income-tax Officer Vs. J. P. Kapur. - Court Judgment

Excerpt:
- - 4. the learned departmental representative submitted that the definition of salary for the purpose of rule 3 was also inclusive like the definition of salary given in sec.orderper j. kathuria, am. - the revenues appeal for the assessment year 1981-82 (ita no. 4614/86) came up for hearing before us on 5-7-89. we were informed that the other appeals of the revenue for the assessment years 1982-83, 1983-84 and 1984-85 (ita nos. 506/87, 507/87 and 534/88) involving the same issue, were also pending before the tribunal. all these appeals were, thereforee, heard together with the consent of both the parties. as the facts are common and the point at issue is identical and these appeals have been heard together these are disposed of by a consolidated order for the sake of convenience.2. the brief facts of the case may first be noted. the assessed is an employee of m/s. d. c. m. chemical works. the assessed was paid a reward of rs. 25,000 by his employer for the.....

Judgment:
ORDER

Per J. Kathuria, AM. - The Revenues appeal for the assessment year 1981-82 (ITA No. 4614/86) came up for hearing before us on 5-7-89. We were informed that the other appeals of the Revenue for the assessment years 1982-83, 1983-84 and 1984-85 (ITA Nos. 506/87, 507/87 and 534/88) involving the same issue, were also pending before the Tribunal. All these appeals were, thereforee, heard together with the consent of both the parties. As the facts are common and the point at issue is identical and these appeals have been heard together these are disposed of by a consolidated order for the sake of convenience.

2. The brief facts of the case may first be noted. The assessed is an employee of M/s. D. C. M. Chemical Works. The assessed was paid a reward of Rs. 25,000 by his employer for the year relevant to the assessment year 1980-81. For the years under appeal, the reward paid to the assessed was as follows :

Assessment year

Amount of reward Rs.

1981-82

25,000

1982-83

30,000

1983-84

1 lakh

1984-85

1 lakh

3. This reward was treated as salary by the Income-tax authorities and that matter is not in dispute before us. The only controversy before us is, whether such reward should be included in the definition of salary as per Explanationn 1 to Rule 3 of Income-tax Rules, 1962 for working out the value of the perquisite, namely, rent free accommodation.

4. The learned Departmental Representative submitted that the definition of salary for the purpose of Rule 3 was also inclusive like the definition of salary given in sec. 17 of the Income-tax Act. The Rule made four specific exclusions and the payment of reward to the assessed by the employers was not covered by such exclusions. Relying on the definition of the word 'salary' as per Shorter Oxford Dictionary, Websters International Dictionary and Blacks Law Dictionary, it was submitted that reward was included in the definition of salary and so it must be taken into consideration while computing the value of rent free accommodation. Shri Sanjiv Batra, the learned counsel of the assessed, submitted that if the Legislature wanted, the same definition of salary as appears in sec. 17 of the Income-tax Act, to be applied to Rule 3 of the Income-tax Rules, 1962, then there was no need to define salary again for the purpose of the said rule. The phraseology used in the Act and in the Rule was different and profits in lieu of salary or in addition to any salary mentioned under sec. 17(1) (iv) of the Income-tax Act are missing from the definition of salary as per Explanationn 1 to Rule 3 of the Income-tax Rules. It was also submitted that different CIT (Appeals) have consistently taken the view in the assesseds case for various years, that reward should not be treated as part of the salary while computing the perquisite in respect of rent free accommodation.

5. We have carefully considered the submissions made by both the sides and perused the material on record. The first thing that strikes us is the fact payment of reward is an annual feature in this case. The reward is also being paid in recognition of the assesseds 'work towards betterment of operational results of DCM Chemical Works'. In these circumstances, the test to be applied is, whether the assessed received the payment by virtue of his office or otherwise. The test is, whether from the standpoint of the person, who receives payment, it accrues to him by virtue of his office. If it does, it does not matter, whether it is voluntary or whether it is compulsory, on the part of the person, who paid it Sir Richard Henn Collins M. R. V. v. McQuade [1902] 4 TC 489 (CA). If this test is applied, then the reward received by the assessed is directly relatable to his office and has, thereforee, to be treated as a part of his salary. Explanationn 1 to Rule 3 of the Income-tax Rules does not give an exhaustive definition of the word 'salary'. The definition is inclusive. Same is the case with sec. 17 of the Income-tax Act, wherein the definition of salary is also inclusive. Normally, the word 'included' is employed by Parliament and Legislatures in defining words for the purpose of enlarging the meaning of the ordinary words or to clear any doubt that might arise in understanding the same. thereforee, the courts generally interpret it as enlarging the meaning of the word and do not restrict the meaning to particular words that follow in the inclusive part of the definition unless the context otherwise merits.

6. We may also, with benefit, refer to the dictionary meaning of the word 'salary', which is neither defined in the Income-tax Act nor in the Rules. In Shorter Oxford Dictionary the word salary is defined as 1. Fixed payment made periodically to a person as compensation for regular work; now used for non-manual or non-mechanical word (as opp. to wages), 2. Remuneration for services rendered, fee, honorarium, reward, recompense. In Websters International Dictionary, the meaning of salary is given as follows : 1. To pay (as a person) for something done : Recompense, Reward. 2(a) To pay a salary to (a person) 2(b) To attach a salary to (a position).

In Blacks Law Dictionary salary is defined as a reward, to recompense for services performed. According to these definitions also, the word 'reward' is considered salary.

7. In this context, we may also refer to the observations of the Madras High Court in the cases of CIT v. I. G. Mackintosh : [1975]99ITR419(Mad) . The observations are as follows :

'The purpose of defining the word salary in Rule 3 of the IT Rules, 1962, separately appears to be to exclude certain items which would otherwise be comprehended within it rather than to restrict its meaning itself. It is doubtful whether the rule making authority could have given in the Rules any meaning different from that given in the Act itself. Hence, the definition of the word salary in rule 3 is not exhaustive.'

8. We have only to see whether the kind of payment received by the assessed is covered by the specific exclusions, mentioned in the definition of salary appearing in Explanationn 1 to Rule 3. We find that the reward received by the assessed is not covered by the exclusions. The reward received is almost an annual feature and is in recognition of the outstanding services performed by the assessed to the employers. Having regard to all the facts and circumstances of the case, we hold that the reward received by the assessed was to be taken into consideration while computing the perquisite value of the rent free accommodation in the case of the assessed. In that view of the matter, we reverse the orders of the CIT (Appeals) and restore of the ITO.

9. The appeal are allowed.