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TMI Blog1974 (8) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal, the Tribunal has allowed the appeal. It took the view that all the conditions required by section 10(14) of the Act were satisfied and the amount of compensatory (city) allowance received by the assessee was, therefore, exempt under that provision. It also accepted the alternative contention of the assessee that it was a permissible deduction under section 16(v) of the Act. At the instance of the revenue of following two questions are referred for our determination : " 1. Whether, on the facts and in the circumstances of the case, the compensatory (city) allowance received by the assessee was exempt from tax under section 10(14) of the Income-tax Act, 1961 ? 2. Whether, on the facts and in the circumstances of the case, the compensatory (city) allowance received by the assessee was deductible under section 16(v) of the Income-tax Act, 1961, in computing his total income ? " As we are inclined to answer question No. 1 above in favour of the assessee, it is unnecessary for us to express any opinion on question No. 2 above referred to. Section 10 of the Act enumerates the various things which are not to be included in computing the total income of a previous yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the contention on behalf of the revenue that there is no nexus between receipt of compensatory (city) allowance and the performance of duties is clearly unjustified. He further contended that the distinction made in respect of an expense incurred for performance of duties and that incurred in performance of duties is really unjustified in law, qua section 10(14). His submission was that even personal expenses incurred at a time which does not synchronise with the hours of duty is a permissible deduction or exemption under section 10(14) because but for the holding of the office he would not have incurred such an expenditure. It will be useful to refer to the relevant provisions of the rules and orders under which compensatory (city) allowance is received by a Government servant. The expression " compensatory allowance " is defined in Fundamental Rule 9(5) as under : " 9. (5) Compensatory allowance means an allowance granted to meet personal expenditure necessitated by the special circumstance in which duty is performed. It includes a travelling allowance but does not include a sumptuary allowance nor the grant of free passage by sea to or from any place outside India." A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the disposal of the Government which pays him, and he may be employed in any manner required by proper authority, without claim for additional remuneration, whether the services required of him are such as would ordinarily be remunerated from general revenues, from a local fund or from the funds of a body incorporated or not, which is wholly or substantially owned or controlled by the Government. It is not disputed on behalf of the revenue that the grant of compensatory (city) allowance is a special allowance or benefit specifically granted to meet expenses, nor is it the contention on behalf of the revenue that it is an allowance or benefit in the nature of entertainment allowance. It was however, urged on behalf of the revenue that grant of compensatory (city) allowance is a perquisite within the meaning of section 17(2). In section 17(2) an inclusive definition of the word " perquisite " has been given. What is normally meant by the word " perquisite " can never be a matter of much dispute. The word " perquisite " is defined in the Oxford English Dictionary as any casual emolument, fee or profit attached to an office or position, any addition to salary or wages. In order to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt out of his remuneration not only wholly but also necessarily and exclusively in the performance of his duties. The High Court took the view that the term " in the performance " is much narrower in scope than the term " for the purpose of the performance ". Many items of expenditure may be incurred by an assessee to enable him to perform his duties properly. These are not expenses incurred in the performance of his duties as the latter class is limited to those expenses incurred during the process of the performance of the duties. In other words, according to the Kerala High Court in order to be a permissible deduction under section 16(v) it must be an expenditure incurred at a point of time which synchronises with the commencement of the hour of duty or which must be during the performance of the duties. One of the decisions that was referred to by the Kerala High Court was the decision of the House of Lords in Ricketts v. Colquhoun. In the case before the House of Lords, the appellant, a barrister, residing and practicing in London, held the Recordership of Portsmouth, and was assessed to income-tax under Schedule E in respect of the emoluments of that office. In assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... personal expenses and the incurring of expenditure does not synchronise with the hours of duty, then it will not be a permissible exemption under section 10(14) because it cannot be said to be expenses incurred in the performance of the duties though they may be expenses incurred for the performance of duties. If the view expressed by the Kerala High court and by the House of Lords in Ricketts's case is regarded as correct law, then the contention of Mr. Joshi is right, but in a later decision of the House of Lords in Owen v. Pook (Inspector of Taxes), Lord Pearce has doubted the correctness of the view expressed by the House of Lords in Rickett's case and he has observed that the decision in Rickett's case is unsatisfactory in its result and in its reasoning and should be considered afresh. In Owen's case the facts were that the taxpayer carried on practice as a general medical practitioner in Fishguard. He also held two part-time appointments with the South Wales Hospital Management Committee as obstetrician and anaesthetist at a hospital in Haverfordwest, 15 miles from Fishguard. Under those appointments the taxpayer was on stand-by duty at certain specified times, to deal with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of the House of Lords ought to be upheld. While dealing with this contention Lord Pearce at page 157 points out as under : " With all respect to their Lordship who decided that case, I find it, as some others have done, very unsatisfactory both in its result and in its reasoning. In order to carry out his duties as recorder, the taxpayer had to travel to Portsmouth, since be was a London Practitioner (and it was, no doubt, by virtue of his London practice that he was appointed recorder). It was therefore unreasonable to tax him on the emoluments of his office without allowing the travelling expenses. For that would be to tax him on a sum larger than the true profit of the office." Our attention is drawn by Mr. Palkhivala to more than one decision of the English court where even personal expenses the incurring of which does not synchronise with the performance of the hours of duty, have been allowed as permissible deductions under provisions corresponding to section 16(v). The first case referred to by him was that of Lomax (H. M. Inspector of Taxes) v. Newton. In that case a territorial army officer appealed against an assessment to income-tax under Schedule E in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment to income-tax under Schedule E for the years 1958-59 and 1959-60 in amounts which included the club subscriptions, the respondent contended that they were spent wholly, exclusively and necessarily in the performance of the duties of his office or, alternatively, were expenses of travelling in the performance of those duties. On behalf of the Crown it was contended that the subscriptions entitled him to amenities which were personal to him and not connected with the performance of his duties. The Special Commissioners found that in the unusual circumstances the subscriptions were no more than a retaining fee paid to secure suitable inexpensive accommodation for the respondent on his visits to London and were money spent wholly, exclusively and necessarily in the performance of his duties. On a further appeal the court upheld the decision of the Commissioners. These decisions clearly show that even expenses incurred by way of personal expenses, and even though the incurring of such expenses does not synchronise with the hours of duty, can be claimed as permissible deduction as provided under section 16(v). This aspect of the matter was overlooked by the Kerala High Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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