TaxTMI 
TaxTMI 
2000 (2) TMI 11
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....e in the form of city compensatory allowance (hereinafter referred to as "CCA"), dearness allowance (hereinafter referred to as "DA") and house rent allowance (hereinafter referred to as "HRA"). The appellants filed Civil Miscellaneous Petition No. 470 of 1988 in the Allahabad High Court challenging the inclusion of dearness allowance, city compensatory allowance, house rent allowance, paid to them in their income for the purpose of income-tax. Various other petitions raising similar contentions were filed by the Central Government employees, employees of Central Government undertakings, bank employees, State Government employees and general insurance employees. One such petition is before us being Civil Appeals Nos. 1853-1856 of 2000 arising out of S. L. P. (C) Nos. 15477-80 of 1988 disputing the taxability of various allowances, namely, dearness allowance, city compensatory allowance, house rent allowance, leave encashment, linked with leave, travel concession, running allowance, night allowance, etc. All the writ petitions were disposed of by a common judgment and order dated September 12, 1988, by the High Court of Allahabad (see [1989] 175 ITR 494). 3. The question for cons....
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....the Commissioner of Income-tax, West Bengal-II, Calcutta, against the judgment and order dated July 24, 1987 (see [1988] 169 ITR 162) of the High Court of Calcutta passed in Income-tax Reference No. 97 of 1977 holding that the city compensatory allowance paid to the assessee did not have the character of income within the meaning and scheme of the Income-tax Act, 1961. The following three questions were referred to the High Court by the Tribunal for decision: "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the city compensatory allowance cannot come within the charging sections and/or within the meaning of income of a Government servant in accordance with section 2(24) of the Income-tax Act, 1961, read with the Fundamental Rules and cannot come within the ambit of the meaning of total income as contained in section 2(45) of the Act? 2. Whether, on the facts and in the circumstances of the case, when the assessee's case cannot come within the provisions of sections 15 and 17 of the Act, the Tribunal was right in not considering the applicability of the provisions of section 16(v) of the Act? 3. Whe....
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....e. In view of the answers to the said questions, the High Court did not consider it necessary to answer question No. 3. Civil Appeals Nos. 6054 o f 1994 and 6058 of 1994: 8. The respondents, employees of the L. I. C. and G. I. C., filed petitions under article 226 of the Constitution before the High Court of Calcutta in Matter No. nil of 1988 praying, inter alia, for issue of a writ or order directing the appellants herein not to treat city compensatory allowance paid and payable to the employees of the appellants-companies as their taxable income and not to deduct income-tax at source on city compensatory allowance paid to them. The High Court by order dated March 21, 1988, following an earlier decision given by it on March 17, 1988 in Syndicate Bank Officers' Association v. Union of India [1989] 176 ITR 223, allowed the writ petitions and passed an order restraining the appellant-companies and other insurance companies from deducting any tax on city compensatory allowance or any allowance in the nature of city compensatory allowance in computing taxable income of the employees for the year 1987-88 onwards. Hence, these appeals by special leave are filed by the corporati....
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....ted out that under sub-clause (iiib) any allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living is also to be included in income. Therefore, it is conceded that the payment of house rent allowance or city compensatory allowance, would be covered by the word "income". Hence, the basis of the decision rendered by the Calcutta High Court would not survive. Whether such amount is taxable? 12. Once it is conceded that receipt of such amount is income of the assessee, the only question would be whether it is taxable under the head "Salary". For that purpose, we have to refer to section 17 of the Act to find out what meaning can be given to the phrase "profits in lieu of salary". For appreciating the contentions raised by learned counsel for the parties, we would straightaway refer to the relevant part of section 17 of the Act, which is as under : "17. For the purposes of sections 15 and 16 and of this section,--- (1) 'salary' includes--- (i) wages ; (ii)....
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.... period of leave not availed of by him and other payments mentioned in sub-clauses (va), (vi) and (vii), These sub-clauses (i) to (vii) of clause (1) indicate that the Legislature intended to include in salary the specified or named amount paid to the employee in respect of the services rendered by him. Sub-clause (iv) of clause (1) provides for inclusion of four types of payments in the word "salary"---(i) fees, (ii) commissions, (iii) perquisites, and (iv) profits in lieu of or in addition to salary. In common parlance, fees, commissions, perquisites or payments of profits in lieu of salary may not be considered to be salary. But by this inclusive definition, it has been provided so. After giving this exhaustive definition of the word "salary", a further inclusive definition is given to the word "perquisite", with which we are not concerned in these appeals. There after, clause (3) provides for an inclusive definition of the phrase "profits in lieu of salary". Sub-clause (i) of clause (3), inter alia, includes the amount of any compensation received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification o....
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.... he is not pressing the contention that it is not included in the word "salary". He submitted that the city compensatory allowance and house rent allowance cannot be included in the word "salary" as defined under section 17 of the Act. 16. Hence, the question would be, what does the expression "profits in lieu of salary" signify? Whether "profits in lieu of salary" would include any payment received from the employer relatable to or out of profits or it has nothing to do with the "profits" as understood in common parlance? Or whether "profits" is to be understood as any gain or advantage in lieu of salary or in addition to salary for which any payment is received by the assessee. 17. It is submitted that "salary" includes any payment out of "profit" in lieu of salary. Instead of salary any amount is paid in terms of profits, then the same is included in "salary" as it is "profits in lieu of salary". The basis for payment of such amount is "profits". So the expression "any amount" received by the employee is relatable to the profits of the employer and that payment out of profit is considered to be salary by the inclusive definition. Reference is made to Earl Jowitt's The ....
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....ayable upon the profits realised and the meaning to my mind is rendered plain by the words 'payable out of profits' " 19. Further, the meaning of the word "profit" as given in Black's Law Dictionary is as under: "Profit.---Most commonly, the gross proceeds of a business transaction less the costs of the transaction ; i.e., net proceeds. Excess of revenues over expenses for a transaction ; sometimes used synonymously with net income for the period. Gain realised from business or investment over and above expenditures. Profit means accession of good, valuable results, useful consequences, avail, gain, as an office of profit, excess of returns over expenditures or excess of income over expenditure." U. S. v. Mintzes, D. C. Md., 304 F. Supp. 1305, 1312. "The benefit, advantage, or pecuniary gain accruing to the owner or occupant of land from its actual use ; as in the familiar phrase 'rents, issues and profits,' or in the expression 'mesne profits.' Profit-sharing plan---A plan established and maintained by an employer to provide for the participation in the profits of the company by the employees or their beneficiaries. In o....
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....is court considered the inclusive definition of the word "seasonal factory" given under section 2(12) of the Employees' State Insurance Act, 1948, and held that what is included in the meaning of "seasonal factory" is a "factory" which is engaged for the purpose mentioned therein. That is to say, it is first a factory and then it would be considered to be a seasonal factory. Relying on the aforesaid observations, learned counsel for the employees submitted that by the inclusive definition of the phrase "profits in lieu of salary" what is included is "any payment" which must be out of the profits, i.e., sharing of the profits by the employer. For this purpose, he further referred to the words "any fee, commission, perquisites or profits" used in section 17(1)(iv) and pointed out that in the inclusive definition the Legislature wanted to include fee, commission or perquisites which normally cannot be included in the word "salary" by specifically mentioning the same. It is also submitted that similarly what is included in the word "salary" is only "profits in lieu of salary". Therefore, any payment received by the employee from the employer would have limited meaning and is refera....
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....vantage in argument, or to take advantage in a bargain." 25. Applying the aforesaid general meaning of the word "profits" and considering the dictionary meaning given to it under section 17(1)(iv) and (3)(ii), it can be said that "advantage" in terms of payment of money received by the employee from the employer in relation or in addition to any salary or wages would be covered by the inclusive definition of the word "salary". Because of the inclusive meaning given to the phrase "profits in lieu of salary" would include "any payment" due to or received by an assessee from an employer, even though it has no connection with the profits of the employer. It is true that the Legislature might have avoided giving an inclusive meaning to the word "salary" by stating that any payment received by the employee from an employer would be considered to be salary except the payments which are excluded by section 17(3)(ii), i.e., clauses (10), (10A), (10B), (11), (12), (13) or (13A) of section 10. However, it is for the Legislature to decide the same. This would not mean that by giving an exhaustive and inclusive meaning, the word "profits" can be given a meaning only when it pertains to shari....