TMI Blog1985 (3) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... dated November 20, 1970, provides as under" should the income-tax authorities levy any income-tax on such personnel stationed in India, such income-tax will be paid by the Hindustan Shipyard. The Hindustan Shipyard undertakes to take up and follow up themselves necessary formalities. But the technical personnel stationed in India will file necessary returns and supply necessary information, if required by the income-tax authorities ". Clause 6 of the agreement dated December 17, 1965, is similarly worded as clause 17 of the agreement dated November 20, 1970. Now, the assessee had received his salary from his Polish employer and his allowances were also paid by the Polish firm. The Income-tax Officer assessed the assessee for the assessment year 1970-71 on April 20, 1973, and for the assessment years 1971-72, 1972-73 and 1973-74 on April 19, 1973. In doing so, he treated the taxes which have been borne by the Hindustan Shipyard Limited, Visakhapatnam, under the aforementioned contracts with the Polish firm as the income of the assessee from other sources falling under section 56 of the Income-tax Act. But, subsequently, the Income-tax Officer felt that charging only the first stag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, it must be established that the assessee is required by the conditions of his service to incur expenses out of his salary also. The tests laid down in section 16(v) of the Act are not satisfied in the instant case. The invocation of the applicability of section 16(v) is, in our opinion, not appropriate." The Tribunal also held that the Income-tax Officer had jurisdiction to rectify the original orders of assessment made by him under section 154 of the Act, because the original order of assessment passed by the Income-tax Officer did not properly determine the tax perquisites received by the assessee and the method adopted by the Income-tax Officer for grossing up of the income of the assessee was contrary to the judgment of the Mysore High Court in Tokyo Shibaura Electric Co. Ltd. v. CIT [1964]52 ITR 283. In view of the above findings, the Income-tax Appellate Tribunal had referred the following four questions at the instance of the assessee for the opinion of this court: "1. Are the amounts payable by M/s. Hindustan Shipyard Limited, under the agreement dated November 20, 1970, tax perquisites in the hands of the assessee ? If so, are these liable to be taxed as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment of profit are ordinarily performed by him or at the place where he ordinarily resides shall not be regarded, for the purposes of this clause, as a special allowance granted to meet expenses wholly, necessarily and exclusively incurred in the performance of such duties." The nature of the allowance which the assessee had received from his Polish master does not qualify those allowances to be called "special allowances " which are specifically granted by his Polish master to meet the expenses in the performance of the duties of the assessee's office. The outstation allowances are paid by the Polish master to the employee not for the purpose of meeting the expenses incurred in the performance of his duties, but for his stay, food, etc. Therefore, these allowances received by the assessee cannot be called "special allowances " falling under section 10(14) of the Income-tax Act. The Explanation added by the above mentioned Finance Act of 1975 which was for the purpose of removing doubts clearly shows that these allowances are not the allowances which qualify to be called " special allowances ". These allowances are merely allowances granted to the assessee to meet his personal e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onary meaning. The ordinary dictionary meaning of the word " income " is that which comes in as the periodical produce of one's work, business, lands or investments (considered in reference to its amount and commonly expressed in terms of money); annual or periodical receipts accruing to a person or corporation (Oxford Dictionary). The word clearly implies the idea of receipt, actual or constructive. The policy of the Act is to make the amount taxable when it is paid or received either actually or constructively. Similarly, in CIT v. Shaw Wallace Co., AIR 1932 PC 138, it was observed that " the word income connotes a periodical monetary return coming in " with some sort of regularly, or expected regularity, from definite sources. The source is not necessarily one which is expected to be continuously productive, but it must, be one whose object is the production of definite return, excluding anything in the nature of a mere windfall. Thus income has been likened pictorially to the fruit of a tree, or the crop of field ". In Maharaj Kumar Gopal Saran Narain Singh v. CIT [1935] 3 ITR 237 (at p. 242), the Privy Council observed that " anything which can properly be described as incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment, the Income-tax Officer had merely added that amount of income received from the Hindustan Shipyard to the salary income and allowances income of the assessee. But the law requires that where an assessee receives tax-free salary, his income should be grossed up in a particular method. The method of grossing up is indicated in Tokyo Shibaura Electric Co. Ltd. v. CIT [1964] 52 ITR 283 (Mys). There, an agreement was entered into between A, a non-resident company, and B, a resident company, providing for payment to company A royalty of three per cent. on the net sales of articles manufactured and sold by company without any deduction for taxes or other charges assessed in India, which shall be assumed by B company. The argument of the Income-tax Department in that case which was accepted by the court was that the real income of A under the agreement upon which B could be assessed as the agent of A was not the amount of royalty payable, in fact, to A plus the tax payable in India in respect of the said sum as claimed by the assessee, but such an amount as would, if the tax payable in India thereon was deducted, leave to A the stipulated three per cent. of the sale proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncertain these authorities were in finding whether the payments made by the Hindustan Shipyard Limited are payments made on behalf of the Polish firm or on behalf of the assessee or on their own behalf. He also contended that the grossing up principle cannot apply to a situation where the assessee himself was not a party to the agreement under which the income was received. In this connection, he had referred to the decisions in Devendra Prakash v. ITO [1969] 72 ITR 151 (All), Maharana Mills (P)Ltd. v. ITO [1959] 36 ITR 350 (SC) and ITO v. Asok Textiles Ltd. [1961] 41 ITR 732 (SC). He submitted that the mistake must be obvious and self-evident in order to attract the application of section 154(1) of the Act. We are unable to agree with this submission. First of all, there is no rule of law which lays down that the grossing-up principle cannot have application to a situation where the income was received by the assessee from third parties in order to ensure payment of tax-free salary. Secondly, in the facts of this case, the payment made by the Hindustan Shipyard Limited to the assessee are part of a scheme and a contract. In those circumstances, the Income-tax Officer had clearly c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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