1. These three appeals of the assessee emanate from a common order passed by the Commissioner (Appeals)-XXX, New Delhi, on 27-8-2004. The appeals involve common grounds and they were argued in a consolidated manner by the learned Counsel of the assessee and the learned Departmental Representative. Therefore, we find it expedient to pass a common order.
2. The assessee has taken eight grounds in the appeals. However, the learned Counsel for the assessee explained that the material question in these appeals is whether, the learned Commissioner (Appeals) was right in holding that the tax paid by the employer in respect of salaries paid to the employees is 'salary' under rule 3, for the purpose of computing the value of perquisites in respect of rent-free accommodation provided to the expatriate employees 2.1 From the order of the assessing officer dated 31-3-2004, passed under Section 154 of the Act, it transpires that an order under Section 201 and Section 201(1A) was passed for financial years 1988-89 to 1997-98 on 30-3-2000. The Tribunal restored the matter to the file of the assessing officer with the direction to recompute the liability of the assessee for financial years 1995-96 to 1997-98 after grossing up the tax with income under Section 195A, dealing with income payable 'net of tax'. The order to this effect was passed on 22-3-2004.
Thereafter, it was found that in the original order as well as in the order giving effect to the order of the Tribunal, the value of perquisites for the employees in respect of rent-free accommodation was computed without including the tax in the gross salary. Therefore, a notice under Section 154 was served on the assessee. It was contended that the mistake sought to be rectified was not a mistake apparent from record as it involved determination of the issue whether tax was salary or perquisite for the aforesaid purpose. The assessing officer did not accept the contention of the assessee. He relied on the decision of Hon'ble Delhi High Court in the case of T.P.S. Scott and Ors. v. CIT and it was pointed out that tax perquisite is a part of the gross salary. Further, it was pointed out that no new fact has been gathered since the passing of the original order. Therefore, the tax was included in the salary for working perquisite in respect of rent-free accommodation and the liability under Section 201(1) and Section 201(1A) was worked out again for all the three years, raising additional demand of Rs. 97,41,480 under Section 201(1) and Rs. 1,21,63,090 under Section 201(1A) of the Act. The break-up of the liabilities was also furnished in the order.
2.2 Aggrieved by this order, the assessee moved appeals before the learned Commissioner (Appeals). After considering the rival submissions before him, the learned Commissioner (Appeals) pointed out that the definitions of both the terms 'salary' and 'perquisite' are inclusive in nature. Any monetary payment by whatever name called by an employer is a part of the salary. The tax paid by the employer is not included in the definition of 'perquisite'. Therefore, by simple logic, tax on tax being a monetary payment admittedly paid to meet the tax liability, is a part of 'salary' and cannot by any stretch of imagination be regarded as 'perquisite'. He also referred to the submission made before him that the salary received abroad became taxable because of the deeming fiction and in absence thereof, the amount could not have been taxed in India. In this connection, it was pointed out that the submission is not only hypothetical but also bereft of any merit. The assessee never came clean on fact as to whether the payments made abroad were in respect of services rendered in India or outside India.
Therefore, no legal fiction was involved when such payments were brought to tax in India. However, he granted part relief to the assessee in respect of computation of interest, by directing it to be made in accordance with the rates provided in the Act.
2.3 Before us, the learned Counsel for the assessee referred to the facts of the case and pointed out that the order of the assessing officer for financial years 1988-89 to 1994-95 was quashed. However, in respect of financial years 1995-96 to 1997-98, the Tribunal directed the assessing officer to recompute the liabilities after grossing up the tax with salary as provided in Section 195A. Effect was given to this order on 22-3-2004 and a copy of that order was filed before us.
In this order, the assessing officer relied on the decision of Hon'ble Delhi High Court in the case of T.P.S. Scott (supra) and included the tax perquisite in salary for the purpose of Computation of the perquisite in respect of rent-free accommodation. The argument of the learned Counsel was that the original order of the assessing officer had merged with the order of the Tribunal, to which effect was given on 22-3-2004. In view thereof, the assessing officer did not have jurisdiction to rectify the order under Section 154 of the Act, as such jurisdiction vested only in the Tribunal. He referred to para 34 of the order of the Tribunal, which dealt with the argument of the learned Departmental Representative to the effect that the assessing officer had failed to include the tax perquisite in computing the salary for the purpose of computing the value of rent-free accommodation. In view thereof, it was contended that the matter may be remanded to the assessing officer to recompute the perquisite in respect of rent-free accommodation after including the tax in the salary. For this purpose, reliance was placed on the decision of T.P.S. Scott (supra). It was contended that Tribunal had such a power in such a case. However, the Tribunal did not accept the contention of the learned departmental Representative. Relying on the decision of Hon'ble Supreme Court in the case of Hukurkchond Mills Ltd. v. CIT , it was pointed out that the Tribunal's powers are restricted to the subject-matter of appeal and it does not have the power of enhancement of income. The respondent can only support the orders of the assessing officer and the Commissioner (Appeals) and arguments beyond that cannot be adjudicated upon by the Tribunal. It was also pointed out that if such a contention was to be accepted, then, the provisions regarding cross-objection and cross-appeal would become redundant. Thus, the argument of the learned Departmental Representative for enhancement of income was not accepted on the ground of lack of jurisdiction. We may mention that this order of the Tribunal has been in Mitsubishi Corporation v. Dy. CIT (2004) 86 TTJ (Del) 139 : (2003) 85 ITD 414 (Del). On the basis of this order, the case of the learned Counsel was that the order of the assessing officer had merged with the order of the Tribunal and, therefore, the assessing officer was incompetent to pass the rectification order.
2.4 In the aforesaid connection, reliance was placed on the decision of Hon'ble Calcutta High Court in the case of Basudeo Prasad Agarwalla v.ITO and Ors. , in which it was pointed out that if the order of remand made by the Tribunal is an open one, then, the concerned authority can exercise jurisdiction in accordance with law.
However, if the scope of remand is limited, then, the authority concerned cannot enlarge its jurisdiction and make an order beyond the scope of the order of the remand. His case was that the Tribunal had passed the order and the assessing officer was exercising derivative jurisdiction, whose scope could not be enlarged by the assessing officer. Further, he relied on the decision of Hon'ble Allahabad High Court in the case of Sri Vindhya Vasini Prasad Gupta v. CIT , in which the facts were that the appellate authority had remanded the case to the Income Tax Officer on one issue. The Hon'ble Court affirmed the finding of the Tribunal that the Income Tax Officer was not right to consider any other question and in such a situation, no question of law arose from the order of the Tribunal.
Such were also the decisions in the cases of Sri Sri Kubereswar Mahadeva Thakur v. CIT ; CIT v. Kamla Town Trust and Union of India v. Kamlakshmi Finance Corporation Ltd. .
2.5 In reply, the learned departmental Representative pointed out that this was not a case of derivative jurisdiction but one of exercise of jurisdiction by the assessing officer under Section 154 of the Act as the issue under question was not considered by the Tribunal at all. He referred to the order of the assessing officer, in which it was mentioned that in the order giving effect to the order of the Tribunal as well as in the original order, the value of perquisite for each employee in respect of rent-free accommodation was computed without including the tax perquisite in the gross salary. Thus, it was argued that the assessing officer rectified the original order in which the mistake had taken place, which would have consequential effect on the order giving effect to the order of the Tribunal. Further, he referred to para 34 of the order of the Tribunal in the case of the assessee, in which it was specifically pointed out that the judgment in the case of Hukumchand Mills Ltd. (supra) can be applied only where the Tribunal is required to adjudicate upon the subject-matter, which has been raised by the appellant, and the respondent is only entitled to support the orders of the assessing officer and the Commissioner (Appeals) and cannot traverse beyond it. Thus, his case was that the Tribunal did not adjudicate upon this issue at all and, thus, the assessing officer was free to rectify his order under Section 154 of the Act provided that the mistake was apparent from record.
2.6 We have considered the facts of the case and rival submissions on this preliminary issue. It will be appropriate for us at this stage to reproduce para 34 of the order of the Tribunal to have a proper appreciation of the issue as to whether the matter had been considered by the Tribunal or not. The para reads as under: 34. During the course of hearing on this issue, the learned Commissioner Departmental Representative drew our attention to the fact that assessing officer failed to include the tax perquisite in computing the gross salary for the purpose of computing the value of toe rent-free accommodation. Accordingly, it was contended that matter be remanded to the assessing officer to recompute the value of such perquisite, after including the tax element in the gross salary. She relied on the decision of Delhi High Court in the case of T.P.S. Scott and Ors. v. CIT (supra) for the proposition that tax perquisite is the part of gross salary. She also relied on the Supreme Court judgment in the case of CIT v. Assam Travels Shipping Service for the proposition that the Tribunal has the power to remand in such case. We are unable to accept this contention of the learned Commissioner Departmental Representative.
There is) no doubt that the Tribunal has the power to remand the matters to the file of assessing officer but such powers are to be exercised vis-a-vis subject-matter of toe appeal filed by toe appellant as held by the larger Bench of the Supreme Court in the case of Hukumchand Mills Ltd. v. CIT , wherein it has been clearly held that the powers of the Tribunal are restricted to the subject-matter of appeal and further there is no power of enhancement. The judgment of the Supreme Court in toe aforesaid case relied upon by toe learned Departmental Representative is distinguishable on facts of the case and has to be understood in the context in which the judgment was delivered. In that case, the penalty under Section 271(1)(a) was levied by assessing officer which was challenged by the assessee before the Appellate Assistant Commissioner but found that penalty levied by assessing officer was much less than the penalty leviable under toe law. In view of such finding it was held that the penalty levied was not in accordance with law and consequently, the Appellate Assistant Commissioner cancelled the penalty. On appeal by the department, the Tribunal was of the view that it had no option except to uphold the order of Appellate Assistant Commissioner since it had no power of enhancement. The order of the Tribunal was also upheld by the High Court. However, the Supreme Court reversed the order of High Court and held that Appellate Assistant Commissioner had toe power of enhancement and, therefore, the Tribunal in such cases had the power to remand toe matter to the assessing officer for recomputing the penalty in accordance with law. From the above discussion, it appears that in that case the revenue was in appeal before the Tribunal and toe subject-matter of appeal was the levy of penalty and, therefore, it could exercise its powers with reference to such subject-matter. In our opinion, this judgment can be applied only where toe Tribunal is required to adjudicate upon the subject-matter which has been raised by the appellant and the respondent is only entitled to support the orders of the assessing officer and toe Commissioner (Appeals) and not beyond that. If such contention of the learned Departmental Representative is accepted then the provisions of cross-appeals and cross-objections would become redundant. Such construction of the statute, in our opinion, is not permissible. Therefore, we reject such contention of the learned Commissioner Departmental Representative.
On reading this part of the order, we find that the Tribunal refused to go into the issue raised by the learned Departmental Representative for the first time before it, which was to the effect that the tax should be included in salary for working out perquisite in respect of rent-free accommodation, by pointing out that the Tribunal did not have power to enhance the assessment and if the argument is accepted, then, the provisions of cross-appeal and cross-objection would become redundant. Since the Tribunal did not go into the question at all, there was no question of the merger of the order of the assessing officer into the order of the Tribunal in this regard. Thus, it was not a case of derivative jurisdiction of the assessing officer and, therefore, the cases relied upon by the learned Counsel have no bearing on determining the matter. Further, Sub-section (4) of Section 154 provides that where an amendment is sought to be made under this section, the order shall be passed in writing by the Income Tax authority concerned, which means that the authority who passed order can amend the order provided the mistake sought to be rectified is a mistake apparent from record. The subject-matter of rectification in this case was not the order of the Tribunal, which refused to go into the matter at all, but the original order of the assessing officer. We are of the view that the assessing officer was competent to pass such an order, as his order did not merge into the order of the Tribunal.
3. Coming to the merits, the learned Counsel referred to the definition of the term 'salary' given in the Explanation to rule 3 of the Income Tax Rules, 1962. For the purpose of this rule, the term is defined in an inclusive manner to include within its ambit the pay, allowances, bonus or commission payable monthly or otherwise, but does not include?(i) dearness allowance or dearness pay unless it enters into computation of superannuation or retirement benefits of the employee concerned; (ii) employer's contribution to the provident fund account of the employee; (iii) allowances which are exempt from payment of tax; and (iv) any allowance in the nature of entertainment allowance to the extent such allowance is deductible under Clause (ii) of Section 16. It was further pointed out that this definition was amended with effect from 1-4-2001 to include within the ambit of the term 'salary' the pay, allowances, bonus or commission payable monthly or otherwise or any monetary payment, by whatever name called by one or more employers, as the case may be, but does not include?(a) dearness allowance or dearness pay unless it enters into computation of superannuation or retirement benefits of the employee concerned; (b) employer's contribution to the provident fund account of the employee; (c) allowances which are exempt from payment of tax; (d) the value of perquisites specified in Sub-section (2) of Section 17 of the Income Tax Act, and (e) any payment or expenditure specifically excluded under proviso to Sub-clause (iii) of Clause (2) or proviso to Clause (2) of Section 17. It wis further pointed out that the material change for our purpose is the inclusion of item (d) from 1-4-2001, namely, the value of perquisites specified in Clause (2) of Section 17 of the Income Tax Act. Thus, for assessment year 2001-02 and onwards, perquisites specified in Clause (2) of Section 17 are included in the definition of salary for the purpose of rule 3. However, the case of the learned Counsel was that this amendment did not materially alter the definition in view of Board Circular No. 15, dated 12-12-2001 (2002) 172 CTR (St) 65) regarding 'Income-tax deduction from salary during the financial year 2001-02 under Section 192 of the Income Tax Act, 1961'. At p. 10 of the circular, it was mentioned that the definition of 'salary' for calculating the perquisite value is the same as per earlier rule. The only change is that medical allowance and reimbursement for treatment of serious illness, as prescribed in the proviso below Section 17(2)(vi), has now been excluded from the definition of salary for this purpose. For furnished accommodation, the provision of valuation of perquisite of. furnishing, fittings and furniture at 10 per cent of the original cost per annum or actual hire charges is continued. On the basis of this para, it was argued that the definition of the term 'salary' remains the same before and after 1-4-2001 and, therefore, Clause (d) regarding the value of perquisites specified in Clause (2) of Section 17 will have to be read in the earlier definition of the term. In view thereof, no perquisite will enter in the definition of the term. In other words, his case was that the term 'salary' will not include within its ambit the value of such perquisites even in relation to assessment years prior to assessment year 2001-02.
3.1 Coming to the legal argument, it was his case that the decision of jurisdictional High Court in the case of T.P.S. Scott (supra) does not support the case of the revenue as in that case tax paid by the employer was held to be perquisite under Section 17(2)(iv). Thus, this case goes against the revenue. It was emphatically stated that if this case goes against the assessee, then, he has no case to argue, but that is not the case. The issue in that case was whether, on the facts and in the circumstances of the case, the amount of tax paid by the British High Commission to the Indian Government on 29-3-1992, was chargeable in the hands of the assessee under Section 15 read with Section 17(2)(iv) of the Income Tax Act, 1961 The Hon'ble court decided the matter in favour of revenue and we may reproduce one para from that decision as under: We may refer to the relevant statutory provisions. Section 15 sets out the income which shall be chargeable to income-tax under the head 'Salaries'. Vide Clause (b) thereof any salary paid or allowed to an employee in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him is an income chargeable to tax under the head 'Salaries'. For the purpose of Section 15 vide Section 17(1)(iv), perquisites are included in salary. Vide Sub-clause (iv) of Clause (2) of Section 17 any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee, is included in 'perquisites'. The interpretation clause i.e., Section 2 of the Act, vide Sub-clause (iii) of Clause (24) thereof, includes the value of any perquisite or profit in lieu of salary taxable under Clauses (2) and (3) of Section 17, within the meaning of 'income'.
3.2 He also relied on the order of Hon'ble Tribunal, Delhi Bench 'D', Delhi in the case of A.M. Awasthy v. ITO (1983) 6 ITD 150 (Del). In that case, the assessee was posted abroad for executing a project undertaken by the employer company. While calculating the value of rent-free accommodation provided to the assessee abroad, the Income Tax Officer included foreign allowance, foreign project allowance and tax borne by the employer in the salary. The Tribunal pointed out that foreign allowance and foreign project allowance were to assist the assessee to have his establishment in the foreign country and to maintain himself. The dearness allowance was not shown to be a factor for determining the allowance. Therefore, the allowance had to be treated as salary. However, the tax paid by the employer constituted perquisite in the hands of the assessee under Section 17(2)(iv). This cannot enter in salary for determining the perquisite value of rent-free accommodation. It may be mentioned here that the definition of the term 'salary', given in r. 3, was not considered by the Hon'ble Tribunal.
3.3 He also relied on the decision of Hon'ble Supreme Court in the case of CIT v. Hero Cycles (P) Ltd. Etc. , in which it was pointed out that for rectification of a mistake under Section 154, it must be a glaring and obvious mistake, which could be discerned without any debate or discussion. Since the export market development allowance was subject-matter of debate and discussion, the allowance already made could not be withdrawn under the provisions of Section 154. of the Act.
3.4 The learned Counsel fairly conceded that the decision of Hon'ble Kerala High Court in the case of CIT v. C.W. Steel (No. 1) was against the assessee and it was held that the definition of 'salary' in the Explanation to rule 24A of the Income Tax Rules, 1922, was an inclusive definition and includes within its ambit the pay. Thus, if the income-tax paid by the employer is not salary as ordinarily understood, it will form a part of the pay of the employee.
Therefore, the tax should be included in the salary for finding out the value of rent-free accommodation. Such was also the decision of Hon'ble Bombay High Court in the case of CIT v. H.D. Dennis and Ors.
, in which it was held that the term 'salary' under rule 3 of the Income Tax Rules, 1962, includes the tax paid by the employer on behalf of the employee and tax on such tax. The Hon'ble Court pointed out that the definition was inclusive and it was well-settled rule of interpretation of inclusive definitions that it is not controlled by or confined to the words and expressions included in the definitions. It was further pointed out that the purpose of giving a separate definition to the terra in rule 3 was to exclude certain kinds of payments, which were otherwise covered by the term 'salary'.
Therefore, the definition in rule 3 is co-extensive with the definition given in Section 17 of the Act except so far as there is an express exclusion therefrom of the kinds of payments mentioned therein. It was also pointed out that the dictionary meaning of the word 'pay' includes all periodical payments for services rendered. Therefore, both the words, namely, salary and pay would include tax within their ambit is nothing but salary of C.W. Steel (supra) 3.5 In reply, the learned departmental Representative pointed out that tax paid by the employer on behalf of the employee paid in cash. Apart from the decisions in the cases and H.D. Dennis (supra), he: relied on the decision of T.P.S. Scott (supra) rendered by the jurisdictional High Court. He distinguished the facts of the case of A.M. Awasthy (supra) by pointing out that in that case the salary was paid outside India and rent-free accommodation was provided in the USA. In any case, the decisions of Hon'ble Kerala High Court and Bombay High Court in the case of C.W. Steel (supra) and H.D. Dennis (supra) supersede the aforesaid order of the Tribunal.
3.6 Coming to the issue of applicability of Section 154, it was pointed out that the definition of the term 'salary' given in rule 3, as it existed at the relevant point of time, is clear and it does not exclude from its ambit the tax paid by the employer on behalf of the assessee, even if such payment is taken as perquisite under Section 17(2)(iv).
Therefore, there was an obvious and glaring mistake in the order of the assessing officer in working out the value of perquisites in respect of rent-free accommodation, which could be rectified under Section 154 of the Act. Thus, it was argued that multiple grossing up will have to be done while working out salary under rule 3.
3.7 We have considered the facts of the case and rival submissions. We find that the decision in the case of T.P.S. Scott (supra) was given on totally different set of facts as the assessee raised a dispute that he was not the employee of the British High Commission, but he was employee of British Council and, therefore, the tax paid by the British High Commission was not salary as employer-employee relationship did not exist. The Hon'ble court pointed out that salary paid by an employer or a former employer would constitute 'salary'. Therefore, the payment amounted to salary. A reference was also made to Section 17(2)(iv) under which any sum paid by the employer in respect of any obligation which, but for such payment, would be payable by the assessee amounted to perquisite, which was included in the definition of salary under Section 17(1)(iv). Thus, it is not the ratio of the case that tax paid is perquisite and not pay or salary under Section 17(1). The ratio of the order in the case of A.M. Awasthy (supra) stands superseded by the decisions of Hon'ble Kerala and Bombay High Courts in the cases of C.W. Steel (supra) and H.D. Dennis (supra).
These cases had been decided before passing of the original order.
Further, we find that the learned Counsel has picked up a para from Board Circular No. 15, dated 12-12-2001 to argue that the definition of the word 'salary' in rule 3 is the same before 1-4-2001 and thereafter.
We are of the view that specific inclusion of Clause (d) in 'salary' after 1-4-2001 was a conscious decision, which materially altered the definition not only by excluding perquisites under Section 17(2)(iv), but also certain other perquisites mentioned in Section 17(2)(iii) and proviso to Section 17(2). In the face of these changes, it will not stand to reason to accept that the definition of the term 'salary' in r. 3 was the same before and after 1-4-2001. Hon'ble Kerala High Court has referred to the definition of 'salary' under Income Tax Rules, 1922, and pointed out that tax paid by the employer was in the nature of 'pay'. Hon'ble Bombay High Court in the case of H.D. Dennis (supra) has distinguished the definition under rule 3 and under Section 17 and it has been pointed out that the definition in rule 3 is for the purpose of valuation of perquisites, mentioned in the rule, for computing income under the head 'salary'. The objective of giving a separate definition in rule 3, was to exclude certain kinds of payments which were otherwise covered by the word 'salary'. It was also pointed out that the dictionary meaning of the word 'pay' includes all periodical payments for services rendered and, therefore, the words 'salary' and 'pay' would include tax paid by the employer on behalf of the employee within their ambit. Thus, on merits we are of the view that tax payment is 'pay' and, therefore, salary under rule 3 of the Income Tax Rules.
4. The question that concerns us now is whether the issue is debatable or it is a patent mistake of law. We find that the learned Counsel for the assessee was able to quote only the case of A.M. Awasthy (supra) in support of his contention. The judgments in the cases of C.W. Steel (supra) and H.D. Dennis (supra) were there before the assessing officer when he passed the original order. In view of the two decisions of Hon'ble High Courts, the order of the Tribunal will stand superseded.
Further, the definition of the term 'salary' in rule 3 before 1-4-2001 makes it amply clear that there is no scope to exclude the tax from 'salary' because it is pay and it is not specifically excluded by any of the exclusionary clauses mentioned therein. This becomes more clear when a conscious decision was made to amend the rule and a Clause (d) was introduced for the purpose of excluding the value of perquisites specified in Clause (2) of Section 17. To our mind, there is only one interpretation which can be placed on the term and the same is clear from its definition in rule 3 as it existed for the relevant years.
Therefore, the mistake was apparent from record and flows from the plain reading of rule 3, Explanation 1.
5. In the result, we are of the view that the learned Commissioner (Appeals) was right in upholding the order of the assessing officer in this matter.
6. The learned Counsel for the assessee also placed before us the computation of the value of perquisites for all the three years in terms of Section 195A of the Act. It was his case that there were certain errors in the computation made by the assessing officer, even if his order was to be sustained. We have considered this matter also.
We find that since this issue was not examined by the learned Commissioner (Appeals). Therefore, we restore this matter to the file of the assessing officer to examine calculations placed before us and determine the correct value of perquisites in respect of rent-free accommodation for all the three years.
7. In the result, all the three appeals are treated as partly allowed, as discussed above.