Hardayal Hardy, J.
(1) The applicant who will hereafter be described as the assessed, wos an officer of the Government of India. In the statement of case, the period to which the reference relates is the assessment year 1958-59. The previous year ended on 31-3-1958. During this period, he served as an Income-tax Officer at Calcutta since before 1-4-1957 to 19-6-1957. From 20-6-1957 to 31-3-1958 and thereafter he served as an Assistan Commissioner of Income-tax at Bombay. In the four appeals that he filed before the Appellate Assistant Commissioner against his assessment, the relevant assessment years were 1955-56, 1956-57, 1957-58 and 1958-59 and the question raised by him was identical. The order made by the Appellate Assistant Commissioner also shows that when his appeals were beared by the Appellate Assistant Commissioner on 24-8-1961, the assessed was working as Secretary to the Commission of Inquiry in the A.G.C.R. Building at New Delhi.
(2) It is thereforee, not understood why the reference was restricted to the assessment year 1958-59 when in the appeals before the Appellant Assistant Commissioner and the Income-tax Appellate Tribunal, the assessment years in question were 1955-56, 1956-57, 1957-58 and 1958-59 and all the four appeals were consolidated and disposed of by a common order.
(3) The statement of case printed in the paper book is shown as a draft statement of the case and yet it is signed by all the three members of the Tribunal and it is not disputed by the counsel for the parties that this was the final statement of case and was not merely a draft.
(4) It, however, seems to us that since the reference is confined to the assessment year 1958-59 we have to take it as it is. Our observations are, thereforee, confined to the accounting period 1-4-1957 to 31-3-1958 when the assessed was posted for some time at Calcutta and thereafter at Bombay as an Assistant Commissioner of Income-tax.
(5) The facts as stated by the Tribunal are briefy as follows:- The assessed, an Assistant Commissioner of Income tax, was not provided by the Government with any residence at Calcutta or Bombay. He was, however, allowed house rent allowance at varying amounts throughout this period under the relevant fundamental rules. In connection with his assessment for the relevant year, he pleaded before the Income-tax Officer that the house-rent allowance so received by him was outside the ambit of Section 7 of the Income-tax Act, 1922 and could not be taxed. The Income-tax Officer, however, held that it was a perquisite within the meaning of Section 7(1) of the Act and treated it as assessed's income.
(6) The assessed preferred an appeal before the Appellate Assistant Commissioner, who held that the house-rent allowance is neither salary nor wages nor annuity, pension, gratuity, fee. commission or profit in lieu of or in addition to salary and wages. He took the view that the house-rent allowance was contingent on the fulfillment of certain conditions which had no relevance whatsoever to the actual services renddered. He held that it was nothing but a compensation paid to the less fortunate officers for the loss they incurred in not being provided with Government accommodation and that it did not arise from the employment as it was not relatable to the services rendered. He hence held that it was not a perquisite within the meaning of the said term in Section 7 and allowed the appeal.
(7) The Revenue preferred appeal against the order of the Appellate Assistant Commissioner before the Tribunal on the ground that the house-rent allowance was a perquisite as well as profit in lieu of or in addition to salary and hence taxable under Section 7(1) of the Act. The Tribunal held that the house-rent allowance under consideration was profit in lieu of or in addition to the salary within the meaning of clause (ii) of Explanationn 2 to Section 7 of the Act. It further held that it was a perquisite within the meaning of the term as defined in Explanationn I to Section 7. It held that the house-rent allowance was an assessable income under Section 7, on both these grounds and allowed the appeal. Owing to the importance of the question raised by the assessed the appeal was heard by a Bench of 3 members of the Tribunal.
(8) At the instance of the assessed, the Tribunal stated the case and referred to the High Court of Punjab, the following two questions of law arising out of its order dated the 19th December, 1962 :-
(1)'Whether on the facts and in the circumstances of the case, the house-rent allowance is taxable under Section 7 of the Income-tax Act, 1922? (2) If the answer to question (1) above be in the affirmative, whether such assessment of the receipt of House-rent Allowance would result in unjustified discrimination offending Article 14 of the Constitution and is as such void and un-enforeable ?'
(9) The said questions have now come up before us and they raise the short question whether house rent allowance which the Central Government pays to its servants is includible in the total income and is taxable under the head 'salaries' under Section 7 of the Indian Income-tax Act, 1922, as it stood after it was amended and took effect from the assessment year 1956-57 onwards.
(10) Mr. B. N. Kirpal, counsel for the assessed conceded that it was not open to an assessed to ask the High Court to pronounce upon the constitutional validity or virus of any provision of the Act in a reference under Section 66 of the Income-tax Act, 1922. (See K. S. Venkata- raman & Co. (Pr.) Ltd. v. The State of Madras : [1966]60ITR112(SC) and Beharilal Shayamsunder v. S.T.O. : [1966]60ITR260(SC) . He, thereforee, submitted that the second question did not arise for decision at all and confined his arguments to the first question. It is true that the question of constitutional validity or virus of a provision of the Act is foreign to the jurisdiction of authorities appointed under the Act and, thereforee, such questions can be decided only in a suit or a writ petition.
(11) As regards the first question, the Tribunal was of the view that the wide terms in which Section 7 was couched, the question had to be answered against the assessed. The Tribunal, however, did deal with the contentions urged by the assessed in an attempt to show that the amount received by him as house rent allowance was not a perquisite and held that it could be taxed under Section 7 whether it was regarded as a perquisite falling within Explanationn I or as 'profit in lieu of salary' in Explanationn 2(ii).
(12) Mr. Kirpal challenged the correctness of the Tribunal's decision and urged that the house rent allowance received by the asessee was neither a perquisite nor 'profit in lieu of salary.'
(13) With regard to perquisite, it was submitted that the definition of perquisite, though not exchaustive, includes given separate items, any of which an employee may receive from his employer. None of these five items would include the house rent allowance paid by the Government to the assessed. The revenue contended that clause (iv) of Explanationn I brought the payment within the ambit of the expression 'perquisite.' The clause reads :-
'(IV)any sum paid by the employer in respect of any obligation which but for such payment would have been payable by the assessed;'
(14) Mr. Kirpal argued that under clause (iv) the payment should be made by the Government to the landlord direct, if the clause is to apply, but this is not the case here. It is common ground that the assessed had himself entered into an agreement with the landlord and agreed to pay him the stipulated rent from his own pocket. There is thus no privity of contract between the Government and the landlord. The Government may later reimburse the assessed for the amount paid by him to the landlord; but since the Government did not pay rent to the landlord the payment would not be by the employer which but for such payment would have been the obligation of the assessed.
(15) We fail to see the distinction which Mr. Kirpal seeks to make. The assessed having taken the house on rent was under an obligation to pay rent to the landlord. Even if the Government, as his employer refused to reimburse the assessed, he would still have to pay the rent to the landlord. When the Government, thereforee, decided to reimburse the assessed, the reimbursement was in respect of an obligation that the assessed had incurred. The amount, thereforee, did come within the ambit of clause (iv). The only requirement of that clause is that there should be a payment by the employer and that payment should be relatable to an obligation, which obligation should be that of the employee, as contra-distinguished from that of .the employer. Then again, for purposes of attracting clause (iv), it is irrelevant to consider what is the nature of the allowance. The allowance in question may or may not be compensatory. In either case, it would seem to fall within the purview of clause (iv) because the clause speaks of 'any sum' and there are no limiting words,
(16) Mr. Kirpal seems to think that the payment can be regarded as a perquisite only if the Government directly pays the landlord. But we see no warrant for taking such a view nor does it seem to us that the reimbursement should be in respect of the entire rent. The payment of house allowance in this case is under an office memorandum No 6(1) EST.(Spl.)/47 dated the 31st July, 1947 issued by the Government of India, Ministry of Finance, New Delhi. Under that memorandum, . Gazetted officers of Government of India are paid a fixed sum ranging between Rs. 50.00 to Rs. 100.00 in the pay scale of Rs. 500.00 p.m. to Rs. 1500.00 and above as compensatory (city) allowance for Calcutta and Bombay. They are also paid house rent allowance ranging between 15% of pay in the case of officers getting below Rs. 500.00 p.m. as their pay, 121/2% in the case of officers in receipt of Rs. 500.00 to Rs. 1000.00 p.m. as pay while in the case of officers with a pay ranging between Rs. 1000.00 and up-wards, the house rent allowance is 10% of the pay. There are, however, different scales for Madras, Lahore, Delhi, Hyderabad, Ahmedabad and Kanpur. The allowances for non-gazetted staff are also different. The house rent allowance in the case of Gazetted officers at Calcutta and Bombay alone concerns us in this case. In both these cities, there is also residential accommodation provided by Government.
(17) It is quite possible that a Gazetted officer to whom residential accommodation has been provided by Government is in occupation of a better accommodation while another Gazetted officer to whom no such accommodation has been provided, has to fend for himself. He may secure accommodation at a higher rent equal to the difference between the amount of monthly rent paid for the un-furnished private accommodation and 10% of his pay, provided such difference does not exceed a percentage of pay as specified for the different pay ranges and stations of posting. The reimbursement by the Government will be in accordance with that scale and the balance will have to be borne by that officer. Qua the portion reimbursed, it would certainly be a case of the assessce's obligation met by the employer, i.e. the Government.
(18) Mr. Kirpal then referred us to a decision of the House of Lords in Hochstrusser ( Inspector of T axes) v. Mayes 1960 A.C. 376. The case was under a different statute of which the provisions were materially different from those with which we are concerned in this case. By Section 156(2) of the Income-tax Act, 1952 'Tax under Schedule was payable in respect of any arising or accruing from which would be chargeable to tax under Schedule D but for the proviso to paragraph 1 of the Schedule'. Section? of the Income-tax Act with its Explanationns contains provisions which are entirely different. In the case before the House of Lords, the assessed, an employee of the Imperial Chemical Industries obtained an interest free loan to assist him in purchasing a house. Under the terms of the loan, it had been provided that in the event of his transfer from a certain district where he was serving and where the house purchased by him was situated. he should first make an offer to the company so that they may purchase it. In the further event of the company declining to purchase it, he could sell to an outsider, but in such a case the loss incurred by having to sell the house to an outsider was to be reimbursed by the company. The question which arose in that case was whether a sum of 350 paid to the employee to re-imburse such a loss was a taxable perquisite or profit in the employee's hands under Schedule E of the (U.K.) Income Tax Act, 1952 and the question was answered in the negative. The pith and substance of that decision is that the sum of - 350 paid to the assessed was not a reward for his services to the company.'
(19) As was said by the Tribunal, the rationale of that decision clearly appears from that portion of the judgment of Lord Radcliffe where referring to the payment of money in question to the employee, he said :
'THEmoney was not paid to him as wages. The wages of employees are calculated independently of anything which they get under the housing scheme, and the I.C.I, salaries compare 'favorably with salaries paid by other employers in the Chemical industry who do not operate a housing scheme. . We are bound to say on the facts found for us that the source of the . 350 was the housing agreement into which the respondent had entered on June 1, 1951. and that the circumstance that brought about his entitlement to the money was not any services given by him but his personal embarrassment in having sold him house for a smaller sum than he had given for it.'
(20) The case is, thereforee, or no assistance to the assessed. Counsel for the Revenue also pressed into service clause (ii) of 'Explanation 2 to Section 7. The clause reads :-
'ANYpayment due to or received by an assessed from an employer or former employer or from a provident or other fund, to the extent to which it does not consist of contributions by the assessed or interest on such contributions.'
(21) In Section 7(1) tax is payable by an assessed not only in respect of salary, or wages etc. but also on 'profits in lieu of, or in addition to any salary or wages.' Explanationn 2 defines the expression 'profits in lieu of salary'. Clause (ii) of the Explanationn is wide enough to include within its purview the house rent allowance mentioned above. Mr. Kirpal contended that the clause was intended to take within its sweep cases where any payment was due to or received by an assessed from an employer. If the payment in respect of the house rent allowance was not due to or received by the assessed from his employer it would not attract this clause. We are unable to accept this argument. The assessed as a Gazetted officer of the Government of India was receiving the amount by virtue of his employment at a place where Government residential accommodation was not available. Instead of giving him a higher salary, the Government was paying him this amount and the assessed was receiving the same. Evidently this was payment in lieu of salary and was as such taxable under Section 7(1) read with clause (ii) of Explanationn 2.
(22) In the result the first question is answered in favor of the Revenue and against the assessed while the second question does not arise for decision in this reference. On the facts of this case. we do not propose to make any order as to costs.