COMMISSIONER OF INCOME-TAX VS CHAMPARUN SUGAR WORKS LTD.
1999 P T D 353
[225 I T R 863]
[Allahabad High Court (India)]
Before Om Prakash and R.K. Gulati, JJ
COMMISSIONER OF INCOME-TAX
Versus
CHAMPARUN SUGAR WORKS LTD.
Income-tax Reference No.87 of 1979, decided on 27/11/1996.
(a) Income-tax---
----Amounts not deductible---"Salary", definition of---Personal allowance-- Salary excludes all other allowances and perquisites except "deafness allowance" ---Personal allowance does not partake of character of dearness allowance---Does not form part of salary for purposes of computing disallowance under S.40(c)(iii)----Indian Income Tax Act, 1961, Ss.17, 40(c)(iii) & Sched. IV, Part A, R.2(h).
The term "personal allowance" has not been defined in the Income Tax Act. Personal allowance does not partake of the character of dearness allowance. Therefore, personal allowance does not form part of "salary" under clause (h) of rule 2 of the Fourth Schedule for the purpose of computing the disallowance under section 40(c)(iii) of the Act.
The cardinal principle of interpretation of fiscal laws is that a given provision should be construed strictly and so long as the provision is free from ambiguity, the words used therein should be given plain meaning without importing into it any foreign words and without subtracting any words therefrom.
CIT v. India Radiators Ltd. (1976) 105 ITR 680 (Mad.) and Ronal Lloyd Powell v. Administrator-General AIR 1967 All. 231 ref.
(b) Interpretation of statutes---
---- Fiscal laws---Provisions to be construed strictly, if free from ambiguity.
The definition of "salary" under clause (h) of rule 2 of Part A of the Fourth Schedule to the Income Tax Act, 1961, excludes all other allowances, and perquisites except the dearness allowance, which can be included in "salary".
Bharat Ji Agrawal for the Assessee.
JUDGMENT
At the instance of the Revenue, the Income-tax Appellate Tribunal referred the following question for the opinion of this Court:
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is legally correct in its opinion that personal allowance of Rs.800 per month was includible in the basic salary for the purpose of computing the disallowance under section 40(c)(iii) of the Income-tax Act, 1961?"
The assessee is a company, the head office of which is at Kanpur. The assessee-company, during the previous year relevant for the assessment year 1968-69, appointed Sri Gundu Rao on monthly cash remuneration of Rs.2,950 including personal, entertainment, servants and bungalow maintenance allowance, etc. Apart from cash remuneration, he was allowed certain perquisites as well. The total remuneration paid to Sri Rao came to Rs.43,500, the details of which are given below.
| 1 | Basic salary | 12,000 |
| 2 | Dearness allowance | 6,000 |
| 3 | Personal allowance | 9,600 |
| 4 | Entertainment allowance | 2,400 |
| 5 | Servants and bungalow maintenance allowance | 5,400 |
| 6 | Perquisites for car and house | 8,100 |
| 43,500 |
The Income-tax Officer in his assessment order, bereft of details, disallowed Rs.21,900 under section 40(c)(iii) of the Income Tax Act, 1961 (briefly, "the Act"), which, inter alia, includes the disallowance of Rs.9,600 representing the personal allowance.
On appeal by the assessee, the Appellate Assistant Commissioner affirmed the order of the assessing authority in this behalf.
On further appeal, the Income-tax Appellate Tribunal accepted the contention of the assessee that the personal allowance amounting to Rs.9,600 paid to Sri Rao being a part of the salary, was not disallowable under section 40(c)(iii) of the Act.
The question for consideration is whether the Appellate Tribunal rightly held that payment of personal allowance was nothing but salary. Section 40(c)(iii) of the Act runs as follows.
"(iii) any expenditure incurred after the 29th day of February, 1964, which results directly or indirectly in the provision of any benefit or amenity or perquisite, whether convertible into money or not to an employee (including any sum paid by the company in respect of any obligation which but for such payment would have been payable by such employee), to the extent such expenditure exceeds one-fifth of the amount of salary payable to the employees for any period of his employment after the aforesaid date."
The Explanation to section 40(c)(iii) is as under:
"In this sub-clause, the word ' salary' shall have the meaning assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule. "
Clause (h) of rule 2 of Part A of the Fourth Schedule defines the word "salary" thus:
'salary' includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites. "
It is, therefore, clear from clause (iii) of section 40(c) that any expenditure incurred after February 29, 1964, by the assessee which results directly or indirectly in the provision of any benefit or amenity or perquisite will be disallowed to the extent such expenditure exceeds one-fifth of' the amount of salary payable to an employee for any period of his employment after the aforesaid date. The contention of the assessee is that payment of personal allowance is not a benefit or amenity or perquisite within the meaning of section 40(c)(iii), but that is a part of salary paid to him as defined in clause (h) of rule 2 of Part A of the Fourth Schedule. Salary includes dearness allowance but excludes all other allowances and perquisites. Though the word "salary" has been defined under section 17 of the Act but for the purposes of section 40(c)(iii), the definition of "salary" as given in clause (h) of rule 2 of the Fourth Schedule, read with the Explanation to section 40(c)(iii), is relevant and not that as given under section 17. Under clause (h), "salary" includes only dearness allowance if the terms of employment so provide but excludes all other allowance and perquisites. The personal allowance not being a dearness allowance will, therefore, get excluded from the salary in view of clause (h) of rule 2 of Part A of the Fourth Schedule.
We have carefully gone through the slightly lengthy order of the Appellate Tribunal which relying on several materials came to the conclusion that the personal allowance paid to Sri Rao was in the course of his employment for the service and, therefore, that was part of the salary. We do not see any force is the view taken by the Appellate Tribunal. The cardinal principle of interpretation of fiscal laws is that a given provision should be construed strictly and so long as the provision is free from ambiguity, the words used therein would be given their plain meaning without importing into it any foreign words and without subtracting any words therefrom. The term "personal allowance" has not been defined in the Act anywhere. Taking the semantic view of the term "personal allowance", it cannot be said that that forms part of salary which under clause (h) of rule 2 of the Fourth Schedule includes only dearness allowance and not any other allowance. Personal allowance does not partake of the character of dearness allowance and that not being in the nature of dearness allowance, cannot be included in the salary.
The Appellate Tribunal relying on a decision of this Court in the case of Ronal Lloyed Powell v. Administrator-General, AIR 1967 All 231, which interpreted the words "personal fee "which has an element of quid pro quo, held on the analogy of the interpretation of the words "personal fee" that personal allowance paid to Sri Rao was in the course of his employment for the service and hence that was part of his salary. Such reasoning given by the Appellate Tribunal does not induce us to accept the case of the assessee.
We are not at all in agreement with the view taken by the Tribunal. When the definition of the word "salary" under clause (h) of rule 2 of Part A of the Fourth Schedule clearly excludes all other allowances, except the dearness allowance, which can be included in salary, we see no good reasons to include "personal allowance" too in the salary. What is specifically excluded by the Legislature, there must be strong and cogent reasons to include in salary. We see no justification to stretch the definition of "salary" as given in clause (h) of rule 2 of Part A of the Fourth Schedule to the extent so as to include that which is specifically excluded therefrom.
Sri Bharat Ji Agrawal, learned counsel for the assessee, relying on the case of CIT v. India Radiators Ltd. (1976) 105 ITR 680 (Mad.), urges that when bonus which was specifically excluded from the definition of salary and wages in the Payment of Bonus Act, could be held to be part of salary by the Madras High Court, why could the payment of personal allowance by the assessee-company to Sri Rao not be held to be part of his salary. There is nothing on the record to indicate that "bonus" and "personal allowance" are conceptually analogous and, therefore, on the analogy of bonus, payment of which was held to be one of the methods of payment of wages by the Madras High Court, no argument could be successfully made before us that payment of personal allowance should be treated as payment of salary.
In the result, the aforesaid question is answered in the negative, that is, in favour of the Revenue and against the assessee.
M.B.A./1777/FCMatter disposedof.