CHIEF MINISTER IS TO FILE INCOME TAX RETURN UNDER THE HEAD 'SALARY'

[Mr. M. GOVINDARAJAN]

The total income has to be classified under various heads which include salaries and income from other sources. Sec. 14 of the Income Tax Act, 1962 ('Act' for short) provides that save as otherwise provided by this Act, all income shall, for the purposes of charge of income tax and computation of total income, be classified under the following heads of income:

1. Salaries;
2. (…)
3. Income from House property;
4. Profits and gains of business or profession;
5. Capital gains;
6. Income from other sources.

Sec. 15 of the Act provides for charging of income under the head 'salary' when it is due or paid by him. The following income shall be chargeable to income tax under the head 'salaries':

Any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not;

Any salary paid or allowed to him 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;

Any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income tax for any earlier previous year.

Any person receiving salary he is to file income tax return under the head 'Salary'.

In 'Justice Deoki Nandan Agarwala V. Union of India' - 2008 -TMI - 5745 - SUPREME Court the Supreme Court answered the question as to whether salary of a judge is taxable and it is to be taxable under the head 'salary' or 'income from other sources'. The Supreme Court observed that the Supreme Court Judges and High Court Judges, although, they have no employer but this itself will not mean that they do not receive salary. They are constitutional functionaries. Articles 125 and 221 of the Constitution deal with the 'salaries' of Supreme Court and High Court Judges respectively and expressly state that what the Judges receive are 'salaries'. It is not possible to hold, therefore, that what judges receive are not salaries or that such salaries are not taxable as income under the head of salary.

In 'P.V. Narasimha Rao V. State' it has been held that the Members of Parliament and Legislative Assembly are public servants and the assessee being a Chief Minister had been drawing salary from the Government which has been his claim for constitutional post of Chief Ministership.

In 'Lalu Prasad V. Commissioner of Income Tax and others' - 2009 -TMI - 35062 - PATNA HIGH COURT Shri Lalu Prasad ('assessee' for reference), Chief Minister filed his return of income for the year 1996-97 under the head 'Income from other sources'. He also furnished details of pay and allowances received as the Chief Minister and incidental expenses.

The Assessing Officer observed the following:

The Ministers being Government Servants are not covered by the Board's circular, therefore returns are to be filed under the head 'Salary' and not 'Income from other sources'. The correction has been made;

The only deduction allowable from salary income is standard deduction of Rs.15,000/-  This has been allowed despite no claim;

Incidental expenses claimed are disallowed as they are not permissible deductions from salary income nor are they incidental to the reimbursement of TDS by the State Government;

Accrued interest in NSC has not been shown in the income. This has been added back to income from other sources;

Interest and additional tax has been levied as per these adjustments.

The assessee filed appeal before Commissioner (Appeals). The appellant contended that the head of the income from other sources to salary ought not to have been made by the Assessing Officer. The Commissioner (Appeals) upheld the view taken by the Assessing Officer. It was held that the Assessing Officer is competent to make disallowance by way of adjustment when there is any arithmetical error in the return of income or when any allowance claimed by the assessee is prima facie inadmissible. Along with the return of income the assessee enclosed Form No. 16 which is certificate under Sec. 203 of the Income Tax Act for deduction of tax at source. As per the said Form the Chief Minister received Rs.9,909,40 as gross salary from the Government of Bihar. It is the amount which the assessee declared as income from other sources. The Assessing Officer correctly treated the pay and allowance received by the assessee as salary and allowed standard deduction and disallowed incidental expenses. But in respect of adding back of the interest on the National Savings Certificate, the adjustment of Rs.6000/- as made by the Assessing Officer is held to be deleted.

The Revenue filed appeal against the order of Commissioner (Appeals) in respect of interest on National Savings Certificate. The assessee filed cross objections. The tribunal observed that Chief Minister is not a political post. It is a constitutional post. The tribunal held that the Assessing Officer had rightly stated that the fact that the assessee enclosed a service certificate to the return wherein Form No. 16 shows his income as pay and allowances from the Government. He could not have classified this as professional income to claim the expenses not related to this income. It is not up to the assessee to reclassify the source of his income especially when documentary proof exists. The tribunal further held that the Assessing Officer rightly added the interest amount on the NSC to the income from other sources of the assessee.

Aggrieved against the order of tribunal the assessee filed the present appeal before the High Court. The assessee put forth the following contentions:

The tax effect in the case is Rs.4,305/- i.e., less than the monetary limit of Rs.25,000/- prescribed by the Central Board of Direct Taxes. The Revenue ought not to have preferred the appeal before the tribunal and the tribunal instead of deciding the same, ought to have dismissed the same on that ground alone;

Such plea has been raised before the tribunal which did not consider the same;

Whether the income shown by the assessee is fit to be counter under the head 'salary' or 'income from other sources' being debatable, the Assessing Officer in exercise of his power under Sec. 143(1)(a) of the Act ought not to have changed the head to salary;

The income can count under the head 'salary' when the relationship of employer and employee exists between an assessee and the employer; The Chief Minister is not employed by any body;

The Revenue contended the following:

The dispute in tax is only Rs.4,305/- but in view of the nature of issue involved the Revenue had filed the appeal and the tribunal right did not dismiss the appeal on the ground of monetary limits;

On the basis of the information available in the return filed by the assessee, the Assessing Officer prima facie came to the conclusion that the head shown by the assessee, is incorrect and hence nothing prevented him from changing the head of income from other sources to that of salary.

The High Court after considering the contention of both parties held as follows:

* The instruction fixing monetary limit for filing of appeal before the tribunal has statutory flavor and in the background thereof the appeal preferred by the Revenue is against the order of the Commissioner of Income Tax (Appeals) was wholly unjustified;

* From a plain reading of Article 164(1) of the Constitution, it is evident that the Chief Minister is to be appointed by the Governor and he holds office during his pleasure;

* Article 164 (5) of the Constitution provides for salaries and allowances of the Ministers to be determined by the Legislature of the State;

* On the basis of above it cannot be said that the conclusion of the Assessing Officer is erroneous. 

* The tribunal was justified in affirming the change of head of income, income from other source declared by the assessee to income from salary by the Assessing Officer in exercise of power under Sec. 143(1)(a) of the Act.

Thus it is clear that the Chief Minister of the state receives salary and allowances and the income tax return to be filed him is to be under the head 'Salary'.