1. THE appellant-assessee retired serving as a Judge of the Allahabad High court. In this Income Tax Appeal he is aggrieved by the order of the Income Tax Appellate Tribunal, Delhi Bench; SMC-VI, New Delhi in ITA No.1263/Del/2003, for the assessment year 1998-99, dated 10th June, 2004 dismissing the appeal of the assessee with the findings that the 'dearness relief' is covered within the expression, 'any payment received from a former employer by the assessee', and would be included in the definition of, 'profits in lieu of salary', to be taxed under Section 17 (3) (ii) of the Income Tax Act, 1961.
2. WE have heard Shri Pramod Kumar Jain, Sr. Advocate assisted by Shri Amitabh Agrawal, learned counsel for the appellant. Shri R.K. Upadhyaya appears for the respondents.
The appeal was admitted on the substantial questions of law as follows:-
"(A) Whether the receipt of the amount of dearness relief Rs.53,640/- to the appellant, a pensioner (retired High Court Judge), in the assessment year 1998-99, is income and taxable as 'profit in lieu of salary' (Section 17 (3) (ii) of Income Tax Act?
(B) Whether dearness relief can be said to be profit in lieu of salary within meaning of Section 17 (3) (ii) of the Income tax Act?
(C) Whether dearness relief and dearness allowance can be said to have same meaning and authority below erred in law in treating dearness relief and dearness allowance to be meaning the same thing?"
The appellant assessee filed a return in the capacity of individual showing total income of Rs.1,72,800/- on 30.10.1998 for the assessment year 1988-99. The return was processed under Section 143 (1) on 14.12.1999 on the income returned. A notice under Section 148 dated 17.2.2000 was issued and was served on the assessee. In reply the assessee sent a letter on 4.5.2000 stating that he has already filed a return, which may be treated as the return filed in compliance to the notice under Section 148 of the Act. During the course of assessment proceedings he filed revised return on 6.9.2000 disclosing the income of Rs.1,72,800/- as general in the original return. In the revised return the assessee left a note against the pension income as follows:-
"Pension excluding advised and so bonafide to not being income but mere dearness relief, received Rs.53,640/- during the year".
3. THE assessee appeared and submitted his books of accounts for provisional income, which included a small exercise book and bank pass book, which was examined. The Assessing Officer (AO) was of the opinion that the dearness relief of Rs.53,640/- claimed to be exempt, was income from salary and was taxable. The A.O. calculated the income of the assessee excluding dearness relief to Rs.2,17,840/-. He allowed credit for prepaid tax, and directed charging of interest under Section 234B and 234C as per Rules. He also directed the issuance of penalty notice under Section 271 (1) (C) for concealment of income.
In appeal the CIT (A) upheld the order of A.O. The CIT (A) did not find any substance in the submission that the dearness relief should not be treated as income and relied upon CIT v. L.W. Russel, 1964 (53) ITR 91 in which it was held that the dearness relief is not a perquisite allowed by the employer or an amount due within the meaning of Section 17 (1) of the Act. The dearness relief is income taxable under the Act.
4. THE Income Tax Appellate Tribunal discussed the question at length and dismissed the appeal with findings as follows:-
"To summaries, the following propositions emerge from the discussion made as above which support my finding that dearness relief is covered under the definition of profits in lieu of salary as contained under section 17 (3) (ii) of the Act:
(i) 'Profits in lieu of salary', is income as per section 2 (24) (iii) of the Income-tax Act;
(ii) By virtue of section 17 (1) (iv) salary includes profits in lieu of salary; and
(iii) The definition of 'profits in lieu of salary' under section 17 (3) (ii) is all embracive and omnibus and brings within its sweep "any payment due to or received by an assessee from an employer or a former employer". Dearness relief is clearly covered within the expression any payment received from a former employer by an assessee. In view of wide sweep of the definition, dearness relief is clearly covered under section 17 (3) (ii) of the Act.
(iv) Dearness relief does not fall under any of the clauses of section 10 specified in the parenthetical clause of section 17 (3) (ii)."
The Tribunal after referring to the definition of income under Section 2 (24) and the definition of salary under Section 17, which includes profits in lieu of salary and which also includes the amount of any compensation under sub-clause (i) due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification and the terms and conditions relating thereto, held that the dearness relief satisfies all the ingredients as contained under Section 17 (3) (ii) of the Act and being profits in lieu of salary is liable to be treated as salary. The payment is relatable to employment; it is not based on personal or extra employment consideration and it is a payment falling in parenthetical clause of Section 17 (3) (ii). It is in the nature of recompense or reward for the services rendered by the employee and is thus clearly covered under the expression 'profits in lieu of salary'. It cannot be regard as payment made on personal or extra employment considerations. The words 'due to or received on occurring under Section 17 (3) (ii) are all embracing and bring any payment due or received by the ex-employee within its sweep.
The Tribunal held that payment of dearness relief to the retiring High Court judges is governed by Rule 2 of the High Court Judges (Conditions of Service) Rules, 1956. By virtue of Rule 2 the retiring pension and gratuity is provided under Rule 17 of the All India Services (Death-cum-Retirement Benefits) Rules, 1958, as follows:-
"Retiring Pension and gratuity- (1) A retiring pension and death-cum-retirement gratuity shall be granted to a member of the service who retires or is required to retire under R.16. (2) Notwithstanding anything contained in sub-rule (1), relief against rise in the cost of living index shall be granted to every such member of the Service at such scale and in such manner as may be prescribed by the Central Government from time to time for officers of the Central Civil Services, Class I."
5. THE Tribunal held that the Rules of 1958, are applicable to the High Court judges by virtue of Rule 2 of the High Court Judges (Conditions of Service) Rules, 1956. The judges of High Court are also entitled to the relief mentioned in Rule 17 (2) of the Rules of 1958. The entitlement of retiring judges for dearness relief, is in fulfillment of legal obligation and cannot be treated as gratuitous or voluntary in nature. The dearness relief is thus relatable to employment and represents an addition to the salary. It thus attracts the content of definition of 'salary'. Nothing would turn upon the nomenclature used by the Government for specifying the payment. The dearness relief is clearly covered under Section 17 (3) (ii) as 'profits in lieu of salary', and hence it is liable to tax as salaried income.
6. SHRI P.K. Jain, learned counsel appearing for the assessee submits that dearness relief is paid to the retired judges under general notification issued by the Department of Justice, Ministry of Law and Justice, Government of India. The notification for retired judges of High Court and Supreme Court was issued by the Department of Pension and Pensioner's Welfare (Ministry of Personnel, PG and Pension Government of India) and is governed by Rule 2 of the High Court Judges (Condition of Service) Rules, 1956. The dearness relief is not part of pension. Salary and pension are not convertible terms. The profits in lieu of salary cannot be said to profits in lie of pension. There is no expression in the Income Tax Act like profits in lieu of pension. Any payment under Section 17 (3) of the Act pertains to pensionary benefits like compensation, gratuity, commutation, leave to encashment etc. Pension is income chargeable to income tax by virtue of Section 4, 15, 16, 17 (1) and not by virtue of Section 17 (3) (ii). If a receipt is not specifically made taxable, such as dearness relief, it cannot be included in the total income chargeable to income tax. The dearness allowance and dearness relief are two distinct terms. While dearness allowance is taxable as income under Section 2 (24) (iii) (b), the dearness relief is not taxable as income. The expression dearness relief does not find mention anywhere in the definition of income under Section 2 (24) of the Act.
Shri P.K. Jain submits that dearness relief is not a revenue receipt. It is gratuitous in nature. Such payment do not fall in the category of taxable income. The taxing statute has to be construed strictly and literally. No extensive and inclusive interpretation can be given to the words and expression used in the taxing statute. Since the term 'dearness relief', has not been included in the definition of income, it cannot be added directly or remotely, through the term 'profit in lieu of salary'.
Shri P.K. Jain states that in M.C. Desai and Ors. v. Union of India, AIR 1988 Alld. 283 it was held that dearness relief is not pension. Salary is paid by separate order while dearness relief is paid by general notification. The appellant was not getting any salary as he was not in service, and therefore the payment in question, cannot be treated as profits in lieu of salary.
7. SHRI P.K. Jain has relied upon CIT, Bangalore v. Infosys Technologies Ltd., (2008) 2 SCC 272; CIT v. Willamson Financial Services and Ors., (2008) 2 SCC 202; Shrimant Padmaraje R. Kadambande v. CIT, Pune, (1992) 3 SCC 432; M.C. Desai and Ors. v. Union of India, AIR 1988 Alld. 283; P. H. Divecha v. CIT, Bombay City I, 48 ITR 222; CIT v. L.W. Russell 53 ITR 21 (SC); Bombay Mehboob Productions Pvt. Ltd. v. CIT, (1977) 106 ITR 758 and Cape Brandy Syndicate v. IRC, (1921) 1 KB 64.
In CIT Bangalore v. Infosys Technologies Ltd. (Supra) the Supreme Court considered the time of accrual of perquisites to the employees under its employee's stock option scheme creating a trust and allotting to it warrants at Rs.1 each, for the purposes of deducting TDS. It was held that the estimation of TDS under Section 192, on such issuance of warrants under the scheme subjecting the allotted shares to a lock in period of 5 years, no perquisite accrued at the time, when the warrants were gathered or when the option vested in the employee after 12 months. In the relevant assessment years there was no provision for making such benefit taxable.
8. IN CIT v. Willamson Financial Services and Ors. (Supra) the Supreme Court considered the question of allowable extent of deductions on export profits of the assessee, who were engaged in creating and manufacturing and exporting tea, claiming deduction under Section 80 HHC. It was held that the word income as defined under Section 2 (24), also find place in Rule 8 (1) and would include profits and gains. The word income is an expression of illusory ambit. It is not exhaustive and that is why Section 2 (24) defines income as including particular category of receipts. Mere gross receipt cannot be taxed as income. The words 'as if' occurring in Rule 8 (1) stands for legal fiction.
In M.C. Desai v. Union of India (Supra) the Court held that the adhoc and graded relief given to the judges in addition to the pension by the Central Government is paid in order to meet the rising cost of living, which the judges are entitled to receive over and above the amount of pension payable to them. The High Court did not express any opinion as to whether the adhoc relief is a condition of service, which cannot be varied to the disadvantage of the judges in lieu of proviso to Art.221 (2) of the Constitution. The High Court granted relief by issuance writ of mandamus directing the Central Government to compute and determine the retirement gratuity payable to an officer of the rank of Secretary to the U.P. State Government of the Indian Administrative Service at the time of retirement of the petitioner and to pay same to them along with interest.
The other judgments cited by Shri P.K. Jain are not relevant to the questions raised in this appeal.
9. SECTION 17 of the Act defines salary, perquisites and profits in lieu of salary. The dearness relief is neither salary nor perquisite. It would thus fall within the meaning of 'profit in lieu of salary', under Section 17 (3) and would fall under Clause (ii), which includes any payment other than any payment referred to in Clause 10, Clause 10A, Clause 10B, Clause 11, Clause 12, Clause 13 or Clause 13A of Section 10 due, to or received by an assessee from employer or a former employer. The dearness relief is neither compensation received in lieu of termination of the employment, nor any amount due paid in lumpsum or otherwise after cessation of the employment.
10. CLAUSE 3 (ii) is an omnibus clause, which tax as profits in lieu of salary, any payment due to or received by an assessee from an employer or former employer. The payment must be related to the employment. An amount may be taxable as, 'profits in lieu of salary', even if it is paid after the employment has come to an end, by a former employer. It makes an expressed provision to tax an amount receivable or received from an employer before joining his employment or after cessation thereof.
Section 2 (gg) inserted by Act No.50 of 1961 w.e.f. 8.12.1961 of the High Court Judges (Salaries and Conditions of Service) Act, 1954 defines 'pension' as follows:-
"(gg) 'pension' means a pension of any kind whatsoever payable to or in respect of a judge, and includes any gratuity or other sum or sums so payable by way of death or retirement benefits."
The President of India under Section 21 of the Act of 1954 is the authority competent to grant pension to a judge under the provisions of the Act. The pension would include, in view of the amended definition of pension under Clause (gg) of Section 2, all the amounts received by a judge as a pension and will also include extraordinary pension under Section 17, family pension and gratuities under Section 17A and commuted pension.
11. THE exemption from liability to pay income tax on certain perquisites or allowances received by a judge and which may not be included in the computation of his income chargeable under the head 'salaries' under Section 15 of the Income Tax Act, 1961 is included under Section 22D, in Chapter IV as substituted by Act No.20 of 1998. All other amounts received by a judge are taxable. The dearness relief will be included in the pension as defined under Section (gg) of the Act and is not exempt from income tax under Section 22D of the Act of 1954.
We do not find any error of law in the judgment of the Tribunal in finding that the dearness relief is 'profit in lieu of salary' and is included as an amount received by a retired judge under Section 17 (3) (ii) of the Act and would be taxable as income. The questions raised are thus decided against the assessee and in favour of the revenue.
12. THE income tax appeal is dismissed.