(a) Income-tax Act (XI of 1922)---

----S. 10(4)(d)---Perquisite---Deduction---Assessee is not entitled to get deduction for the entire amount of expenditure incurred on the provision of perquisites or other benefits to any employee.

(b) Income-tax Act (XI of 1922)---

----S. 10(4)(d), Explanation I---"Salary"---Expenditure to qualify salary within meaning of S.10(4)(3), Expln. I of the Income-tax Act, 1922.

In order to qualify "salary" within the meaning of Explanation. I, the expenditure must be incurred under any legal obligation, payment must be made in terms of the agreement, the expenditure also must not enter into the computation for pensionary or retirement benefits. The Explanation, taking these aspects into consideration, in an unambiguous language indicates that sums paid, if do not satisfy the aforesaid ingredients, shall not qualify as "salary" within the meaning of the Explanation I.

Bishambar Dayal v. Commissioner of Income-tax (MP) 103 ITR 813; Twentieth Century Dictionary and Oxford English Dictionary ref.

CIT AP-1 v. Warner Hindustan Ltd. 145 ITR 24; CIT v. Kanan Devan Hills Produce Company Ltd. 119 ITR 431; CIT v. Alkali and Chemical Corporation of India Ltd. 158 ITR 58 distinguished.

(c) Income-tax Act (XI of 1922)---

----S.10(4)(d), Expln. I---Perquisite---Word "perquisite" having not been defined, what was to be seen was the nature of the benefit given and not the name given to the payment, for name was not by itself conclusive.

Tennant v. Smith 3 TC 158; Corry v. Robinson 18 TC 411 and Chaturvede and Pithsaria's, Income Tax Law, 3rd Edn., p.666 fol.

(d) Income-tax---

----Reference---High Court cannot, while answering reference, take any extraneous matter into consideration which does not appear from the order of the Tribunal.

(e) Income-tax Act (XI of 1922)---

----S.10(2)(iii)--;Borrowed capital---Interest---Allowance in respect of interest has to be allowed in computing the business income where the capital is borrowed for the purpose of the business, profession or vocation and paid interest thereon---Utilization of capital borrowed was not necessary---If an assessee satisfies the requirements of S.10(2)(iii) of the Income-tax Act, 1922, he is entitled to the entire amount of interest paid on the borrowed capital.

Moksudur Rahman for Petitioner.

A.K.M. Mozammel Hoque Bhuiyan for Respondent.

JUDGMENT

A.M. MAHMUDUR RAHMAN, J.---This reference application under section 160(1) of the Income-tax Ordinance, 1984 is at the instance of the Revenue formulating the following questions for our decision:

(I) Whether on the facts and in the circumstances of the case the Taxes Appellate Tribunal is justified in holding:

(a) That except employer's contribution to provident fund no other payment can be treated as perquisites, within the meaning of the Explanation I to section 10(4) (d) of the Income-tax Act, 1922.

(b) That the mischief of section 10(4)(d) is not attracted in the instant case and no excess perquisites arise within the meaning of section 10(4)(d) of the Income Tax Act.

(II) Whether the Appellate Tribunal's interpretation of the term "Salary" occurring in Explanation I of section 10(4)(d) of the Income-tax Act, 1922 holding that all other payments are to be included in the said terms is correct.

(III) Whether in the facts and circumstances of the case the Taxes Appellate Tribunal is justified in holding that the entire bank interest payable by the assessee is allowable expenditure within the meaning of section 10(2)(iii) of the Income-tax Act, despite the fact that the entire amount of loan giving rise to the aforesaid interest was not utilised for the purpose of business of the assessee.

2. The respondent-assessee is a public limited company and carries on business in distribution of gas. For assessment years 1980-81 it submitted return of its income and claimed deduction of Taka 1,21,45,475.00 as perquisite under section 10(4)(d) of the Income-tax Act, 1922 (hereinafter shall be called the Act) relating to expenses under different heads:

(1) Meal Allowances Taka 4,58,882.00, (2) Provident Fund Taka 8,66,869.00, (3) Fringe benefit house rent (Staff) Taka 20,69,100.00, (4) Uniform and Kits Taka 16,47,759.00, (5) Staff Welfare expenses Taka 1,30,701.00, (6) Rest and Recreation Allowance Taka 1,25,253.00, (7) Temporary Relief Taka 10,47,505.00, (8) Allowances Taka 10,65,545.00, (9) Conveyance Allowance Taka 1,73,325.00, (10) Medical expenses Taka 20,91,284.00, (11) Fixed House Rent to Officers Taka 24,900.00, (12) Rent for rented residence Taka 14,24,347.00, (13) Group Insurance Premium Taka 1,55,449.00, (14) Employees Tea Expenses Taka 2,95,451.00, (15) Gas subsidiary allowances Taka 1,49,274.00 and (16) Employees Income Tax Taka 4,19,841. The DCT, however, disallowed Taka 63,28,773.00 under section 10(4)(d) as excess perquisites treating the expenses aforesaid as perquisites and, added back the said amount in total income of the assessee which he assessed at Taka 3,83,70,704.00. The assessee preferred appeal before the Appellate Joint Commissioner of Taxes. The AJCT however, taking the view that (1) Meal Allowance, (2) Contribution to Provident Fund, (3) Uniform and Kits, (4) Temporary Relief, (5) Allowances, (6) Group Insurance Premium are not perquisites directed the DCT to exclude amounts of expenditure relating to those items from computing as perquisites and deleted Taka 63,28,773.00 which was included in the total income as excess perquisite. On further appeal the Taxes Appellate Tribunal merely on the basis of its order made in ITA No.1848 of 1980-81 held that except the employer's contribution to the Provident Fund no other payment can be treated as perquisite within the meaning of Explanation I of section 10(4)(d) of the Act and all other payments are to be included in "salary" as defined in Explanation I and mischief of section 10(4)(d) is not attracted in this case as no excess perquisites arise within the meaning of section 10(4)(d) of the Act. So holding the Tribunal deleted the addition of Taka 19,56,633 made by the DCT as excess perquisites from the total income of the assessee.

3. The learned Advocate for the Revenue submits that for the expressions used in Explanation I of section 10(4)(d) of the Act the payments made by the assessee were perquisite and the same cannot be held as salaries and the Tribunal was not justified in holding that all other payments except contribution to the employee's Provident Fund by the employer were salaries. Mr. Moksudur Rahman submits that as the expression "perquisite" has neither been defined in the Act itself nor the word appears in Explanation I of section 10(4)(d) the Court is to find out the meaning of the word in its ordinary sense according to the dictionary meaning and he refers us to the decision in the case of Bishambar Dayal v. Commissioner of Income-tax (MP) 103 ITR 813 wherein it has been observed that the words "salary" and "perquisite" ought to be understood in their ordinary sense according to the dictionary meaning. The Twentieth Century Dictionary defines "perquisite" as a casual profit. The Oxford English Dictionary defines `perquisite' as "any casual emolument, fee or profit, attached to an office or position in addition to salary or wages". The Madras High Court in Bishambar Dayal also, observed that expression "perquisite" signifies some additional benefit in addition to the amount that may be legally due by way of contract for services rendered (Emphasis added).

4. Mr. Mozammel Hoque Bhuiyan, the learned counsel for the assessee, however, contends that the Tribunal was justified in holding that payments except contribution to the Provident Fund were salaries within the meaning of Explanation I of section 10(4)(d) of the Act. Mr. Bhuiyan cites a number of decisions of Indian Jurisdiction. He cites the case of CIT AP-I v. Warner Hindustan Ltd. 145 ITR 24 wherein house rent, conveyance allowance, club fees and medical bills paid directly to the employees were held not to be perquisites within the meaning of section 40A(5) of the Indian Income Tax Act, 1961. In the case of CIT v. Kanan Devan Hills Produce Company Ltd. 119 ITR 431, relied upon by Mr. Bhuiyan, the facts were that the assessee company which carried on business in cultivation, manufacture and sale of tea claimed deduction, amongst others, of amounts paid as "overseas allowance", "managing allowance", "devaluation allowance" and "transport allowance" to some of its employees in the computation of its business profits and income on the ground that these items did not represent any benefit or amenity or perquisite within the meaning of section 40(c)(iii) of the Income Tax Act, 1961. Os reference to the High Court, the High Court on interpretation of section 40(c) (iii) of the Indian Income Tax Act, 1961 held that the amounts paid under those terms of expenditures did not fall within the expressions `benefit', amenity' or `perquisite' and were deductible in computing the business profits of assessee ?company. The case of CIT v. Alkali and Chemical Corporation of India Ltd. 158 TTR 58 are also on interpretation of section 40(c)(iii) of 1961 Act. Other cases cited by Mr. Bhuiyan are also on interpretation of section 40(c) (iii) of Indian Income Tax Act, 1961. As these decisions are on interpretation of law quite different from our law they are not of much assistance to us as the Income Tax Act, 1961 of India has made a drastic departure from the old 1922 Act.

5. Section 10(1) of the Act deals with assessment of tax on income from business. Clauses (i) to (xviii) of subsection (2) of section 10 deal with deductible allowances of different categories under clause (i) to clause (xviii). Subsection (4) of section 10 says that nothing in clause (xvi) of subsection (2) shall be deemed to authorise

Subsection "(a) ..............................

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(d) any allowance in respect of so much of the expenditure incurred by an assessee on the provision of perquisites or other benefits to any employee as exceeds fifty percent. of the salary of such employee; or fifty thousand Taka, whichever is less; ????

Thus, according to clause (d) of subsection (4) of section 10 of the Act an assessee is not entitled to get deduction for the entire amount of expenditure incurred on the provision of perquisite or other benefits to any employee.

He is entitled only to the extent of 50% of the salary of fifty thousand Taka paid to the employee whichever is less and the amount of excess of 50% of the total salary would be added back to the total income of the assessee. Thus, it seems, clause (d) puts a limitation on allowable deduction as contemplated in clause (xvi) of subsection (2) of section 10 of the Act in computing the business income of an assessee.

Explanation of section 10(4)(d) reads:

"The expression `salary' as used in this clause, means remuneration or compensation for services rendered, paid or to be paid at regular intervals and includes dearness, grain compensation or 'cost of living allowance and bonus and commission which are payable to an employee in accordance with the terms of his employment as remuneration or compensation for service but does not include the employer?s contribution to recognised provident fund or superannuation fund or any other sum which does not enter into the computation for pensionary or retirement benefits." (Emphasis added).

6. The Tribunal in the instant case before us held that except contribution to the Provident Fund all other payments made by the employer are salaries. We are afraid to accept such view as it will lead to an absurd interpretation of Explanation I of section 10(4)(d) as all payments, irrespective of its nature made by an employer, will rank as salary and no other expenditure can be left to be treated as `perquisites or other benefits' within the meaning of clause (d) of subsection (4) of section 10 of the Act. If such interpretation to Explanation I is given it will make clause (d) of subsection (4) of section 10 nugatory. Our reading of Explanation I is otherwise. In order to qualify "salary" within the meaning of Explanation I, the expenditure must be incurred under any legal obligation, payment must be made in terms of the agreement, the expenditure also must not enter into the computation for pensionary or retirement benefits. The Explanation, taking these aspects into consideration, in an unambiguous language indicates that sums paid, if do not satisfy the aforesaid ingredients, shall not qualify as "salary" within the meaning of the Explanation I From order of the Tribunal we are unable to find that it has taken into consideration these aspects of Explanation I. However, these aspects have been noted in the dissenting judgment of the Accountant Member who took the view that "other benefits which do not enter into computation for pensionary or retirement benefits fall undoubtedly within the category of perquisites". Applying the test as laid down in Bishambar Dayal and the language employed in the Explanation I of section 10(4)(d) of the Act we hold that the view of the Accountant Member is correct. It is also pertinent to observe that as the word "perquisite" has not been defined what is of essence is to see the nature of the benefit given and not the name given to the payment is not by itself conclusive. In our opinion, the case of the assessee falls well within section 10(4)(d) of the Act. Our view is also reinforced by the observation made in Tennant v. Smith 3 TC 158 wherein Lord Halsbury at page 157 of the report said "the thing sought to be taxed is not income unless it can be turned into money". Lord Watson said at page 159 "I do not think that it comes within the category of profits, because that word in its ordinary acceptance appears to me to denote something acquired which the acquirer becomes possessed of, and can dispose of to his advantage, in other words, money or that which can be turned to pecuniary account". In Corry v. Robinson, 18 TC 411 Lord Han worth, MR also followed the test as laid down in Tennant v. Smith to hold that "Colonial Allowance" which was paid to Mr. Corry, a deputy Cashier in HM naval base at Singapore, to meet the increased cost of living abroad was taxable as perquisite. Chaturvede and Pithsaria in their treatise, income Tax Law (3rd Edn.) at page 666 have referred the case of Corry, v. Robinson and stated that `Colonial Allowance' was held to be taxable as perquisite.

7. Mr. Bhuiyan, however, argued that the words "remuneration or compensation" used in Explanation I is of wide connotation and includes even "casual payment as salary". According to him, the payments were made in consideration of the service rendered by the employees. The contention is to be examined in the light of the language employed in Explanation I. If one turns to it one fords that it includes expressions in accordance with the terms of his employment. The Tribunal does not make any reference that the payments under consideration were made "in accordance with the terms of his employment". Want of such finding does not also justify the Tribunal to hold that all payments made by the employer except contribution to the provident fund are salaries within the meaning of Explanation I and upon such view it was not justified in deleting the addition of the Taka 19,56,633 from computation of the total income merely on the ground that in the case of the assesee the question of excess perquisite does not arise under section 10(4)(d) of the Act. In order to overcome such difficulty Mr. Bhuiyan cites the case of Brij Lal Jajoo v. CIT 17 DLR (SC) 16 to argue that as it is not possible for the High Court Division to ascertain as to whether the Tribunal's order was made in accordance with the terms of employment we should answer the question formulated in the application in a qualified way. In Brij Lal Jajoo plea of the assessee was that as the special allowance was given on the basis of an agreement for meeting high expenditure owing to usual circumstances it was exempt from tax On fact of that case the Supreme Court observed that the High Court could give answer to the question formulated in a qualified way with reference to terms contained in the agreement upon which the assessee claimed deduction of the allowance in question. We have given our anxious consideration to the submission of Mr. Bhuiyan. In that case the agreement upon which the assessee pleaded for exemption of the allowance from inclusion in his total income to be assessed to tax was considered by the Tribunal but not being so considered by the High Court the Supreme Court made the observation. In the instant case no such finding with regard to existence of any agreement under which the payments were made by the employer is found from the order of the Tribunal. Therefore, we are unable to accept the contention of Mr. Bhuiyan that we should give a qualified answer as indicated in the decision. of the Supreme Court of Pakistan. Mr. Bhuiyan also contends that there is no finding of the Tribunal that there was no such agreement under which the payment was made and the Revenue also-did not make out any case that there was no agreement under which the payments in question were made. He submits that in view of these aspects of the case we should answer the question in a qualified way. Acceptance of such view as contended by Mr. Bhuiyan will be assuming jurisdiction over the facts which do not arise out of the order of Tribunal. Section 161(2) of the Income Tax Ordinance, 1984 does not vest in the High Court Division power to take any extraneous matter into consideration which does not appear from the order of the Tribunal in that assumption of such fact in order to answer the question would be travelling beyond its jurisdiction.

8. Section 10 deals with the allowance to be given to the assessee in computing total income arising out of business, profits and gains. Under clause (iii) of subsection (2) of section 10 the assessee is entitled to claim allowance in respect of interest paid on the capital borrowed for the purposes of the business, profession or vocation. The Tribunal held that the assessee is entitled to the allowance of interest on the borrowed capital. The contention of the Revenue that as the whole amount borrowed was not utilized for the purpose of business the Tribunal was not justified in so holding as the assessee is not entitled to the allowances for unutilized capital. A careful reading of clause (iii) of subsection (2) of section 10 leads us to hold that allowance in respect of interest is to be allowed in computing the business income where the capital is borrowed for the purposes of the business, profession or vocation and paid interest thereon, as nowhere clause (iii) speaks about unutilization of capital borrowed. From the order of the Tribunal we also do not find that the interest was not paid by the assessee company. Where an assessee satisfies the requirements of clause (iii) he is entitled to the entire amount of interest paid on the borrowed capital. Accordingly, we hold, on the facts of the present case and in view of the finding of the Tribunal, that the assesee is entitled to allowance with respect to interest paid as a whole on the capital borrowed for the purpose of doing business under section 10(2 (iii) of the Act irrespective of the fact whether the entire loan amount was utilized or not.

9. Accordingly, in view of our above discussion, we answer question Nos.l (a) and 1(b) in the negative and in favour of the Revenue. Consequently, our answer to question No.II is also in the negative and in favour of the Revenue. Our answer to question No. III is in the affirmative and against the Revenue.

10. Parties are to bear their respective costs.

11. Before we part with the judgment we are constrained to observe, on reference to the majority judgment (which is the judgment of the Tribunal), that in order to ascertain what is salary or perquisite it requires examination of necessary facts by the Tribunal, the last fact finding forum. In this case neither the learned Advocate for the Revenue has stated the relevant facts in the reference application on consideration of which the Tribunal held all other payments as salaries within the meaning of Explanation I of section 10(4)(d) nor order of the Tribunal out of which the present reference arises discloses so. As subsection (2) of section 66 of Income-tax Act, 1922 is 'no more on the statute under which High Court Division could call for the statement of case from the Tribunal and to refer the question of law for its decision the Tribunal now is required to state all relevant facts upon which its decision rests in order to make its order a self-contained one so that on reference the High Court Division is posted with such facts and can sec, how the question has been dealt with by the Tribunal raised before it either by the assessee or the Revenue.

M.B.A./410/T.F. ???????????????????????????????????????????????????????????????????????????????? Order accordingly.