandamus directing the Commissioner of Income-tax in Karnataka, Bangalore, not to treat the House Rent Allowance and the encashment of leave as part of their income for the purpose of deducting the taxes payable by them under s. 192 of the Act. Sriyuths Shivaraj Patil and M. C. Pattanshetti appeared for the petitioners and G. Sarangan assisted by H. Raghavendra Rao appeared for the Revenue. The H.R.A. given to the petitioners, it was argued, is by way of compensation or special allowance to every employee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... angalore, Bombay, Calcutta, Cochin, Coimbatore, Delhi, Hyderabad, Indore, Jabalpur, Jaipur, Kanpur, Lucknow, Madras, Madurai, Nagpur, Patna, Poona, Sholapur, Srinagar, Surat, Trivandrum, Vadodara (Baroda) or Varanasi (Banaras) one-fifth of the amount of salary due to the assessee in respect of the relevant period, and (ii) where such residential accommodation is situate at any other place, one-tenth of the amount of salary due to the assessee in respect of the relevant period; or (d) a sum calculated at the rate of Rs. 400 per month in respect of the relevant period ; whichever is the least... Sub-section (13A) of s. 10 of the Act exempts from income-tax, not exceeding rupees four hundred per month, any allowance specifically granted to an employee by the employer to meet expenditure actually incurred as payment of rent for residential accommodation occupied by the employee to the extent prescribed under the I.T. Rules, 1962. Rule 2A of the Rules prescribes that the employee can claim exemption of the (least of the) following amounts: (i) the actual amount of allowance granted; or (ii) the amount of actual rent paid in excess of one-tenth of the salary; or (iii) an amount eq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... qualifying aspects of such expenditure stated in the clause either affirmatively or negatively. In Nainital Bank's case [1966] 62 ITR 638 (SC), the court was considering the meaning of the word " expenditure " in s. 10(2)(xv) of the Indian I.T. Act, 1922. In that case, a large quantity of jewellery pledged with the assessee-bank by its constituents and currency notes were stolen by dacoits from its premises. In regard to the loss of the jewellery, the bank settled the claim of the constituents on these terms: When the market value of the jewellery exceeded the amount advanced, the difference was paid by the bank to the constituent, and when the market value of the jewellery was less than the amount advanced, the difference was recovered from the constituent. Under the adjustments so made, the bank made total payments of Rs. 48,891 and Rs. 1,21,760 in the years 1952 and 1953 respectively and claimed deduction of the respective amounts in computing its taxable income for the assessment years 1953-54 and 1954-55. On these facts, again the Supreme Court explained the term " expenditure thus (p. 641) " In its normal meaning, the expression 'expenditure' denotes spending' or 'paying o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of residential premises of which he is not a lessee, he will not "have paid or paid away " rent and nothing goes out of the coffer of the assessee. The H.R.A. paid to an assessee who is not in occupation of a rented premises but his own, is not for reimbursing or meeting any amount paid or paid away or any amount that has gone out of his coffer as rent and, therefore, is not exempt from tax liability. The Legislature has used the word " expenditure " as meaning paying out or paid away or as something which is gone irretrievably. By using the word " expenditure actually incurred ", the Legislature had made its intent very clear and beyond all doubt. We have, therefore, no doubt in our mind that the petitioners who are in occupation of residential premises not taken on lease but belonging to them cannot claim that the special allowances they get as H.R.A. is exempt from tax liability under s. 10(13A) of the Act. In Justice Mittal's case [1980] 121 ITR 503, the Punjab and Haryana High Court has held that " the provisions of s. 10(l 3A) of the Act have been enacted to compensate the assessee regarding the expenditure incurred on payment of rent in respect of residential accommodation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the petitioners that we must accept the view taken by the Punjab and Haryana High Court on the interpretation of s. 10(13A) of the Act, which is an all India statute and the law declared by the Punjab and Haryana High Court in Justice Mittals' case and the other two cases is binding on the income-tax authorities in this and other States and in support of these submissions, very strong reliance was placed on CIT v. Tata Sons (P.) Ltd. [1974] 97 ITR 128 (Bom) and CIT v. Smt. Godavaridevi Saraf [1978] 113 ITR 589 (Bom). Our Constitution, which is essentially federal, unlike in America, has established a common judiciary in the country to administer Central and State laws. At the apex of the Indian judiciary, we have the Supreme Court of India, whose jurisdiction extends over the entire country. The law declared by the Supreme Court has efficacy throughout the country and ex abundanti cautela is made binding on all authorities and courts including all High Courts in the whole country (vide article 141 of the Constitution). But a High Court established for one or more States, as can be the case, exercises jurisdiction subject to the other provisions of the Constitution and the law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as, in view of the decision of the Madras High Court, has to proceed on the footing that section 140A(3) was non-existent, the order of penalty thereunder cannot be imposed by the authority under the Act. Until contrary decision is given by any other competent High Court, which is binding on a Tribunal in the State of Bombay, it has to proceed on the footing that the law declared by the High Court, though of another State, is the final law of the land. When the Tribunal set aside the order of penalty, it did not go into the question of intra vires or ultra vires. It did not go into the question of constitutionality of s. 140A(3). That section was already declared ultra vires by a competent High Court in the country and an authority like an Income-tax Tribunal acting anywhere in the country has to respect the law laid down by the High Court, though of a different State, so long as there is no contrary decision of any other High Court on that question. It is admitted before us that at the time when the Tribunal decided the question, no other High Court in the country had taken a contrary view on the question of constitutionality of section 140A(3). With great respect to the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion which the court is interpreting; and since no two Constitutions are in identical terms, it is extremely unsafe to assume that a decision on one of them can be applied without qualification to another. This may be so even where the words or expressions used are the same in both cases; for a word or a phrase may take a colour from its context and bear different senses accordingly. What is stated here with reference to the then Federal Court aptly apply before the High Court also subject, of course, to the binding effect of a decision of the Supreme Court. In City Tobacco Mart v. ITO [1955] 27 ITR 549 (Mys), Mallappa J. of the erstwhile Mysore High Court, dealing with a case under the earlier I.T. Act and a decision of the Travancore-Cochin High Court and its binding effect, in a separate but concurring opinion, expressed on this question thus (p. 571): " We, with very great respect, therefore, cannot follow this decision, though we would ordinarily follow a decision of another High Court in such matters as this when it is desirable to lay down a common policy. " We are in respectful agreement with these views which correctly lay down the law. From this as also from our earli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioners and we reject the same. We now proceed to consider the other claim of the petitioners for exemption of the encashment of leave from tax liability. The encashment of leave, according to the petitioners, is neither salary " nor " profit in lieu of salary " and is, therefore, not taxable. The encashment of leave, according to them, is only compensation paid in lieu of leave surrendered, is in the nature of capital receipt and is, therefore, not taxable as income. The words " encashment of leave ", it was argued, do not fall within the meaning of the word " salary " as defined in subs. (1) of s. 27 or " profits in lieu of salary " as defined in sub-s. (3)(ii) of s. 17 of the Act and, therefore, not taxable. Section 14 of the Act enumerates the six heads under which the income of an assessee falls to be charged and "salaries" is one of the heads so enumerated. Section 15 of the Act is couched in the widest possible terms and every kind of remuneration of every kind of servant, public or private, and, however highly or lowly placed he may be, is covered under this section. No payment can fall to be taxed under this section unless the relationship of employer and emplo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g in the body of the " statute"; where it is so used, these words and phrases must be construed as comprehending not only such things as they signify according to their nature and import but also these things which the interpretation clause declares that they shall include: CIT v. Taj Mahal Hotel [1971] 82 ITR 44 (SC). The words " salary " and " profits in lieu of salary " have, therefore, to be understood as comprehending not only such things as they signify according to their nature and import but also those things which the interpretation clause declares that they shall include. These words cannot be understood to mean only such things which the definition or the interpretation clause declares they shall include. Some of the petitioners are the employees of the State Bank of Hyderabad and some others are the employees of the Bharat Electronics Limited, Bangalore, and each of them is getting " salary " every month. That the relationship between the petitioners and the management is that of an employer and employee is not in dispute. That the encashment of leave is also due to them or received by them from their employers is also not in dispute. But their case is that the " enca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt ". If the payment received by an employee can be regarded as a sum derived from the contract of employment or if payment accrues to the employee by virtue of the post he holds or, in other words, if the payment received by an employee is relatable to or flows from the terms and conditions of the contract of service, such payment is not received by way of damages and will not come within the meaning of the expression compensation " and is not in the nature of " capital receipt". The question for consideration, therefore, is, whether the It encashment of leave " is compensation or capital receipt outside the contract of employment or whether " encashment of leave " flows or is relatable to the terms and conditions of the contract of employment. The terms and conditions of employment are regulated by the Rules and Regulations by the employer. The grant of leave to an employee is also regulated by the relevant Rules and Regulations. An employee has to earn admissible leave in the first instance and only when he has leave to his credit in terms of the conditions of service, he can apply for grant of leave. When an employee avails of the sanctioned leave, he will receive pay an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gets leave salary and allowances for the said period. Learned counsel for the petitioners have not been able to satisfy us as to how this " leave salary and allowances " which is taxable when the assessee avails of leave, will not be taxable if the employee works during that period and earns more. The leave salary and allowances and the salary and allowances an employee receives for the same period are one and the same. The payment of leave salary and allowances to an employee who surrenders his leave is related to or flows from the relationship of employer and employee and from the terms and conditions of employment and falls within the meaning of the term " profits in lieu of salary " under cl. (ii) of sub-s. (3) of s. 17 of the Act. It was next urged for the petitioners that the Finance Act, 1982, has introduced s. 10AA in the Act, whereby the encashment of leave received at the time of retirement by an employee is exempt from tax liability and we have, therefore, to understand that the " encashment of leave " in so far as others are concerned is also not taxable. By this amendment, it is only the " encashment of leave " an assessee receives at the time of retirement that is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has no jurisdiction to mitigate such harsh consequences, if any. It is only when the language used is doubtful or is capable of more than one interpretation courts will prefer to accept the one more favourable to the subject. It is not for the courts to give the words used in a statute a strained and unnatural meaning so that it would benefit the subject : Morvi Mercantile Bank Ltd. v. Union of India [1965] 35 Comp Cas 629 (SC). We are satisfied in these cases that the petitioners are seeking the aid of the court to relieve them against express statutory provisions. On the above discussion, we hold that: (i) the H.R.A. received by the petitioners who are in occupation of residential accommodation belonging to them and not taken on lease cannot be taken as excluded in computing the total income; and (ii) the encashment of salary received by the petitioners falls within the meaning of " profits in lieu of salary " under section 17(3)(ii) of the Act. As all the contentions urged for the petitioners fall, these writ petitions are liable to be dismissed. We, therefore, dismiss these petitions and discharge the rule issued in all these cases. But, in the circumstances of the cases, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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